Saturday, June 6, 2009

LA County Homes Priced 6% Below Norm

West Hollywood Foreclosure

West Hollywood Foreclosure

Home prices in Los Angeles County have fallen so far that the measure of home affordability is now below historic norms.

The forecasting firm IHS Global Insight reported this week that Los Angeles County home prices are now 6% undervalued. Its calculations are based on home prices, interest rates, area incomes, population density, and historic premiums and discounts in given markets.

In Los Angeles County, 42% of homes sold in the first quarter were affordable to a median-income family, up from a recent low of 2% in the first quarter of 2006.

That is news to celebrate. Finally, the average home price in Los Angeles County is in line with the average salary. But wait, this rosy statistic doesn’t mean that prices have finished their fall. We are not living in average times and the average income has changed from yesteryear, in part, thanks to legislators in Sacramento.

California's inability to solve its budget woes is "so awful that it could create problems for business formation, which makes me really wonder about the prospects of job growth going forward [said Richard Green, director of USC's Lusk Center.]"

California's unemployment rate was 11% in April ... the fifth-highest rate in the nation.

What’s the bugaboo: jobs. High unemployment and a decline in wages have crimped the average household’s ability to make a home purchase. Buyers’ lack of job security and their inability to qualify for loans could cause the affordability index to tumble further.

Foreclosures will continue to exert their force on the market, further driving up affordability. Most foreclosures are formerly overleveraged, formerly over-priced home that eventually become affordable homes.

In the first quarter, 135,431 mortgage defaults -- the first stage in the foreclosure process -- were recorded in California…Foreclosed properties are typically sold at deep discounts by lenders who need to get the properties off their books, dragging all prices down.

Interest rates are the other storm cloud on the horizon. In the past two weeks 30-year fixed rates have risen from their 50-year lows below 4.75% to 5.25% or higher. Higher interest rates immediately dampen the market.

Two steps forward, one step back. At long last, prices don’t seem so high and buying opportunities abound. Hurrah! But the recession has sidelined many Buyers which may result in further price declines. Psshaw! See you at the bottom. [Los Angeles Times]