November 13, 2012
La Jolla, CA—Southern California home sales rose sharply in October as move-up buyers joined investors, shifting the mix of homes selling up a notch as foreclosure resales hit a five-year low. The median price paid for a home rose nearly 17 percent from a year earlier, a real estate information service reported.
A total of 21,075 new and resale houses and condos sold in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties last month. That was up 18.0 percent from 17,859 sales in September, and up 25.2 percent from 16,829 sales in October 2011, according to San Diego-based DataQuick.
Last month’s sales were the highest for the month of October since 22,132 homes sold in October 2009, though they were 11.1 percent below the October average of 23,709 since 1988, when DataQuick’s statistics begin. The low for October sales was 12,913 in 2007, while the high was 37,642 in 2003.
The median price paid for a home in the six-county Southland was $315,000 last month, the same as in September and up 16.7 percent from $270,000 in October 2011. The September and October medians are the highest since the median was $330,000 in August 2008. The Southland median has risen or held steady month-to-month for nine consecutive months and has increased year-over-year for the past seven months.
The median price and other price measures are rising mainly for two reasons: First, higher demand, triggered largely by ultra-low mortgage rates, has coincided with a dwindling supply of homes for sale, which pushes prices up. Second, this year there’s been a big change in the types of homes selling: Discounted foreclosures are a smaller share of sales, while move-up homes are a larger share, which puts upward pressure on the median price.
“Watching the market rebalance itself is fascinating. In some categories and in some neighborhoods, demand outstrips supply, pushing up prices. In other areas, the market is still largely dormant. Low interest rates are a huge factor, where mortgages are available, which they aren’t for a lot of potential buyers,” said John Walsh, DataQuick president.
The Southland’s lower-cost areas continued to post the weakest sales compared with last year. The number of homes that sold below $200,000 fell 11.2 percent year-over-year, while sales below $300,000 dipped 0.3 percent. Sales in these more affordable markets have been hampered by the slowdown in foreclosure activity, which results in fewer foreclosed properties listed for sale, as well as the high percentage of homeowners who still owe more than their homes are worth, meaning they can’t sell and move on.
While inventory and sales have declined in many of these lower-cost areas, higher demand has pushed prices up. In October, price levels for the lowest-cost third of Southern California’s housing stock rose 17.0 percent year-over-year, while they rose 6.2 percent in the middle and 8.1 percent in the top third.
Sales rose sharply in most mid- to-higher-cost markets in October. Sales between $300,000 and $800,000 – a range that would include many move-up buyers – jumped 41.5 percent year-over-year. October sales over $500,000 rose 55.2 percent year-over-year, while sales over $800,000 rose 52.4 percent compared with October 2011.
Last month 23.3 percent of all Southland sales were for $500,000 or more, down slightly from 23.9 percent in September, which was a four-year high, and up from 17.9 percent a year earlier.
Foreclosure resales – properties foreclosed on in the prior 12 months – accounted for 16.3 percent of the Southland resale market last month. That was down from 16.6 percent the month before and 32.8 percent a year earlier. Last month’s level was the lowest since it was 16.0 percent in October 2007. In the current cycle, the foreclosure resales hit a high of 56.7 percent in February 2009.
Short sales – transactions where the sale price fell short of what was owed on the property – made up an estimated 26.0 percent of Southland resales last month. That was down slightly from an estimated 27.6 percent the month before and up from 25.4 percent a year earlier.
Credit conditions didn’t appear to change much in October, though the share of purchase loans that were “jumbo” hovered near a five-year high.
Jumbo loans, mortgages above the old conforming limit of $417,000, accounted for 21.1 percent of last month’s purchase lending, down a hair from 21.4 percent the prior month and up from 14.6 percent a year earlier. In recent months the jumbo share has been the highest since December 2007, when jumbos made up 21.7 percent of the purchase loan market. In the months leading up to the credit crunch that struck in August 2007, jumbos made up close to 40 percent of the market.
With interest rates on fixed 30-year loans so low, and aversion to risk in the marketplace so high, the use of adjustable-rate mortgages (ARMs) remains extraordinarily low in an historical context. Last month 6.0 percent of Southland home purchase loans were ARMs, compared with 5.8 percent in September and 6.9 percent a year earlier. Since 2000, a monthly average of about 33.1 percent of Southland purchase loans were ARMs.
The most active lenders to Southland home buyers last month were Wells Fargo with 8.4 percent of the market, IMortgage.com with 2.6 percent and Prospect Mortgage with 2.4 percent.
Investors continue to account for an unusually large share of all sales.
Absentee buyers – mostly investors and some second-home purchasers – bought a near-record 28.0 percent of the Southland homes sold last month. That was up from 27.7 percent the prior month and up from 25.4 percent a year earlier. The record was 29.9 percent in February this year, while the monthly average since 2000 is 17.6 percent. Last month’s absentee buyers paid a median $245,000, up 22.5 percent from a year earlier.
Buyers paying with cash accounted for a near-record 32.1 percent of October home sales, down insignificantly from 32.2 percent the month before and up from 30.0 percent a year earlier. Cash purchases peaked at 33.7 percent of all sales this February, and since 2000 the monthly average is 16.8 percent. Cash buyers paid a median $250,000 last month, up 21.1 percent from a year ago.
Home flipping edged higher again. Last month 6.1 percent of all homes sold had sold twice on the open market within a six-month period, up from 5.5 percent in September and 3.7 percent a year earlier.
Government-insured FHA loans, a popular low-down-payment choice among first-time buyers, fell to a more-than-four-year low in terms of their share of all purchase lending. Last month FHA loans accounted for 25.2 percent of all purchase mortgages, down from 25.5 percent the month before and 31.9 percent a year earlier. The October FHA share was the lowest since July 2008, when it was 24.4 percent. The declining market share for FHA loans reflects tighter qualifying standards implemented in recent years as well as the difficulties first-time buyers are having competing with investors.
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 Southland buyers committed themselves to paying last month was $1,115, down from $1,127 the month before and up from $1,040 a year earlier. Adjusted for inflation, last month’s typical payment was 53.1 percent below the typical payment in the spring of 1989, the peak of the prior real estate cycle. It was 61.6 percent below the current cycle’s peak in July 2007.
Indicators of market distress continue to move in different directions. Foreclosure activity, while above long-term averages, continues to drop and is far below peak levels. Financing with multiple mortgages is very low, and down payment sizes are stable, DataQuick reported.
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