Forecast has S. California weathering adjustment

Inland areas of California where the inventory of new homes is the highest and borrowers were stretched to the max are experiencing the greatest pain while adjusting to the new housing market realities, but regions such as Greater Los Angeles are on much more solid footing, C.A.R.'s chief economist said recently.

By WINNIE DAVIS, President, and David Walker

Southland Regional Association of Realtors®

nland areas of California where the inventory of new homes is the highest and borrowers were stretched to the max are experiencing the greatest pain while adjusting to the new housing market realities, but regions such as Greater Los Angeles are on much more solid footing, C.A.R.'s chief economist said recently.

The comments from Robert Kleinhenz, deputy chief economist of the 210,000-member California Association of Realtors, came at the annual Realtor Expo presented by the Southland Regional Association of Realtors.

More than 1,500 real estate professionals attended the technology show and continuing education extravaganza. The show included exhibits by 75 companies that provide invaluable services to home buyers, sellers and Realtors.

Capacity crowds of more than 600 professionals packed educational seminars, including the economic forecast presented by Kleinhenz.

While the biggest adjustment after years of a boom market came in 2006, Kleinhenz said he believes "we're seeing a market still heading toward the bottom."

There was a 24 percent decline in home sales throughout California during 2006, and C.A.R. is forecasting an additional 7 percent drop in activity from record highs during the balance of 2007.

"We've expected this," he said in a recent interview. "We're still seeing a market that is contracting a bit."

While resale prices remain relatively stable, C.A.R. reported a 20.8 percent decline in resale activity during March of this year compared to the year ago figures.

For first quarter 2007, sales were down about 14 percent.

"If you look at the state as a whole, the Bay Area is the strongest market right now," Kleinhenz said. "The Southern California market is doing okay."

However, the inland regions of the state are the areas that will "continue to have a drag on the market in 2007," he said.

Typically, foreclosure activity is much more dramatic in regions of the state where a lot of new homes were built but remain unoccupied. Those regions also saw more loans issued to borrowers with a less than stellar credit history.

"Foreclosure activity is up everywhere," Kleinhenz said, but in Los Angeles foreclosures remain relatively moderate., especially when compared to what happened during the mid-1990s.

"I think we all remember how difficult the economy was then," he said. "What's differentiating this cycle from then is that during the 1990s over the course of three years Los Angeles County lost 750,000 jobs in an economy that was contracting.

"This time around," he said, "we have a housing market that is adjusting down on top of an economy that is expanding.

"I think the people who are getting in trouble are isolated to those who purchased in 2005 and 2006 and got into either a subprime or zero down or some kind of a mortgage that is now adjusting on top of a loan where they do not have any equity," Kleinhenz said.

Demand for housing in Los Angeles remains strong, yet reports of problems with some loans prompted some buyers to delay a decision to buy.

Prices are soft because there are more homes listed for sale, but the inventory in Los Angeles is unlikely to grow enough to have a substantial impact on resale prices.

Indeed, C.A.R. reported recently that the median price of single-family homes in California increased 3.2 percent during March 2007 to $580,090. The median also increased 3.9 percent from the figure reported this February.

"For the first time since October 2006, time on the market fell below 60 days, as we enter the prime home-selling season," Kleinhenz said.

The median price of single-family homes in Los Angeles County was reported at $571,110, up 2.6 percent from a year ago.

Thirty-year fixed-rate mortage interest rates averaged 6.16 percent during March, compared with 6.32 percent in March 2006.

Adjustable-mortgage interest rates averaged 5.44 percent in March 2007 compared with 5.42 percent n March 2006.