HOUSING: Bargain-hunters swarm market

New foreclosures raise question: Will it be enough?
This story has been corrected since its original posting.

By CHRIS BAGLEY - Staff Writer | Wednesday, April 16, 2008 11:38 AM PDT ∞

Dennis McCarbery said the "affordable" price of a bank-owned house in Murrieta's Copper Canyon neighborhood helped to draw him from the San Pedro home where he and his late wife had lived since the late 1960s. His daughter, real estate agent Cynthia Nordskog, said lenders are pricing many foreclosed homes so aggressively that they draw multiple bids. / DAVID CARLSON Staff Photographer

Foreclosed houses and bargain-hunting buyers have flooded Southwest County's real estate market since year-end, a turn that has slammed prices but also hinted at a possible "bottom" to the yearlong downturn, according to a series of sales reports and interviews with agents.

Escrows closed on 522 homes in March, the largest number since August 2006, according to monthly totals from the region's most widely used real estate listing service. The number rose by double digits from year-ago levels in January, and again in February and in March.

Lenders have slashed asking prices as they scramble to clear foreclosed properties from their books to make room for more properties they're seizing from delinquent borrowers. The average price of single-family homes sold in the area fell to $337,000 last month, down 26 percent from March 2007 and 33 percent from a peak in May 2006, according to The Californian's analysis of figures from the database.

Foreclosures accounted for 56 percent of the homes sold in Riverside County last month, according to a separate report released Tuesday morning by DataQuick Information Systems.

A bank-owned house in Murrieta's Copper Canyon neighborhood drew Dennis McCarbery last month from San Pedro, where he had lived for 40 years. A buyer borrowed the full $670,000 price of the 3,200-square-foot house in September 2006, when prices in Southwest County were peaking. When the market turned south over the next few months, he was unable to sell it to avoid foreclosure. The lender, Avelo Mortgage LLC, sold it to McCarbery for $385,000.

McCarbery, who had first looked at several dozen houses in and around San Pedro, said it was a steal.

"To move out here and get something that was a dream come true is quite a shock," McCarbery said.

"It's much more affordable than what I would've done" in the Los Angeles area, he added.

That refrain was common in 2003 and 2004, but had practically disappeared by 2006 as prices threatened to soar out of reach. Buyers increasingly bridged that gap with non-traditional mortgages, including those with initially low payments that would rise after two or three years. Thousands of homeowners in Southwest County weren't able to keep up, and many also discovered they were unable to sell because market prices wouldn't allow them to pay off their loans.

McCarbery's daughter Cynthia Nordskog, a real estate agent, said she's seen growing numbers of interested buyers since mid-January. She's sold houses to just two clients this year, including her father, but they've had to bid against others in both cases, she said. A third client was outbid on three bank-owned houses and is finally in escrow on a fourth, she said.

"The increase in buyer activity will help define the floor in prices," Nordskog said.

That could also depend on the number of newly foreclosed properties coming onto the market, and on how aggressively lenders are willing to price them. Lenders owned about 2,500 properties in Southwest County last month, and about 5,000 more were in earlier stages of foreclosure, according to foreclosureradar.com, a subscription service. At the current pace of sales, it would take about 11 months to sell all listed homes in the area.

But the quickened pace since December has driven that number down from about 22 months, according to this newspaper's analysis of local data from the general listing service.

Separately, DataQuick Information Systems, a research firm, reported that 2,690 new and existing homes sold last month across Riverside County as a whole, down 27 percent from March 2007. The countywide median price, the point where half the homes sell for more and half sell for less, fell to $306,000 from $420,000, DataQuick reported.

The median price of homes in Southern California as a whole stood at $385,000 in March, a sobering comedown from a record $505,000 in March 2007, DataQuick reported. The 24 percent drop represented the steepest one-year decline since 1988.

Agents in Southwest County said they hope the lower prices will bring in enough buyers to halt that. Several agents said they began to see bargain-hunting investors edge back into the market late last year. Increasingly since February, the buyers include young families and retirees, agents said.

In an interview earlier this month, real estate agent Erin Lawrence said eight of her clients were in escrow to buy houses. In four of the cases, the clients were planning to live there. Two other buyers were investors. In the other two cases, parents were buying houses for their adult children.

Lawrence ended an 11-month dry spell in late March when she sold two houses, thanks in part to the lower prices that banks are offering on foreclosures.

"That's all there is to show," Lawrence said.

The broader regional market is struggling with a sagging economy and the unwillingness of lenders to gamble on prospective home buyers who had no trouble qualifying for home loans just a year or two ago. Outer suburbs whose economies are focused more heavily on real estate and construction are being hit particularly hard.

In some cases, even borrowers with solid credit ratings and good jobs are being rejected for loans, reducing the pool of buyers who might create enough demand to stop the real estate market's hemorrhaging.

"If we go into a recession and it turns out to be long and deep, things could still get a lot worse," DataQuick analyst Andrew LePage said.

A recent government-mandated change designed to encourage lenders to offer more mortgages above $417,000 could still lubricate the market by expanding the number of buyers who can afford to bid on Southern California's more expensive homes.

The moribund market is prompting many prospective home sellers and buyers to stay on the sidelines until they see signs of a revival, said Marshall Prentice, DataQuick's president.

"Often what we're left with, especially in inland areas, are sales driven by foreclosure or the threat of it," he said.

The Associated Press contributed to this report. Contact staff writer Chris Bagley at (951) 676-4315, Ext. 5444, or cbagley@californian.com.

Correction

An article on page A1 of The Californian Wednesday, "Bargain Hunters Swarm Market," misspelled the name of real estate agent Cynthia Nordskog.

Additionally, one reference to the real estate research company DataQuick Information Systems did not include the company's full name.

We apologize.

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