Southern California home prices close out 2008 down 35%
The long, sharp slide in Southern California home values is all but eliminating demand for new houses.
Just 1,813 new homes sold in the six-county region last month, down 53% from December 2007 -- and down 63% from the 20-year average for the month of December, a real estate information firm reported Monday.
By comparison, sales of all homes rose 51% last month compared with a year earlier as bargain hunters continued to snap up foreclosures and other distressed properties. The median price of a Southland home slipped to $278,000, down 35% from December 2007, MDA DataQuick said.
With prices falling and lenders off-loading foreclosed properties at deep discounts, few want to pay “retail” for a new home, so builders have put the brakes on new construction.
“The builders are in a holding pattern, staying alive until the market recovers,” MDA DataQuick President John Walsh said.
That holding pattern, however, could also further put off a market recovery.
Although the home-building freeze could help clear the oversupply of homes, the loss of construction jobs has also been a leading cause of unemployment in the state. There were 67,700 jobs lost in residential and commercial construction statewide in November compared with the year before, according to the latest figures from the California Employment Development Department.
Those construction job losses were 32% of the total jobs lost in that period.
The spillover effect from lost construction jobs -- additional job losses in areas such as retail, for instance -- will probably delay the broader economic recovery needed to stabilize the housing market, economists say.
Slowly reviving home building “will be helpful in stimulating the economy,” said UCLA economist Edward Leamer.
It would produce a benefit not only by boosting employment, he said, but because “it’s an important symbol of the healing of the market,” which could bring back investors who’ve fled the mortgage market, easing credit, Leamer said.
Early in 2008, builders slashed prices to lure buyers for their glut of homes. But the foreclosure avalanche moved faster than builders’ price cuts.
In January 2008, the median home sales price in Southern California was $415,000, and 23% of the homes sold had been foreclosures. By year-end, 56% of homes sold had been foreclosures, pulling the median sales price down to $278,000.
The lowest December median sales prices were reported in San Bernardino County ($180,000) and Riverside County ($209,000), where foreclosures have been rampant. The Inland Empire had also been among the busiest regions for home building, but builders can seldom compete with the low prices of foreclosed homes.
For now, home building has largely ceased because of the glut of properties on the market.
In Los Angeles County, building permits are at 18% of their peak level during the boom, Irvine real estate consultant John Burns said. Orange County permits are at 14% of their peak while those in San Bernardino and Riverside counties are down to 17% of the peak level, Burns wrote in a recent note to clients.
Los Angeles-based KB Home, one of the nation’s largest home builders, said recently that its number of homes under construction was down 86% from the company’s peak level in 2006.
“There’s a de facto moratorium on building,” Jerry M. Howard, executive director of the National Assn. of Home Builders, said in a recent interview.
California home builders are among those pushing for a federal tax credit to spur home purchases. Statewide, the California Building Industry Assn. estimates that fewer than 64,000 new homes were built in 2008, the lowest total since 1954.
The December sales total for new homes in Southern California was 79% below the peak sales month of December 2005, when 8,723 new homes were sold.
Although there remains an oversupply of homes, Leamer said new-home construction would soon be necessary to prevent “another mania” in housing.
“We overbuilt from 2004 to 2006, but now we’re underbuilding,” he said. “In four or five years, when the economy is strong again and people come back to the housing market, there may not be enough units.”
Such strong demand may be far off, but prices are falling, along with mortgage rates, making homes more affordable.
Los Angeles County’s median sales price of $320,00 was down 32% from December 2007, while Orange County’s median price fell 30% to $397,000. San Diego County’s median price dropped 30% to $300,000. Ventura County’s median was $338,000, down 36% from a year earlier.
The typical monthly mortgage payment that Southland buyers committed themselves to paying was $1,239 last month, DataQuick estimated. That was down from a revised $1,380 for November, and down from a revised $2,060 for December 2007.