Southwest Riverside County was hit hard in the last few years as thousands of local residents experienced foreclosures, loan modifications and short sales. Property values took a precipitous fall. But the initial numbers are signaling a turn-around; more recent moves make the market confusing for buyers and sellers.
Nationwide, foreclosure starts are down close to 18 percent from the last quarter of 2013 to the first quarter of 2014; in Riverside County, foreclosure starts are down 11 percent compared to last year. Foreclosure sales are down 26 percent year-over-year (MortgageOrb.com).
Loan modifications are down 3 percent in the first quarter of this year. Short sales have declined almost 30 percent in the last quarter; on a year-over-year basis, short sales have declined 60 percent (HOPE NOW reports).
The market is different now. Home prices are actually rising, increasing equity in many homes and fewer homeowners are upside down on their mortgages, decreasing the need for short sales. The average sale price in Riverside County in June 2012 was $220,000; twelve months later, it was $290,000! The Riverside County Economic Development Agency has the peak average price in 2014 at $326,000 – a 19.6 percent increase over January of the previous year. Median asking price for homes in Riverside County is up 12.2 percent to $369,000 and inventory is up 57 percent as of June 9, 2014. The average price of a Temecula home has increased over $100,000 in the past two years.
The National Association of Realtors reported that properties sold faster for the fifth straight month due to little inventory compared to demand; 41 percent of their respondents reported that properties were on the market for less than a month when sold and 6 percent were on the market for more than six months. Listings typically sold in 48 days in May compared to 55 days in March.
Locally, the market is favorable to sellers – high demand and low inventory. Early signs of economic recovery – home sales and increasing prices – however, are slowing. Housing – which traditionally lead economic recoveries – is flattening out signaling a more protracted recovery.
The reduction in the cap rate for conforming loan limits in Riverside County from $500,000 to $355,350 means that buyers in higher-value markets (Temecula, Murrieta, Canyon Lake) can no longer afford to purchase a median priced home in those communities with a GSE (Government Sponsored Enterprise) conforming loan. The FHA loan limit has been $500,000 since 2008 when the Economic Stimulus Act was passed. Riverside County had the tenth highest decrease in FHA loan limit and the highest in Southern California (28.9 percent).
In 2013, 675 homes sold in Temecula in the $355,000 to $500,000 range; almost 15 percent of those buyers used FHA financing. Those buyers would not qualify today.
FHA financing is popular especially with those who have experienced short sales, foreclosures, bankruptcies or who do not have a sufficient down payment. If buyers cannot qualify in that price range, demand will go down and so will pricing. Recent changes have made FHA loans more expensive: increased the minimum down payment requirement on jumbo loans, increased the Mortgage Insurance Premiums (MIP), and made the MIP permanent. New mortgage regulations will also make it more difficult for buyers to qualify.
The initial market surge included investors shopping the bottom-end of the market for turn-around properties. With the increase in property prices, those investors are on the sidelines. Fewer short sales and more standard sales would seem to be a healthy sign for the economy, but fewer buyers can qualify in the mid-range. Sales of high-end properties are still strong with out-of-town buyers finding bargains compared to Orange County and other higher-priced markets.