SoCal Home Prices Plunge 27% in May

Housing prices across Southern California plunged a record 27% in May, signaling that more trouble lies ahead for builders and lenders exposed to the region.

Sales volume in the market fell 15% from a year ago, marking the slowest May in more than 20 years, according to DataQuick Information Systems.

The median price fell to $370,000 from $505,000 in the counties of Los Angeles, Orange, Riverside, San Bernardino, San Diego and Ventura.

Sales of foreclosed homes repossessed by lenders continue to dominate many of the inland markets, such as Riverside County, where foreclosure sales totaled 57% of all home sales volume, DataQuick said.

As housing prices fall, the domino effect is that loan-to-value ratios are ballooning for many borrowers, which in turn creates more foreclosures as buyers find themselves unwilling to continue paying the mortgage on their houses.

This trend has already forced Wachovia (WB Quote) to increase loss estimates on its large portfolio of option ARM mortgages it has written in the state. Some analysts, and investors shorting the stock, say the company is still under-reserved for losses tied to loans going bad in the state.

Wachovia's new model for predicting defaults, which it unveiled in the first quarter, uses OFHEO home price data as an input -- rather than home price info from providers such as DataQuick or the S&P Case-Shiller Index.

According to a presentation attached to Wachovia's first quarter earnings release, Wachovia's loss estimates for its California loans assume prices will fall 14% from their peak levels, with 7.6% of that decline already occurring through the first quarter.