A sign outside a Pacific Palisades home advertises a price reduction. But… (Michael Nelson / EPA )
Southern California's median home price climbed in September to a high not seen in more than four years as sales declined and foreclosure deals plummeted, the latest sign that the housing business is becoming increasingly competitive.
Foreclosed homes made up just a sixth of the Southland's resale market last month, the lowest level in nearly five years and a major reason that the area's housing market has snapped back so rapidly, real estate firm DataQuick reported Friday.
The decline in foreclosures and other affordably priced homes comes as record low mortgage interest rates have sparked strong demand for housing. Glenn Kelman, chief executive for online brokerage Redfin, said demand this year has stretched well past the typical summer selling season, with people touring model homes straight through Labor Day and beyond.
Orange County has emerged as one of the most competitive markets that Redfin follows nationally, he said, and the Los Angeles metro area also has experienced heavy interest from buyers.
"Right now, inventory is down 40% or 50%, depending on where you are in L.A., so people are going crazy — they can't find anything to buy," Kelman said. "Even when we get into contract, it falls apart, because the seller knows there are seven other people waiting to buy."
Sales in Southern California declined in September for the first time in nine months as the region experienced a shortage of affordable properties listed for sale, DataQuick said. Sales fell 20.4% from last year and were down 1.6% from August, with a total of 17,859 newly built and previously owned homes bought across the region.
The sales decline did not stop an upward march in the region's median home price. The median was up 1.9% from August and 12.5% from September 2011 to hit $315,000. That was the highest since August 2008.
Foreclosures accounted for just 16.4% of the resale market in September — a substantial decline from the same month last year, when foreclosures accounted for 32.3% of the market, DataQuick reported.
The decline is even more significant when compared with the worst of the region's foreclosure crisis, in February 2009, when foreclosed properties made up 56.7% of resales.
The precipitous drop in foreclosures for sale is rapidly altering the Southland's housing market, underscored by last month's increase in home prices while sales fell. Nearly half the year-over-year increase in the median price — the point at which half the homes sold for more and half for less — could be attributed to the mix of homes selling: Sales of lower-priced homes plunged while prices jumped; mid- and high-priced homes saw increases in sales and prices.
"The latest stats suggest unbelievably low mortgage rates and modestly higher consumer confidence continue to put pressure on a supply-starved housing market," DataQuick President John Walsh said. "Assuming this year's modest upward trend in pricing holds, we'll eventually see the market begin to re-balance with more supply, though that could take many months."
Home price appreciation will probably be limited as the recovery progresses because potential sellers who have sat on the fence for years are likely to begin putting their homes on the market. That increase in supply should keep a cap on prices.
David Emerson, a real estate agent who works in Lakewood, said banks remain extremely conservative in valuing homes, which is also helping to keep prices down. Many sellers are just waiting on the sidelines.
"Sellers still aren't happy with the prices they are getting … so we have a shortage of inventory," he said. "This spring is going to be crazy."
The low-priced homes that do come on the market are in great demand because renting out foreclosed homes has increasingly emerged as an investment opportunity for big investors.
"What we are looking at right now is less available supply than anybody had anticipated, and there is competition for that supply," said Rick Sharga, an executive with Carrington Holding Co. of Santa Ana, which early this year announced an agreement with the hedge fund Oaktree Capital Management to create a fund that will be used to buy up to $450 million worth of distressed single-family homes.
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, according to a report by the real estate website Zillow released Thursday.
The report said homes priced at $313,200 or less were the most competitive nationally. And nowhere did inventory in that price range drop more than in the Golden State over the last year, according to the website's report.
Leo Nordine, a prominent real estate agent who deals with bank-owned properties, said the foreclosure business has been tough ever since state attorneys general reached a major mortgage settlement with the nation's largest banks in February.
"It is really, really slow. The banks are really trying hard not to foreclosure. They are bending over backward on their loan modifications and their short sales," he said. "The ones that do go for sale, the 40 thieves are there to buy them, and now the hedge funds are out there with them."