Short sales and foreclosures made up 52 percent of all recent Southern California home sales – Lenders aggressively pricing lower-end properties to move. Two Pasadena examples.
The Southern California housing market is starting to have fewer places to hide in regards to zip codes immune to the correction. The latest data shows a fractured market where over 52 percent of all home sales in the last month were distressed properties. This is clearly not your father’s housing market. We are deep into uncharted waters and as the shadow inventory begins to leak out into the market, we are starting to get a sense of how lenders are approaching the clearing out of inventory. Much is being made about the recent jump in sales but put into context as you will see, is nothing more than bouncing along the bottom. Some tend to think that once a bottom is reached that we will somehow have another boom. That is highly unlikely unless the overall economy and more importantly, wages improve. No one is going to buy a McMansion with a McDonald’s income anymore. The boom lasted for a decade but was completely based on artificial mortgage products that no longer exist (and likely will never come back). We will also look at the low end of the correction in mid-tier cities like Pasadena.
Southern California by the numbers
Southern California home sales are up by 8 percent year-over-year but what wasn’t in most headlines was that the median home price fell at the same time by 3.7 percent driven by investors and FHA first time home buyers looking at cheaper starter homes. If you look at the chart, that jump barely even registers:
To put the current sales rate in perspective 23,000 homes sold in February of 2004 (over 50 percent more sales 8 years ago). The shadow inventory is still large with properties with high mortgage balances:
The bottom line is the market is hungry for cheaper properties however many sellers do not want to accept this fact so demand has shifted to short sales and REOs for the past couple of years. If you want to see delusion in action take a look at Zillow’s “make me move” option and you will see it in full force. Even with mortgage rates at record low prices and very generous products like FHA insured loans that only require 3.5 percent down, the market seems to be moving lower in mid-tier to upper-tier areas.
If we look at how much Southern California home buyers are committing to their mortgage payment we see that it has completely collapsed:
Californians are committing to roughly a 60 percent lower mortgage payment than they were from 2005 to 2007. Let us look at Pasadena to see what is happening at the lower-end.
372 East Ashtabula Street #204 Pasadena, CA 91104
2 bedroom, 2 bathroom, 0 partial bath, 820 square feet, CONDO
This condo is listed as a short sale. I’ve noticed more properties being listed as short sales on the MLS recently. A big move has come from the condo section in various markets. Not sure if banks are triaging the movement in shadow inventory and are choosing to move quicker on condo inventory. The above condo is listed as a short sale.
The list price is $199,500. Even with that price it has been on the MLS for over 200 days. A few years ago it was:
“Prices only go up in Pasadena”
Then it was…
“Prices will remain steady in Pasadena”
Then it was…
“Prices will only go down a little in certain areas”
Then it was…
“Prices will only go down in bad areas”
Then it was…
“Prices will only go down on condos and a little on mid-tier areas”
You get the point. The circles are closing in and problems hit from the bottom first. A sub $200k condo with 2 beds and 2 bathrooms would have been snatched up in minutes anywhere in Pasadena only a few years ago. Today it has lingered for over 200+ days.
Or take a look at the big price cuts now being done by banks on lower-end single family homes:
1430 Forest Ave Pasadena, CA 91103
2 beds, 1 bath 582 square feet
This is an example of how banks are now operating in 2012. The place was listed for $214,900 on December 2011. They reduced the price by $6,000 on January 2012. It was reduced by another $6,300 in February of 2012. The current list price is $202,600.
Look at the pricing history here:
Someone paid $385,000 for this place in 2006. As we have been saying, corrections take many years to play out and trust the data, Pasadena has a pipeline of distressed properties:
This is one example of the many cities in Los Angeles that will face volatile price corrections in the next few years. Banks in the last year have become more realistic. Even in 2010 you would see lenders listing places for the actual balance and letting homes linger for months. Now, on short sales and REOs that do hit the market they seem to be priced to move. The shadow inventory is large and California mid-tier markets are in the process of seeing lower prices.