A decline in the number of foreclosed homes is one reason prices in Southern… (Glenn Koenig, Los Angeles…)
Southern California's real estate market bucked the typical fall slowdown last month, with buyers snapping up pricier homes and sales roaring up 18% over the prior month.
Sales hit a three-year high for an October, rising 25% from the same month last year. The median sale price for a Southland house last month was $315,000, equal to September and up 17% from October 2011, according to real estate research firm DataQuick.
A decline in the number of foreclosed homes has caused a shortage of inventory in entry-level neighborhoods, pushing up home prices. Demand from investors also remains strong, with these buyers snapping up a near-record level of homes last month.
"There is a growing appreciation of the fact that we've come to a sort of a point of inflection in the housing market," Stuart Gabriel, director of UCLA's Ziman Center for Real Estate, said. "The housing market, for a large number of factors, is perceived as having turned a corner."
The region's median hit bottom at $247,000 in April 2009 and has slowly crawled its way up since. The median is the point at which half the homes in the area sold for more and half for less.
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The rebound stems from more people chasing fewer homes. Interest rates remain near record-low levels, luring buyers. Investors with cash have poured into the market looking for cheap properties to flip or rent. And foreclosure resales have sunk to a five-year low, tightening the supply of cheap homes.
An estimated 21,075 newly built and previously owned houses and condominiums sold throughout the region last month. Coastal markets saw the biggest increases in sales — though every county posted double-digit gains compared with October last year. Orange County saw the biggest surge, with sales up 41%. Ventura rose 35%, San Diego, 31%, Los Angeles, 25%, San Bernardino, 18% and Riverside 13%.
Absentee buyers — investors and some second-home buyers — snapped up a near-record 28% of homes throughout the Southland last month. These investors paid a median $245,000, a 23% increase from October last year.
A recent report by real estate website Zillow showed that many investors and others are paying market value for foreclosed homes in the region, erasing the discount between foreclosed homes and regular properties. Discounts were marginal on bank-owned homes in September, with the discount in the Inland Empire just 2% and in the Los Angeles area 4% in September, Zillow said.
Bruce Norris, president of Norris Group, an investment company in Riverside that buys foreclosed homes, said he expects prices to increase in coming years as the Obama administration has encouraged banks to curtail foreclosures. That will push up prices, he said.
"It is policy driven," Norris said. "Since the policy is going to continue … you are about to see a pretty substantial price increase within the next two years."
Indeed, the high level of affordability ushered in by the housing crash could erode quickly in California. This week the California Assn. of Realtors reported that homes in the state are getting less affordable as property values rise. The group estimated that 49% of home buyers in the third quarter could afford a median-priced house in California, a decline from 51% last quarter. The rise in prices is offsetting the benefit to home shoppers from low mortgage interest rates.
Christopher Thornberg, a principal at Beacon Economics and one of the first to call attention to the housing bubble, said home shoppers should expect expensive housing in the Golden State for the foreseeable future. The reason: Construction of new homes remains highly expensive for builders.
"Why would it stop?" he said. "The economy is growing. Short of a fiscally led second recession, there is no reason in the world that it's going to do anything but to continue."
The region's lowest-cost areas — often those the most starved for inventory these days — posted the weakest sales numbers last month, according to DataQuick. The number of homes that sold below $200,000 in the region dropped 11% from October last year. Sales in these markets have slowed because of the drop in foreclosures, while increased demand has pushed up prices.
Sales of previously foreclosed-upon homes made up just 16% of the resale market last month, a drop from 17% last month and 33% in October 2011. Foreclosure resales peaked at 57% in February 2009.
In the meantime, sales surged in several mid- and higher-cost neighborhoods throughout Southern California in October, DataQuick said. Sales of homes between $300,000 and $800,000 increased 42% year over year. Sales of homes costing more than $500,000 were up 55% and sales of homes more than $800,000 rose 52%.
Bill McBride, lead writer for the housing blog Calculated Risk, said that with the upswing in prices homeowners are encouraged to keep their homes off the market.
"Why is there no inventory? I ask every real estate agent that, just to hear what they tell me. And they say people don't have enough equity in their homes and so they aren't listing them," McBride said. "That is a solid argument. But I also think the people are sensing that prices are going up and there is no urgency to sell."