Southern California home sales decline in October
Southern California’s housing market slumped in October as higher-priced home sales fell in the wake of the federal government’s moves to shrink the size of mortgages it will back.
The six-county region’s median sales price — the point at which half the homes sold for more and half for less — dropped as sales of more expensive homes took a dive.
The median price, which is heavily influenced by the mix of homes selling each month, was $270,000 in October, according to real estate market tracker DataQuick. That was the lowest point since January, a 3.6% decline from September and a 4.6% drop from October 2010.
Taking its toll on the market was the federal government’s move last month to take its first step out of the mortgage business by lowering the size of home loans it will guarantee. That hit sales of pricier homes in Los Angeles and Orange counties, DataQuick said in a report.
Although access to credit remains important for Southern California, economic growth is more crucial, said Esmael Adibi, director of the A. Gary Anderson Center for Economic Research at Chapman University.
“The real key to the housing recovery is the sales activity,” Adibi said. “We really need strong job creation. Job creation has been very anemic in the Inland Empire, and even Orange County, which has been doing better.”
Adibi estimated that Orange County, for instance, needed to produce twice as many jobs per year as it is doing now. The median price of a home in Orange County took the second-largest year-over-year drop among the six counties, falling 7.5%, to $405,000. Los Angeles was the highest, falling 7.7%, to $300,000.
The changes to the type of loans available for home purchases in those counties probably played a role, experts said. Last month the government lowered the limits of the type of loans that the Federal Housing Administration, Fannie Mae and Freddie Mac can buy or guarantee.
It was the end of a 3-year-old policy that was intended to be a lifeline to those areas after the housing bust. So-called nonconforming jumbo loans that are offered on the private mortgage market typically require bigger down payments and carry a higher interest rate, resulting in higher monthly payments for borrowers.
In Los Angeles and Orange counties, the limit for FHA, Fannie and Freddie loans dropped to $625,500 from $729,750.
Sales of properties in those two counties with loans between the old and new limits fell sharply to 102 last month, according to DataQuick. That was a 71% decline from 350 in September and down 71.5% from 358 sales in October 2010.
A deal brokered in Congress on Monday would allow FHA loans to return to their higher ceiling, although not mortgages backed by Fannie and Freddie, which were bailed out by taxpayers. But that proposal could be imperiled by an independent audit of the FHA, released Tuesday, showing that the agency also is on weak financial footing and could be headed for its own bailout.
With 16,829 new and previously owned homes sold throughout Southern California, October’s sales pace was 29.3% below the average for that month since 1988, when DataQuick began keeping records. Sales were down 7.3% from September and up 0.5% from October 2010.
High-end home sales were hit the hardest, as investors and other buyers bought up less-expensive homes. Despite that trend, brokers in some of those more expensive neighborhoods said they were optimistic those areas would remain in high demand.
Syd Leibovitch, the president of Rodeo Realty in Beverly Hills, said he was encouraged by Congress’ plan to restore the previous FHA loan limits.
“Although not everything we had hoped for … that should be a huge stimulus for the real estate market, which will speed up a recovery to higher prices,” Leibovitch said in an email.
In Southern California’s ultra-upscale neighborhoods, loan limits aren’t a factor.
Nick Segal, president of Partners Trust Real Estate, pointed to a trend of developers’ scooping up lots in Pacific Palisades and other areas on Los Angeles’ Westside to construct homes.
“We are seeing a definite resurgence of builder optimism,” he said. “That is a real leading indicator to me.”
At the other end of the housing spectrum, such as in the Inland Empire, many of the homes that have been selling are being bought up by investors who then turn around and rent out those properties, said Gerd-Ulf Krueger, principal of HousingEcon.com.
“That is an interesting phenomenon,” Krueger said. “It is positive in the sense that it is recycling those foreclosure properties, but it is disappointing because we are starting to become a renter society.”
Housing affordability has increased in recent months. With low interest rates and cheaper housing, the percentage of Californians who could afford to buy a home increased in the third quarter, according to a recent report by the California Assn. of Realtors.
The portion of households that could afford a home priced at the statewide median of $292,120 rose to 52%, up from 51% in the previous quarter, according to an index kept by the group.
Gary K. Kruger, a real estate agent with HomeStar Real Estate Services in Hemet, said that he was seeing more demand for low-priced homes and that even lower-income clients could now afford to purchase property.
“If you work at McDonald’s and your wife works at Taco Bell, in Hemet you can buy a house,” he said. What is necessary, however, is “Good credit.”
