Housing crisis keeps buyers on sidelines
LOS ANGELES (Reuters) - For some prospective home buyers in Southern California, the effect of the U.S. mortgage crisis has been to keep them on the sidelines of the home market, wary of stepping in for fear prices will fall further.
Sheila Hill, 35, is no closer to making a down payment on a house than she was a year ago, when she began shopping in the San Diego area, even though prices on some of the single-family homes she has seen have fallen $200,000.
"It's kind of an awkward time right now to be a buyer," Hill, director of a human resources organization, said in an interview. "I have the credit, but with the market slipping down so much it's hard to know when to jump in."
Last month Southern California recorded its weakest July home sales since 1995 because potential buyers were holding out for lower prices, according to real estate research firm DataQuick Information Systems.
A total of 17,867 new and resale homes were sold in Southern California in July, down 27.4 percent from the same period in the previous year, DataQuick said.
"They are terrified to purchase a home and have it decline in value," said Steve Johnson, director of the Southern California region for market research firm Metrostudy. "We haven't seen this kind of buyer apathy in regards to committing to real estate in 15 years."
Ed Smith, vice president of government affairs for the California Association of Mortgage Brokers, blamed "media hype" for the worries over declining property values. "It's not fueled by empirical data," he said.
To a certain extent, that is true. The median price paid for a Southern California home was $505,000 in July, the same as a record high posted earlier this year. However, that data is skewed by the fact that most home sales are occurring in the high-end markets as a spate of foreclosures and the collapse of the subprime mortgage market has damaged the lower end.
Brokers and other industry veterans are telling prospective buyers with good credit who can afford homes in good neighborhoods that buying a home in the current market is still likely to be a good long-term investment.
"I've been saying to people, if you can afford to buy in a decent neighborhood right now with a decent (mortgage) product, you should do that," said Lori Gay, chief executive of Los Angeles Neighborhood Housing Service, a nonprofit affordable housing lender and developer. "Hoping that there might be a phenomenal deal a year from now in that nice neighborhood might not be the way to play it."
And, if they wait too long, getting a mortgage with low interest rates may get tougher. Already, interest rates on jumbo loans -- those of more than $417,000 -- are on the rise. Because of high property prices in California, most buyers need jumbo loans.
Still, prospective buyers like Hill and Chanette Duplessis, a 53-year-old publicist in the entertainment industry, would rather sit on the sidelines for now.
"I'm a little hesitant to jump right in immediately, because I think that prices are still going to go down," said Duplessis, who has been paying $2,600 a month in rent since she sold her last home in the city of Inglewood near Los Angeles a year and a half ago.
"I'm not at this point too anxious," she said. "You know why rich people are rich? Because they shop around."