California leads US housing market out of bust that it began
'Golden State' that led the US market into the abyss with reckless subprime lending is now at the forefront of national housing recovery
California, the state that led the US into the housing boom and bust with some of the most reckless subprime mortgage lending, is now leading the way out.
A plunge in new defaults in California helped push US foreclosure filings to the lowest level in almost five years, according to RealtyTrac, a seller of home-loan data. Across the country, 531,576 properties received notices of default, auction or repossession in the third quarter, down 13 per cent from a year earlier and the lowest since 2007. One in every 248 households got a filing, RealtyTrac said.
California, the birthplace of subprime mortgage lending, saw an explosion of foreclosures thanks to such industry innovations as "no-doc" loans that required no proof of income. The state's recovery is mirrored by US home values, which rose 1.2 per cent in July from a year earlier, according to the S&P/Case Shiller Index of property prices in 20 major cities. It was the second straight 12-month advance and the biggest jump for the real- estate gauge since August 2010.
"We're starting to see improvement in some of the hardest hit areas, strong demand, competitive bidding on properties and rising prices," Sean O'Toole, chief executive of ForeclosureRadar.com which tracks sales of foreclosed properties, said in a phone interview.
The gains were moving in tandem with foreclosure declines as lenders controlled the flow of bank-owned homes that came to market, crimping inventory and pushing up prices, said Daren Blomquist of RealtyTrac.
Initial filings last month fell in 31 states, led by California, the most-populous US state, which dropped to a 69-month low. Defaults dropped 45 per cent from a year earlier, 34 per cent in Arizona, 22 per cent in Michigan and 21 per cent in Georgia, RealtyTrac said.
Home sales in California's biggest population centres climbed in August to the highest level since 2006, according to real-estate research firm DataQuick. Median house and condominium prices in six Southern California counties jumped 11 per cent from a year earlier to US$309,000, while values in nine counties in the San Francisco Bay Area gained 11 per cent to US$410,000, the San Diego-based company said.
"Much of the pickup reflects a continuation of trends we've seen for months, like the unleashing of pent-up demand in move-up markets and high levels of cash and investor buying," DataQuick president John Walsh said last month.
The Los Angeles-based builder KB Home has gained 118 per cent this year. That compares with the 75 per cent advance for the 11-member Standard & Poor's 1500 Homebuilding Index.
New home orders in the US were likely to remain robust, said Barclays.
"We expect building-product companies to remain profitable, driven by momentum in the new-home construction market and offset by continued weakness in discretionary housing products," Barclays analysts led by Vincent Foley wrote in a note to investors.
Investors and first-time buyers who can qualify for a loan were being lured to lower-priced locations, even with a 3.2-month supply of homes statewide that was about half the historical average of a "balanced inventory", said Leslie Appleton-Young, chief economist of the California Association of Realtors.
At the height of the housing crisis, inventory stood at more than a 16-month supply, she said earlier this month.
"Sales would be higher if the inventory weren't so constrained," Appleton-Young said during the call. "We don't see that changing significantly in 2013."
California home sales probably will increase 1.3 per cent to 530,000 units next year for the third consecutive year of gains, the Los Angeles-based Realtors Group forecasts.
Estimated sales of 523,300 this year would represent a 5.1 per cent jump from last year.
"Pent-up demand and first-time buyers will compete with investors and all-cash offers on lower-priced properties, while multiple offers and aggressive bidding will continue to be the norm in mid- to upper-price-range homes," said Appleton-Young's forecast.
The country's top banks, including JPMorgan Chase and Bank of America, agreed to a US$25 billion settlement in February after attorneys general in 49 of 50 states participated in a probe of fraudulent paperwork used to repossess homes.
Driving the recovery in California had been the relative speed it worked through foreclosures, in part because home repossessions did not require judicial review as they did in about half of US states, said Ivy Zelman, chief executive of Zelman & Associates. There are 24 non-judicial states, says RealtyTrac.
A new California law that takes effect on January 1 may make it harder for lenders to seize property, which could delay the clearing of distressed homes and a swifter statewide recovery, Blomquist said.
"We've been seeing a downward trend in new defaults, while the market in California is gradually improving," Blomquist said. "The danger is that the law will delay foreclosures in the short term, and be followed by a spike down the road."