Thursday, April 16, 2009

LA Times: "Is Worst Over For Housing Slump?"

LA Housing Months Supply Inventory March 2009

click chart for more detail

Southern California home prices held steady for the third straight month in March, a sign that the housing slump may be near its bottom.

The median sale price remained at $250,000 for the six-county region, which is less than half the median value of homes at the market's peak in 2007. But the fact that home prices have stayed the same since January could be an indicator that the market is beginning to stabilize -- which is considered key to a broader economic recovery.

For the last year, home sales have become increasingly dominated by the low end of the market as the presence of a large number of foreclosures pushed down prices at the same time that credit became available for smaller loans.

Low prices and attractive mortgage rates drove March home sales up 52% in Southern California compared with the same month a year ago. Just over half the sales were of homes that had been foreclosed on.

"There are a number of indicators that show the housing market is in the process of bottoming out," said Delores Conway, director of USC's Casden Real Estate Economics Forecast. Chief among them, she said, was that home buyers previously priced out of the market are now able to buy.

One point of contention among housing market observers is whether expensive homes aren't selling because of the limited availability of jumbo loans, or because their prices are too high relative to incomes.

But there is no doubt the upper end of the market is frozen. "It's stagnant," said Aliso Viejo real estate broker Steven Thomas. "Demand just doesn't exist above $1 million." [Los Angeles Times]

The freefall in Southern California housing prices seems to have been arrested as the sale of foreclosures and distressed properties creates a bottom in the six County region.

The theory goes, as the housing market firms up on the low end, prices stabilize up the property ladder.

The under $1 million inventory in a five neighborhood central Los Angeles area (Sunset Strip/Hollywood Hills West, Silver Lake/Echo Park, Los Feliz, Beverly Center/Miracle Mile, Hancock Park/Wilshire) is only 4.8 months, the lowest level since May 2007. By most standards, this is considered a stable (verging on tight) market.

For first-time buyers considering the purchase of a property, there may be no better time than today. The combination of high inventory, low prices, historically low interest rates and government incentives ($8,000 first-time buyer credit, $10,000 new construction credit) make for a “perfect storm” for buying.

First-time buyers may be surprised that there’s plenty of competition. Well-priced properties under $700,000 (that can be financed by a non-Jumbo loan) frequently get multiple offers, including bidding wars where thirty or more offers are submitted on a single property.

LA Housing Market March 2009
click chart for more detail

The over $1 million market may be “stagnant”, but in central Los Angeles it shows dramatic signs of improvement.

The months supply of inventory in the same five neighborhood area (Sunset Strip/Hollywood Hills West, Silver Lake/Echo Park, Los Feliz, Beverly Center/Miracle Mile, Hancock Park/Wilshire) is 11 months, nearly half of what it was last fall when there was 21 – 23 months of inventory.

There is no doubt that high-end buyers have a harder time qualifying for loans (particularly in Los Angeles where many self-employed and entrepreneurial types don’t show traditional W-2 income) and that many of these buyers have diminished purchasing power because of the stock market rout.

It is also worth pointing out that the “burning off” of inventory is due not only to sales, but to sellers removing their properties from the market because they failed to find a buyer.

Whatever the source, recent data point to an incipient housing recovery that should gain some legs as the general economy improves.