The Breakdown | Explaining Southern California's economy
Business & Economy

In Southern California, declining foreclosures are helping home prices rise

A "for sale" sign stands outside a home in Pasadena, California. Prices in Southern California are gaining strength as foreclosure activity ebbs. And according to DataQuick, August sales haven't been this good since 2006.
David McNew/Getty Images

RealtyTrac, a Southern California-based real-estate information service, released a report yesterday on August foreclosures that showed a big 42-percent drop in foreclosure starts in the state.

Now DataQuick, also SoCal-based, has put out an August report in Southland home prices that indicates a decline in foreclosures is helping prices in the region gain some upward momentum. This is from the company's press release:

Home prices have edged higher this year as greater demand, triggered by super-low mortgage rates and a mild economic recovery, has been met by a shrinking supply of homes for sale. But recent gains in the median sale price also reflect two other trends: a sharp drop in foreclosure resales, which often sell at a steep discount and are concentrated in lower-cost areas, as well as a substantial increase in mid- to high-end transactions.

It certainly makes sense that "mid- to high-end transactions" are on the way up. With interest rates at historic lows, if you have the money to buy — and are shopping in the upper reaches of the market — it's getting easier to talk yourself into a purchase. That's colliding with limited inventory to move prices north. Supply and demand. Simple.

But as pricing data from other sources, chiefly the Case-Shiller index (which includes Los Angeles among the 20 cities it tracks), show, the drag that the foreclosure crisis has exerted on the Southland housing market is beginning to ease. 

Taken as a whole, all this data strongly suggests that housing prices in Southern California are finding a bottom. The question now is whether the market will return to normal and allow prices to begin the kind of steady appreciation that would mean that the bottom is behind us and real recovery is on the horizon. Sales are definitely picking up — DataQuick reports that this was the best August since 2006, when the region was at the end of the real-estate bubble. But sales and prices aren't the same thing.

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