Louis XIV of France, styled the Sun King, famously opined, “Apres moi, le deluge.” After me, the flood. He was right, of course, for his excesses so infuriated the people that his successor was guillotined and his monarchy overthrown in the French Revolution.
SoCal Plunge In Foreclosure Filings
Something similar seems to be brewing in Southern California and maybe even nationwide as lenders ratchet up their foreclosure filings after the “robo-signing” lull. Though foreclosures dropped dramatically in SoCal this fall, so, too, did all home sales. The reasons seem to be many: the end of the home buyer tax credit, stubbornly high unemployment and the generally still-moribund economy. In fact, sales are down a full 16% from November of 2009. This at the same time foreclosure filings fell 14% from the previous November after a 22% decline in October for a two-month total 36% decline. Nationwide, the filings fell 21%.
December is traditionally a slow month in real estate as consumers focus on retail buying, parties and holiday travel plans. Typically, though, also in December smart investors are out there snapping up last-minute bargains of the now-extremely motivated sellers still on the market. Competition is almost always much less, to put it mildly, and sellers are determined to close out their books for year’s end. This year seems to be different as even investors are holding back.
That may be because the huge drop in foreclosure filings this fall has ominous repercussions for home prices in the new year. With the foreclosure freeze over, informed observers now expect to see the banks ratchet up their foreclosures with a vengeance, restarting filings begun in October and November and barreling ahead with new ones in January. Executives from RealtyTrac, a real estate data collection firm, speculate that the housing recovery could be set back three months, if not more, as the foreclosures pile up. In fact, we can expect ” an avalanche” of foreclosures shortly.
SoCal Home Prices
The most immediate effect of an avalanche of foreclosed properties on the market will be to further depress prices in Southern California which had started a slight upward movement. Los Angeles County home prices had dropped 1.2% over November 2009 to a median of $325,000. Riverside and San Bernardino Counties, the hardest hit by the bursting of the real estate bubble, lost 2.5% and 5.0% respectively to medians of $195,000 and $152,000. But, that is a huge improvement over the 30% and 40% drops of previous years. Other SoCal counties actually gained in value. Orange County eked out a .6% improvement for a $435,000 median home price. San Diego topped the charts with a 3.1% improvement over last year to a median of $335,000 with Ventura County just behind at 2.7% uptick to a median of $375,000.
Future: More Underwater Homes
These hard-earned gains will soon be lost as the promised avalanche of foreclosures hits the market. Perhaps sales will pick up as buyers and investors are lured back into the game. But, bargain-hunting fun aside, another price drop for already distressed homeowners will plunge yet more homeowners underwater. That, in turn, spirals down into more foreclosures and more equity loss in future.
Like Louis XIV, banks see this as well as anyone, yet still refuse to modify loans in any serious way. Like Louis, they see, but, obviously, don’t give a damn as long as they get their bonuses. Short-term is the only term.
Here’s the latest housing values news for many Southern California counties. Compare to one month ago.
Southern California has become a kind of barometer for troubled home values. Unlike Nevada and Florida’s transient and part-time populations, in Southern California it’s actual home- and condo-owners who live on their properties full-time who are in trouble. Or, we have local investors who find their rental properties are no longer worth the trouble of keeping they are so far underwater. As mentioned in an earlier post, statewide, about 27% of homeowners are now underwater. With the unemployment rate at over 12% and rising, with even the state laying off workers, that percentage is most likely going to get worse.
Six counties make up Southern California. Here are the stories of the two extremes of the spectrum. On the one end is Orange County, richest of all the counties, full of gorgeous new homes and award-winning planned communities. On the other end is San Bernardino, the New Appalachia, where poverty is grinding and the marginal population is being pushed from the other, richer, surrounding counties. The contrast is stark.
Orange County shows that in some ways things are getting better for us. In Orange County, for instance, last month [June 2009] home values dropped only 8% over last year. That’s the slowest drop in a long time. The median price in Orange County is now $485,000. Some cities have held steady or even improved: Aliso Viejo held last year’s median value of $600,000; Anaheim Hills increased about 10% across its two ZIP codes to a median of $498,000  and $640,000 ; Fullerton in 92833 decreased less than 2% from last year to a median of $378,000; Fountain Valley also decreased 2% to a median $570,000. Two areas of Irvine increased in median value in 92303 up 5% to $690,000 and in 92616 up 4% to $662,000. Its other areas decreased around 15% to over $600,000 with pricey 92603 down 34% to a median of $920,000.
Laguna Hills rose 1% to a median of $629,000 while Laguna Beach lost 21% over last year to a median $1,265,000. Must be tough. This, of course, makes us wonder what is happening in the highest priced areas, Newport Beach and Newport Coast? Well, there were really too few sales to decide. What sales did take place were unmistakably downward in price, but it would be hard to get too much higher…Corona del Mar had 12 sales in the month showing a 40% slide from last year to $1,180,000. Seal Beach is now a median of $710,000 while Huntington Beach now has two areas with many sales bring its median to $587,000 [92646 down 5%], $522,000 [92647 down 3%], $695,000 [92649 down 21%] and $822,000 [92649 down 17%].
Orange County does have a few working class areas, such as Santa Ana which shows three areas actually down to a median of less than $300,000 [92701 to an incredible $213000, 92704 to $288,000, 92707 to $255,000]. Orange 92868 is down 10% to $318,000, though its other ZIPs are all closer to $500,000 and holding fairly firm. One area of Garden Grove and one area of Anaheim have medians of less than $300,000 [92844 to$298000 and 92805 to $272,000].
What does this mean? Orange County is the most affluent county in Southern California and its citizens have the most in reserves. Unemployment is less here, but the pain is being felt. As the recession grinds on and the unemployment rate rises, biting deeper into the ranks of middle- and upper-income workers, even here values tumble. In California the recession shows no signs of abating.
Other area counties are suffering terribly, especially San Bernardino, the hardest hit of all. Despite record losses in home values there from 2007 to 2008, home values countywide dropped another 40% in June 2009 over June 2008. The median home value in San Bernardino in now $135,000, almost unbelievable…
Outlying areas have been very hard hit. Twentynine Palms in down 45% to a median $80,000.Yucaipa and Yucca Valley are down 24 and 26% respectively to $215,000 and $100,000 median. The High Desert is a disaster area: Apple Valley is down over 50% to a median of around $88,000; Victorville is down 40% to a median of about $95,000. The good news there? Hundreds of homes are being sold…Sales are very brisk at these prices, so maybe the bottom is near. It must be. These prices are below replacement value, meaning we can’t build homes for these prices.
The City of San Bernardino itself has only one ZIP with a median value of over $100,000 and that is 92407 at $140,000, a drop of 31% over last year. The rest of the city has plunged in value nearly 50% to closer to $58,000 and, while some homes are being sold, sales are by no means brisk. This is the New Appalachia where SoCal poverty is concentrated and food stamps are common currency. This is where our charity dollars should be going.
More affluent areas, as always, are doing better, but still dropping. Upland has dropped 6% in 91784 to $471,000 median and to $259,000 in 91786, down 13%. Rancho Cucamonga has dropped over 25% in all areas to a median now of around $300,000 and in 91739 almost $400,000. But, the housing stock here is mainly new and high quality. This is a tremendous dip. Rialto is down 32% to $198,000. Colton is down 42% to $110,000. Chino Hills, also with newer housing stock, has dropped only 6% to a median $298,000, again undeard of… Ontario’s hightest median value is $235,000, down almost 30% over last year. Fontana is down around 35% to $122,000 in 92335, to $185000 in 92337 and down 18% to $260,000 in 92336. Again, in Fontana hundreds of homes are being sold, many below replacement value.
Really, there’s no good news in San Bernardino County.
Yeah, amazing, eh? Today, the L.A.Times ran an article in the Business Section pointing out that homes in three SoCal counties had actually gone up a notch, a tick, a blip…
Portents for the future? It’s all over now? Not so fast, my friends, not so fast. It’s far from over as the article did mention further down the column. It seems Orange County, Ventura and San Diego County Counties had all edged up in median price just the teeniest, tiniest bit, a couple of thousand, because home sales in the higher price ranges had finally come out of their year-long stall and moved again, thus bringing up the median.
Here’s the L.A. Times graphic illustrating the three: highest Orange, then Ventura, then San Diego.
Overall, SoCal sic counties’ median price moved to $249,000 from $247,000 last month. That’s for all So/Cal counties, including L.A., San Bernardino and Riverside alongside the lucky three with higher medians.
Orange County’s median is up 8% over April, Ventura is up 4% and San Diego 2%. Of course, these are more affluent areas, ranking first, second and third in income levels and so have a larger stock of middle- and high-priced homes. Still, it’s at least a bit of a breather…It seemed as though the real estate plunge was into a bottomless pit. Now we know there’s a bottom.
This is the first upward tick since July of 2007. The new SoCal median is 51% below that peak. Wow. Still last month it was down 54% and still down 33% from last year May 2008. It’s been a brutally fast crash. We are definitely injured, but maybe we’ll make it after all.
What’s the cause of this seeming miracle? Partially, it’s 18 months of solid declines in San Diego and more like 12 in Orange County, convincing many stubborn sellers that the good times weren’t coming back anytime soon. Sellers are becoming more realistic and buyers are buying at appropriate prices.
Another reason is that the jumbo loan market has been virtually frozen for almost a year, and, gradually, banks are getting back into this formerly extremely lucrative market. Banks do charge higher rates for jumbos, and they do get better performance. The thaw has helped buyers who wanted to buy but couldn’t get financing.
So, what’s the story for L.A. County? Holding steady at last month’s median..$300,000. as is Riverside at $180,000 and San Bernardino at $137,000.
As noted here, L. A. County home values have now dropped 36% in one year.
But, that time period does not show the depth of the plunge. Southern California median home values have dropped 50.4% from the peak of the housing bubble. This is partly a statistical anomaly: few top-of-the-line or new homes were selling. This 50% figure is an aggregate of all SoCal counties. Some counties have it far worse and we know which they are. Riverside prices have plunged 55% from $432,000 median to $195,000. San Bernardino had it worse: median values are down from their height of $380,00 57.4% to $162,000.
Adding to the general misery is the news that about 20% of all mortgage holders in the U.S. are underwater or owe more than their homes are worth. California’s rate of negative equity is 30% of mortgage holders placing it on a par with Florida–in 5th place. It’s not quite so bad in L.A. County even with the statistical drag of the Antelope Valley and the High Desert areas. In L.A. County about 23% of homeowners are in negative territory.
Of course, owing more than the home is worth is a difficult situation for homeowners. It hardly seems worth the struggle to make the payment. In fact, many don’t. They may have made a” business decision” [does it make sense to pay on a $400,000 mortgage when the house is worth $300,000?] More likely, they can no longer afford the payment due to job loss, job cutbacks or readjusting mortgages. Across the country, 4% of mortgage holders were at least 60 days late in the last quarter of 2008. A year earlier, the figure was 3%.
How’s California doing? Not so good, as we might expect, given the rising unemployment statistics. Of California home owners 6.9% were categorized as delinquent in Q4 08. This compares to Florida, highest in the nation with 9.5% rate. We are still behind also Nevada and Arizona.
But, these four populous states really are like the Four Horsemen of the Apocalypse. Their condition does presage disaster for the rest of the country. We four are huge markets for the rest of the country and the world. California alone has something like the 10th largest economy in the world. If our economic engine is stilled, what will happen to our trading partners and our fellow citizens in other states?
With the median price of Southern California homes down more than 40% from its peak, the housing market has now slid further than most economists expected, says The Los Angeles Times.
The median sales price for homes in the region fell to $300,000 in October, a level not seen since 2003 and a 41% drop from the peak price set in the spring and summer of 2007, according to San Diego-based MDA DataQuick
Los Angeles County’s median home sales price was $355,000, down 29% from a year ago.
Prices were dragged down by the large number of foreclosed homes on the market. For the first time since the slump began, repossessed properties in October accounted for more than half of residences sold.
Low prices did drive sales up 56% from a year ago. But a market bottom remains elusive, and a rebound in prices is not on the horizon.
It took only until July for the median price to fall 25% below its 2007 peak of $505,000, and it has kept falling since.
Barring a dramatic economic reversal, the median sales price is on track to slip below $300,000 when November sales are calculated next month.
In October 2007, 16% of the homes sold in Southern California had been foreclosed, compared with 51% last month. Mounting foreclosures flooded the market with discounted repossessed homes, further depressing home values.
The ripple effect from that put even more homeowners underwater — owing more on their homes than they were worth — and led to more foreclosures.
Now, the most depressed inland areas are probably “over-correcting.” In communities overrun by foreclosures, a home cannot be built for less than what [existing homes] are selling for.
Last month’s Case-Shiller Home Price Index, which tracks home sales by price tiers, showed that Los Angeles-area homes priced in the bottom third of the market had fallen 42% from their peak prices by late last summer — but those in the top third had dropped 21%.
Owners of higher-priced homes may put off selling during the early phases of a downturn, causing more expensive homes to decline in value at a slower rate. But eventually many high-end owners have to sell at prices well below peak levels. That means we can expect to see greater price declines among expensive homes in 2009.