By Zach Fox, North County Times, Escondido, Calif.
Oct. 9--House sales strengthened significantly last month compared with a year ago as buyers swarmed North County's foreclosure-dense neighborhoods, according to a report released Wednesday. But while sales were almost double a year ago, the numbers remained below 2005 levels and new foreclosures persisted.
The crush of activity has led some real estate agents and analysts to say that house prices will not drop much further in some lower-priced neighborhoods such as areas of Escondido and Oceanside.
However, recent turmoil in the overall economy, from credit markets to employment, could exacerbate the real estate recession and delay any recovery, said Norm Miller, a real estate professor at the University of San Diego Burnham-Moores Real Estate Center.
Meanwhile, many coastal areas where prices are relatively stable and foreclosures rare have not seen a similar jump in house sales, according to several reports.
"Those markets are paralyzed," Miller said. Both buyers and sellers "are sitting on the sidelines, and that's smart. ... Why make a decision in a panic?"
Overall, house sales increased 92 percent from a year ago in North County, according to HomeDex, a monthly housing report released by the North San Diego County Association of Realtors.
A real estate recession that began three years ago has wiped out at least $118 billion in equity across North County.
Last year's sales were woefully low, dampening the significance of last month's sales jump. For perspective, last month's sales were 25 percent above September 2006 but 18 percent below 2005 numbers.
Still, sales did boom in two neighborhoods that have bore the brunt of the foreclosure wave ---- north Oceanside and east Escondido, according to the report. In Oceanside's troubled area, sales were up 248 percent while Escondido's foreclosure center saw sales jump 306 percent from the same month a year ago.
In those neighborhoods, real estate prices have fallen as much as 60 percent from 2005 levels, according to sales records. Real estate agents said investors jumped into that market because prices are low enough that rent covers the monthly cost of a mortgage.
By contrast, sales in Carlsbad and Encinitas increased by about 30 percent to 40 percent from a year ago, according to the Realtor report. For many of those houses, mortgage costs still exceed rental costs as prices have dropped only 10 percent to 15 percent from two years ago, based on several house sales.
Agents said that has translated into a trickle of buyers at more desirable areas while a multitude of buyers scour the foreclosure clusters along Highway 78.
For example, Dennis Smith, a real estate agent based in Carlsbad, said he had not sold any houses near his office over the last few months. Instead, he is representing buyers in the foreclosure clusters of Oceanside and Escondido.
He said those areas have stopped depreciating while some subdivisions have even seen prices increase slightly from a month ago. "We're seeing some bottom resistance here, which is really exciting," Smith said.
But for buyers, the high demand can be frustrating as bidding wars over foreclosures are becoming more commonplace, real estate agents said.
One of those exasperated buyers is Pat Hubbard, a Valley Center homeowner looking for an investment property. Recently, he also helped some family members look for houses. In total, they submitted 50 bids until closing on two houses for relatives, he said.
He is still looking for an investment property.
"Anything that's nice in the way of a foreclosure, it's just gone right away," Hubbard said. "Tract homes are all over the place, but if you're trying to find an individual foreclosure in good shape, it's tough."
The median price fell again, down 32 percent from a year ago for all houses in North County. But because the median measures the middle point of all sales, with half selling for more and half for less, the measurement has not been representative of price movement during the real estate recession that began in late 2005.
A year ago, lower-priced houses struggled to sell, inflating the median price. And now, lower-priced houses dominate the market, depressing the median.
Instead, the Case-Shiller Home Price Index measures the price of a house compared with its previous sales price. By that measurement, real estate prices across the county have fallen 25 percent over the last year as of July, the latest month available.
And plenty of indicators point to continued weakness even as foreclosure-heavy areas experience a boom in activity.
Historically, real estate prices do not bounce back, but rather remain low for years before appreciating again.
Foreclosures have not subsided and default rates on mortgages have steadily risen over the last few months, according to several industry reports.
Also, September sales probably do not reflect the turmoil in credit markets over the last few weeks because housing contracts take up to 45 days to close. A tightening of credit might make it tougher for interested buyers to qualify for a mortgage, slowing sales.
Further, North County incomes have failed to keep pace with inflation while San Diego County has lost jobs for five of the last six months, according to data from the U.S. Census Bureau and California Employment Development Department.
If employers continue to shed jobs, foreclosures could worsen and the buyer pool could diminish. "It means we're going to be in a recession and it's going to last a while," said Miller, the University of San Diego professor. "And that will further hurt everything ---- housing, car purchases, retail sales. Everything."
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