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Why are home sales in Southern Cali declining?

Buyers face inventory, credit and affordability challenges

California
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Even as some Southern California homes in the high-end neighborhoods are seeing strong price gains, home sales in the Southland dropped to the lowest level for a February in six years.

Homebuyers in sunny SoCal are struggling with inventory constraints, credit hurdles, and reduced affordability, according to DataQuick.

Median prices across all metros and neighborhoods in Southern California edged up slightly from January and remained nearly 20% higher than a year earlier.

In February, some 14,027 new and resale houses and condos sold in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties, down 3.1% from 14,471 in January, and down 12% from 15,945 sales in February 2013.

February sales have ranged from a low of 10,777 in 2008 to a high of 26,587 in 2004.

Most tellingly, sales have been below the recorded average for all months for more than seven years.

“February was another month with lackluster home sales, and the fifth in a row where sales fell short of the same month a year earlier. The March-through-May data will give us a better sense of what's been holding back activity the most – supply constraints or the double-whammy of higher prices and higher mortgage rates,” John Walsh, president of DataQuick, said. “The drop in housing affordability is enough to nudge some out of the market. Other would-be buyers have no doubt called ‘time out’ while re-evaluating their housing priorities, or watching for signs the market has overshot a sustainable price level.”

 “On the supply side, inventory is increasing, as it normally does this time of year, but so far there hasn’t been an explosion of new listings, and new-home construction is still well below average,” Walsh said.

The median price paid for all new and resale houses and condos sold in the six-county region last month was $383,000, up 0.8% from $380,000 in January and up 19.7% from $320,000 in February 2013.

Median prices held steady around $385,000 between last June and November, but started to climb to $395,000 in December, finishing the year at a high point for the previous 12 months.

Prices continue to rise at different rates depending on price segment, as reported here.

Drilling more deeply across a wider area than just the LA area, the lowest-cost third of the region's housing stock saw a 23.2% increase from 2012 for resale houses. The annual gain was 18.7% for the middle third of the market and 15.1% for the top, most-expensive third.

In February, 32.6% of all SoCal home sales were for $500,000 or more, up a tad from a revised 32.2% the month before and up from 24.4% a year earlier.

The number of Southland homes that sold below $200,000 last month dropped 47% year-over-year, while sales below $300,000 fell 38.7%.

The relatively low supply of homes on the market is primarily blamed. Many owners still can’t afford to sell their homes because they remain underwater, and lenders aren’t foreclosing on as many properties, further limiting supply. 

Investors and some second-home purchasers bought 29% of the Southland homes sold last month, up slightly from 28.2% in January and down from 32.3% a year earlier.

In February, 6.2% of all Southland homes sold on the open market were flipped. Buyers paying cash last month accounted for 30.9% of home sales, up from 29.1% the month before and down from a record 36.9% in February last year.

Since 1988 the monthly average for cash buyers is 16.4% of all sales. Cash buyers paid a median $340,000 last month, up 28.3% from a year earlier.

All lenders combined provided a total of $3.87 billion in mortgage money to Southern California home buyers in February, down from a revised $4.02 billion in January and up from $3.62 billion in February last year. The most active lenders to Southern California home buyers last month were Wells Fargo (WFC) with 6.7% of the total home purchase loan market, Bank of America (BAC) with 2.6% and JPMorgan Chase & Co. (JPM) with 2.3%.

Indicators of market distress continue to decline. Foreclosure activity remains well below year-ago and far below peak levels. Financing with multiple mortgages is very low, and downpayment sizes are stable, DataQuick reported.

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