Would-Be Home Sellers Settle In Rather Than Cut Prices Further
Southern California home prices rose last month at their slowest pace in nearly a decade and sales continued to plunge, according to data released Thursday. That helped prompt an increasing number of frustrated sellers to follow what Jose Morales just did: pull their homes off the market.
After 90 days, four price reductions and a couple of low-ball offers, Morales withdrew his three-bedroom Riverside bungalow rather than cut his $415,000 asking price, already down from an original $486,000.
“When my real estate agent told me I should drop the price again, I said ‘That’s it. We don’t have to move,’ ” the grocery store supervisor and father of two said.
Across the Southland, hundreds of homeowners are chucking their “For-Sale” signs, whittling down the inventory of homes on the market, which since January had doubled in Orange County and risen 75% in Los Angeles County, according to listing services.
But in recent weeks, the supply of homes for sale has dropped in nearly all price ranges. From the first week of September to the first week of October, the amount of time it would take to sell all the homes on the market in Orange County dropped to 5.9 months from 6.9 months, and in Los Angeles County to 6.1 months from 6.6 months, said Patrick Veling, president of Brea-based Real Data Strategies, which analyzes listing data. In Riverside County, the supply has been mostly unchanged since August.
The abating inventory is providing some relief to the region’s slumping real estate market by reducing pressure on remaining sellers to lower their prices substantially, analysts say.
Although some properties were withdrawn with the end of the peak summer selling season, they also could help to avoid a repeat of the housing downturn of the 1990s, when inventories reached a 19-month supply.
With the economy and job market fairly stable, sellers aren’t being forced to dump their homes at fire-sale prices because of massive job losses or other economic woes. Although foreclosures have been rising, they are still very small compared with the levels of the previous downturn. Then, widespread layoffs by the aerospace industry forced many struggling households to sell out of desperation, creating a slump that lasted for nearly a decade.
Some of today’s sellers are simply trying to get the best price they can, possibly fearing that prices might sharply decline. But rather than cut their prices, they choose to stay put.
“A lot of the listings out there are discretionary,” said G.U. Krueger, an economist at Irvine-based real estate advisory firm IHP Capital Partners. “They are not driven by economic distress or economic need, which was the case during the previous downturn.”
A reduction in home listings “is one of the preconditions to stabilization in the housing market,” he said. “And that’s a good sign.”
But prospective buyers are reluctant to dive in, and sales continue to slacken, weighing down price appreciation, according to statistics released Thursday from DataQuick Information Systems.
The number of sales in the six-county region fell 28.6% last month from a year ago to the lowest September level in nine years, and the median price of all Southern California homes rose 1.9% to $484,000, the smallest year-over-year gain since February 1997, DataQuick said.
Ventura County last month became the second Southland county to suffer a year-over-year price decline. Ventura County’s median price fell 3.3% to $584,000. San Diego County’s median price declined for the third straight month, dropping 4.4% to $476,000.
The median home price in Los Angeles County rose 3% to $509,000, as sales fell 27.9%. L.A.'s median -- the point at which half of all homes sold for more and half for less -- has given back all gains made since May, according to DataQuick.
Orange County, the region’s priciest, saw its median home rise 2.6% to $626,000, while sales declined 34.6%. The Inland Empire counties also saw modest gains. In Riverside County, the median rose 8.2% to $423,000 from a year ago, and San Bernardino County’s median rose $3.7% to $365,000.
Those successful in selling their homes are having to price them close to what prospective buyers are willing to pay, analyst Veling said. He found that homes were being sold at prices within 5% of their final asking price.
During the last downturn, it was not uncommon to see a spread of 10% to 20% between listing and final sales prices.
“Low-ball offers are being rejected by sellers,” Veling said.
Sellers who aren’t keeping pace with buyers’ expectations are growing discouraged and withdrawing their listings.
That’s exactly what Kurt Freck did. His Anaheim Hills home was on the market at the same price of $849,000 for three months. But after no nibbles, and seeing price reductions at comparable homes for sale in his neighborhood, he decided to cancel his listing agreement when it expired Tuesday.
“I’m fortunate because I don’t have to sell,” said Freck, who purchased his home three years ago and believes that it has since doubled in value. “But as a homeowner, you got so used to watching homes sell quickly in the last couple of years.”
The downtick in inventory, however, doesn’t appear to be stimulating buyer demand. That concerns economists such as Esmael Adibi who predict that weak sales will continue to drag down prices, sapping equity from recent home buyers who are counting on appreciation to offset their mortgage debt.
“The market hasn’t gone into that desperation mode yet, but we see it as in the earliest stage of the downward pressure on prices,” said Adibi, director of the A. Gary Anderson Center for Economic Research at Chapman University in Orange.
He forecasts that a year from now, the supply of Southern California homes for sale could be considerably higher. That’s because “a good portion” of recent home buyers with riskier adjustable-rate mortgages with a minimum payment option will find it difficult to make monthly payments or won’t have enough equity to make refinancing worthwhile, he said. Monthly payments on such loans are typically scheduled to rise sharply after a fixed period, unless refinanced.
“How many of this group will be able to get out of a bad situation
For his part, homeowner Morales and his wife, Emily, were hoping to sell the house, take his profit and move to a bigger abode.
But he is happy to stay put rather than sell at a price he’s uncomfortable with, after having earned a decent increase in home equity by paying $86,000 for the house 10 years ago.
“It wasn’t meant to be,” he said of his would-be sale.
(BEGIN TEXT OF INFOBOX)
Median price and number of new and previously owned homes sold
in September, by county and overall in Southern California
*--* % change Median % change Number of from price from Area homes sold year ago (thousands) year ago San Diego 3,207 -35.0% $476 -4.4% Orange 2,664 -34.6 626 +2.6 Los Angeles 7,917 -27.9 509 +3.0 San Bernardino 3,236 -25.8 365 +3.7 Riverside 4,533 -24.5 423 +8.2 Ventura 1,097 -20.5 584 -3.3 Southern California 22,654 -28.6 484 +1.9
Source: DataQuick Information Systems