Home prices rise, but supply is low

Area home prices rose in December for the seventh straight month, according to a real estate report released Tuesday. But the recent gains do not reflect the beginnings of a true recovery in the market, experts and agents said.

Home prices in the Los Angeles metropolitan area, which includes Glendale and Burbank, rose a seasonally adjusted 1.4% in December after gaining 1.2% the month prior, according to the Standard & Poor’s/Case-Shiller home price indexes.

Overall, regional home prices ended the year at the same point they were at the end of 2008, while national prices fell 2.5% in that period, according to the report.

The region’s trend of improvement in home prices was equaled by results from Phoenix, both of which trailed San Diego, which posted the nation’s best gains with eight consecutive months of increases, according to the report.

Fifteen of the 20 metropolitan areas included in the report showed price declines in December.

But the region’s continuing home price improvements have been modest and influenced by artificial market circumstances, signaling that recent gains have not been a product of growing home values, real estate experts and agents said.

“I think we’re kind of bouncing along the bottom here,” said Paul Habibi, professor of real estate at the UCLA Anderson School of Management.

Demand for homes remains high as low interest rates and incentives for buying homes push shoppers into an attractive market, Habibi said.

At the same time, the supply of homes for sale has grown increasingly slim as few owners opt to sell while prices are depressed, agents said.

Those factors have created bidding wars for homes on the market, but conditions are expected to change soon, which will likely bring prices down, they said.

A federal tax credit for first-time home buyers is set to expire in April, and the government’s ability to back mortgages to keep interest rates low is expected to be exhausted in March, Habibi said.

In addition, banks that have refrained from foreclosing on properties will likely have to begin retaking and selling those homes, he said.

Those factors will likely bring a surge of homes on the market when demand is expected to decline, pushing prices down, Habibi said.

“What we have is the perfect storm of stupid,” said Barry Burnett, the owner of Barry Burnett Realty Inc. in Burbank.

The government’s efforts to ease regulations on banks while stimulating demand have brought high competition for limited inventory, he said.

But banks have had no incentive to foreclose on properties that have lost significant value, with some still down as much as 22% from their peak values in 2006, Burnett said.

Unless banks begin foreclosing on homes and putting them up for sale, the market will not begin to operate naturally and eventually grow in strength, he said.

But when banks finally do begin selling foreclosed properties, the effect will likely be challenging for homeowners, said Keith Sorem, a Glendale-based agent for Keller Williams Real Estate.

“The other side of the coin is that if we had a lot of inventory, values would probably depress, and we have no control over it,” he said.