DQNews: Southland home sales still ultra-low; median price slips again

Southern California home sales are still falling, according to this March 13 story by DQNews. It was likely the slowest February DataQuick has ever tallied, and it was the second lowest for any month DataQuick has tallied. The 10,777 sales (both new and existing) for February was +8% from January but -39% from the 17,680 sold in February 2007.

The median sale price for the six-county region of Southern California is -17.6% YOY.

Of the homes that sold, one-third of them (33.5%) were homes that had been foreclosed since January 2007. In February 2007 the number of homes sold that had been foreclosed in the prior year period was only 3.5%.

DataQuick analysts commented that while they aren't surprised by the heavy foreclosures in places like the Inland Empire, where prices bubbled up from wacky loans, they are "anxious" about more established neighborhoods like the coastal areas, and whether the higher conforming loan limits will boost sales this spring and summer.

The median price for the Southland in February was $408,000, -19.2% from the $505,000 peak in the summer of 2007. There has been a substantial shift in the types of homes selling and a huge drop in sales of expensive homes financed with jumbo loans. Jumbo mortgages were about 17% of the Southland's home sale transactions for February, compared with 39% in February 2007.

The median monthly mortgage payment committed to in January is $1,821, down from $1,889 in January, and down from $2,203 in February 2007. It is -28% from the peak in June 2006. Adjusted for inflation, the monthly mortgage payment is actually -18.0% from spring 1989.

DataQuick reports that foreclosures continue to be pegged at record levels, ARM financing has fallen to a six-year low, and non-owner occupied housing activity is increasing.

County         # sold  # sold   % chg    med       med      % chg
                 2007    2008            Feb 07    Feb 08
Los Angeles     6,300   3,468   -45.0%  $528,000  $460,000  -12.9%
Orange          2,449   1,471   -39.9%  $620,000  $520,000  -16.1%
Riverside       3,057   2,147   -29.8%  $410,000  $325,000  -20.7%
San Bernardino  2,274   1,242   -45.4%  $368,750  $290,000  -21.4%
San Diego       2,863   1,954   -31.7%  $480,000  $415,000  -13.5%
Ventura           737     495   -32.8%  $584,000  $445,000  -23.8%
SoCal          17,680  10,777   -39.0%  $495,000  $408,000  -17.6%

Peter Y. Hong, in the March 13 L.A. Times story "Southern California home prices still dropping at record rate", reports the same information. He notes that home prices are "now at 2004 levels."

The rapid pace of the decline has compelled economist Christopher Thornberg to revise his previous estimate of a 20% decline to a 40% decline. Edward Leamer at UCLA has predicted a 20-25% decline from the peak. For comparison, the median Southern California decline from 1991 to 1997 was 19%.

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I'll give Thornberg credit for updating his forecast, but personally I am and have been much more bearish than he is. If there is any kind of massive paradigm shift in the herd thinking of the house buying crowd, in terms of what constitutes good value in a home, these mega bubble builders and the owners of some of these mega bubbles may be in deep trouble. What somebody paid for a bloataminium is not some permanent price guarantee backed by the full faith and credit of the government. Value is a very fuzzy vague notion that gets fired off on synapses in our brains, and when people collectively change their minds about what is good value - look out below!

Anecdotally, I know people are fed up and leaving the area. My former coworker, who moved his family up to Oregon, told me a few weeks ago that he persuaded his sister and her husband to leave the Silverlake area and come up to Oregon and live near them. Sister works at Yahoo and was able to transfer to an Oregon office. An acquaintance on a bear board ran U-Haul estimates for what it would take to rent a 26-foot truck from Sacramento to Portland. That was $848. To go the other way, from Portland to Sacramento, was only $286. Interesting!