After months of plunging home prices, Southern Californians heard today that, yes, it’s true….homes have not tanked for the last three months! It might be a trend! That’s almost all the good news. The other good news is that last month saw a veritable frenzy of home buying as prices throughout the Southland surged 52% over last year. Of course, last year was abysmal, but, oh well, you gotta get your good news where you can.
Here’s the wet blanket to douse those little flames of hope that might be springing up around us. Well, for one thing, there was a foreclosure moratorium and then lenders were holding back the flood, waiting for the new Obama housing policy to be revealed. Obama’s plan came out last month and the first refis started last week. It will help. But, for so many there will be no help. Expect foreclosures to surge again soon, putting more downward pressure on prices as lenders try to unload their inventories. It seems that in this first quarter [Q1] of 2009, foreclosure notices, NODs, have jumped 24%. More than 805,000 homeowners got such notices in the past three months. That means during the next three months we’ll see a tsunami of trustee sales and then a few months later a mountain of lender-owned property will hit the market.
Unless government has a few more tricks up its sleeve, prices here will continue to decline in the face of foreclosure. That will, in turn, put more homeowners “underwater” or owing more than their homes are worth. Man of these homeowners will decide it’s simply not sensible to pay the $3000 a month on the $400,000 or $500,000 mortgage when the property is now worth only $250,000. They will short sale their homes and later buy another for $250,000, effectively cutting their housing costs in half with today’s low rates.
As an illustration of how crazy we were: A few days ago I did a BPO, a broker’s price opinion, of a 738 square-foot single family property with a double garage in La Puente. This tiny little house is now a repo, but it sold back in 2006 for $419,000! That’s just wrong. It has a nice lot with a wrought-iron and block fence in front and good curb appeal. But, it’s only a 2 bedroom/1 bath. The former homeowner slapped up a lean-to in the back with an exterior toilet in a little cubicle and a tiny studio wtih another bathroom as a crude rental, it seems. It’s all illegal, of course, and must be torn down. The sad remains of people desperate to save the home and perhaps their life savings. How could it ever have seemed like a good idea to buy that house?
Just as a souvenir, I guess, the L.A. Times today published a chart showing all SoCal Counties and home values during the last 8 years. Now, median SoCal home value is $250,000, less than half what it was in 2007 at the peak of the market.
It’s reached the point now that in many cases it’s cheaper to buy than to rent or at least it’s equivalent. Builders are telling us that new home values are now below replacement costs. Since these two factors are true, that also tells us that just like the last Great California Recession in the mid-90s, prices will come roaring back….sometime. Last time, it took a full 5 years. This time will possibly take as long.