Home Price Appreciation Slackens
For the first time since the latest housing boom started six years ago, home price appreciation for each of the six Southern California counties has fallen to single-digit levels or worse, data released Tuesday showed.
The data also showed that the region’s housing upturn appeared to be fizzling just as quickly as in the last major up cycle a decade and a half ago.
From 1989 to 1990, Southland home price increases fell from double-digit levels to zero in only eight months, ushering in nearly a decade of lackluster growth.
In August, the median price for all Southland single-family houses and condominiums rose 2.7% from the year-earlier level, to $489,000 -- the smallest increase since July 1999, according to La Jolla-based research firm DataQuick Information Systems. It was only five months ago that the rate of appreciation was 10.7%. In May 2004, appreciation peaked at 27%.
Even the Inland Empire -- one of the nation’s fastest-growing economies -- is no longer enjoying double-digit gains. The last time each of the six Southland counties posted single-digit increases: December 1999.
Southland home prices have been relatively flat on a month-to-month basis since March.
The problem: There simply are more homes available for sale than people willing to buy them at current prices. Sales fell 25.3% to 25,628 in August, the ninth consecutive month of declines and the worst August since 1997.
After six years of sizzling price appreciation that doubled Southland home values, potential buyers now appear to be collectively sitting on the sidelines.
“People have become scared about home prices because they think prices are going to fall,” said Michael Carney, an economist with the Real Estate Research Council at Cal Poly Pomona. “They’re waiting and staying out of the market.”
Mira Loma resident Louis Martinez wants a bigger house for his family of five. So he and his wife spend most weekends touring models at new-home communities in the Corona Valley. But the couple are in no hurry.
“I feel more confident now than I was six months ago that prices will come down,” he said.
Martinez’s view is mirrored by experts who see a leveling off or even a decline in prices by late this year or early next year.
“The data are telling us the market will flatten out by the end of the year,” DataQuick analyst Andrew LePage said.
Already past that point is San Diego County, where prices grew at a single-digit rate for more than a year before turning negative three months ago. As reported last week, San Diego’s median home price -- the price at which half of all homes sold for more, half for less -- fell 2.2% in August to $482,000, and sales tumbled 31.8%, the 26th consecutive month of sales declines. San Diego has been pegged as a leading indicator because it was one of the first U.S. real estate markets to heat up and is now among the first to contract.
August was the first month since December 2002 that San Bernardino County, considered the most affordable local housing market, rose at a single-digit growth rate. The median price increased 6.1% to $365,000. Neighboring Riverside County’s median rose 7% to $415,000. Sales in the Inland Empire fell more than 20%.
Orange County remained the most expensive local region, with a median price of $633,000, a 2.6% gain from the year before. Ventura County’s median rose 1% to $598,000. Sales fell 32% in Orange County and dropped 31.8% in Ventura County. Los Angeles County’s median, as reported last week, rose 4.7% to $517,000.
Nationwide, evidence of a real estate slowdown mounted. On Tuesday, the Commerce Department said new-home construction in August dropped 6% to a three-year low.
The rapidly slowing rate of appreciation in Southern and Northern California increases the risk of price declines, said Mark Milner, chief risk officer for PMI Mortgage Insurance Co.
“Over the past five years, home prices appreciated much faster than incomes. At some point, it has to slow down and come back into balance,” he said.
His company’s quarterly risk survey, released Tuesday, showed that Southern California home values faced a 50% chance of declines. “The silver lining in a slowdown is that it will eventually allow more buyers into the market,” Milner said. “For sellers, the slowdown in the rate of increase may be a disappointment, but there’s a big difference between losing money on paper as opposed to losing real cash if you sell for less than you paid.”
Few experts predict that Southland home prices will retrench at the rate they did during the last downturn, when prices fell 17% between 1990 and 1996, according to DataQuick.
But in the early 1990s, the downturn had a clear-cut cause: widespread job losses that led to an economic recession. Today, a recession is nowhere in sight and job growth is continuing, although at a subpar rate.
“Then there was a close connection between the job market and housing,” said Edward Leamer, director of the UCLA Anderson Forecast. “But the problem today is that the historical record is not very informative about the situation we’re in now. The question is, can you get a significant deterioration in home prices? The answer is we really don’t know.”
One thing common in both real estate cycles, Leamer said, was “inappropriate appreciation.” Southern California’s average annual rate of appreciation is 7.5%, according to DataQuick’s records, which date to 1988.
Another difference this time is the change in buyers’ psychology, Cal Poly’s Carney said.
“People’s expectations about future price increases have changed, and those expectations have yet to change back.”
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Further decline
Number of new and previously owned homes sold in August in Southern California.
*--* Number % change of homes from Area sold year ago Orange 3,203 -32.0% San Diego 3,666 -31.8 Ventura 1,076 -31.8 Riverside 4,879 -24.4 Los Angeles 9,193 -21.1 San Bernardino 3,611 -20.1 S. California 25,628 -25.3
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Source: DataQuick Information Systems
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Housing slowdown
Home price appreciation for each of six Southern California counties fell below 10% for the first time since 1999. C1
*--* Median price in % change August from Area (thousands) year ago S. California $489 +2.7% Riverside 415 +7.0 San Bernardino 365 +6.1 Los Angeles 517 +4.7 Orange 633 +2.6 Ventura 598 +1.0 San Diego 482 -2.2
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Source: DataQuick Information Systems
