Sales Increase as Home Prices Fall

County home sales continued to rebound in April, with the number of homes sold rising 15 percent compared to March.
By: DEBORAH CROWE: Los Angeles Business Journal Online
REAL ESTATE: Volume rises 15 percent from previous month.

Los Angeles County home sales continued their rebound in April as warmer weather and falling prices coaxed homebuyers back into the market.

Sales for the month rose about 15 percent over March as the median price slid 2 percent to $456,000, according to data provided to the Business Journal by Melville, N.Y.-based HomeData Corp.

That increase is more typical of spring sales volume than what occurred a year ago as the region’s housing boom began to sputter: March-to-April 2007 sales fell nearly 4 percent.

Steven Thomas, a regional president for RE/MAX Real Estate Services, said that the increased sales last month partly reflect more first time home buyers entering the market as prices fall.

“We’re seeing a first-time-home-buyer wave in both L.A. and Orange County,” said Thomas, who doesn’t believe prices will stop falling year-over-year until early next year. “I think we’ll be at a flat market for a couple of years price-wise, probably moving not more than the rate of inflation. But at least we’ll have a lot more transactions.”

Still, home sales are sharply down from a year ago when 5,096 homes were sold in April. In raw numbers there were 3,647 home sales last month, but that reflects a five-week HomeData reporting period. Adjusted to reflect the four-week period of a year ago, that number falls to 2,918 units – a 43 percent drop year-over-year.

While prospective buyers are leaving the sidelines, real estate observers believe it will take the market a few years or more to recover as foreclosures continue to muddy the market.

Foreclosures rose 130 percent in Los Angeles County in the first quarter year-over-year, with 20,339 homeowners receiving foreclosure notices, according to DataQuick Information Systems of La Jolla. And in places where foreclosures were hitting particularly hard, such as the Antelope Valley, sales were being supercharged as prices continued to fall.

In Lancaster’s 93536 ZIP code, sales fell 42 percent in March year-over-year, but in April jumped 28 percent year-over-year. At the same time, the April median price fell to $285,000 –$9,000 less than March and $90,000 less than a year ago.

Conversely, home sales in the county’s priciest neighborhoods were at a virtual dead standstill – the opposite of last year when luxury home sales were propping up the market. In Beverly Hills’ 90212 and 90210 Zip codes, where median prices top $2 million, there were a total of just 10 sales.

Falling too fast

Cal Poly Pomona finance and real estate professor Michael Carney said he is worried about the sharp drop in prices, especially when compared to the last real estate bubble that burst in the early 1990s. He believes it may mean the bottom is even further off than most people expect.

This time last year he was anticipating that prices might bottom out 15 percent lower than at the peak of the boom. He now fears that a fall of more than 20 percent could be possible. Carney tracks long-term price trends with a model that follows changes in appraised value of individual homes over time.
“That prices are falling faster than sales is not a good sign in terms that the bottom is near,” said Carney, noting that in the 1990s housing bust it took almost six years for prices to drop 20 percent. “You’ll start seeing year-to-year sales volume pick up long before we see a turnaround in prices.”

The median home price jumped off a cliff last October as the credit crunch, which started in the subprime category, spread to more affluent homebuyers. They became unable to obtain jumbo loans (exceeding the $417,000 conforming loan limit) at a time when the county median price topped the limit – and homes in desirable areas could easily double it.

Earlier this year Congress temporarily stretched the definition of a conforming loan to as much as $729,500 in high-cost areas like California, but the program has been slow getting off the ground. In San Pedro’s 90732 ZIP code – where a median-priced home last year would have required a jumbo loan – there were just 10 sales last month as the median price fell 40 percent to $475,000.

Rock bottom models

Conversely, some first-time homebuyers who have been waiting on the sidelines for years are now finding prices within their range.

In Covina’s 91722 ZIP code, sales volume rose 80 percent to 27 homes, as the median price fell 30 percent to $345,000. In Palmdale’s 93550 ZIP code, the median price fell 39 percent to $202,000 as sales rose to 62 homes, 35 percent higher than a year ago and 63 percent higher than March.

Even so, just three years ago a typical month in that once fast-growing Palmdale neighborhood might see more than 150 sales. That change in the market is causing particular challenges for sellers of new homes.

Typically, when a development is nearly sold out, the highly desirable model homes – fully landscaped and filled with upgrades like marble counters and granite floors – get sold at auction for premium prices. But not these days.

Rhett Winchell, president of Beverly Hills’ Kennedy Wilson Auction Group, has just such an auction scheduled June 1 to help builders in the Palmdale-Lancaster area dispose of 17 luxury model homes.

Winchell said that given the current market conditions, the starting price will range only between $125,000 and $250,000 – for homes that during the height of the boom would have sold for $289,000 to $605,000 on the open market.

That’s much lower than the discounted minimum starting bid Kennedy Wilson normally sets.

“There are properties in this area that have been on the market six months to a year,” Winchell said. “We don’t have that much time to sell these (model) homes. Our program works for builders because we price them below market, and let the buyers determine the market.”