L.A. housing market holds its ground

Never mind a sales slump and now sub-prime uncertainty, prices are on the rise.
By: Diane Wedner: latimes.com
Whom do you believe? Last week came the gloomy news that the number of U.S. homes entering foreclosure is rising, and with it, more experts are predicting a meltdown of the sub-prime lending market.

But that stares in the face of median home prices in Southern California still climbing the first two months of 2007, compared with 2006. In L.A. County, the median rose 8.2% in the two-month period, to $525,000. Yes, fewer houses were sold, but the number remains well above the mid-'90s slump.

Conventional wisdom late last year was that a downturn would stretch across the board by now — and most segments have seen appreciation declines and sales drop-offs — but the high-priced market, usually the first to head south, still is "doing just fine," said John Karevoll, chief analyst at La Jolla-based DataQuick Information Systems, a research firm. The low- and mid-ranges, he added, are performing satisfactorily.

Experts are not sure why the L.A. market is doing better than expected. One explanation is that sellers have been pricing their homes more realistically, and buyers get that sellers aren't giving away their homes in a fire sale, said Leslie Appleton-Young, chief economist for the California Assn. of Realtors. As a result, the sales dropoff has slowed, giving everyone a breather.

"The year 2006 was a steep learning curve for buyers and sellers, but we didn't plunge into the abyss," Appleton-Young said. "Buyers who were on the sideline in 2006 are back in."

In the six counties of Southern California, the median price of a home — the point at which half the homes sell for more and half for less — was $489,500 in January and February combined, up 5.5% from the same period a year ago, according to DataQuick. San Diego County reported the steepest decline: 5.9%, to $475,000.

"Prices are still cooking," Karevoll said. They hit a record for L.A. County in February, rising to $528,000, up 7.8% from a year ago. Orange County's median price, however, dipped 0.4%, to $620,000.

Sales continued to fall the first two months of this year, but at a less torrid pace than in mid-2006. Sales in the Southland's six counties fell 18% from a year ago. The Inland Empire posted the steepest decline, at 33.1%.

Some housing experts believe the market may be nearing the bottom. This spring and the next six months will be "very informative," said Delores Conway, director of the Casden Real Estate Economics Forecast at USC.

"Much depends on how much the supply of existing homes go up, which could push prices down," Conway said. "If there are sufficient buyers out there, though, that won't happen."

All of this is small comfort to the borrowers with bad credit who jumped at the chance for easy money and signed up for mortgages much larger than they could handle. They figured their homes would appreciate and D-day (due day) wouldn't come. Well, it did.

The big question swirling around the water cooler today is how big an effect the sub-prime lending industry's burgeoning meltdown will have on home buying and Wall Street. First-time buyers, especially, will have difficulty pulling together the 20% down payment required for conventional loans, experts say.

The percentage of U.S. mortgages entering foreclosure during the fourth quarter last year rose to 0.54%, according to the Mortgage Bankers Assn., the highest since the group began issuing reports in 1972. Of California's 5.6 million mortgages, 0.15% entered foreclosure and 3.25% were delinquent.

Among California's 806,022 sub-prime home loans, nearly 11% were delinquent, compared with 13% nationally. To put this into perspective, a small percentage of homeowners who are late with their payments end up in foreclosure. The majority refinance or sell.

Not all experts are worried.

"The fact is, the vast majority of those who buy homes do it with straightforward mortgages," Karevoll said. "Sub-prime lending is a sub-category of a sub-category. There is a ton of mortgage money out there."

Fears prompted by the rising numbers of homeowners entering the foreclosure process — a glut of such homes could spark price declines — also are overblown, Conway said. Although there are more today than during the 2004-05 boom, she said, delinquencies are at historically normal levels.

The bottom line, experts say, is that no one can predict exactly which way the market will go this spring, traditionally the top season for buying and selling.

"There's a lot of uncertainty floating out there," DataQuick analyst Andrew LePage said. "It's hard to be bullish or bearish at this point."