Is CA housing market still a bit unstable?

The median price is rising, but sales remain volatile, while stubborn foreclosure numbers continue to deter new home building.

Data on the health of San Luis Obispo County’s housing market show a mixed picture: sales falling after a nearly full year of growth, the median home price still on an upward trend and the pace of foreclosures slowing after a run of double-digit growth.
Distressed properties, however, still make up more than a third of sales countywide. These are homes that had been foreclosed upon, or that were purchased in a short sale — meaning that sellers owed more in loans than their homes were worth.

This is being blamed for a continued slump in new-home construction, with banks skittish about financing developments while they still are trying to sell off so many foreclosed homes.
Though it could be bad news for first-time buyers looking for bargains, economists say growth in the median home price would be good news for homeowners who have been waiting to sell because they are upside-down on their home loans.

And volatility in sales growth has meant continued uncertainty for homeowners who had to move, but who haven’t been able to sell their homes or who have had to rent them out waiting for the real estate market to rebound.
“Right now there’s just no guarantee you’re going to get out of your house,” according to Brad Kemp, regional economist with Beacon Economics in Southern California. “And if you have negative equity, forget it.”

Mixed start to 2012The overall median home price grew 8.6 percent to $346,000 in San Luis Obispo County during January compared with the same month of 2011, according to DataQuick, a San Diego-based firm that independently tracks real estate data.
The median — the midpoint of home prices, where half of the homes sold for more and half for less — was $318,500 in January 2011.
This was the single biggest year-over-year jump since June 2006, when the median price grew 12.9 percent from the same month in 2005.

That same month, Data-Quick recorded a peak local median home price of $585,000. January’s local median was about 41 percent below that high.
January’s jump followed a more modest 1.3 percent year-over-year increase in December, and almost an entire year of decreases during 2011, nearly half of them being double-digit declines in the median price.
Before the two recent months of growth, the local median had increased year-over-year for only three months of 2010 — January, February and June. Earlier, the median price had been sliding monthly since September 2006.
Even as the median grew, sales fell 6.6 percent countywide in January compared to the same month of 2011, according to DataQuick. January posted 197 overall home sales versus 211 the year before.

That decline follows last year’s volatile sales growth, when purchases of homes fell on a year-over-year basis only during June after growth slowed early in 2011. Sales growth then spiked into the middle double digits before plunging late in the year.
Economists tend to evaluate indicators such as home sales by comparing a given month or quarter to the same period of the prior year, avoiding the seasonal swings.
Statewide trendSan Luis Obispo County’s plunge in foreclosures during the fourth quarter of 2011 — based on Data-Quick’s tracking of the number of trustees deeds filed — mirrors a statewide trend.
In San Luis Obispo County, there were 171 foreclosures during the fourth quarter, the most recent period for which figures are available. That was a 21.2 percent decline from the fourth quarter of 2010.

The 246 foreclosures countywide during last year’s third quarter represented a 2.8 percent drop from the same period in 2010 and followed two months of double-digit increases in the number of trustees deeds filed, according to DataQuick.
“The question is, how much of that decline is due to market conditions, and how much is due to policy changes that try to address economic distress and lower home values,” DataQuick President John Walsh said in the tracking firm’s announcement of the foreclosure numbers.
“Five years ago almost all mortgage payment delinquencies would have triggered a default notice after a certain amount of time,” he noted. “Strategies now include short sales, refinances, interest rate changes, principal reduction as well as just plain waiting longer.
“It will be interesting to see how this plays out as the economy improves and the housing market finds its footing,” Walsh added.
Of the 197 homes sold in San Luis Obispo County during January, including condos and new houses, 21.2 percent were properties that had been foreclosed upon during the past year and 15.4 percent were short sales, according to DataQuick.

Sales of what the industry terms as distressed properties totaled 36.7 percent of January’s purchases. That figure’s peak last year was 52.7 percent in February 2011, and it has trended downward slowly since. Meanwhile, the number of homeowners unable to make their mortgage payments continues relatively unchanged, based on the number of notices of default filed.
Notices of default are formal, public notices that a lender could take legal action against a borrower, up to foreclosing on a home. In California, lenders typically don’t file these notices until homeowners are at least three months behind on payments.

During the fourth quarter of 2011, the most recent period for which figures are available, 359 such notices were filed in San Luis Obispo County — the same as the fourth quarter of 2010 — according to DataQuick. The rest of 2011 followed a similar pattern.
Effects on the economyThe shaky real estate market and the still-high numbers of homes with owners who are upside-down on loans could also affect jobs or economic growth because it can stifle people’s willingness to risk moving to find work or a better job.
“If you had a choice to move, but you knew that you couldn’t sell the house you’re in … yes, it’s going to have a huge attenuation of that spirit to move,” Kemp of Beacon Economics said.
Though January’s drop in overall home sales was the only decline in seven months, the local market still has excessive inventory of foreclosed homes and new houses that must be sold, Kemp said. So don’t look for construction of new homes — a strong driver of economic growth — to increase much until then, he warned.

“Once those are absorbed, then new home builders can start building,” Kemp said.
In January, just nine new homes sold countywide, the same as the number sold during the same month of 2011, according to Data-Quick.

While the relatively small number of new homes sold leads to volatility on a percentage basis, the number of these sales monthly mostly numbered in the low double digits or single digits last year.

Though purchases of resale homes do lead some homeowners to buy new furniture or other household goods, that doesn’t bring significant economic growth, Kemp noted, adding that the resale home market in real estate represents mostly substitutions of one home with another for most buyers, likely for a similar price.
“Yes, there is a certain amount of purchasing that goes on with the purchasing of a home,” he said. “But without the building (of new homes), not that much economic activity is generated beyond the peripheral.”

In contrast, construction of new homes is “a huge economic activity,” Kemp added, involving purchasing land, installing utilities, buying construction materials such as wood, pipes and fixtures, as well as hiring construction workers and contractors.

Building slumpThe mix of slow new-home sales and the still-high proportion of foreclosure sales were reflected in the worst year on record for residential building permits in San Luis Obispo County, according to Jerry Bunin, government affairs director for the Home Builders Association of the
Central Coast.

He attributed the slump to the foreclosure numbers, and lenders’ unwillingness to finance home-construction projects.

During 2011, just 293 permits for new homes were issued countywide, according to information the Construction Industry Research Board compiled from local governments for the builders association.

That was a 31.7 percent drop from 2010, and 77 percent below the annual average of 1,291 permits since 1990, according to the builders association.

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