California's home price recovery could be faltering
California's home price recovery began with the state's least expensive properties: those so beaten down by the fallout from the subprime mortgage crisis that both investors and first-time purchasers saw buying opportunities amid the wreckage.
But now that trend could be reversing with the absence of tax credits for buyers, the weak job market and rising interest rates.
“You are seeing reduced sales volume due to high levels of unemployment and because mortgage rates are beginning to increase,” said Jacquelynne Chimera, an analyst in San Francisco who follows the California housing market for investment bank Keefe, Bruyette & Woods.
In a research note for KBW on Wednesday, Chimera crunched data from San Diego research firm MDA DataQuick's October housing market report. Here is some of her analysis:
October’s starter home price was down 0.8% year over year, falling to $245,000 from $247,000 in October 2009, and down from $250,000 in July, August, and September of this year. Annual appreciation in this market returned in January 2010, and this is the first year-over-year decline the data has presented since that time (although annual return data was flat in July and August). If October’s decline continues over the next several months, it may threaten the stability that has prevailed in the lower-priced market, thus threatening the overall market.
Chimera defines the starter market as homes priced below $417,000, which used to be the limit for so-called conforming loans. As she notes, the weakness in the low end is significant because without stability there, the overall market could turn downward again.
Chimera's analysis comes as DataQuick released November figures for the Southern California region, which showed sales of homes swooned in the Southland and gains in the median home price decelerated considerably.
With a moribund market for new homes, constricted lending by big banks and the weak economy dampening the prospects of buyers, sales fell to their lowest level since 2007.
A total of 16,208 new and previously owned houses and condominiums sold in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties last month. That was a 15.5% drop from November 2009, the firm said.
The median price of a home in the region increased for the 12th consecutive month, to $287,000, in November. But that 0.7% increase over November 2009 was the weakest annual gain since last December, when prices began rising year over year.
The median, which is the point at which half the homes sold for more and half for less, was up 1.4% from the prior month.
Foreclosures remain a big part of the sales market in Southern California, although the percentage of foreclosures as a part of the overall resale market has come down considerably since peaking at 56.7% in February 2009. Last month, foreclosures accounted for 35.1% of the resale market, an increase from 34.7% in October but down from 39% in November 2009.
But Chimera worries that if banks begin foreclosing at brisk clip again next year, that could further drag down home values.
“If you see a flood of supply come back on the market, it’s very possible that could put pressure on home prices,” she said.
Christopher Thornberg, a principal of research firm Beacon Economics, predicted in an interview on Wednesday that sales and home prices in Southern California probably would remain flat next year.
Climbing interest rates, the poor economy and the number of “underwater” homeowners — those who owe more on their loans than what their properties are worth — will contribute to a weak housing market.
“It’s a bad thing for a builder trying to make a profit, it’s a bad thing for a homeowner if you are underwater on your property, but it is what it is,” Thornberg said. “It’s a good thing if you are thinking of buying a house in the next couple of years.”
-- Alejandro Lazo
Photo: A sign hangs in front of a newly constructed Toll Brothers housing development in Dublin, Calif. Credit: Justin Sullivan / Getty Images