“Experts expect the gains to continue, though not necessarily at such a brisk pace.” – L.A. Times Business Section
We ended 2012 with sharp gains, rounding out the first solid year of sustained improvement in the real estate industry after nearly five years of frustration. This gain has also helped to pave the way for further improvement in 2013.
The region’s median home price registered a 19.6% burst in December, real estate firm DataQuick reported Tuesday. A record level of cash buyers flooded into the market and more move-up homes sold last month. While housing is on the road to recovery, the recent steep increase in the region’s median price probably reflects several factors, such as the mix of what sold in December, and the run-up may not continue at that brisk pace, experts said. The median is the point at which half the homes in the region sold for more and half for less.
“There is no possible way that number can be sustained nor should anybody look at that as a long-term trend,” said Stuart Gabriel, director of the Ziman Center for Real Estate at UCLA. “We haven’t shifted from bust back to bubble, and nobody should think we have, and nor likely will we.” The median is heavily influenced by the types of homes selling, and some of last month’s pricier sales may have been driven by fears of increased tax burdens on the wealthy, as Washington wrangled with the “fiscal cliff” negotiations.
A rise in prices will mean more homeowners who had been underwater — owing more on their mortgages than their homes are worth, a condition also known as negative equity — can now put their properties on the market. That would help ease the region’s inventory squeeze, which is another major factor driving up prices.
The 2012 housing rebound came after foreclosures declined, housing inventory plummeted, mortgage interest rates hit record lows and demand from investors surged last 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.”
The decline in foreclosures has been aided by an increase in short sales, as The Times recently reported, as well as other loan aid 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 in Southern California reflects market dynamics as fewer sales are logged in cheaper neighborhoods and pricier places take off.