SoCal Sees Sales Rise, as Foreclosures Make the Market
The old real estate mantra used to be location, location, location -- but a new mantra seems to be enveloping certain markets now. Instead of the tried and true, the newest axiom might best be buy foreclosures, and shun everything else. In some of the hardest-hit local housing markets across the nation, steep discounting on bank-owned real estate and distressed mortgage sales is driving strong buying activity from consumers betting that the worst of the nation's housing crisis -- at least in terms of prices -- is near some sort of end. "Prices here have fallen as much as 50 percent," one investor in Temecula, Calif. told HousingWire Wednesday morning. He asked not to be named. "How much more can they fall? I'm not an economist, but my gut says it's time to jump in." That sentiment is shared by many in the area, if data released Tuesday is any indication. Southern California home sales rose unseasonably last month from September, as buyers shook off gloomy financial news and took advantage of often-steep discounts in October, according to data released by San Diego-based MDA DataQuick. The median sale price fell to $300,000 -- a 67-month low -- as foreclosures once again accounted for half of all resales. A total of 21,532 new and resale houses and condos closed escrow in the six-county Southland in October. That's the highest for any month this year, DataQuick said, and October is traditionally a more sluggish month for real estate sales, coming off the traditional spring and summer selling boost; in fact, October has never been the peak month for sales activity in SoCal, ever. Last month's sales rose 5.0 percent from 20,497 in September, the company said, and jumped a record 66.7 percent from 12,913 in Oct. 2007. Fueled by lower prices and the foreclosures that offer them, Southland sales have now risen on a year-over-year basis for four consecutive months, breaking a 33-month streak of annual declines. "You could easily imagine a meaningful decline in sales last month, given the seasonal norm and the dire financial news that potential buyers had to ponder in September. But we have yet to see any big, sudden drop in the number of transactions closing escrow. It tells us there were a lot of very serious buyers in the market during late summer and early fall - buyers who consider housing a relatively good buy or investment," said John Walsh, DataQuick president. "Whether the worst of the housing correction is behind us will depend largely on the depths of this economic downturn, especially with regard to job losses. Also important will be the outcome of recently announced efforts to reverse the tide of foreclosures." Foreclosure nation Fifty-one percent of existing homes that closed escrow in October were foreclosed on at some point in the prior 12 months, according to DataQuick's report. That's up from a revised 50 percent in September and 16.0 percent one year ago. High foreclosure resale levels explain the Southland's $300,000 median sale price in October, the lowest since it was $298,000 in April 2003, and 2.8 percent below last month's median. Prices in SoCal have fallen 40.6 percent from peak levels observed last year; but much of the plunge in prices is due to a strong bifurcation in pricing between REO and other distressed inventory, as compared to more traditional resale inventory from Jim and June Homemaker looking to sell their home. Many of the region's relatively affordable neighborhoods saw October sales more than double from a year ago. Use of FHA-insured loans allowing a down payment of as little as 3 percent represented nearly one-third of all Southland purchase loans last month, up from 2 percent a year earlier -- a steep change from roughly one year earlier, when 40 percent of mortgages in SoCal were jumbo loans. That said, the strong buyer response to foreclosures begs two questions: what happens when there isn't an ample supply of cheap bank-owned real estate to buy? Will more traditional sellers be forced to lower their prices as well? In other words, strong activity on REO and related purchases is likely masking the fact that outside of distressed markets, the fundamentals remain weak. For more information, visit http://www.dataquick.com. Write to Paul Jackson at email@example.com.