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.
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.
Unemployment is rising and consumer spending has slowed, adding another dimension to the crisis and making it even harder to find a light at the end of the tunnel.
Just a year ago, several market analysts interviewed by The Times predicted that Southern California home prices would drop 15% to 25% from their peak.
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.
Thomas Davidoff, a UC Berkeley economist, said he and others underestimated the drop in value because it was tougher a year ago to know just how many people had mortgaged their homes for more than they could really afford.
Those earlier forecasts proved off because "it was hard for people to get their arms around just how bad lending standards had gotten," Davidoff said.
During the real estate bubble, banks and brokers offered mortgages that required little or no money down, minimal proof of income and "teaser" mortgage rates that lowered initial monthly payments but later jumped to a much higher rate.
Last year, it was unclear how many of those loans would default. But much of that mystery has been solved by now, as massive numbers of homes have been repossessed.
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, "we're probably seeing an over-correction" in the most depressed inland areas, Davidoff said. In communities overrun by foreclosures, "you couldn't build a house for less than what [existing homes] are selling for," he said.
Christopher Thornberg, principal of Los Angeles consulting firm Beacon Economics, is among those who predicted a 25% price decline last November, making him one of the more bearish forecasters at the time. By March, he was estimating a 40% decline. Now he predicts that prices will keep dropping throughout 2009, until they've fallen 55% from their peak.
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, Thornberg said.
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%.
In Southern California, Orange County posted the smallest price decline, with October prices 27% below a year ago. San Bernardino County's 39% decline in October from October 2007 was the largest price decline, MDA DataQuick reported.
Nationwide, the National Assn. of Realtors reported Tuesday that home sales prices fell in 80% of U.S. metropolitan areas in the third quarter. Foreclosures accounted for 35% to 40% of homes sold in the quarter.
The National Assn. of Home Builders also reported Tuesday that its index of builder confidence hit its lowest level since its 1985 creation. The index is based on a survey of builders' views on sales conditions for new homes.
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Percentage of Southern California homes sold that had been previously foreclosed
Drop in median home sales price from 2007 peak
Median home sales price in October 2008
Last time the median sales price was below $300,000
Source: MDA DataQuick