Southern California Housing Market Battered by Foreclosures, Declining Home Values

Things are not looking so golden in the Golden State right now.  The housing market in Southern California continues to be battered by declining home prices, foreclosure, too much housing supply, and lack of demand for said houses.

Data released by MDA DataQuick yesterday showed that home sales in January fell 5.9% from the year prior, hitting their lowest level in three years.  Home sales declined 26% from the month earlier.  Home prices also declined 0.6% in January from a year before, posting the first year-over-year decline since October 2009.

Although December and January are typically weak months for home sales before the spring buying season picks up, there are few indicators that conditions will improve significantly in the coming months.

MDA DataQuick President John Walsh commented:

“Lots of potential buyers continue to hold back, waiting for a sign prices have bottomed, that their jobs are safe, or that loans are easier to get.  Sales were lousy, but many investors and others looking for bargains stayed active.”

Meanwhile, foreclosures in California jumped in January, according to ForeclosureRadar, a company that tracks foreclosure filings.  After declining for four months, notices of default rose 6.9 percent from December to January, while foreclosure sales rose significantly.  Sales back to banks rose 51.5 percent, while sales to third parties were up 52.8 percent.  Despite the increase, foreclosures are down slightly from the same time last year.  According to RealtyTrac, California’s foreclosure rate is the third highest in the country, with one in every 200 housing units receiving a foreclosure filing in January.

Many major lenders enacted temporary foreclosure moratoriums at the end of 2010 in response to the robo-signing foreclosure mess.  Most of these lenders have resumed foreclosures despite lingering questions about their foreclosure processes.  Unless there is some widespread change, we can expect that foreclosures will hit a new peak in 2011.

Employment conditions are actually worse than in much of the country, with U-3 unemployment hitting 12.5 percent in December.  So to recap, foreclosures are up and will likely continue to rise, adding to the already high unsold supply of homes.  Unemployment is high, which should serve to stifle already moribund demand for homes.  These conditions should put added downward pressure on home prices, which are already falling.  2011 is not shaping up to be a good year for the California housing market.