The expanding mortgage crisis and credit crunch slammed the Los Angeles housing market in August, with home sales plunging 50 percent from the same month last year and 25 percent from July.
Sales of new and existing homes in Los Angeles County slid to 4,107 units in August, just under half the 8,246 units that sold in August 2006 and well below July's 5,458 units, according to figures compiled for the Business Journal by Melville, N.Y.-based HomeData Corp.
The pain was widespread, as only a handful of the county's nearly 300 ZIP codes managed to eke out any sales gains. August's plunge was even more dramatic considering that the month is traditionally one of the more robust for home sales.
The number of houses that changed owners represents the second-lowest monthly total since HomeData began compiling Los Angeles County data in January 2004. Only the 3,661 homes sold in February one of the slowest months for sales was lower.
Similar carnage took place in the condo market with year-over-year sales plummeting 40 percent to 1,168 units. Sales were off 27 percent from July's 1,601 units.
"These numbers are the first to show the beginning of the impact of the credit crunch that materialized in the last couple months," said Robert Kleinhenz, deputy chief economist with the California Association of Realtors.
Yet, as has been the case throughout the housing downturn so far, median home prices managed to hold their own. August's median dropped slightly from its record July level to $579,000, though it was still 5 percent higher than year-earlier levels. Condo prices actually hit a new peak of $460,000, up from July's $450,000 and from $415,000 a year ago.
Whether the drop in sales is the start of a bleak trend or is merely a statistical aberration tied to the abrupt onset of the credit crunch remains to be seen.
"The size of the drop is unusual and bears close watching in the months ahead," said Delores Conway, director of the Casden Forecast at the USC Lusk Center for Real Estate.
The differing trajectories home sales down but median prices up has been due to a strong market for high-end homes with sale prices exceeding $2 million.
But last month, even this market took a hit as borrowers had a much more difficult time obtaining so-called jumbo loans, or those exceeding $417,000.
"Everything was great until about a month ago. Then, on one day Thursday, Aug. 9 everything changed as lenders shot up rates on jumbo loans to 9 percent and further tightened guidelines," said Syd Leibovitch, owner of Beverly Hills-based Rodeo Realty, which mostly deals in homes worth more than $2 million.
"It became almost impossible to find a jumbo loan."
For 10 days, Leibovitch said, sales of high-end homes came to a screeching halt. "We lost about a half-dozen deals," he said.
Finally, towards the end of the month, sales picked up a bit as alternative sources of financing chiefly savings and loans and credit unions began to step in.
The mid-range market went through similar turmoil last month.
"We had a dramatic slowdown in activity in August. When the credit crunch hit, people didn't know what to do and they just froze. It was like the Sept. 11 aftermath all over again," said Gregory Holmes, associate manager with Coldwell Banker residential brokerage in Studio City.
Holmes said that "shock to the system" washed out almost all the buyers with less than prime credit or those who were unable to come up with 20 percent down payments.
However, he said there are still some buyers who do qualify for prime loans and can come with a $150,000 down payment on a $750,000 home. "They are just a little harder to find now than a year or two ago when we had all those bidding frenzies."
Home seller blues
This relative scarcity of buyers has put the squeeze on sellers. Leibovitch said about two-thirds of his firm's clients with listings have pulled them and chosen to wait out the market instead of accepting a lower price. That has put a further damper on home sales and it may also help explain why the average length of time homes have stayed on the market has declined from a high of 68 days in the first quarter to 50 days in the second quarter. Normally, a lengthening of the figure would be more consistent with a collapse in sales.
"Those people who can afford to wait are definitely taking their homes off the market," Kleinhenz said.
He also pointed to the unsold homes inventory, which measures how long it would normally take to sell all homes on the market. Last month, the inventory stood at about 12 months, nearly 50 percent higher than the historical average of 8.3 months. However, the all-time high was 28 months back in early 1991.
"Back then, people were moving out of the region in droves, mainly because they had lost their jobs. We had net out-migration. These people had to sell their homes, no matter how long it took. Today, it's a different story," Kleinhenz said.
Some homeowners who have decided to move and are not getting sufficient offers on their homes have chosen to rent out their homes on a temporary basis until the market begins to recover, according to Harvey Mark, a Long Beach area Realtor with Coldwell Banker.
Mark said the impact of August's credit crunch on his clientele was less severe than in other areas of the county. "There are fewer buyers and the ones who are out there are a little gun-shy because of all the bad press in recent weeks. But they are all eventually buying. They are jumping on competitively priced properties," he said.
Mark's territory in the Belmont Shore area of Long Beach has fared comparatively better than the rest of that city or the rest of the county, with home sales only off 7 percent from August 2006 and the median home price up about 5 percent.
It's quite a different story in lower-priced exurbs like the Antelope Valley or lower-income inner cities communities like Compton and Lennox. Besides the national credit crunch, these regions have been hit particularly hard by foreclosures stemming from the subprime lending crisis.
For example, the HomeData figures show that the four Palmdale ZIP codes experienced a whopping 70 percent decline in home sales last month from August 2006 levels. Prices were off 6 percent to almost 15 percent.
In three Compton ZIP codes, volume was off 62 percent to 75 percent, with price declines reaching almost 14 percent.
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