Home buyers may emerge as the biggest real estate winners in 2009, as affordability improves to levels not seen since 2003

Delores Conway, a real estate economist at the University of Southern California, says home prices have come down 40 % in Los Angeles and Orange County since the middecade peak. She notes that those prices, coupled with record low interest rates, mean today’s buyers can secure the same monthly payments home buyers enjoyed six years ago. “Most people are aware that home prices doubled and in some places went up as much as 150% — but they’re less aware that rents have also gone up,” Conway told Marketwatch on January 27. “People have to live somewhere.” While occupancies are tight and there is pentup demand, she noted, concerns over job security and the difficulty of getting jumbo loans are keeping the Southern California housing market subdued. Borrowing could improve if the $819 billion economic stimulus package passed by the House of Representatives and in review in the Senate includes additional housing incentives. For example, the current $7,500 first-time homebuyer tax rebate in effect through July 1, 2009, must be repaid over a 15-year period. The House is proposing that the rebate be paid to the buyer at closing, and that the buyer will not have to repay the incentive. Further, the House has recommended that FHA/GSE (Fannie Mae, Freddie Mac) conforming loan limits be permanently raised from $625,500 to $729,750. Senate leaders recognize that more housing stimulus is needed. They are debating government subsidies to expand the tax credit to as much as $15,000, to lower interest rates to qualified home buyers to 4%, and to place a brief moratorium on foreclosures, among other proposals.  Meanwhile, all eyes are on jobs. According to the UCLA Anderson Forecast, employment in coastal California will contract because of less demand for goods and services. The volume of imports coming through California ports is declining, the report notes, while the global recession is weakening demand for manufactured California exports. The fourth-quarter 2008 report also suggests that unemployment could rise as high as 8.5% in Southern California through 2009. Rising unemployment will pressure housing markets further as job losses result in foreclosures that inflate inventories. Yet, there’s hope on the horizon. In January, Fannie Mae announced it is testing a new program to speed up approvals on short sales, keeping additional homes from going into foreclosure. The good news for home buyers is that foreclosures are selling. Out of 838,261 filings made in California in 2008, 165,079 were sold at 39% below the original purchase price, according to RealtyTrac. Home buyers in Southern California are now challenged less by price than by loan availability. With fewer lenders, underwriters and loan officers on the job, there are fewer workers to take new applications, see them through the process, and get loans closed. As interest rates drift down, there are more applications for purchase loans, as well as refinancings. In turn, interest rates rise as lenders reach capacity, to better manage their pipeline. The outlook for home buyers is that affordability is not likely to improve much more. The best home selection in terms of both price (foreclosures, short sales) and appeal (desirable neighborhoods, schools) is disappearing. Buyers should start looking now and be ready to buy when they find the home that best meets their needs for the long term. They should have realistic goals about their housing investment, knowing that home price recovery will be slow for the next few years unless government subsidies ignite a new housing boom.

Sales By Price And Zip Codes 

Property                      Q4/2007          Q4/2008         %Gain/Loss

Lompoc (93436) sales shot up 171.4 percent from 14 units in Q-4 2007 to 38 units in Q-4 2008.

In Buellton (93427), sales increased 75 % quarter over quarter, largely due to a 28.6 percent drop in sales price year over year. Home prices averaged $553,125 in Q-4 2007, and sank to $394,875 for the same period in 2008. Prices here fell the most of any area in Santa Barbara County at 28.6 percent.

Housing sales are more stagnant in Santa Ynez, where the number of listings sold quarter over quarter was down 30 percent. This trend parallels the area’s 30.2 percent gain in average sale prices, up to $2,102,429 in Q-4 2008 year over year from $1,614,000 in Q-4 2007.

Solvang home prices averaged $1,328,583 in 2007, trending down 21.4 percent to $1,044,843 in Q-4 2008.

Santa Maria Sales soared in Santa Maria neighborhoods (93458 and 93454), which more than tripled in volume: number of listings sold increased by a whopping 188.9 percent and 179.2 percent respectively. These high numbers illustrate the power of affordability as Santa Maria home sold prices fell 26.6 percent quarter over quarter. Weak retail, new construction postponements, and 11.2 percent unemployment (well above the national average of 7.2 percent) are chilling the city’s economy. But those with good jobs and credit scores are taking advantage of improved affordability.

Still within conforming loan limits, homes priced between $500,000 and $750,000 also trended upward in units sold for 2008, following a modest one percent in price declines.