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Southern California Bargains on Foreclosures Are Fewer

Southern California home sales rose in May in all but the lowest-price categories as buyers took advantage of tax credits and low mortgage rates.

A total of 22,270 new and resale houses and condos closed escrow in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties. That was up 9.7% from 20,299 in April, and up 7.2% from 20,775 in May 2009, according to MDA DataQuick, La Jolla, Calif.

But California sales have fallen in many affordable inland communities. ZIP codes in the bottom one-third of the market, based on their historical prices, saw resales of single-family houses drop 3.9% from April and drop 16.2% from a year earlier.

Part of the decline reflects the dwindling foreclosure inventory, which had been the major draw for first-time buyers and investors, according to John Walsh, president of MDA DataQuick. In the upper one-third of the market by price, May resales climbed 10.8% from April and rose 21.7% from last year. This shift toward more high-end sales helped the Southland median jump $20,000 between April and May and $56,000 between May and May 2009.

Indicators of market distress continue to move in different directions. Foreclosure activity remains high by historical standards but is lower than peak levels reached over the last two years.

Financing with multiple mortgages is low, downpayment sizes are stable and non-owner-occupied buying is above average, MDA DataQuick reported.

“Last month’s jump in the regional median sale price is the flipside of what we saw a year ago, when low-cost inland foreclosures dominated and sales in the costlier coastal towns struggled for a pulse,” Walsh said.

“Today the bargains on foreclosures are fewer and farther between, and the high end is approaching a normal sales rate.”

It’s important to remember what the market saw in May was partly driven by government stimulus. In the second half of the year the market will have to stand on its own again, barring new forms of government involvement.

“Prices will be tested if there’s any sudden move by lenders to release a flood of distressed properties,” he added.

Foreclosure resales accounted for 33.9% of the resale market, down from 36.4% in April and 49.8% a year earlier.

The all-time high for foreclosure resales—homes that had been foreclosed on in the prior 12 months—was 56.7% in February 2009. Foreclosure resales have waned over the last year as lenders have channeled more distress into loan modifications and short sales.

On the lending front, according to MDA DataQuick, May saw modest gains in the use of “jumbo” and adjustable-rate mortgages. Historically both helped drive high-end sales, but they became far more difficult to obtain after the August 2007 credit crunch.

In May 6.6% of all home purchase loans were ARMs, up from 5.8% in April and up from 1.9% in May 2009. However, the monthly ARM average since 2000 is 39.2%.

The “flipping” of homes has trended higher over the past year, Walsh said. During May 3.4% of the Southland homes that sold had been flipped—bought and resold within a six-month period. That’s the same flipping rate as in April, but it’s up from 1.5% a year ago. May flipping varied from as little as 2.8% of sales in Orange and Riverside counties to as much as 4.4% in Ventura County.