Falling home prices cause jump in sales
Southern California home sales rose last month for the first time in nearly three years, as steep discounts lured buyers back into a market where values have tumbled 31% over the last year.
Sales volume was up 13.8% overall from a year earlier, with Riverside County leading the way with a 48.6% jump, MDA DataQuick reported Monday. Los Angeles County was the exception, posting a 3.2% decline.
The rise is being driven in part by buyers like Andre and Jody Ocampo, who attended an auction of 250 foreclosed homes at the Riverside Convention Center on Sunday, looking for a bargain.
After just three minutes of bidding, they became buyers of a Lake Elsinore home -- offering $385,000 for a house that had been appraised just a couple of years ago at nearly $700,000.
The Ocampos said they weren’t worried that prices would continue falling, as most real estate experts predict, because they plan to live in the home and not resell it for a quick profit.
“We’ve been building our nest egg and waiting for the right opportunity,” Andre Ocampo said. “Our goal is to move in and make it our home, and wait out the market.”
Overall, 20,329 homes in the six-county region closed escrow last month, MDA DataQuick said, for the first increase in Southland sales since September 2005.
G.U. Krueger, an economist with Irvine-based real estate advisory firm IHP Capital Partners, said the uptick was evidence that the “price mechanism is working” -- that is, lower prices are bringing buyers back into the market.
But he and other experts believe that prices will take months to hit bottom, citing the wave of foreclosures and the tightening of lending standards because of the continuing credit crunch.
“Higher sales are great, but foreclosures are still high and people need to appreciate that more discounts may be coming,” Krueger said.
Los Angeles County, the one exception to the trend, hasn’t been hit as hard by foreclosures and has relatively fewer discounted homes for sale. That’s probably why it saw a slight decline in sales instead of the increase seen in neighboring counties, said John Karevoll, MDA DataQuick’s chief analyst.
The median home price in Southern California last month fell 31.1% to $348,000 from $505,000 in July 2007, DataQuick said, the lowest level since February 2004, when the region was in the frenzy of the housing expansion. The decline ranged from 25.6% in San Diego County to 35.2% in San Bernardino County.
The decline is being exacerbated by record numbers of homeowners defaulting on their mortgages each month, with most of the homes ultimately being repossessed by the lender and sold at a discount.
The market is also being weakened by “short sales,” in which homeowners price their homes for less than what they owe on their mortgages in hopes of avoiding foreclosure.
In addition, most lenders have tightened their standards, eliminating many potential home buyers who might have qualified for a loan during the boom.
There is also concern about the health of mortgage finance giants Fannie Mae and Freddie Mac, which buy the bulk of the nation’s home loans. Speculation that the two companies may be facing a government takeover helped trigger a sell-off on Wall Street on Monday.
But with buyers returning to the marketplace, lenders that got burned after approving risky mortgages and that then retreated are becoming slightly less wary these days, some loan brokers and real estate agents say.
“There are a lot of good, well-qualified people out there,” said Mitch Ohlbaum, president of Legend Mortgage Corp. in Los Angeles. “People feel, ‘OK, I can put down 10% or 20% and do this and the payment will be OK, even with a 30-year fixed mortgage.’ ”
For bargain hunters like Dale Smet of Santa Clarita, the timing is perfect.
“I’ve been waiting for this market,” he said.
Smet, who works in marketing for Southern California Gas Co., said he carefully conserved an equity line of credit during the boom years, which he tapped to pay $300,000 cash last month for two foreclosed condos near his house.
And that was after being outbid on a handful of other bank-owned homes in the Santa Clarita area.
After a 15-day escrow, Smet did the necessary cosmetic repairs himself and said he had no trouble finding renters willing to pay about $1,500 a month for each unit. He hopes eventually to take a first mortgage on each with monthly payments that he figures would be less than his rental income.
“This isn’t risk free. But I don’t care if home prices go down,” Smet said. “I’ll just buy more.”
Smet acknowledges that the housing downturn’s drag on the broader economy could accelerate, putting his job at risk.
“That’s definitely a weak link. The job situation is always an issue,” he said.
Andre Ocampo, the buyer of the Lake Elsinore home, has seen firsthand how falling home prices can affect one’s livelihood.
His Huntington Beach company, South Shore Extermination, boomed as rising home sales fueled demand for termite inspection and control work.
With the downturn, business fell off. But Ocampo and his wife waited patiently, building their credit and saving their money.
After hearing about the auction, he and his wife scoped out a place they knew would be on the block -- a 2,100-square-foot ranch-style house on two acres near their rental house in the Rancho Capistrano neighborhood.
They liked the place enough to brave the crowds of professional investors and enter a live bidding war for the home, which had an opening price of $189,000.
“We did all our due diligence and this made sense to us,” Ocampo said.
“Everything is possible right now; we worked hard to get our ducks in a row.”
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Snapping up bargains
The number of homes sold in most Southern California counties rose in July compared with the year before.
County / % change
Riverside / +48.6%
San Bernardino / +25.5%
Orange / +17.1%
Ventura / +11.0%
San Diego / +10.5%
Los Angeles / -3.2%
Overall / +13.8%
Source: MDA Dataquick