Housing crisis keeps buyers on sidelines

By Nichola Groom

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.