Home prices in California down 40 percent

With the price of Southern California homes down more than 40 percent from their peak, the housing market has now slid further than most economists expected.

The story was similar in the San Francisco Bay Area.

The median sales price for homes in Southern California fell to $300,000 in October, a level not seen since 2003 and a 41 percent drop from the peak price set in the spring and summer of 2007, according to San Diego-based MDA DataQuick.

Prices were dragged down by the large number of foreclosed homes on the market: For the first time since the slump began, repossessed properties in October accounted for more than half of residences sold.

Low prices did drive sales up 56 percent from a year ago. But a market bottom remains elusive — and a rebound in prices is not on the horizon.

In Northern California, thousands of homebuyers around the San Francisco Bay Area kept snatching up foreclosed homes last month, dragging down the median home price by 41 percent from a year ago, according to MDA DataQuick.

The median home price in the nine-county region plunged to $375,000 in October, compared with $631,000 in the year-ago period.

Last month's median price was down 6.3 percent from September and nearly 44 percent from the peak median of $665,000 in the summer of 2007.

"The dramatic, near free-fall in the Bay Area's median sale price in recent months stems mainly from the shift toward more sales occurring in lower-cost inland markets," John Walsh, MDA DataQuick's president, said in a statement. "At the same time, the role of foreclosures continued to grow across the region, adding more downward pressure to the median."

Despite efforts by government, lenders and others to help strapped homeowners with mortgage payments, foreclosures have continued to rise in California, particularly in inland counties with metro areas such as Stockton, Merced, Riverside, San Bernardino and Modesto.

Home sales in the San Francisco Bay Area climbed nearly 39 percent last month from a year ago to 7,613 and nearly 5 percent from September.

October's sales were the highest for any month since June 2007, when 7,964 homes were sold.

Once more, foreclosure resales accounted for a major slice of those sales — nearly 45 percent of the pre-owned homes sold last month. Most of those distressed sales took place in Contra Costa, Napa and Solano counties.

In pricier San Francisco County, where the median price slipped 12.1 percent to $699,000 from a year ago, sales plunged 21 percent.

Just a year ago, several market analysts interviewed by the Los Angeles Times predicted that Southern California home prices would drop 15 to 25 percent from their peak.

It took only until July for the median price to fall 25 percent below its 2007 peak of $505,000, and it has continued to fall since.

Barring a dramatic economic reversal, the median sales price is on track to slip below $300,000 when November sales are calculated next month.

Thomas Davidoff, a University of California, Berkeley, economist, said he and others underestimated the drop in value because it was tougher a year ago to know just how many people had mortgaged their homes for more than they could afford.

Those earlier forecasts proved off because "it was hard for people to get their arms around just how bad lending standards had gotten," Davidoff said.

During the real-estate bubble, banks and brokers offered mortgages requiring little or no money down, minimal proof of income and "teaser" mortgage rates that lowered initial monthly payments, but later jumped to a much-higher rate.

Last year, it was unclear how many of those loans would default. But much of that mystery has been solved by now, as massive numbers of homes have been repossessed.

In October 2007, 16 percent of the homes sold in Southern California had been foreclosed, compared with to 51 percent last month.

Mounting foreclosures flooded the market with discounted repossessed homes, further depressing home values.

The ripple effect from that put even more homeowners under water — owing more on their homes than they were worth — and led to more foreclosures.

Now, "we're probably seeing an overcorrection," in the most depressed areas, Davidoff said.