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
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.
Today's data from DataQuick, which shows a 27% home price decline already in Southern California, suggests that Wachovia may be due for more pain than it is currently projecting for its loan portfolio.
Meanwhile, the upper end of the Southern California market remains very weak. "Sales remain especially slow in most higher-end markets, with jumbo mortgages (over $417,000) making up only a slightly higher percentage of all purchase loans in May than in April," says Andrew LePage, an analyst with DataQuick. "That doesn't bode well for the high-end, where so far prices have come off their peaks but have generally held up best."
This is bad news for homebuilder
, which generates a substantial portion of its revenue from selling luxury homes in Southern California.
Wachovia traded down 10 cents to $18.13 Monday, while Standard Pacific traded up a penny at $3.21.