Southern California home prices held steady for the third straight month in March, a sign that the housing slump may be near its bottom.
The median sale price remained at $250,000 for the six-county region, which is less than half the median value of homes at the market's peak in 2007. But the fact that home prices have stayed the same since January could be an indicator that the market is beginning to stabilize -- which is considered key to a broader economic recovery.
"In the normal behavior of a recession, the first improvement is in the housing sector, followed by autos," said economist Edward Leamer, director of the UCLA Anderson Forecast. "When somebody buys a home or buys a car, they're predicting economic growth, they're predicting they're going to be employed. It's a statement of optimism."
The housing numbers released by MDA DataQuick on Wednesday came as the Federal Reserve Board reported that the pace of the nation's economic decline was easing in a few regions, including California and New York.
The Fed's report was the latest in a series of indicators that economic conditions may be beginning to improve, which has spurred new confidence in the stock market.
One question mark, for housing and the economy as a whole, is the availability of credit -- whether for home sales, business expansions or other purposes.
For the last year, home sales have become increasingly dominated by the low end of the market as the presence of a large number of foreclosures pushed down prices at the same time that credit became available for smaller loans.
But as the credit crisis eases, banks and other lenders are expected to expand their offerings of so-called jumbo loans of more than $417,000. That could expand sales of the nearly dormant market for more expensive homes.
Conversely, if lenders tighten credit, the housing slump could be prolonged, said David Levine, a UC Berkeley economist.
"At a lot of banks, there may be more bad news waiting to happen," he said. "Nobody knows how bad it is."
Levine said there was so much overbuilding during the boom that it could be a long time before home construction -- an important source of job creation in the state -- begins again.
"One robin does not make a spring," he said. "One fairly optimistic piece of news does not mean the very big trouble we're in is over."
Higher mortgage rates could also throw cold water on a recovery, noted Lakewood real estate broker David Emerson.
"If you drop rates into the 4% range, of course you're going to get a surge," he said. "If rates go back to 6% in two months, we're shafted."
Low prices and attractive mortgage rates drove March home sales up 52% in Southern California compared with the same month a year ago, according to DataQuick. Just over half the sales were of homes that had been foreclosed on.
In San Bernardino County, March sales were up 89% from the previous year while the median price of $150,000, the lowest in the region, was down 43% from a year ago, the company said.
The Southern California median sale price is now less than half what it was in 2007, according to DataQuick.
"There are a number of indicators that show the housing market is in the process of bottoming out," said Delores Conway, director of USC's Casden Real Estate Economics Forecast. Chief among them, she said, was that home buyers previously priced out of the market are now able to buy.
The steeper price decline in lower-priced homes and falling interest rates prompted Larry Salzman, 37, to buy a town house in El Cajon this week.
Salzman had been looking at higher-priced homes but was worried that they would drop in value.
Down the scale, however, Salzman said that wasn't so much of an issue.
"It was the same to buy as to rent, so it wouldn't matter as much to me if the value were to go down," Salzman said. The three-bedroom town house he bought for $240,000 is comparable to units that sold for $425,000 two years ago, he said.
One point of contention among housing market observers is whether expensive homes aren't selling because of the limited availability of jumbo loans, or because their prices are too high relative to incomes.
But there is no doubt the upper end of the market is frozen. "It's stagnant," said Aliso Viejo real estate broker Steven Thomas. "Demand just doesn't exist above $1 million."
Thomas said that, based on March sales, the supply of Orange County homes priced between $1 million and $1.5 million would take about 13 months to clear.
But Orange County homes priced between $250,000 and $500,000 sold in March at a pace that would clear the existing inventory in about two months.
With fewer foreclosures, higher-priced areas have not been flooded by homes owned by banks eager to clear their inventory through cut-rate selling. Instead, individual sellers have reduced their asking prices only modestly, and buyers have kept their distance.
Prices will have to come down further for those properties to move, said Christopher Thornberg, principal of the Los Angeles consulting firm Beacon Economics.
Wealthy sellers have taken heavy hits in the stock market and are also suffering job losses, Thornberg said, leaving some unable to afford their homes.
In his own Bel-Air neighborhood, "I can't believe the number of 'For Sale' signs coming up," Thornberg said. "Those people bought those houses when they thought their stock portfolios were huge, and that's not true anymore."
Thornberg predicts home prices will fall another 20% from their current levels because in real estate cycles prices tend to "overshoot" on the way down, falling even below levels that would be in line with incomes.
That's especially true now, with rising unemployment and troubles in the financial sector, he said.
"So much pain has to work its way out of the system," he said.