Would-be home buyers in Southern California continued to sit on the sidelines last month, driving down home sales to their slowest pace in 12 years and pushing down prices in the region’s less-expensive neighborhoods, data released Tuesday showed.
Yet even as home sales fell 27% regionwide, the median price of all homes sold in the Southland’s six counties rose 3.7%, to $505,000, in July compared to a year ago, thanks to more robust sales at the upper end of the market, according to real estate research firm DataQuick Information Systems.
It’s a phenomenon that has been occurring for much of the year: Homes priced above $750,000 have been attracting more buyers than homes in lower-cost neighborhoods, where many buyers have little or no down payment, irregular incomes or patchy credit histories.
But now with a global credit crunch starting to curtail loans to even the most creditworthy borrowers and the specter of inflation pumping up prices of consumer goods, local real estate watchers predict that even pricey areas could soon start to see prices tumble.
The thought of the housing market weakening further overwhelms sellers such as Gretchen Rolfe, a Mission Viejo psychologist. But when she starts feeling panicky she tries to soothe herself by baking cookies or playing with her two dogs, Snoodles and Snickers. Still, she says she has little choice but to sell the home she has owned for three years after her monthly mortgage payment jumped about 25% last spring and her refinancing options dried up.
“What can I do but try to manage my fear level the best I can?” Rolfe said, cuddling her mixed breed Snoodles in the airy family room of her four-bedroom, three-bath Mediterranean.
Another thing Rolfe has done is lower her asking price. Since listing her house in April, she has cut the price twice, the most recent reduction coming just last week after witnessing the turmoil in the stock and credit markets.
Now she has set a price range -- $725,000 to $775,000 -- to let any potential buyer know she will be a willing negotiator. Rolfe is counting on the recent jump in interest rates for so-called jumbo loans of over $417,000 to work in her favor. With the higher cost of borrowing, she figures, a prospective buyer who had been considering homes in the $800,000 to $900,000 price range might now select her house instead because they can afford less.
“Aside from running outside naked, I don’t know what to do to reach the people who might want to find this house,” she said.
Rolfe’s strategy may work. The majority of home sales in July were transactions of $750,000 and higher, said John Karevoll, DataQuick’s chief analyst.
“Sales were not strong in the entry-level neighborhoods, or even the first move-up neighborhoods, but rather in neighborhoods where households have established finances and in wealthy neighborhoods,” he said.
The disparity underscores in part the growing income gap among Southern Californians and how it plays out in the real estate market. Upper-end households can afford to buy homes at today’s prices, while middle- and working-class people without equity, plump bank accounts or steady paychecks -- and now a lack of available financing -- appear to be waiting for home prices to decline in more modest neighborhoods before attempting to jump back in.
Nowhere is the trend more evident than in the Inland Empire’s Riverside and San Bernardino counties, the least expensive markets in the Southland. In July, Riverside County’s median price fell 3.9% to $399,000 as sales slid 42%. San Bernardino’s median price declined 3.1% to $355,000, while sales plunged 43%.
By contrast, Los Angeles County’s median rose 5.3% to $547,000 as sales fell 23%; and Orange County’s median was flat at $640,000 last month as sales dipped 19.8%. DataQuick calculates the median -- the price at which half of all homes sold for more, half for less -- based on all closed transactions in the 30-day period ended July 31.
Yet, some economists believe it is now a matter of time before the weakness spreads throughout the region, regardless of neighborhood.
“A decline in prices, like increases, tends to be self-fulfilling,” said Michael Carney, director of Cal Poly Pomona’s Real Estate Research Council. “If buyers see prices falling, they hold off and don’t buy and cause prices to fall even further. But it takes a while.
“The different counties don’t move in different directions,” he added.
Jeffrey Lane is prepared to spend upward of $1 million on a condo in West Los Angeles, but he is in no rush.
“I’m waiting to see if prices come down,” said Lane, who owns a public relations firm. “If I saw something I could fall madly in love with, and thought was reasonably priced, I might buy it.”
Such behavior has Carney predicting that Southern California home values are likely to fall 5% a year through 2009 before demand starts picking up, “assuming that fear doesn’t overtake everything,” he said.
That’s a tall order for Rolfe, who foresees the evaporation of what little equity she has in her home the longer she stays. “I’m pulling more out of my pocket every month I’m in the market,” she said. “I can’t wait two more years.”