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In hard-hit markets, some see signs of bottom

Although evidence is mixed and tentative, some analysts see evidence that hard-hit housing markets in California, Arizona and elsewhere are showing signs of healing.
Image: House sold in Long Beach, Calif.
A "sold" sign is shown outside a home in Long Beach, Calif., recently. Sales prices have risen from year-ago levels in hard-hit California, especially in coastal areas. Nick Ut / AP file
/ Source: contributor

Syd Leibovitch, owner of Rodeo Realty in Los Angeles is doing what many real estate agents can only dream of: expanding. In the past three months, Leibovitch has hired more than 40 agents and is opening a new office on Hollywood’s Sunset Strip.

“My sales last year were 30 percent higher than 2006, which was our best year,” said Leibovitch, who specializes in luxury homes in the Los Angeles area. “A lot of my competition closed or went out of business entirely, and I picked up a lot of their agents.”

He attributes some of business improvement to buyers feeling more optimistic and sellers being more realistic with pricing. But declining inventory is also helping.

“We have very little inventory of low-priced homes,” he said, referring to homes under $400,000. “Banks have held back foreclosures because they are under political pressure to work with borrowers to make a deal.”

Southern California’s coastal region might be one of the few bright spots in a state that has nine of the top 20 metro foreclosure rates nationwide and a 12.4 percent unemployment rate. Still, despite the gloomy numbers and mixed reports in recent weeks, some economists see evidence that Western states like California, Arizona and Nevada—the ones hit hardest in the housing crisis—are showing signs of healing. Home prices in Los Angeles, Phoenix, San Diego and San Francisco have risen for at least six months.

“The epicenter of the boom and bust will be the leaders of the recovery,” said Lawrence Yun, chief economist for the National Association of Realtors. “Those three regions went through a big boom and a big bust and I think they overcorrected and are making solid gains compared to the rest of the country.” He sites multiple bids on lower priced properties, prices beginning to stabilize and inventory levels coming down as evidence that the bottom is in sight.

Others aren’t as optimistic. Celia Chen, senior director at Moody’s, predicts that housing prices will fall again this year, especially in states where foreclosures have been rampant like California, Nevada and Arizona. Nearly 1 million loans have been temporarily modified over the past year under a federal program to keep people in their homes, and Chen believes many of these will fail in coming months, especially given the nation’s 10 percent jobless rate. “New foreclosures will come onto the market and bring prices down again,” she said.

Housing numbers released over the past week have painted a mixed picture, muddied by a  federal tax credit that was set to expire and then was expanded. After a strong growth from September through November, existing home sales plummeted 16.7 percent in December from November, according to the Realtors. Yun and others attribute the swing to first-time homebuyers hurrying to close on properties before the Nov. 30 deadline for an $8,000 tax credit. Congress has since extended the program April 30.

A closer look at the West reveals a few positive signs in three of the hardest-hit states:

Southern California
Andrew LePage, analyst for MDA DataQuick who focuses on the San Diego region, confirms what Leibovitch of Rodeo Realty observed: Higher-priced homes in southern California’s coastal regions are starting to sell.

“The high-end market was comatose in 2008 and 2009, and the spring and summer of 2009 was the only time we saw anything close to normal activity,” said LePage. “Foreclosure resales are down, and there aren’t as many coming through the pipeline.”

Leibovitch is seeing multiple offers for houses in the $400,000 to $700,000 range; his $300,000 inventory is sold out.

The California market improved in part because of the state’s $10,000 tax credit for new homes, which was in addition to the original federal $8,000 first-time buyer’s credit and the more recent $6,500 credit for repeat home buyers.

“That was enough to encourage a lot of people to make a purchase,” said Brad Hunter, chief economist for Metrostudy, a national housing market research group. Moreover, Los Angeles and San Diego were already built up, so they didn’t experience the same kind of rampant overbuilding that affected inland cities like Bakersfield and Riverside, said Robert Denk, economist at the National Association of Home Builders.

The lower end of the market has been showing consistent growth so has most likely hit a price bottom, but there is an important caveat. “If a large number of foreclosures happen this year, especially over a short period, like six months, the price stability we’ve seen will be jeopardized,” said LePage. A lot depends on the unemployment rate.

Arizona has two things going for it: Unemployment has stayed below the national average at 9.1% and the state has a consistent population growth. From 2007 to 2008 Phoenix added  116,000 people, according to the Census Bureau.

Still, the market is heavily dominated by foreclosure activity, with about 4 percent of homes foreclosed on in Maricopa County, which includes Phoenix, in 2009. But foreclosures have remained flat on a quarterly basis. The upside is that banks are able to foreclose properties quickly in Arizona because there is no lengthy court process as in Florida, and it doesn’t have the 30-day notice requirement for a trustee sale that California has.

“Foreclosures hit hard and fast, but it means you get through the pain a little faster than in most places,” said Michael Orr, head of The Cromford Report, a real estate analysis company. “The new normal is back to 2000 pricing.”

Orr said sellers are starting to undervalue homes, so they’re getting more bids. The average sales price per square foot has been slowly trending upward in recent months, according to The Cromford Report.

“We have not hit bottom, but we are seeing a stabilization in the starter home market of $250,000 and below,” said E. Patrick LaVoie, president of Equity Capital Group, a private equity firm. Added Brad Hunter of Metrostudy: “I don’t know if this is definitely the bottom, but the freefall is over.”

Las Vegas
The poster child for rampant speculative home buying, Las Vegas had the highest metro foreclosure rate in the country for 2009, according to RealtyTrac. More than 12 percent of  households in the metro area received a foreclosure notice in 2009, a whopping five times the national average.

Still, foreclosure activity was down in the fourth quarter of 2009 from the third, as it was in all 10 areas with the highest foreclosure rates. Las Vegas has experienced a roller-coaster ride the past four years, with home prices falling 56 percent from its peak to its low point.

Despite these obvious challenges, there is a silver lining. Home sales soared in 2009, as prices fell so low buyers couldn’t pass them up. Local Realtors reported 46,879 housing sales in 2009, up 64 percent from 28,618 in 2008. In fact 2009 was the second-best year on record for sales of existing homes in southern Nevada.

“We see a tightening supply due to lack of new home construction, and there are multiple offers on foreclosures and short sales,” said Paul Bell, president-elect for the Greater Las Vegas Association of Realtors. He said properties in good locations priced right could see anywhere from three to 25 offers.