Low-priced houses are increasingly hard to find in California, agents… (Paul Sakuma, Associated…)
Competition for lower-priced homes in California is so hot that the number of cheaper homes available for sale has sunk more than 40% in the last year, pushing out many would-be buyers.
Homes that sold for $313,200 or less were the most competitive type of home nationally, but nowhere did inventory in that price range drop more than in the Golden State, according to a report released Thursday by real estate website Zillow.
In some parts of the Inland Empire, the supply of homes on the market is down to about a month's worth, real estate agents say. Economists typically consider a six-month supply to be a healthy market.
The decline in homes for sale is frustrating many people interested in jumping into the housing market — home shoppers tantalized by the drop in prices and record-low mortgage interest rates.
Larry Rogers of Riverside, for instance, began the year with what he felt was a solid path toward retirement: buy two homes in the Inland Empire, pay them off before his golden years and live, in part, off the rental income. With a contractor's license, a well-established business, plenty of cash and a high credit score, financing a home is not a problem, he said. The problem is finding one.
Rogers said he has gone into escrow twice and lost out both times, as other buyers have been willing to pay more. He has been shocked by competing investors paying $75,000 to $100,000 more than what he has estimated some homes to be worth.
"The big speculators have pooled all their money; they invest and they bid them up," he said. "It's crazy. Some of them, they pay pretty close to what it's actually probably worth fixed up, but then by the time they put money into it, they are going to be $50,000 to $60,000 over."
Behind the inventory squeeze is a sharp decline in the number of foreclosed homes on the market.
Foreclosure filings fell in September to the lowest level in more than five years, according to a report by RealtyTrac released Thursday. Substantial decreases in California and some other states hard hit by the collapse of the housing bubble helped reduce filings to 180,427 last month, down 7% from August and 16% from a year earlier. The last time filings were that low was in July 2007.
Demand in the West for homes has heated up, according to the Federal Reserve's beige book of economic activity for the 12th District in San Francisco.
"Although still well below its historical average, the sales pace for new and existing homes picked up further in many areas," the Central Bank reported. "Contacts noted that pent-up demand may spur additional gains in coming months. Contacts reported a decrease in the inventory of available homes and a noticeable increase in construction activity."
According to the Zillow report, Central Valley markets have seen the biggest drops in the supply of lower-cost homes, with inventory down 59.7% in Fresno and 55.4% in Sacramento. San Francisco's supply fell 53.2%. In Los Angeles, supply was down 45.1%. Nationally, the bottom tier of homes for sale has had a decline of about 15.3%.
Cheaper homes — particularly foreclosed properties — have become highly attractive to investors, who have developed a sophisticated industry around buying properties, fixing and selling them or renting them out. Renting out foreclosed homes has increasingly emerged as an investment opportunity for Wall Street.
Financiers are busily studying ways to take the single-family home rental business, for years mostly a mom-and-pop affair, and make it a bigger industry. That has made it difficult for first-time shoppers to compete.
Wall Street groups increasingly are exploring ways of taking rental income from foreclosed homes and packaging those income streams into complicated securities, similar to the way big banks, packaged mortgages during the boom years.
The powerful New York-based American Securitization Forum on Wednesday sponsored a seminar examining whether initiatives by the federal government to turn bank-owned homes into rentals would help foster more private investment in the sector.
"First-time home buyers are being squeezed out of the market by falling inventory and the rapid influx of investors looking to buy basic homes to rent out," Zillow chief economist Stan Humphries said. "Investors are paying in cash and can close sooner, which is more favorable to banks and homeowners looking to sell."
While Wall Street has grown interested in low-end homes, real estate agents in California have bemoaned the lack of available properties for sale. Real estate professionals say the state can handle more foreclosures, and they have protested plans by the federal government to sell foreclosed California properties in bulk to investors.