The median price of homes sold in Los Angeles County crashed through the $400,000 level in September and landed at $380,000, according to sale data supplied to the Business Journal.
Home prices here have not been that low since early 2004 about the time the dramatic run-up in home prices was gaining steam.
The number surprised even some veteran real estate experts.
"I didn't think that there was going to be a significant downturn in values, certainly not this quickly," said Harvey Mark, a real estate agent with Long Beach brokerage Coldwell Banker Coastal Alliance.
By any measure, the drop in home prices was dramatic. The median price in September 2007 was $580,000. That means the price sunk $200,000, or 35 percent, in one year, according to data supplied by Hicksville, N.Y.-based HomeData Corp.
The drop was sharp even from the previous month. In August, the median price was $404,000, which means the price dropped $24,000, or 6 percent, in one month.
Experts said the cause of the dramatic slide was clear: a rising tide of distressed and cut-rate properties. Many of the bargains are being snatched up despite the credit crunch.
The buyers? They were said to be investors flush with cash, sometimes buying several homes at once, as well as first-time homeowners who qualify for federal programs aimed at propping up the housing market.
"This morning, we had an office meeting and one of my agents told me that 30 percent of our inventory is in escrow," said Chris Boumann, a broker owner at Red Carpet Heritage Realty in Downey.
Indeed, the number of homes that changed hands went up sharply. There were 4,769 homes sold in the county in September. That was up 22 percent from August and up 18 percent compared with September 2007. By comparison, even during the height of the boom, volumes typically fell in September after the strong summer sales season.
(All comparisons are adjusted to reflect inconsistencies in HomeData's monthly reporting period.)
Many of the sellers were banks, which are starting to slash prices on foreclosed properties they have sometimes held for months. The failed IndyMac Bank, taken over by the Federal Deposit Insurance Corp. in July, had 46 foreclosed homes for sale in L.A. city alone recently, according to the bank's Web site.
"We are seeing these low prices in the market because right now quite a few foreclosures are up for sale by the banks," said Delores Conway, director of the Casden Forecast at the USC Lusk Center for Real Estate. "People are buying the foreclosures, and many are investors who want vacation homes or see it as an investment to rent."
Investors continue to target foreclosed properties in some of the cheapest markets, including Lancaster and Palmdale, Conway said.
Builders, too, are cutting deals to unload bloated inventory. KB Home has been offering zero-down deals with price protection. The protection guarantees homeowners will get the lowest possible price at the time of closing. In its second quarter results, the Los Angeles builder reported that it had reduced inventory and debt as a result of such incentives.
But agents on the ground said not all home sales can be attributed to bottom-fishing investors. While the median prices in many ZIP codes dropped, the prices were not always low enough to attract investors.
Instead, agents said they are seeing an increasing number of first-time buyers previously priced out of the market who are now purchasing single-family homes.
Jimmy Spathos, a real estate agent who has been selling homes in Downey for nine years, said more first-time buyers are bypassing banks to secure a loan and instead are getting funding from the Federal Housing Administration.
Spathos said these first-time buyers are qualifying for FHA mortgages, which are insured by the government and require only a 3 percent down payment. As a result, the buyers are entering markets like Downey, where the median home price dropped to $354,000 in one ZIP code.
"The majority are first-time home buyers," Spathos said. "They are buyers who are out and are serious buyers."
The price weakness was spread throughout the county in September as 101 of the 261 ZIP codes had a median price below $380,000. Meanwhile, there was a significant decline in the number of ZIP codes with median home prices at $1 million or above. There were just 25 such ZIP codes in September, down from 36 one year earlier.
However, unlike middle- and working-class neighborhoods, where cash investors and FHA-backed loans were supercharging sales, nothing was propping up wealthy neighborhoods.
ZIP codes in Beverly Hills, Brentwood, Bel-Air and Santa Monica all saw the number of homes sales decline by at least 30 percent last month compared with a year ago. And it wasn't just the credit crunch at work.
Agents noted that many buyers were fearful that price declines weren't close to an end, and even if they were, there was a general skittishness among would-be buyers about laying down big money in such a bad economy.
"Rich people have savings, stock accounts and pension funds, but as everyone suffers, it starts to impact them, too," said Mike Nourmand, president of Nourmand & Associates Realtors in Beverly Hills.
Last week, Nourmand said his firm had a $5.5 million deal in escrow, but the negative stock market scared the buyer. "They backed out of the deal. A month ago, it would have gone through."
Indeed, the plunging stock market coupled with the takeovers and acquisitions of the country's largest financial institutions are expected to continue to take a toll on wealthier residents.
As these institutions work through the current economic crisis, they are likely to lay off executives in addition to their middle-income and lower-level employees.
"With the mergers and consolidations just look at Countrywide being acquired by Bank of America we are going to be seeing layoffs due to consolidation," said USC's Conway. "We just don't know how many and how far that is going to go. It could affect housing prices throughout the county."
Meanwhile, the condominium market, which had cooled a bit in August, also picked up in September in terms of deal-making. But despite a spike in transactions, the median price of a condo fell to $350,000; that's off 22 percent from a year earlier and 8 percent from August.
September sales increased to 1,708 units, up an adjusted 33 percent from last year and an adjusted 17 percent from August. The sales increase surprised some experts.
Paul Habibi, a professor at the UCLA Anderson School of Management, said he wouldn't have expected such a rise, but ventured that developers were likely offering deep price incentives in order to move their inventory quickly.
"Builders are squeezed right now," Habibi said. "They have been offering incentives in price reductions."
Habibi said condo sales also likely were boosted by residents who are downsizing from single-family homes as a result of a worsening economy.
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