SoCal home sales up by 9% as prices fall by 34%

I've been hearing multiple stories lately of investment pools buying up groups of foreclosed properties for as much as 50% off their last sale value, and those transactions are now starting to make the market in Southern California. Currently 45% of transactions here involve foreclosed homes, which is predicted to soon tip over 50% in the next month or two. The result? Downward pricing pressure, especially in places like the Inland Empire where more over-building occurred. So is this a good thing? A story in the L.A. Times explains:

So many foreclosed homes are for sale in Southern California that these distressed properties will soon dominate the market, forcing prices down even further.

About half the homes sold in the region in August had been repossessed, according to figures released Wednesday by the real estate tracking service MDA DataQuick, driving prices down 34% over the previous year to a median of $330,000...

Regionwide, foreclosures climbed to 45.5% of sales in August, up from 10% a year ago. In hard-hit Riverside County, about two-thirds of previously owned houses sold last month were in foreclosure.

The increase in sales of repossessed homes carries ominous implications for home prices. That's because the financial institutions that have taken over the properties are trying to sell them quickly and recover as much of the loans they made as possible.

Although few individual homeowners are willing or able to sell their homes for less than their mortgage amount, banks often sell foreclosed houses at a substantial loss to clear their rapidly growing inventory.

Potential buyers in Southern California have responded to the low prices. Sales in the region were up 9.1% in August from a year ago, according to MDA DataQuick, a development that heartened some in the industry because it came on the heels of a July increase that was the first monthly year-over-year increase since 2005.

But that doesn't mean a recovery is on the way...

Richard Green, director of USC's Lusk Center for Real Estate, said a foreclosure-dominated market was not necessarily a bad thing because the low prices could speed the market's price correction.

"Foreclosures set sort of an indicator price of where the bottom may be," he said...

Christopher Thornberg, principal of Beacon Economics, predicts that it will be six to 10 months before Southern California home prices find their bottom.

County by county, the August numbers showed serious price drops throughout the region. San Bernardino County posted the sharpest decline; its $215,000 August median sale price was down 40.3% from a year ago. Los Angeles County's median price of $380,000 was down 30.9% from a year ago. Orange County's median price of $440,000 was 31.5% lower than a year ago.