Southern California Real Estate's Credit Bubble

The L.A. Times reports:

Would-be home buyers in Southern California continued to sit on the sidelines last month, driving down home sales to their slowest pace in 12 years and pushing down prices in the region's less-expensive neighborhoods, data released Tuesday showed.

Yet even as home sales fell 27% regionwide, the median price of all homes sold in the Southland's six counties rose 3.7%, to $505,000, in July compared to a year ago, thanks to more robust sales at the upper end of the market, according to real estate research firm DataQuick Information Systems.

It's a phenomenon that has been occurring for much of the year: Homes priced above $750,000 have been attracting more buyers than homes in lower-cost neighborhoods, where many buyers have little or no down payment, irregular incomes or patchy credit histories.

But now with a global credit crunch starting to curtail loans to even the most creditworthy borrowers and the specter of inflation pumping up prices of consumer goods, local real estate watchers predict that even pricey areas could soon start to see prices tumble.

The thought of the housing market weakening further overwhelms sellers such as Gretchen Rolfe, a Mission Viejo psychologist. But when she starts feeling panicky she tries to soothe herself by baking cookies or playing with her two dogs, Snoodles and Snickers. Still, she says she has little choice but to sell the home she has owned for three years after her monthly mortgage payment jumped about 25% last spring and her refinancing options dried up.

No word yet from the Federal Reserve on whether they want to provide liquidity for the cookie market.