Friday, October 24, 2008

California Dreamin' Delayed

California's home sales are rising faster than expected, but home prices remain in the tank, dropping further than originally forecast. Foreclosures are the spoiler.

by Broderick Perkins
© 2008 DeadlineNews.Com
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Deadline Newsroom - Downward price pressure from foreclosures and tight money supplies will send home prices down six percent in California next year, but more affordable prices will boost sales by more than 12 percent.

That's according to the California Association of Realtors' (CAR) Housing Market Forecast for 2009.

Just don't bet the farm (or a real estate investment) on the CAR forecast without considering some history.

This time last year, CAR predicted home prices would decline only 4 percent and it forecast sales would decrease by 9 percent in 2008.

Instead, in 2008, according to CAR's own numbers, prices plummeted by more than 30 percent and sales rose 12 percent.

The problem with forecasting in today's housing market is the difficulty of accurately factoring in the impact of changing market conditions that include foreclosures, tight credit and an economy suffering some of the worst financial ills since the Great Depression. For example, recent unexpected increases in sales has been attributed to savvy buyers and investors snatching up discounted foreclosures.

"Going forward, a great deal depends on the state of the financial system in general and the real estate finance situation in particular, as well as the flow of distressed sales through the market. We expect sales of distressed properties to peak in early 2009 – a critical factor in the housing market that directly impacts the timeframe for stabilization in the median price," said CAR President William E. Brown.

Nationwide, one in every 475 homes was in some state of foreclosure in September. In California that number was one in every 189, according to RealtyTrac's September and third quarter U.S. Foreclosure Market Report.

Foreclosures in California account for nearly a third of the nation's foreclosures and foreclosure sales are yanking down prices from San Diego to Silicon Valley.

In Southern California, with a full 50 percent of all home sales coming from the foreclosure sector, sales skyrocketed a record-setting 65 percent in September, compared to a year ago, as the median price headed south of the $300,000 border, plunging more than 33 percent, according to San Diego, CA-based DataQuick.

Up north, in the nine-county San Francisco Bay Area, some 42 percent of all resale homes sold in September were from the ranks of foreclosures. Sales soared 45 percent, but prices plummeted 36 percent, compared to a year ago, DataQuick reported.

The real estate research firm also said in Silicon Valley, where more than 30 percent of sales came from foreclosed properties, home prices dropped more than 27 percent even as sales charged ahead by 30 percent.

"The current uncertainty about the financial system and economy is likely to persist over the next several weeks, and could extend into next year," said Brown.

"Our forecast assumes that the financial system will begin to show signs of stabilization late in 2008 and into early 2009. We expect that the economy will be at its weakest period over the next three quarters through the second quarter of 2009, with recessionary economic conditions throughout that time period, before we begin to see a turnaround in the second half of next year," Brown said.

It could take longer than that.

Sixty-four percent of those answering a Deadline Newsroom poll "When Will Housing Recover?" say the housing market won't come back until 2010 or later. The rest are banking on 2008 or a 2009 comeback, now a slim-to-none bet.

© 2008 DeadlineNews.Com

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Broderick Perkins, an award-winning consumer journalist of 30 years, is publisher and executive editor of San Jose, CA-based DeadlineNews Group -- DeadlineNews.Com, a real estate news and consulting service and Web site and the new Deadline Newsroom, DeadlineNews.Com's news back shop. In both cases, it's news that really hits home!

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