Southern California’s housing market ended last year with sharp home-price gains and the highest sales for a December in three years.
The region’s median home price rose 19.6% in December over the same month last year to hit $323,000, real estate firm DataQuick reported. A record level of cash buyers flooded into the market and more move-up homes also sold last month.
“The housing market had more to offer in 2012 than many anticipated,” DataQuick President John Walsh said in a statement. “A lot of markets not only found a price bottom as foreclosures waned, but they started to see their first meaningful gains in nearly two years.”
The rise in the median, which is the point at which half the homes in the region sold for more and half for less, was essentially flat from the prior month, up only 0.6%. San Bernardino and Riverside counties posted the strongest year-over-year increases, up 20.0% and 19.1%, respectively, indicating that the once hard-hit Inland Empire is now probably in recovery.
An estimated total of 20,274 new and previously owned homes and condominiums sold throughout the six-county region. That was a 5.1% increase from November and up 5.3% from December 2011. Last month’s tally was the highest for a December since 2009.
Last year was the first year of solid improvement since housing crashed in 2007. The strong performance last month indicates that 2013 will also continue to bring home price gains, analysts said.
The gains came as foreclosures declined, housing inventory plummeted, mortgage interest rates hit record lows and demand from investors spiked. The overhang of the last housing bust also resulted in some unexpected benefits.
For instance, the high number of underwater borrowers — or those homeowners who owe more on their mortgages than their homes are worth — actually served as a boost to the market rather than being a drag, as people kept their homes off the market, decreasing inventory.
“The lock-out phenomenon, combined with the rise in investors converting foreclosures intro rentals, lead to a lack of for-sale inventory,” CoreLogic economist Sam Khater wrote. “With home prices rising in 2012 and 2013, tight for-sale inventory will begin to ease.”
Nationally, CoreLogic reported that home prices were on a sharp upward trajectory in November, with almost all states posting gains that month. The firm’s home price index report, also released Tuesday, showed that home prices nationwide increased 7.4% year-over-year.
“Consistent price increases throughout 2012 have started the process of lifting households out of negative equity, which will support home sales and refinancing volumes,” Paul Diggle, an economist for Capital Economics, wrote in an emailed analysis. “Lower levels of negative equity is good news for housing market activity and sets up a virtuous circle of rising activity leading to rising prices and pushing negative equity down further.”
In California, buyers can anticipate little new inventory on the market. A supply of only about 2 1/2 months’ worth of single-family homes for sale was available statewide at the end of December, the California Assn. of Realtors reported Tuesday. A supply of six or seven months is considered healthy by most economists.
Supply from distressed sales, particularly from foreclosed homes, will remain tight as those homes are being quickly snapped up by investors even as the number of troubled borrowers entering foreclosure continues to decline. The number of notices of default — the first step in the formal foreclosure process — fell 14.5% in December from November and dropped 39.8% from December 2011, according to foreclosure tracker ForeclosureRadar.com. The decline in foreclosures has been aided by an increase in short sales, as The Times recently reported, as well as other loan modifications for borrowers. The drop in foreclosures should continue to help lift prices.
“For 2013, we largely expect more of the same,” Sean O’Toole, chief executive of ForeclosureRadar, wrote in a blog post this week. “Demand will remain strong thanks to Federal Reserve-manipulated low interest rates and affordability. Housing supply will remain constrained, largely due to government foreclosure intervention. As a result, prices will rise, though likely at a slower pace.”
The increase in the median home price is also being heavily influenced by the change in Southern California’s market dynamics as fewer sales are logged in cheaper neighborhoods and pricier places take off. Throughout Southern California, sales of mid-to-higher-cost markets rose in December, DataQuick reported. Sales of homes between $300,000 and $800,000, the typical move-up range, jumped 31.4% year-over-year. Sales of homes above $500,000 soared 40.0% year-over-year, while sales of homes of more than $800,000 were up 36.3%.
Meanwhile, cheaper neighborhoods posted weak sales. Most notably, the number of homes throughout the region that sold below $200,000 dropped 28.1% while those below $300,000 fell 18.2%.
Sales of foreclosed homes made up just 14.8% of the market last month, down from 15.4% the month before and 32.4% in December 2011. That compares with a high of 56.7% of the market in February 2009. Cash buyers and investors are also playing a big part in snapping up home inventory. Cash buyers bought up 33.8% of all resale homes last month, while absentee buyers purchased 29.1% of Southland homes in December, DataQuick said.
Join us for a live video chat at 1:30 p.m. with DataQuick analyst Andrew LePage, Zillow.com chief economist Stan Humphries and USC’s Richard Green, director of the Lusk Center for Real Estate.
The former home of Don Knotts in Glendale is for sale at $1.295 million.
The Colonial Revival house, built in 1934, has been restored and updated. Features include a foyer that steps down to the living room, wood-beam ceilings, a decorative fireplace, coffered ceilings in the dining room, a breakfast room, a den, three bedrooms, two full bathrooms, a three-quarter bath, a powder room and 3,213 square feet of living space.
Knotts, who died in 2006 at 81, was known for his role as bumbling Deputy Sheriff Barney Fife in “The Andy Griffith Show” during the ’60s, about the same time he owned the house. He won five Emmys for his supporting role in the sitcom. Among his scores of film and TV credits, he joined the cast of “Three’s Company” in 1979 for a five-year stint as landlord Ralph Furley.
The sellers paid $600,000 for the property in 2003, public records show.
Troy Gregory of Sotheby’s International Realty is the listing agent.
Kay Sun, a 32 year-old administrative assistant put down a deposit last month on a 2.85 million yuan ($460,000) one-bedroom apartment in Shanghai.
It was a financial stretch for the single Ms. Sun, who works at an information-technology firm in a position that typically pays about 15,000 yuan a month. She needed money from her parents to fund the down payment.
Her move may seem bold, but she isn’t atypical. Around China, signs are growing that a government campaign to bring housing prices closer in line with incomes is starting to bear fruit.
That is breathing new life into China’s real-estate market and economy. Data slated for release Friday is expected to show growth in gross domestic product accelerating to 7.8% year on year in the fourth quarter, up from 7.4% in the third.
Since 2009, average disposable income in China’s cities has risen around 43%, but house prices only 11% according to official data. An average-priced apartment purchased outright would now cost around 16 years of average income, still high by international comparisons but down from a high of 21 years in 2007. That raises hopes that millions of young professionals will be able to get a hand on the first rung of the housing ladder, buoying demand.
In Shanghai, the campaign—which includes purchase restrictions on multiple homes and higher down-payment requirements—has kept average property prices flat for two years, according to data from property consultancy SouFun. Meanwhile, Ms. Sun said her salary rose by more than 10% on average each year, typical of many white-collar Chinese workers, placing her at a point where a house purchase seemed within reach.
“It’s not cheap, but the location is good,” she says of the apartment in a high-rise building in a residential district north of the Shanghai Bund. “I heard that prices may start rising this year, so I thought, better to buy now, since I can afford it.”
Chinese house buyers pay a much higher multiple of their incomes on purchases than do buyers in the U.S., where prices are typically a midsingle digit multiple of average income. In 2010, as prices approached astronomical heights, the government stepped in to halt escalation, allowing incomes some space to catch up.
Three years after government controls curtailed growth, Chinese developers have turned cautiously optimistic. China Vanke, the mainland’s largest developer by revenue, reported Jan. 7 that sales more than doubled in December from a year earlier, with sales for the year as a whole up 16.2%.
Stocks of major developers have rallied. Shares in Hong Kong-listed China Overseas Land & Investment Ltd. are among the best-performing on the territory’s stock exchange, up more than 90% from the start of 2012, compared with 26% for the overall market.
“Home buyers are returning to the market in droves. One asked me recently, ‘I bought a home on the third floor at a new launch, is that OK’? I said, count yourself lucky you managed to get a unit.” said Yang Jun, a real-estate agent in Shanghai.
Stronger sales are pushing developers to break ground on new projects. New floor area under construction was up 6.3% year on year in November, after spending much of the year in negative territory.
Real estate is the single biggest driver of output in China’s economy. According to the International Monetary Fund, it accounts for about 12% of the total. Factoring in the impact on everything from steel and cement to furniture and home appliances, the sector’s contribution is even higher.
“Steel mills anticipate stronger demand from real estate in the year ahead” said Graeme Train, metals analyst at Macquarie. China’s steel production rose 15% year on year in November after flat-lining in the first half of the year. Rising iron-ore prices have prompted Australia’s Fortescue Metals Group FMG.AU -1.90% to resuscitate its plans for $1.2 billion in stalled investment projects.
Leaders now seem less nervous about a property bubble. Officials from the Ministry of Housing and Urban Rural Development have said the government will support owners looking to upgrade as well as first-time buyers, raising the prospect they will get better access to mortgage loans.
Developers caution that the recovery has come from a low base. “Although transactions in major cities rose significantly in 2012 from 2011, this is based on the low growth rates in 2010 and 2011,” said Tan Huajie, Vanke’s board secretary.
There are plenty of risks for the market. Three years of government controls have left developers with higher debt and unsold inventory. There is enough residential property currently under construction to meet about five years of demand, without new projects being started, up from 2.9 years in 2009.
A return to the boom years for China’s property isn’t in the cards. Keeping apartments affordable for first-time buyers is a priority for the government, including Vice Premier Li Keqiang who has been a prime force behind the push to build millions of subsidized homes for low-income households.
China’s house prices are edging back up now, with SouFun data showing average prices up 0.03% year on year in January, ending eight months of declines.
Analysts caution that a sharp rise in prices would likely trigger a return of strict controls by the government.
“We will be looking to invest in smaller-scale projects this year,” said Freddy Lee, chief executive of major developer Shui On Land 0272.HK +0.80% . Mr. Lee said that the developer suffered from cash flow issues following heavy investment into large-scale, mixed used projects in recent years.
After quietly shopping their SoHo apartment around this summer, Kelly Ripa and husband Mark Consuelos have officially listed the penthouse for sale at a pricey $24.5 million.
Described as an “unparalleled penthouse,” the Manhattan property at 76 Crosby St. (also listed as 81 Spring St.) is enormous, measuring 6,792 square feet with 5 bedrooms and 4.5 baths.
The TV host and her actor husband bought the home in 2005 for $9.5 million and completed a two-year renovation to bring it to the luxury residence it is today.
The home has high ceilings, stained white oak floors with radiant heating and a custom kitchen stocked with high-end appliances. The master suite is described as the “ultimate retreat,” with two walk-in closets, soaking tub and steam shower.
French doors lead to a 2,500-square-foot rooftop terrace with an outdoor fireplace and plenty of seating. Another terrace spot, which includes an outdoor shower, is connected to a private home gym.
Ripa and Consuelos also own a home in Southampton, NY. Ripa signed a five-year contract for “Live! With Kelly and Michael” in 2011.
Each month, San Diego State University lecturer and Zillow Blog contributor Leonard Baron will answer two questions from readers regarding buying, selling and investing. Have a question? Send it to Leonard@ProfessorBaron.com
Real estate lessons learned
Hi Professor — I enjoy reading the guidance you give in your Zillow blog and writings. I’m just getting started in learning about real estate investing, and I wanted to know more specifics about some of those “hard lessons” you’ve learned. Andrea R., Des Moines, IA
Hi Andrea — Oh there have been so many! Real estate is truly a business that we learn as we go. Where do I start? None of these will I ever do again:
- Fixer-uppers: It seems like it will be fun and profitable to buy a fixer-upper and fix it up! It’s not. There are too many buyers chasing these, so the prices get pushed above what they are worth. Plus it always costs a lot more to renovate and takes a lot longer than you anticipate. Plus you have to pay for all the cost overruns right out of your own pocket. Some people can make these work, but I suggest leaving the fixers to the contractors who are skilled and in the business of renovating properties.
- Prize, negative cash flow properties: I own a really nice beach property that I bought 10 years ago. I didn’t know that rents in prize areas are way too low for the prices the properties command. I’m just breaking even — almost — on the rent, less expenses, after a decade. Moderately priced properties can be cash-flow positive from year one. Buy those!
- Vacation rentals: These are the worst. You’ll hear people say the monthly income pays the entire year’s mortgage, which may be true. The problem is there are all kinds of other expenses, and those expenses as a portion of rental income can approach 80 percent, just like a hotel. A normal rental property is typically 35-40 percent.
- Land investment: Land is 100 percent speculative. Buy assets that pay rental income, dividends or interest, and skip assets where you don’t get some cash return back along the way.
Ask me again in a few months, and I’ll throw more mistakes onto the above list!
Selling one property to buy another
Hi Leonard — I am thinking about selling an investment property I have to buy another. The current one is a good property, pays me nice cash flow, has plenty of equity and has done well for me. But I want to sell and buy something bigger. Can I do a 1031 exchange. Bob M., Los Angeles.
Yes Bob, you can. But I’m wondering why you would. If you have a great property, that you know well, and it’s doing well, keep it! If you sell, even if you do a 1031 tax-deferred exchange, you’ll spend about 10 percent of the property value in transaction costs, so that equity is wiped out. Keep it! If you want to buy more real estate, find out about a cash-out refinancing on the existing one so you can add another property to your portfolio while keeping the great one you have.
Also, 1031 exchanges are complicated, and you have to be on tight timing. I’ve seen many people sell one property and rush to buy another one — even though it’s a really bad property — because that is the only one they can purchase in the IRS-allowed time frame, and their only goal is to avoid paying taxes. So they sell a good property to buy a real dog.
To summarize, if you have a good property, keep it!
According to a recent survey, people who belong to the Generation X and Generation Y demographics haven’t been deterred by the housing market downturn at all.
A Better Homes and Gardens Real Estate survey found that 75 percent of Gen X and Y respondents believe owning a home is a key indicator of success; 69 percent said the recent housing downturn made them more knowledgeable about homeownership than their parents were at their age.
And it turns out that Gen X-ers and Y-ers are more motivated than some older generations give them credit for. The survey revealed that Gen X-ers and Gen Y-ers are willing to take second jobs (40 percent said they would) or move in with their parents (23 percent) in order to buy into the American Dream of owning a home.
The real estate market during the past five years was certainly scary, especially for younger and less experienced home buyers. And so, a lot of people in Gen X and Gen Y sat on the sidelines. But the market has definitely bounced back, and many believe that now is a great time to buy. You just have to be savvy about it.
Here are five tips to help Gen X-ers and Gen Y-ers buy into the American Dream.
Have a five-year plan
Unlike the boom years, don’t assume a home purchased today will appreciate in value within five years. If you’re unsure about your five-year plans, it’s better to rent.
Use technology creatively
It’s well-documented that Gen X-ers and Gen Y-ers start their home search online. Real estate listings sites, mortgage calculators and valuation tools such as Zillow’s Zestimate® home value are typically places a buyer starts. But, once you’re in the market, there are tons of online resources. Less obvious tools, such as Google Street View, can help, too. It once helped a client realize that the home she wanted to buy in San Francisco’s Hayes Valley neighborhood may not be as safe as she thought. Google Street View revealed that there were previously bars on the windows of the ground-floor apartment.
Beware of information overload
Using the Internet and apps, home buyers today have an unprecedented amount of data available. Sometimes, however, it’s too much and can cause the buyer to shoot themselves in the foot. For example, a buyer might learn that the seller stands to make a 10 percent profit in a short amount of time. Even though the profit is in line with current market values, that information might cause the buyer to make a low offer and kick themselves a month later for missing out on a great house.
Don’t assume you don’t need a real estate agent
Because so much information is online, many Gen X-ers and Gen Y-ers might think they can buy a home on their own. However, the role of the agent is no longer about finding the listings. It’s about presenting the offer and getting it accepted, getting through inspections and getting the deal done. A real estate transaction can go 50 different ways now. A good agent will steer a buyer on the right path. A savvy agent will know the ins and outs of any local market better than an uninformed buyer with a full-time job and family. It’s their business to be in the know, and it’s what they do all day long. Experienced agents will have a strong network in the local market that can give you the added edge. Good agents like to work with other good agents. Finally, keep in mind that a listing agent might not even consider working with an unrepresented buyer.
Look for opportunities to increase the home’s value
Baby boomers and preceding generations could more or less count on staying in their homes for many years and, in turn, their homes’ steady increase in value over time. After the market downturn, however, that’s not the case. Because they’re so mobile, Gen X-ers and Gen Y-ers in particular should steer clear of buying the best home on the best block. Instead, look for ways to add value. Look at homes that don’t show well, are marketed poorly or are outdated. Don’t be afraid of doing light remodeling or making smart improvements that will add value. If you have to sell your home sooner than you’d planned, you’re covered.