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Home Prices in Southern California Rise

September 15, 2009 9:45 pm 0 comments

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There’s no doubt that housing will be central to any economic recovery. But before we can declare a bottom in housing, we must first see a recovery in the most battered regions, like California. Are we seeing signs of a bottom right now? News from the LA Times that Southern California median home price climbs 2.6% in August certainly point in the direction. From the LA Times:
Southern California’s median home price continued to rise in August, to $275,000, up 2.6% from July, a San Diego real estate research firm reported today.
The number of homes sold, however, dipped from July due to a constricted supply of foreclosed homes and lingering uncertainty among buyers, MDA DataQuick said.
Foreclosure resales amounted to 38.8% of homes sold in August, down from a peak of 56.7% in February. DataQuick said most of the decline was the result of a rise in sales of non-foreclosed homes, but there is also a backlog of properties that have been repossessed by banks but have yet to be put on the market.

The key here is the amount of homes that are being withheld from the market. Foreclosed homes are by definition sold at distressed prices. The mere act of withholding homes will therefore artificially boost home prices, especially median home prices, which are an imprecise measure of home prices.

Long-Term View of Southern California Housing

If we take a longer term view of home prices, the housing situation in Southern California becomes a lot bleaker. Here’s a chart from the LA Times showing median home prices and home sales, with the % change from a year ago:
The median price is down 45.5% from its peak of $505,000, reached in 2007, and 16.7% below the same month a year ago. The median price for combined home sales in Los Angeles, Orange, Riverside, San Bernardino, Ventura and San Diego counties hit bottom in April at $247,000.

The worst of the decline in housing prices is most likely behind us. It’s the second wave of perhaps 10-20% declines in prices that will come as a surprise to many. The catalysts? Option ARMS, rising unemployment, and a flood of foreclosures hitting the market at once.