Fading government stimulus and waning buyer enthusiasm caused Southern California's housing market to soften in August — but not as badly as earlier in the summer.
The median price for a Southland home in August dropped 2.4% from the month before to $288,000, the third consecutive month-to-month drop for the closely watched indicator, San Diego research firm MDA DataQuick said Tuesday. Still, prices remained up compared with a year earlier, with last month's 4.7% increase over August 2009 the ninth consecutive month of year-over-year gain. The median is the point at which half the homes sold for more and half for less.
Sales continued to decline in August, falling 2.1% from July and 13.8% from August 2009, following a 21% nose dive in July, when the boost from the federal government's housing tax credit program evaporated. Last month's figures were the worst for an August since 2007, when the housing bubble burst, and the second-worst since 1992. For the month, 18,541 new and previously owned houses, town homes and condominiums were sold.
"There is certainly no more frenzy," said Syd Leibovitch, president of Rodeo Realty. "A lot of people say that it was the loss of the tax credit. I just think it is consumer confidence, and I think people are talking a lot more about the economy."
Sales of new homes fared worse than the overall market, falling 25.3% from July and 16.4% from August 2009. With only 1,382 new homes closing escrow, it was the worst August for new home sales in Southern California since 1988, when DataQuick's figures begin.
The paucity of new home sales signals a difficult environment for home builders this year, as many had bought up land anticipating a rebound in prices, experts said. The decline in new home sales also will probably result in continued weak job creation in the local construction sector, historically an important boost for an economy exiting recession.
"This is going to be a tough slog, so I don't think the state can count on construction to bounce back from the recession this time — it is going to have to be something else," said Patrick Duffy, principal for research firm MetroIntelligence Real Estate Advisors. "We are in uncharted territory when it comes to housing, so the answers aren't easy."
Economists attributed the decline in sales to the April 30 expiration of a federal tax credit as well as renewed fears this summer over a renewed economic downturn.
The federal credit, which offered up to $8,000 for certain buyers, created a rush of buyers signing home purchase contracts last spring. California lawmakers fueled that burst in activity by adding a credit that allowed some buyers to qualify for as much as $18,000 in incentives if they closed their deals quickly enough.
The DataQuick figures reflect sales that closed in August, meaning those buyers probably signed purchase contracts in June or July, when the more widely promoted federal credit was no longer available.
Leibovitch said he expected a continued decline when DataQuick reports September statistics, reflecting a drop in buyer confidence over the summer.
Esmael Adibi, director of the Gary Anderson Center for Economic Research at Chapman University, agreed with that assessment.
"All of the talk of a double-dip [recession] created hesitancy in buyers, even among investors flipping homes," Adibi said. "That is why we saw such a significant drop in sales."
Fears of another housing market slump have eased, economists said, but a more sustained recovery in the housing market will not occur until the Southland's job engine begins producing more robust employment opportunities both for people who out of work and those who are employed but fear they could lose their jobs.
California employers cut 9,400 net jobs from payrolls in July. While the state's overall unemployment rate was unchanged at 12.3% in July, the Inland Empire metropolitan area's rate hit a new high of 15.1%, and the Los Angeles County rate ticked up to 12.4% from 12.2% in June.
Economists expect the state unemployment rate to remain in double digits until the end of 2012. Statewide employment figures for August will be released Friday.
"Job creation has been very anemic so I don't see a very significant rebound in the housing market for a long time," Adibi said.
Local housing prices ended their free-fall in April 2009, when the median price for a Southland home hit $247,000. The increase in the median price since then has largely reflected a drop in the number of low-cost foreclosure properties sold in cheaper inland markets, which were the hardest hit by the subprime mortgage meltdown.
Last month, sales of foreclosed homes accounted for 34.7% of the Southland's resale market, up from 34.2% in July and down from 41.7% a year ago. The all-time high was reached in February 2009, when foreclosures made up 56.7% of the market.