The Morning Report
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Wednesday, May 16, 2007 | Fewer homes were sold in San Diego County last month than in any April in a decade, marking a continued slowdown in the region’s housing market, DataQuick Information Systems reported Tuesday.
The sluggish sales rate, though up 6 percent from March, fit into a larger picture of the housing slump that has faced much of Southern California for the better part of last year. The six counties in the region experienced the fewest homes sold in any April since 1995, DataQuick reported.
And foreclosure filings hit 2,612 last month, according to data tracker RealtyTrac. That’s three times as many as April 2005, and a seven-fold increase from April 2004. Those homeowners, unable to make their mortgage payments, add to the growing pool of so-called motivated sellers, often forced to lower prices to escape ruined credit.
As home sales dropped, the median price of those selling stayed relatively stable. The median price of the homes sold last month was $490,000, the same as it was in March, but 3 percent lower than April 2006 and about 5 percent lower than the peak $517,500 price logged in November 2005.
Local real estate analyst Peter Dennehy said the DataQuick numbers represented more of the same, fitting into the slowing trend the county has experienced in the last year. After sections of the market picked up steam at the start of the year, trouble in the mortgage market and increasing foreclosure activity has put many buyers perched squarely on the sidelines.
“The market is retreating again, unfortunately,” Dennehy said. “The people who can afford to be in the market are the ones who are savvy and they are waiting for a good deal.”
Some of those who can’t afford to be in the market might have qualified for a mortgage anyway a couple of years ago, using high-interest options touted for low-credit consumers. Those loans, called subprime, often allowed borrowers to state their income without verification. Now, skyrocketing numbers of those borrowers are defaulting on their loans and several of the companies specializing in the sector have shut down. Others are drastically tightening their qualifying standards in response to market pressure.
All that trouble may stave off a general market recovery for a while longer, analysts said. The mess in the subprime market does two things, Dennehy said. One, it limits the pool of people who can qualify for a loan in the first place. If fewer people qualify for entry-level homes, fewer people can move up to larger or better-located homes, and the trend trickles up. The subprime trouble has also served to scare would-be buyers, he said.
“There are more and more people now who are at the lower end of the market who aren’t able to qualify for loans because of the tightening, which isn’t a bad thing, but it doesn’t help (the general market),” Dennehy said.
The median price on new homes had the largest year-to-year drop, compared to resale homes and resale condos. That price, $410,000, was down slightly from March and dropped 10.8 percent from April 2006. Just 706 new homes sold last month, down 18 percent from the 861 sold in April last year.
Dennehy said the number of new projects coming on the market peaked in early 2007 and that now, as projects sell, builders aren’t replacing them with more new units as quickly. About one-third fewer people are out looking at the new homes, but sales rates are staying closer to last year’s levels, he said.
Buyers are becoming more discerning, Dennehy said — they know what they’re looking for and are quick-acting when they find it.
“The people who are out there are somewhat qualified,” Dennehy said. “They’re not kicking tires. That’s an encouraging sign.”
Among resale detached homes, last month’s median price was up 1.7 percent from last April to $565,000. And that price was the highest since last June’s $567,000. The median price only represents the homes sold in a particular month, and does not take into account the home’s location, square footage, school district location or other home desirability factors.
About 16 percent fewer resale detached homes sold last month than did in April 2006. Andrew LePage from DataQuick said the biggest contributor to that decline was a 25 percent drop in the resale homes priced between $400,000 and $600,000 — 747 last month compared to 999 the April before.
LePage said that across Southern California, entry-level and smaller homes are hardest hit in current market conditions. The biggest drops in resale price for detached homes in the county last month were among those sized 1,500 square feet and smaller, he said. Among homes with fewer than 1,000 square feet, there was a 7.1 price drop year-to-year to $380,000 versus last year’s $409,000. And those ranging from 1,000 square feet to 1,500 square feet dropped from $477,500 in April 2006 to $450,000 last month.
Those two size categories represent most homes at the entry level, the ones most first-time buyers ended up in. Some of those buyers used unconventional loan options, stretching to get into the property and hoping it would appreciate dramatically. Now, though, those parts of the market are being hit hardest, LePage said.
“No surprise there,” said local real estate analyst Gary London. “Persons who wouldn’t have normally had the opportunity to participate in the last up-cycle had the chance to do so because of subprime loans,” which increased in popularity in 2005 and 2006.
“Some of the starter regions … were the last to get on board,” LePage said. “Now they’re starting to experience whatever pain is in store for them.”
Resale condos sustained slight drops in sales rates and prices last month. The 876 such units that sold last month marked about a 2 percent drop from April 2006. And the median price, at $385,000, was 2.6 percent lower than the $395,100 price in April 2006.
New data from the San Diego Association of Realtors indicate that sellers are waiting longer than they did last year to sell their homes. The average time on market so far this year is about two weeks longer than it was at this time in 2006.
“They’re a more motivated group than they were 12 months ago,” Dennehy said of the sellers. “If you’re putting your house on the market in 2007, it’s because you have to.”
But some stubborn homeowners are still holding out for the prices their neighbors garnered at the height of the boom, said local Realtor Jerry Anderson.
“That continues to be a problem,” he said. “People are acting on what they think their home ‘should be worth’ based on what the appreciation rate was, but the ones that realize we’re in a slow market will be better off.”
And for a growing number of distressed owners, listing their homes for sale isn’t a quick enough solution for avoiding foreclosure. As of Tuesday, about 15,300 homes in the county were in some stage of foreclosure, according to RealtyTrac. That’s nearly double the 8,451 homes in foreclosure activity just six months ago, in November 2006. A privately-run auction of nearly 100 such properties at the Convention Center this weekend drew more than 1,000 people.
Analysts say bank repossessions and subsequent auctions usually bring a neighborhood’s prices down more quickly than they would drop naturally, but that local foreclosure-related sales haven’t resulted in the fire-sale, 50-cents-on-the-dollar prices the region saw in the market downturn last decade.
The sustained trouble has analysts and real estate professionals watching carefully for signs the downturn may be ending.
“Nobody can really predict the bottom,” Anderson said. “I think that this thing may have leveled off, but … you just don’t know. I think anything’s possible.”
And LePage, from DataQuick, said he doesn’t think the region is poised to recover yet.
“We’re at the end of the cycle, but not the last day of it,” he said.