Southland October home sales climb to highest level of the year
November 18, 2008
La Jolla, CA---Southern California home sales rose unseasonably last month from September as buyers shook off gloomy financial news and took advantage of often-steep discounts. The median sale price fell to $300,000 - a 67-month low - as foreclosures once again accounted for half of all resales, a real estate information service reported.
A total of 21,532 new and resale houses and condos closed escrow in the six-county Southland in October - the highest for any month this year. Last month's sales rose 5.0 percent from 20,497 in September and jumped a record 66.7 percent from 12,913 in October 2007, according to San Diego-based MDA DataQuick, a real estate information service.
Fueled by lower prices, Southland sales have risen on a year-over-year basis for four consecutive months, breaking a 33-month streak of annual declines.
October home sales dropped below September's in 11 of the past 20 years, when the change between the two months averaged -1.2 percent. October has never been the peak month for sales in any year back to 1988, when DataQuick's statistics begin.
"You could easily imagine a meaningful decline in sales last month, given the seasonal norm and the dire financial news that potential buyers had to ponder in September. But we have yet to see any big, sudden drop in the number of transactions closing escrow. It tells us there were a lot of very serious buyers in the market during late summer and early fall - buyers who consider housing a relatively good buy or investment," said John Walsh, DataQuick president.
He added: Whether the worst of the housing correction is behind us will depend largely on the depths of this economic downturn, especially with regard to job losses. Also important will be the outcome of recently announced efforts to reverse the tide of foreclosures."
October's home sales total was the highest in 20 months but was still the second-lowest for an October since 1996. Last month's sales were 12.4 percent lower than the 21-year average for October sales.
Last month's record annual sales increase reflects two things: Very weak sales a year ago on the heels of the August credit crunch and earlier subprime meltdown, and this year's big sales gains in inland markets where prices have fallen 30 percent or more. Depreciation in such areas has triggered record foreclosures, which tend to sell at a discount, attracting bargain hunters.
Fifty-one percent of existing homes that closed escrow in October were foreclosed on at some point in the prior 12 months. That's up from a revised 50.0 percent in September and 16.0 percent in October 2007.
At the county level, these "foreclosure resales" ranged from 39.2 percent of October existing home sales in Orange County to 67.7 percent in Riverside County. In Los Angeles County foreclosure resales were 40.3 percent of sales; in San Diego 48.6 percent; San Bernardino 65.2 percent and in Ventura County 47.0 percent.
High foreclosure resale levels help explain the Southland's $300,000 median sale price in October, the lowest since it was $298,000 in April 2003. Last month's median was 2.8 percent lower than $308,500 in September and 32.6 percent lower than $445,000 in October 2007. The October median stood 40.6 percent below the peak $505,000 median reached in spring and summer of last year.
Several factors explain the plunge in the median price, the point where half of the homes sold for less and half for more: Regionwide home price depreciation; much slower high-end sales; and the rising market share of foreclosure resales, which tend to be located in mid-to lower-cost areas.
Many of the region's relatively affordable neighborhoods saw October sales more than double from a year ago. Use of FHA-insured loans allowing a down payment of as little as 3 percent represented nearly one-third of all Southland purchase loans last month, up from 2 percent a year earlier.
Meanwhile, use of larger mortgages known as "jumbo loans," common in higher-cost coastal neighborhoods, is still far below normal. Before the credit crunch hit in August 2007, 40 percent of Southland sales were financed with jumbos, then defined as over $417,000. Last month just 13.1 percent of purchase loans were over $417,000.
MDA DataQuick is a division of MDA Lending Solutions, a subsidiary of Vancouver-based MacDonald Dettwiler and Associates. MDA DataQuick monitors real estate activity nationwide and provides information to consumers, educational institutions, public agencies, lending institutions, title companies and industry analysts.
The typical monthly mortgage payment that Southern California buyers committed themselves to paying was $1,413 last month, down from $1,458 the previous month, and down from $2,115 a year ago. Adjusted for inflation, current payments are 33.9 percent below typical payments in the spring of 1989, the peak of the prior real estate cycle. They are 45.8 percent below the current cycle's peak in June 2006.
Indicators of market distress continue to move in different directions. Foreclosure activity is at or near record levels, financing with adjustable-rate mortgages is near the all-time low, as is financing with multiple mortgages. Down payment sizes and flipping rates are stable, non-owner occupied buying activity appears flat but might be emerging, MDA DataQuick reported.