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Southern California property values sink below historic norms

June 7th, 2009 11:30 AM by Lehel Szucs

Southern California property values sink below historic norms

IHS Global Insight says Los Angeles County home prices are now 6% undervalued. But ongoing foreclosures and economic woes mean the market bottom may not yet have been reached.
By Peter Y. Hong
June 5, 2009
Southern California property values have sunk below historic norms, various indexes show, but ongoing foreclosures and economic woes mean that the market bottom may not yet have been reached.

The forecasting firm IHS Global Insight reported this week that Los Angeles County home prices are now 6% undervalued. Its calculations are based on home prices, interest rates, area incomes, population density, and historic premiums and discounts in given markets.

California's unemployment rate was 11% in April, according to the California Employment Development Department, the fifth-highest rate in the nation.

IHS also qualified its findings, saying that "it is too early to call a bottoming," as "job losses continue, housing inventories remain elevated and consumers remain wary in light of economic uncertainty."

The IHS report came two weeks after a National Assn. of Home Builders index of purchasing ability hit the highest level in its 18-year history. The NAHB/Wells Fargo housing opportunity index showed that 73% of homes sold in the first quarter of this year were affordable to families earning the national median income of $64,000.

In Los Angeles County, 42% of homes sold in the first quarter were affordable to a median-income family, up from a recent low of 2% in the first quarter of 2006, the index showed. Orange County's home prices for the first quarter made 48% of homes sold affordable to a median-income family there, up from 3% in the fourth quarter of 2005.

The comparable first-quarter affordability index figure for the Inland Empire was 73%, up from 7% in mid-2006. San Diego County's index rose to 60% in the first quarter, compared with 4% in late 2005, and Ventura County's 61% affordability index was up from 8% in mid-2006.

The housing market still must clear a backlog of foreclosed homes and faces more than 100,000 potential foreclosures. In the first quarter, 135,431 mortgage defaults -- the first stage in the foreclosure process -- were recorded in California, MDA DataQuick said. Foreclosed properties are typically sold at deep discounts by lenders who need to get the properties off their books, dragging all prices down.

Low mortgage interest rates have also fueled many recent purchases. But the sub-5% loan rates so common in recent months may be history. The Mortgage Bankers Assn. reported that the average 30-year fixed-rate mortgage for the week ended May 29 was 5.25%, up from 4.81% the week before.

peter.hong@latimes.com
Posted in:General
Posted by Lehel Szucs on June 7th, 2009 11:30 AM

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