The median home price in Los Angeles County rose for the fourth consecutive month in May. But the increase may reflect a lopsided market where higher-priced homes are selling faster than cheaper properties, which have been hurt by the implosion of the subprime loan sector.
The median sales figure hit $585,000 last month, up 6.4 percent from one year earlier and up 1.7 percent from the previous month. May was the third consecutive month in which the price hit an all-time high. Upward moving prices are widely seen as a sign of strength of the home market.
However, the number of homes sold continues to swoon. In May, 5,666 homes changed hands in Los Angeles County. That was down 37 percent from May of last year, which itself was down 17 percent from May of the previous year. Likewise, April had seen a 29 percent fall in year-over-year sales. The figures are from HomeData Corp., a Melville, N.Y.-based company that tracks housing data.
Several local real estate brokers and experts said those figures along with other data and observations on the ground indicate that the higher end of the market continues to do well while sales of mid- to lower-priced homes have significantly slowed.
The overall subprime loan sector has been hurt in recent months. As a result, lenders are getting strict about making loans to subprime borrowers, or those whose credit is blemished or whose employment record is spotty.
"The tightening of the lending criteria is hitting the lower end. That's where the subprime loans were," said Delores Conway, director of the Casden Real Estate Economics Forecast at the USC Lusk Center for Real Estate. "Now you have to qualify at the full adjustable rate, and that is keeping out some of the buyers. So there are fewer buyers because of the tighter lending standards."
That not only hurts subprime borrowers, it also sets back most sellers of low- and mid-priced homes because they have far fewer buyers. As a result, they're less able to move up to the next price level, even if they qualify for a prime loan.
The California Association of Realtors data indicates that while every segment of the market has seen significant slowing, there is a greater inventory buildup of homes in the sub-$500,000 price range than in the higher-end of the market.
As of April, there was 14.6 months of unsold inventory in the county in the under-$500,000 price range. That figure reflects the time it would take to sell all the homes in that bracket currently on the market if sales continued at their current pace. Meanwhile, there was 12.1 months of total unsold inventory for April, relatively better but still up sharply from 5.6 months a year earlier.
Experts say a healthy market in equilibrium generally has about a seven-month supply of homes. Homes are sitting on the market longer, too. As of April, homes were sitting on the market an average of 55.5 days before they sold, compared to 34.5 days for the same month a year earlier.
"In essence, the low end of the market is falling out with a steeper drop in sales and greater price softness. The higher end is seeing a drop in volume, though not as severe, and some price gains," said Robert Kleinhenz, deputy chief economist for the state association.
The analysis is being reflected in the offices of mortgage and real estate brokers across the region, who say that tightening lending standards in the lower end are killing some deals that would have been made months ago.
Mark Cohen, who heads the Beverly Hills-based mortgage bank and brokerage Cohen Financial Group, said he has seen a drop in volume in all segments of the market, though it clearly has been more severe at the bottom.
"There are fewer transactions (in the low end) and that is impacting the whole market," Cohen said. "The credit requirements are getting more rigorous."
Burbank, a middle-income community with a wide spectrum of home sales, is a good example.
In the 91506 ZIP code the median price dropped 7 percent to $625,000 in May when compared to May of last year, with sales volume off 35 percent to 17 homes sold. In the 91504 ZIP code, the median price was down 14 percent from May of last year to $710,000 with volume off 27 percent to 19 homes sold.
Bill Toth, owner of Windermere Real Estate in Burbank, said he recently had a client who was not able to purchase a home there when the job offer he had received was rescinded.
The mortgage lender did a final check of his employment and found out about the lost job. The lender cancelled the loan, which had already been approved, and the client lost his $25,000 deposit.
Prior to the subprime collapse, Toth said the client would have received the loan. "The guy could have gotten the home easily, without a doubt. (Lenders) weren't doing final checks of employment. They would just make sure he fogged a mirror," he said.
Toth said the overall effect has been to slow sales, though it has been worse at the bottom end of the market. He suspects sellers who have to sell because of relocations and other critical reasons may have to cut prices to move homes.
"At the end of summer, if people who really need to sell drop prices, then we may see a further decline in prices," said Toth, whose company operates in Burbank, Glendale and Toluca Lake.
Lower-income communities such as Newhall have been especially hit hard in recent months. In the 91321 ZIP code, the median price dropped 35 percent in May to $393,000 while volume was off 64 percent to 12 homes sold.
And those sharp volume declines are coming as the lower-income communities are seeing a sharp build-up in inventories. "As mortgages reset, some people who couldn't afford the mortgages are selling and that is why there is more material in the market," Conway said.
Though the low end of the market has been hit hard, higher-end areas like Brentwood are doing well. Experts cite a robust local economy as well as a strong job market and interest rates that remain historically low as reasons for the strong high-end market. And such areas are several steps away from the problems at the lower end.
In the Brentwood 90049 ZIP code, sales were up 83 percent to 22 homes sold. At the same time, the median price increased negligibly by less than 1 percent to $1.85 million. In the West Hollywood 90069 ZIP code, the median price rose by 26 percent to $1.73 million while volume increased by 38 percent to 11 homes sold.
"We are still seeing an increase on the Westside," said Marge Chirchick, an agent with Rodeo Realty Inc., a high-end local brokerage. "We have normalized on the Westside."
Chirchick said that the ultra high-end market where homes start in the $2 million range is particularly strong, with buyers paying higher and higher prices for properties.
"We are still seeing multiple offers," she said. "Not only are people getting want they want, but they are getting more."
Overall, according to HomeData, the median price of a home sold in the county in May rose $10,000 from April. That followed increases of $15,000 and $10,000 in each of the previous two months.
That recent price surge $35,000 over three months is a departure from the span of 11 months that preceded it. During that time April 2006 through February prices in L.A. County flatlined at or within $5,000 of the $550,000 level.
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