June 15, 2010, DQNews.com
La Jolla, CA—Southern California home sales rose last month in all but the lowest price categories as buyers took advantage of tax credits and low mortgage rates. The median price paid topped $300,000 for the first time in 20 months, largely because the ultra bargains have been drying up in the low-cost inland areas while sales have increased in the pricier coastal neighborhoods, a real estate information service reported.
A total of 22,270 new and resale houses and condos closed escrow in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties last month. That was up 9.7 percent from 20,299 in April, and up 7.2 percent from 20,775 in May 2009, according to MDA DataQuick of San Diego.
May sales were the highest for that month since May 2006, but they still fell 15.0 percent short of the average number sold in May since 1988, when DataQuick’s statistics begin. The 9.7 percent increase in sales between April and May compares with an average change of 6 percent since 1988.
The combination of tax incentives and low mortgage rates helped stoke sales in mid- to high-end areas, where distress has increased over the last year and sellers have become more motivated and realistic.
Last month 21.6 percent of all sales were for $500,000 or more, compared with 19.3 percent in April and 17.4 percent a year ago. Zip codes in the top one-third of the Southland housing market, based on historical prices, accounted for 30.9 percent of existing single-family house sales last month, up from 28.6 percent in April and 25.3 percent a year ago. Over the past decade, those high-end areas have contributed a monthly average of 34.1 percent of total regional sales. Their contribution to overall sales hit a low of 21.0 percent in January 2009.
Meantime, sales have fallen in many affordable inland communities. In May, zip codes in the bottom one-third of the market, based on their historical prices, saw resales of single-family houses drop 3.9 percent from April and drop 16.2 percent from a year earlier. Part of the decline reflects the dwindling foreclosure inventory, which had been the major draw for first-time buyers and investors. In the upper one-third of the market by price, May resales climbed 10.8 percent from April and rose 21.7 percent from last year.
This shift toward more high-end sales helped the Southland median jump $20,000 between April and May and $56,000 between this May and May 2009.
The median paid for a Southland home rose to $305,000 last month, up 7.0 percent from $285,000 in April, and up 22.5 percent from $249,000 in May 2009. The May 2009 median was just $2,000 higher than the median’s post-housing-boom low of $247,000 in April 2009.
Last month was the sixth in a row in which the median rose on a year-over-year basis. However, the May median was still 39.6 percent below the $505,000 peak, reached multiple times in spring and summer 2007.
The median’s steep fall from its mid-2007 peak to its spring 2009 trough was the result of two factors: a widespread decline in home values, and a huge run-up in sales of lower-cost inland homes, especially foreclosures, at the same time high-end sales plummeted.
Over the past year, however, that situation has been reversing itself.
“Last month’s jump in the regional median sale price is the flipside of what we saw a year ago, when low-cost inland foreclosures dominated and sales in the costlier coastal towns struggled for a pulse. Today the bargains on foreclosures are fewer and farther between, and the high-end is approaching a normal sales rate,” said John Walsh, MDA DataQuick president.
“The important thing to remember, though, is that what we saw in May was partly driven by government stimulus,” he continued. “In the second half of the year the market will have to stand on its own again, barring new forms of government involvement. Prices will be tested if there’s any sudden move by lenders to release a flood of distressed properties.”
Foreclosure resales accounted for 33.9 percent of the resale market last month, down from 36.4 percent in April and 49.8 percent a year earlier. The all-time high for foreclosure resales – homes that had been foreclosed on in the prior 12 months – was 56.7 percent in February 2009. Foreclosure resales have waned over the last year as lenders have channeled more distress into loan modifications and short sales.
On the lending front, May saw modest gains in the use of “jumbo” and adjustable-rate mortgages (ARMs). Historically both helped drive high-end sales, but they became far more difficult to obtain after the August 2007 credit crunch.
In May 6.6 percent of all home purchase loans were ARMs, up from 5.8 percent in April and up from 1.9 percent in May last year. However, the monthly ARM average since 2000 is 39.2 percent.
Jumbo loans, mortgages above the old conforming limit of $417,000, accounted for 17.2 percent of last month’s purchase lending, up from 16.1 percent in April and 12.9 percent in May 2009. But before the credit crisis, such jumbos accounted for 40 percent of the market.
While financing restraints have hampered the market’s high end, the federal government has kept the spigot wide open for loans used to buy low- to mid-priced abodes. Government-insured FHA loans, popular among first-time buyers, accounted for 37.1 percent of all mortgages used to purchase homes in May, down from 38.4 percent in April and 40.3 percent in May 2009.
Absentee buyers – mostly investors and some second-home purchasers – bought 19.4 percent of the homes sold in May, paying a median $220,000. That compares with 22.9 percent absentee buyers in April who paid a median $205,000, and 19.6 percent absentee buyers paying a median $170,000 in May 2009.
Buyers who appear to have paid all cash – meaning there was no indication that a corresponding purchase loan was recorded – accounted for 24.5 percent of May sales, paying a median $220,000. In April cash sales were 28.6 percent and a year ago it was 26.1 percent. The 23-year monthly average for Southland homes purchased with cash is 14.1 percent.
The “flipping” of homes has trended higher over the past year. Last month 3.4 percent of the Southland homes that sold had been flipped – bought and re-sold within a six-month period. That’s the same flipping rate as in April, but it’s up from 1.5 percent a year ago. Last month flipping varied from as little as 2.8 percent of sales in Orange and Riverside counties to as much as 4.4 percent in Ventura County.
MDA DataQuick, a subsidiary of Vancouver-based MacDonald Dettwiler and Associates, 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 Southland buyers committed themselves to paying was $1,293 last month, up from $1,238 in April, and up from $1,052 in May a year ago. Adjusted for inflation, that typical payment was 42.3 percent below the typical payment in the spring of 1989, the peak of the prior real estate cycle. It was 52.7 percent below the current cycle’s peak in July 2007.
Indicators of market distress continue to move in different directions. Foreclosure activity remains high by historical standards but is lower than peak levels reached over the last two years. Financing with multiple mortgages is low, down payment sizes are stable, and non-owner occupied buying is above-average, MDA DataQuick reported.