California Home Sales Plunge in March

The California housing market will continue softening because home prices are too high while too many homes remain unsold, industry observers said after a trade group reported a steep drop in home sales.

Nationally, bad credit mortgage woes and harsh winter weather were the main culprits for an 8.4 percent decline in sales of existing homes in March from the month before, the National Assication of Realtors said.

It was the sharpest month-to-month fall since a 12.6 percent plunge in January 1989. In California, existing home sales fell by 8.1 percent from the month before, the California Association of Realtors said.

Prices held up better, with the national median price declining 0.3 percent from a year earlier to $217,000, and rising 3.2 percent from a year earlier in California to $580,090.

• The worse-than-expected national sales report made some analysts a bit more bearish on housing.
• Prices still need to drop to make homes more affordable for buyers, they said.
• Also, in response to the bad credit mess, lenders have tightened standards, making it harder for some borrowers to get vital home mortgage money.
• Inventories of unsold homes nationally rose to a 7.3-month supply at the current sales pace, the highest since October, putting further downward pressure on prices.

The bottom line… is that the bottom isn’t here yet.

“The urgency that characterized the boom has definitely dissipated,” said Leslie Appleton-Young of the California Assn. of Realtors. “For the first time in the last 10 years, we forecast a softening in the median home price.”

Home sales in California will fall 7 percent in 2007 compared with last year, she predicted Tuesday, and the median price will drop 2 percent.

Some California housing markets are stronger than others, Appleton-Young said. The Bay Area is the most robust and Southern California is mostly holding its ground, despite fears of rising defaults.

But weakness is emerging in the Inland Empire and the Central Valley, where home builders have been adding more supply than in coastal areas, and more California mortgage problems are beginning to pop up.

The median home price paid for a home in Southern California last month was $505,000, up 4.6 percent from March 2006. Sales volume, however, dropped 32.4 percent from a year earlier, reflecting a trend that began 18 months ago when the red-hot market first began to cool.

Economist Christopher Thornberg of Beacon Economics said prices usually lag behind fundamental changes in the market. He said he was suspicious of reports that California home loan demand was picking up in some areas.

“The numbers keep getting worse and worse,” he said. “Housing has no more ‘up’ in it. Prices have to start coming down or the market will stall.”

Years of rising prices have shrunk the pool of potential buyers so much that momentum is now impossible to sustain, Thornberg said.

A 10 percent down payment to get into a median-priced Southern California home requires a buyer to spend $40,000 a year on housing from then on, he estimated.

“How many families can afford that? The answer is: not many,” Thornberg said.

Prices stayed artificially high during the recent boom, he said, because sub-prime, or bad credit home loan, lenders gave loans to marginally qualified buyers who could not otherwise afford houses.

The sustained increases in home values strongly motivated investors to catch the wave. There is also a chance of a recession by the end of the year that might reduce the number of jobs and pull down housing prices by adding more foreclosed homes to the market.

In Orange County, meanwhile, the inventory of housing for sale is growing, with the number of homes in escrow at half the level of the year-earlier period, said Steven Thomas, president of Re/Max Real Estate Services.

“The overall market has really changed,” he said. “We were trucking along nicely in February and then sub-prime [bad credit home loan woes] hit in March.”

Inventory will rise through the spring and summer, Thomas predicted, before “frustrated unsuccessful sellers throw in the towel” and cut their prices.

ARTICLE & IMAGE SOURCE: Los Angeles Times