Local mortgage lenders handle rising volume.

Home sales pick up, but prices continue to drop

L.A. COUNTY - Southern California's savings and loan institutions might understandably lament "more is less." Today's local residential market scenario depicts more home sales, but lower prices.

A recent report by Anaheim-based real estate information company TRW REDI Property Data comparing first-quarter 1995 sales with first-quarter 1996's indicates the number of all homes sold in L.A. County increased from 15,603 to 16,196. Meanwhile, the average price decreased from $219,000 to $214,000.

Interestingly, new-home sales paint a different picture. Sales decreased from 1,114 in first-quarter 1995 to 999 in first-quarter 1996, while the average price increased significantly from $212,000 to $243,000.

"Buy used and pay less" seems to be the battle cry of the huddled masses yearning to be home owners - at a time when the opposite might be expected to hold true. Despite a drop in unemployment, a rise in salaries and a touted end to a debilitating recession, it seems the residential home market remains shaky.

The Northridge earthquake is one of many factors keeping home values down. Buyers are getting some pretty good deals from quake-damaged goods and, in general, opting for used homes rather than the more expensive new ones. They are taking an uncharacteristically cautious stance.

As Sam Lyons of Chatsworth-based Great Western Bank pointed out, people are demanding - and getting - low down payments and high loan-to-value housing, while disgruntled sellers slash prices, foreclosed properties abound, and financing is creative.

Impact is widespread

Although all financial institutions in California have been affected over the last five years, Lyons said he foresees gradual improvement, if the employment situation and interest rates remain favorable. Fixed mortgage rates were around 9 percent during the first quarter of 1995, compared with 8 to 8.25 percent today.

Foreclosures play a pivotal, if not leading, role in the drama. When a homeowner sells a property, the proceeds often come back to the lender because the seller typically uses those funds to buy another home. However, when a foreclosed property, also known as an REO (real estate owned) property, is sold by a lender, the proceeds are not reinvested in another house.

In effect, foreclosures contribute to a stagnant housing market by precluding the possibility of the home owner buying "up" to a bigger, more expensive home.

Unfortunately, government-sponsored enterprises such as Freddie Mac and Fannie Mae are putting increased pressure on lender/servicers to get foreclosures started and completed, Lyons explained, which has the effect of putting more REOs on the market, even when the economy is picking up.

"Their attitude has always been to work with every (homeowner in default) as long as we can, but now it's more 'enough is enough,'" he said. "Now, there's pressure to get the property into the REO stream and resold, which causes a big increase in REOs."

But Lyons said he expects that situation to improve as the economy improves.

On the negative side

Even as the economy picks up, however, other factors are dampening buyers' enthusiasm for purchasing new homes and higher-priced used homes. These factors include the increasing proliferation of multi-family housing and its attendant competition with single-family dwellings; buyers' resistance to commuting from new housing developments in outlying areas, compounded by rising gasoline costs; a "wait-and-see" attitude as housing prices fall; and an inability to "buy up" that stems from lost equity when the market crashed in the early 1990s.

Still, G.U. Krueger, a spokesman for the California Association of Realtors, said he remains optimistic about the short- and long-term future. Affordability has improved significantly, he pointed out. In 1989, only 10 percent of L.A. County households could afford to buy a median-priced home: as of March of this year, that figure had risen to 39 percent.

In addition, home prices have stopped dropping in many areas where industries are thriving.

And, significantly, a recent report by Mortgage Guaranty Insurance Corp., a leading U.S. provider of private mortgage insurance, states that 61,700 jobs were created in 1995 in L.A. County, the nation's largest housing market.