California’s real estate market bucked the typical fall slowdown
last month, with buyers snapping up pricier homes and sales roaring up 18% over
the prior month. Sales hit a three-year high for an October, rising 25% from the same month
last year. The median sale price for a Southern California home last month was $315,000,
equal to September and up 17% from October 2011, according to real estate
research firm DataQuick.
A decline in the number of foreclosed homes has caused a shortage of
inventory in entry-level neighborhoods, pushing up home prices. Demand from
investors also remains strong, with these buyers snapping up a near-record level
of homes last month.
The rebound stems from more people chasing fewer homes. Interest rates remain
near record-low levels, luring buyers. Investors with cash have poured into the
market looking for cheap properties to flip or rent. And foreclosure resales
have sunk to a five-year low, tightening the supply of cheap homes.
An estimated 21,075 newly built and previously owned houses and condominiums
sold throughout the region last month. Coastal markets saw the biggest increases
in sales — though every county posted double-digit gains compared with October
last year. Orange County saw the biggest surge, with sales up 41%. Ventura rose
35%, San Diego, 31%, Los Angeles, 25%, San Bernardino, 18% and Riverside
Absentee buyers — investors and some second-home buyers — snapped up a
near-record 28% of homes throughout the Southland last month. These investors
paid a median $245,000, a 23% increase from October last year.
A recent report by real estate website Zillow showed that many investors and
others are paying market value for foreclosed homes in the region, erasing the
discount between foreclosed homes and regular properties. Discounts were
marginal on bank-owned homes in September, with the discount in the Inland
Empire just 2% and in the Los Angeles area 4% in September, Zillow said.
Bruce Norris, president of Norris Group, an investment company in Riverside
that buys foreclosed homes, said he expects prices to increase in coming years
as the Obama administration has encouraged banks to curtail foreclosures. That
will push up prices, he said.
“It is policy driven,” Norris said. “Since the policy is going to continue …
you are about to see a pretty substantial price increase within the next two
years.” Indeed, the high level of affordability ushered in by the housing crash could
erode quickly in California. This week the California Assn. of Realtors reported
that homes in the state are getting less affordable as property values rise. The
group estimated that 49% of home buyers in the third quarter could afford a
median-priced house in California, a decline from 51% last quarter. The rise in
prices is offsetting the benefit to home shoppers from low mortgage interest
Christopher Thornberg, a principal at Beacon Economics and one of the first
to call attention to the housing bubble, said home shoppers should expect
expensive housing in the Golden State for the foreseeable future. The reason:
Construction of new homes remains highly expensive for builders.
“Why would it stop?” he said. “The economy is growing. Short of a fiscally
led second recession, there is no reason in the world that it’s going to do
anything but to continue.”
The region’s lowest-cost areas — often those the most starved for inventory
these days — posted the weakest sales numbers last month, according to
DataQuick. The number of homes that sold below $200,000 in the region dropped
11% from October last year. Sales in these markets have slowed because of the
drop in foreclosures, while increased demand has pushed up prices.
Sales of previously foreclosed-upon homes made up just 16% of the resale
market last month, a drop from 17% last month and 33% in October 2011.
Foreclosure resales peaked at 57% in February 2009.
In the meantime, sales surged in several mid- and higher-cost neighborhoods
throughout Southern California in October, DataQuick said. Sales of homes
between $300,000 and $800,000 increased 42% year over year. Sales of homes
costing more than $500,000 were up 55% and sales of homes more than $800,000
Bill McBride, lead writer for the housing blog Calculated Risk, said that
with the upswing in prices homeowners are encouraged to keep their homes off the
market. “Why is there no inventory? I ask every real estate agent that, just to hear
what they tell me. And they say people don’t have enough equity in their homes
and so they aren’t listing them,” McBride said. “That is a solid argument. But I
also think the people are sensing that prices are going up and there is no
urgency to sell.”