Golden state continues to lose its real estate luster

August 27, 2008

New figures show the once-soaring housing market in California continuing an earthbound descent. According to an index that tracks home sales in major metropolitan areas, the price of a single-family home in June fell an average of 15.9% from last year. But the same index, the Standard & Poor’s Case-Shiller Composite-20, released Tuesday, also reported a 25.3% price drop in Los Angeles, a 24.2% decline in San Diego and a 23.7% drop in the San Francisco Bay Area. Only Las Vegas, Miami and Phoenix fared worse, with home prices falling 28.6%, 28.3% and 27.9%, respectively.

The S&P figures come on the heels of equally gloomy numbers from the real estate industry. On Monday the National Association of Realtors said the number of existing homes across the U.S. sold in July rose 3.1% on a seasonally-adjusted basis, while the national median price of an existing home fell around 7% to $212,400. For the same month the California Association of Realtors reported a 43% uptick in the number of existing homes sold statewide but a 40% median price slump, to $350,760, for existing homes.

Lower prices could help those Californians who’ve been priced out of the once-booming housing market, but the state is also among those hardest hit by the real estate bust, and sales volumes in many areas is being pushed by “deeply discounted, distressed sales,” according to CAR President William Brown.

Earlier this month foreclosure tracking company RealtyTrac said more homes across the U.S. are ending up in the hands of mortgage lenders. The company tracks preforeclosure actions including notices of default sent to borrowers, public auctions of homes and bank repossessions. Last month some 28% of foreclosure activity nationwide involved banks repossessing properties under default, while almost a third of foreclosure activity in the Golden State involved so-called real estate-owned properties. Nationwide, foreclosure activity rose 55% on a year-over-year basis, but was up 85% in California.

Analysts don’t see the housing correction easing any time soon. In a research note Tuesday Merrill Lynch said home prices remain well above those reached before the bubbly heights of the housing boom and sees prices nationally falling a further 15% to 20% by the end of next year.

BMO Capital Markets echoed that view.

“Increasingly, our national housing crisis is slowly becoming a series of regional crises with most of the pain felt in Florida, Arizona, Nevada and California. That said, regional price declines will be with us for a while and given that California represents roughly one-third of our GDP, housing will be a drag on economic growth for at least the next four quarters,” the broker wrote to clients Tuesday.

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