Multiple factors combined to limit home sales throughout the San Fernando Valley during January, yet the drop to record-low levels of distressed sales means the local residential real estate market is on a stronger, solid foundation, the Southland Regional Association of Realtors reported on Wednesday, Feb. 26.
A total of 349 single-family homes closed escrow across the San Fernando Valley during January. That total was down 11.2 percent from a year ago and off 31.0 percent from December. It was the seventh consecutive month that year-over-year sales were lower.
Similarly, 152 condominiums closed escrow last month, down 6.2 percent from a year ago and off 26.9 percent from December.
“The demand for housing remains fundamentally strong, even though the winter months typically see reduced activity,” said Roger Hance, president of the Association. “I expect inventory and sales to pick up as Spring approaches and buyers and sellers adjust to the new market realities. This is the real deal, folks. These are the new rules the market will operate under for months if not years to come.”
The biggest part of that adjustment is the plunge to lowest levels of distressed properties since SRAR began keeping the statistic. Distressed sales represent, a segment of the market resulting from the economic collapse of the last decade that saw thousands of homes come on the market at a reduce price via foreclosures or short sales, where the lender allows a home sale at a price lower than what is owed.
The investors who scooped up those low-priced properties have largely vanished, along with the bargains as prices rose higher. Foreclosures and short sales during January fell to the lowest level—15 percent—since SRAR started keeping the statistic. Of the total 501 combined residential sales, 18, or 2.6 percent were via foreclosure, while 57 transactions were short sales, or 11.4 percent.
A year ago January distressed sales accounted for 34.0 percent of the market.
But the demise of investors and distressed properties clears the way for good news—the rise of traditional buyers and sellers, who accounted for 84.0 percent of the January activity compared to 65.0 percent a year ago.
“The market will adapt as buyers and sellers come to grips with an extremely low inventory, reduced affordability, and tighter loan qualification standards,” said Jim Link, the Association’s chief executive officer. “What we’re going through is not necessarily a bad thing. We need to recalibrate. Yet it’s important for buyers to understand that lenders will not give loans to people who cannot qualify.
“Loans are available,” Link said, “if buyers have really good credit, a good employment history, and a significant downpayment.”
Even then, there are financing alternatives, such as FHA and VA, that can lower the downpayment and interest rate while easing buyers into homes.
Link and Hance stressed that the disappearance of the “funny loans” at the root of the crash of the last decade, and the quick run up in resale prices last year as distressed sales were gobbled up, clears the way for a traditional market, which includes slower price increases.
The median price of the 349 homes that changed owners last month came in at $485,000, up 15.5 percent over a year ago and 2.1 percent ahead of the December median price. The median price peaked at $520,000 in May and September, and has been hovering between $465,000 and $485,000.
The condominium median of $315,000 was up 12.5 percent over January 2013 and 1.6 percent higher than December. It, too, peaked at $335,000 in August and has been bouncing up and down between $300,000 and $315,000 since.
Hance and Link said they expect to see a modest increase in the number of homes listed for sale as the typically busy summer months approach.
At the end of January, however, there were 1,297 listings reported on the Association’s Multiple Listing Service. That was up 26.5 percent over a year ago and the inventory has been trending higher, but the supply remains at critically low levels. For comparison, more than 3,000 listings would be needed to provide a balanced market where neither buyers nor sellers held an advantage.
The Southland Regional Association of Realtors® is a local trade association with more than 8,900 members serving the San Fernando and Santa Clarita Valleys. SRAR is one of the largest local associations in the nation.
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