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The stock market’s in a tizzy. The Commerce Dept. reported that housing starts fell 12.8% to a record-low pace of 458,000 in April from a revised 525,000 in March. This crucial measure of new home construction is down more than 54% from a year earlier and 79.8% below the 2.27 million peak in January 2006.
Obviously this is not good news for the economy and construction jobs but folks looking at housing starts as an indicator of the health of the real estate business are missing what’s really going on in the market. Nobody’s buying new homes because existing homes are so cheap.
Look at the stats released today from MDA DataQuick: Southern California homes sold at a faster pace than a year ago for the 10th consecutive month. A total of 20,514 new and resale houses and condos closed escrow in the six-county Southern California marketlast month. That was up 31.4 percent from 15,615 a year ago. Last month’s sales were the highest for that month since April 2006, when 27,114 homes sold.
Foreclosure resales – homes sold in April that had been foreclosed on in the prior 12 months – accounted for 53.6 percent of all resales last month. “The deep discounts associated with foreclosures have created stiff competition for builders, who last month sold the lowest number of newly constructed homes for an April since at least 1988,” DataQuick said.
The number of single-family houses that resold last month was at record or near-record-high levels for an April in many of the more affordable, foreclosure-heavy inland markets. They included Palmdale, Lancaster, Moreno Valley, Perris, Indio, San Jacinto, Lake Elsinore and Victorville. The sales picture was dramatically different in many older, high-end communities closer to the coast, where foreclosures and deep discounts are less common. Sales of existing houses remained at or near record lows for an April in markets such as Beverly Hills, Malibu, Palos Verdes Peninsula, Manhattan Beach and Pacific Palisades.
Among the reasons high-end sales remain so sluggish: The “jumbo” mortgages needed to buy such homes have been more expensive and much harder to obtain since August 2007, when the credit crunch hit. Before then, nearly 40 percent of Southern California sales were financed with jumbo loans, then defined as over $417,000. Last month it was 10.9 percent, DataQuick said.
BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.