One-Third of California Homeowners Locked Out of Market

One-Third of California Homeowners Locked Out of Market

08/20/2013 BY: ESTHER CHO

The California real estate market continued to experience rising home prices and strong sales in July, but negative equity still remains a significant challenge, according to a report from PropertyRadar.

Out of the 6.8 million California homeowners with a mortgage, 26 percent, or 1.8 million, were underwater as of July.

Another 500,000 are barely managing to stay above water, with no more than 10 percent of equity in their home. When factoring in closing costs for these homeowners, they would still “effectively” be underwater, according to PropertyRadar.

This means about one third, or 2.3 million homeowners, are still unable to sell due to lack of equity.

Even though millions of California homeowners are unable to sell, sales for single-family homes and condominiums saw monthly and yearly increases of 12.1 percent and 12.9 percent, respectively.

“With the exception of the temporary bounce in July 2009 sales from the First-Time Homebuyer Tax Credit, July 2013 sales were the highest since July 2006,” noted Madeline Schnapp, director of economic research for PropertyRadar.

According to the report, a jump in non-distressed sales led to the sharp increase in sales. Over the last year, non-distressed sales increased 63.7 percent, while distressed sales decreased by 39.4 percent.

Even with the sharp drop, distressed sales still remained high, accounting for 26.4 percent of sales in July.

Meanwhile, median prices surged 29.1 percent year-over-year in July, but fell 1.4 percent over the last month.

“Rising prices and rising interest rates have delivered a one-two punch to the California real estate market that I’m surprised hasn’t resulted in more damage,” said Sean O’Toole, founder and CEO of PropertyRadar.

Investors remained active in the California market, with cash sales representing 26.1 percent of sales in July. Property flipping, defined as reselling a property within six months, rose to the highest level since September 2005. The report explained flipping has been on the rise since January 2012 as the potential for profits increased with rising prices.
Investor purchases in July were up 5 percent compared to the prior month, while investor-third party transactions inched up by 0.8 percent.

 

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