Falling Home Prices Spur a Return to Normalcy in Affordability in Southern California

By
Real Estate Agent with The Mills Team
Economists and housing market analysts say that with home prices comparable to 2002 and continuing to fall, we could be in for a lengthy period of fairly affordable housing. Typical prices of homes are currently below historical averages in comparison with incomes making them affordable to more buyers than any time since 2000. And if unemployment continues to rise, prices should drop even further.

The median sales price for homes in the South California area in January was 250k, a 40 percent drop from January a year ago, according to a report released Thursday by MDA DataQuick. The falling prices are largely attributable to an increase in foreclosed homes, which represented about sixty percent of January’s sales. Experts say that prices should continue the current trend, falling another 25 to 30 percent before stabilizing. Unemployment claims have been historically high in recent months, which should contribute to the continued dropping in home prices, as people already unemployed or in fear of layoffs are unwilling to buy a home. One analyst predicts that the trend in falling home prices will continue until the middle of 2010. He predicts that In Los Angeles the trend could continue into 2012. The last time LA area home affordability was normal in ‘92, prices continues to drop until ‘97. The La Jolla real estate market has also benefited from falling home prices, as there has never been a better time to purchase a home in La Jolla. La Jolla condos have also hit price drops that we have not seen in years. In addition, many experts are saying that the La Jolla and San Diego real estate market have possibly hit bottom and are beginning to show signs of recovery.

In contrast, the price of homes in higher income areas tend to drop more slowly during a recession as those homeowners are more secure and less affected by foreclosure avoid being compelled to sell their homes. Homes sales in the affluent areas of Bel-Air, Beverly Hills, Santa Monica, Laguna Beach and Newport Beach were all significantly below average as prices have not dropped significantly so the areas have not benefited from the bargain hunting atmosphere that has boosted sales in less affluent areas in recent months.

As home prices and mortgage rates continue to drop, affordability is on the rise. DataQuick of San Diego reports that the average monthly mortgage payment for homeowners in Southern California in January was $1081 as compared with $1239 in December ‘08 and $1940 January of last year. Allowing for adjustments for inflation, average payments are currently 51 percent lower than those from the spring of ‘89, considered the peak of the last real estate cycle and almost 60% lower than the current cycle‘s peak, June of ‘06.

The median price of homes sold dropped significantly in all counties in the Southern California area. The lowest median price of homes reported was San Bernardino County (162k) and Riverside County(195k) due to mass foreclosures. L.A. County’s median price(300k) was down 35 percent from January last year as was San Diego County’s median of 280k. Ventura County’s median dropped 30 percent to 335k and Orange County’s fell 29% to 370k.
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