Real estate news these days is nothing short of confusing. Prices are going up. Prices are going down. The market has stabilized. The market will be bad for 5 years. Everybody seems to have an opinion, and nobody agrees. What is really going on? Is it good or bad?
Homes Sales Are Sinking
According to the latest data, the real estate market in Southern California is quite volatile. A major piece of data tells us, for instance that the number of home sales has dropped and by quite a lot. L.A. County, for instance, showed an almost 10% drop in the sale of homes since April of 2010. In fact, we are now at the lowest level of home sales in the last three years, the worst in recent memory. Even in Orange County, usually almost immune to the volatility experienced by the rest of SoCal, homes sale dropped nearly 7%. As usual, both Riverside and San Bernardino Counties, the hardest hit during the recession and which had seemed to be rebounding as investors flocked to bargain properties, took the brunt, showing drops in home sales of almost 14% and 12% respectively. Only San Diego managed to maintain itself almost at the same level of home sales as last year.
Why Do Home Sales Matter?
But, really, so what? Sure, it’s bad for real estate agent and lenders, but who really cares if homes are not selling? Here’s the connection to the wider economy. If homes are not selling, then those who want to sell will drop their prices to attract whatever buyers there are. If, or, rather when, that happens, prices will fall more than they already have. Once the prices fall, more Pasadena and SoCal homeowners will find they have little or no equity in their homes which will drive them to abandon their payments. Then, of course, the banks will foreclose or, to avoid that, the homeowners will do a Pasadena short sale to avoid that stigma. All this activity will drive prices down more and the cycle will continue ad infinitum.
In fact, prices, which had been modestly rebounding, are now either stagnant or sinking again. In the entire SoCal region, encompassing six counties, median homes prices are now almost flat at $280,000. This is slightly above the April 2009 median of $247,000, but well below the July 2007 high of $505,000. Those halcyon days for homeowners appear to be gone for good or at least for a good long time into the future. So, with prices so low why are buyers not rushing to buy?
Where Are the Buyers?
That’s the big question: where are the buyers? Homes aren’t selling because buyers aren’t buying? Why not? As with everything else, many factors are at play here. First and foremost is the recession and the jobless rate. The recession does seem to be slowly abating and the unemployment rate has dropped a tad, but still 12% of Californians are out of a job. Not too many of them are going to be looking to buy a home.
Another, major factor is the shakeup in the mortgage market.Responding to their past irresponsibility, banks and other mortgage sources are tightening lending criteria substantially. Too, it looks as though in the light of substantial government obligation under Fannie, Freddie and FHA, even the 3.5%-down-payment FHA loan, now responsible for about 50% of this year’s loans, will have to add more stringent qualifications and raise the down payment ceiling. The government is just too exposed. So, tougher loans mean few buyers can qualify.
Then, there’s the psychological element. Despite a 50% drop in prices from 2007 and mortgage rates at historic lows, many buyers are still hoping for even better deals if they wait. Timing the market is an old Wall Street pursuit and it seems to have hit the housing industry as well. Everyone, investors, first-time and move-up buyers, all seem to be waiting to see the market tumble even further before they take the plunge.
