As we enter the traditionally “slower” part of the year, there is an interesting mix of changes in the market that are important to point out as we try to figure just how long-and how deep-the price declines in our valley will be.  No one can predict the future, but there is enough information that I think it’s clear that the worst is behind us -how much lower can we go anyway?.  Still,  for most of Santa Clarita we aren’t at bottom yet.  To jump ahead, I will explain why price softness and decline will likely continue in Santa Clarita for awhile-in some parts of town where the foreclosure rate is higher- as much as 2-4 years is possible.  Still, as I have said before, some parts of town (typically older and more established where speculation was minimal and turnover in 2003-2006 was light) we are seeing inventory go down which can lead to stability sooner than later. So, in my constant pursuit of offering good information for you to draw your own conclusions-here is what is definitely happening. I’ll start with the positives:

1. The INVENTORY of homes for sale is down from one year ago by about 30% (2400 homes for sale vs 1731 today). Real Estate is a supply and demand business and inventory going down each month (as 2008 has been thus far) is at the top of the list of things that must happen before prices stabilize.

2. The number of homes in ESCROW is up over last year as well. In Real Estate we talk about (or at least I do), “absorption rates” which is the amount of homes for sale in a given area divided by the amount of homes in that area ‘under contract’. 100 homes for sale, of which 30 are in escrow is a rate of 30%. We have been under 15% for much of the last two years. Today we have 564 homes in escrow and 1731 for sale.  Last year it was about 330 homes in escrow and 2400 for sale-today is more than double the absorption rate of a year ago.

3. Because of price declines, AFFORDABILTY is way up. In late 2004, I warned that less than 20% of first time buyers state wide could afford a median priced home. In Santa Clarita where the median price was almost $600,000, the percentage was even lower. That’s a problem. Today, the median price is in the low 400’s and the number that can afford to buy is almost 40% . There is tremendous strength right now under $450,000 where value, better interest rates and easier qualification are making buyers of many. Investors are seeing that with 25% down they can buy and rent out property and cover their payment. That NEVER happened 4 years ago. Last week there were 61 new sales in Santa Clarita. 60 were under $800,000. 50 were under $500,000. WOW! There are many buyers out there waiting for the market to “bottom out”. First time and entry level buyers aren’t among them-they are bidding on foreclosures like crazy. IF this continues stability will come first to this price point…but we aren’t there yet.

 So there are 3 tangible, verifiable trends that are encouraging for those that are looking for price stability. I even have sellers saying they want to wait until next year because “the market will be better”. I would love for that to happen but do not think it will. Here’s why:

1. Even though the number of homes for sale is down , the percentage of FORECLOSURES is way up. Of the 1731 homes for sale in Santa Clarita today over 800 are foreclosures or in default (“short sales”).  Part of the reason inventory is down is that many “normal” sellers have given up and taken their home off the market-or never tried to start with. So what we have is a market in which every day my “hot sheet” shows the new listings and every day between 40-60% are foreclosures and short sales. Simply stated that is a seller that can AND WILL reduce their price until it sells. There is no “taking it off the market and waiting”. It sells-period. This means further price declines-and possibly big ones-where foreclosure numbers are high.

2. The UPPER END is particularly vulnerable. In Santa Clarita today there are 145 homes for sale over 1 million and 10 in escrow. Taking Agua Dulce out, there are 130 for sale and 9 in escrow. The good news is in the million plus range only 9 of the 130 are in default. Meaning there aren’t a buch of these listings in default which will surely bring prices down more quickly.  The bad news is that that is a very low “absorption rate”.  Because so few people are selling and moving up (the traditional source of power for Real Estate in our Valley), the upper end is going to be slow unless the home is extremely special with little competition. Remember there are 130 for sale!

3. Financing is still incredibly tough, especially for homes over $700,000. Even though the conforming loan is supposed to be $729,900, in practice ALL lenders have higher rates for loans above $417,000 (the old conforming cut off) and are very demanding in terms of documentation and appraisal. This isn’t going to change until lenders really WANT to loan again, especially to the large percentage of people that are self employed or have income beyond W-2’s. Most lenders tell me we will never see a “stated income” loan again. Good or bad, it’s reducing the amount of sales that could lead to quicker price stability. The anticipated boost to the $600,000-$800,000 price range from the increase in conforming loan amounts clearly has not happened. Basically, every price point over $450,000 has all the signs of a bit more decline and the $600-$900 range has a lot more foreclosures than the 1 million plus range so we’ll have to see what happens.

Beyond this, the final reason I am suggesting that a majority of our valley will see further declines is what is still to come. All of the Asset Managers and those “in the know” at the larger lenders predict a continued flow of foreclosures for the next year. They are being snapped up quickly which is good but they aren’t going away soon, which is bad. This one factor-more than any other-will continue to lead prices down, especially over $450,000 where there is so much less demand. Of course, I hope it is not too much deeper. Until recently, people that bought homes from late 2004 to today represented 90% of the foreclosures. Because of price declines I am now seeing homes  bought in late 2003 coming up in default. In short, the foreclosure cycle isn’t close to over.  When it finally is, then I’ll start writing again about the “hot markets” we have seen in the past.

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