Market Activity
California single-family home and condominium sales fell 16.8 percent
in September from August, but were nearly unchanged from a year ago. An
18.7 percent monthly drop in distressed property sales drove the
decline in September sales.
Bear in mind that September’s double-digit drop in sales is not
unusual for this time of year because sales volume typically declines in
fall and winter.
To get a clearer picture of current real estate sales trends and to
eliminate seasonal factors, we compare September 2013 property sales to
September sales in prior years. Last month’s sales were slightly lower
than sales in September 2012 and the lowest since September 2007.
Dividing sales into their distressed and non-distressed components,
distressed property sales fell 47.7 percent in the past 12 months while
non-distressed sales jumped 40.2 percent. Though distressed property
sales declined in September, they still accounted for 24.2 percent of
total sales, which is historically very high. In six of California’s
largest counties — Stanislaus, Solano, San Joaquin, San Bernardino, Kern
and Fresno — distressed property sales represented 32 to 35 percent of
total sales.
Dividing distressed property sales into short sales and bank REO
resales can provide a better understanding of underlying trends. Short
sales fell 18.3 percent in September and are down 46.3 from a year ago.
Also, bank REO resales are down 19.5 percent for the month and down
50.2 percent year-over-year.
Homeowner Equity
The steady rise in home prices since January 2012 has allowed
thousands of California homeowners to shift from being underwater to
having positive equity so they can refinance or sell their homes. Since
July, the number of homeowners with more than 10 percent equity in their
homes has increased by 10.4 percent, or 465,000. The number of
homeowners who are moderately to severely underwater has fallen by 37.1
percent or 682,000.
Despite the improvement, large numbers of underwater homeowners
remain a drag on the California real estate market. In September, nearly
one in four, or 1.5 million (22 percent) of California’s 6.8 million
homeowners were underwater while more than 420,000 (6 percent) were
barely above water (less than 10 percent equity in their homes). Since
closing costs are 6 to 10 percent of a home’s sale price, these
homeowners are effectively underwater. Added together, 28 percent of
homeowners (nearly 2.0 million) are underwater or barely above water,
which effectively shuts them out of the California real estate market.
Several of the largest counties in California continue to struggle
with much higher levels of negative equity. In Fresno, Merced, Solano,
San Joaquin, and San Bernardino counties, 27 to 34 percent of
homeowners, or one in three, are moderately to severely underwater.
Median Prices
The median sale price of a California home fell $5,000, or 1.4
percent, to $355,000 in September from $360,000 in August, the second
consecutive monthly decline. Year-over-year median prices increased
24.6 percent from $285,000 to $355,000.
Rapid monthly home price increases that typified the California real
estate market earlier this year appear to have slowed ore reversed
course in direct response to a 100-basis-point increase in mortgage
interest rates in June. Despite the slowdown in price appreciation
statewide, homes in Orange, Placer and Riverside counties still
experienced solid price appreciation in distressed and non-distressed
properties.
Rapid changes in the mix of distressed and non-distressed property
sales from 2012 to 2013 continue to influence the year-over-year change
in median prices. In September 2012, distressed property sales accounted
for 46.1 percent of sales. By September 2013, distressed property sales
had fallen to 24.2 percent of sales.
The following graph highlights median sales price trends from January
2002 to September 2013. Aggregate single-family home median sales
prices are shown in blue, and distressed and non-distressed median
prices are shown in red and green, respectively.
Cash Sales
In September 2013, cash sales represented 24.5 percent of total
sales, up 0.1 percentage points from 24.4 percent in August. Taking a
longer-term view, cash sales as a percent of sales oscillated between 28
percent and 31 percent from January 2012 through January 2013. They
peaked at 33.0 percent in February 2013 and have been below 25 percent
since August 2013. From a historic perspective, cash sales remain high
and are an important part of the real estate marketplace even though
they are now trending lower.
Flipping
Mirroring the normal seasonal slowdown, September 2013 flipping
(reselling a property within six months) fell 10.3 percent from August
but was up 4.8 percent from a year ago. Flips represented 4.7 percent
of total sales in September, up from 4.3 percent in August.
Taking a longer-term view, in 2011, as housing prices trended
sideways, flipping was basically flat, ranging from 2.5 percent of sales
in January to 2.7 percent of sales in December 2011. In 2012, flipping
as a percent of sales began to increase, rising from 2.9 percent of
sales in January 2012 and peaking in February 2013 at 5.5 percent.
Flipping retreated from February 2013 to June 2013, reaching an interim
bottom of 4.1 percent of sales. In the past three months, flipping has
edged higher because investment returns remain attractive.
In September, flipping as a percent of sales was highest in San Diego, Sacramento, Fresno and San Joaquin counties.
Investor (LLC and LP) Purchases
September 2013 investor purchases fell 18.0 percent from August.
Investor purchases are defined as a market or third party purchase at a
trustee sale by a limited liability corporation (LLC) or a limited
partnership (LP). In general, investor purchases have been trending
lower since peaking in October 2012 and are now 54.9 percent below that
peak. This is being driven primarily by the increase in purchase
prices. As prices increase, the potential return on investment (ROI)
for holding properties as rentals decrease, making it less attractive to
investors.
Foreclosures
September foreclosure sales
fell to their lowest level in seven years. California Notices of
Default fell 21.6 percent in September, the largest one-month decline
since March, and are down 56.1 percent for the year. Meanwhile, Notices
of Trustee Sale dropped 20.3 percent for the month and fell 61.5 percent
for the year. Foreclosure sales gained 1.8 percent for the month but
remain near their lowest levels since January 2007.
Madeline’s Take – Director of Economic Research, PropertyRadaR
For the second consecutive month, September sales
and
median prices fell simultaneously as the California real estate market
responded to the increase in mortgage interest rates, the decline in
cash sales and investor purchases, and an increase in unsold inventory.
As we predicted last month, Fed Chairman Ben Bernanke chose to keep
QE3 bond purchases at current levels to support the housing market. The
violent mid-June bond market reaction to Bernanke’s mere mention of
slowing QE3 bond purchases caught the Federal Reserve by surprise. The
100-basis-point jump in 30-year mortgage interest rates was enough to
send the Federal Reserve scampering for cover and postpone any further
talk of tapering to 2014. As a result, mortgage interest rate
volatility declined and fear-based real estate buying and selling
retreated into the background. While sales have retreated slightly in
response to higher borrowing costs, lower prices and increased inventory
is welcome news for homebuyers who have been shut out of the market.
Sean’s Take – Founder/CEO, PropertyRadar
I recently testified at a State Senate hearing on the Home Owner Bill
of Rights. Many are excited about the large reduction in foreclosures,
and point to it as a sign that the housing market has recovered. As I
reviewed foreclosure and housing trends in preparation for my testimony
one thing stood out to me above all others. Despite all of the
foreclosures to date (over 1 million in CA alone), short sales, loan
mods, and refinances, we still have 1.5 Million homeowners who remain
underwater. That’s only a bit more than 50 percent lower than where we
started over five years ago. I’m glad the market feels better, but real
recovery should be far farther along, and still has a long way to go.
Real Property Report Methodology
California real estate data presented by PropertyRadar, including
analysis, charts and graphs, is based upon public county records and
daily trustee sale (foreclosure auction) results. Items are reported as
of the date the event occurred or was recorded with the California
county. If a county has not reported complete data by the publication
date, we may estimate the missing data, though only if the missing data
is believed to be 10 percent or less of all reported data.
Source –
Property Radar
Looking
back on the index, the biggest home price jumps were in 2004 and 2005,
when values were up as high as 16 percent annually. Those prices were
fueled by cheap and easy credit,
which certainly does not exist today. They were also fueled by
speculators who bought and flipped homes at a fast clip, putting no skin
of their own in the game.
