Sweet Orange

Cash-in-hand converts to house-in-hand in current market

MDA DataQuick had the following to report on the number of Southern California homes that are bought but do not end up being occupied by the owner:

Absentee buyers - mostly investors and some second-home purchasers - bought 18.9 percent of the homes sold in February. Buyers who appeared to have paid all cash - meaning there was no indication that a corresponding purchase loan was recorded - accounted for 29.3 percent of February sales. In January it was a revised 29.7 percent - an all-time high. The 22-year monthly average for Southland homes purchased with cash is 13.8 percent.

As would be expected, some of these absentee buyers are flippers. According to DataQuick’s DQNews, 3.4% of Southern California homes were flipped* last month (February 2010). This is up 1.6% from February 2009.

This brings up the question: What is the optimum percentage of homes that should be owner-occupied versus rentals? Urban Land Institute (ULI) predicts that homeownership levels in the U.S. will stabilize at 62% to 64%.** Whether or not that is the optimum level is a discussion that I’ll leave for another time.

*Flipped is defined as bought and sold within a three-week to six-month period.

**The U.S. homeownership rate is currently approximately 67% and was approximately 45% between 1900 and 1945. I’ll have more on this in an upcoming post. You can also read more about this in the ULI report “Housing in America: The Next Decade,”

Many of the cities with the longest road to recovery are California cities, where home prices rocketed out of control, and entire economies were supported largely by a real estate bubble. Fresno, Modesto, Salinas, Bakersfield, Stockton and Los Angeles all saw home prices soar to unsustainable levels and then begin their inevitable plunge.
–”The Best And Worst Cities For Recession Recovery” by Joshua Zumbrun

According to Forbes, a median priced home in the Los Angeles-Long Beach-Santa Ana metropolitan area costs over five times the median income of this southern California area.

Here are some other economic stats from Forbes on the area that they call Los Angeles-Long Beach-Santa Ana:

• GDP at start of recession: $597 billion
• Projected GDP at the end of 2010: $581 billion (-2.6%, projected)
• Unemployment: 10.1%
• Median home/median salary ratio: 5.3

Forbes also states that although the southern California area was hit hard by the real estate bust, the area still “has a robust underlying economy” and the economy is growing. However, the area “still has some of the most expensive real estate in the country, indicating a housing recovery could be years away.”

Meanwhile, home buildeing company Standard Pacific is gung ho on housing in Orange County:

This [Orange County] is our best-performing area in the world.
–Ken Campbell, Standard president and CEO