Thursday, March 05, 2009

Markets Are Working: CA Home Sales Increase +100% in January As Home Prices Fall By -40.5%

LOS ANGELES (Feb. 26)Home sales increased 100.8% in January in California compared with the same period a year ago, while the median price of an existing home fell 40.5%, the CALIFORNIA ASSOCIATION OF REALTORS (CAR) reported today.

“Statewide sales in January edged past the 600,000 threshold for the first time since October 2005,” said CAR President James Liptak. “The strength in California home sales in recent months signifies that the market is gradually working its way through the large numbers of distressed sales that have followed in the wake of the troubled mortgage problem. With favorable home prices and historically low mortgage rates, affordability in the California housing market is now at its highest since the start of the decade.”

Closed escrow sales of existing, single-family detached homes in California totaled 624,940 in January at a seasonally adjusted annualized rate, an increase of 100.8% from the revised 311,160 sales pace recorded in January 2008. Sales in January 2009 increased 14% compared with the previous month.

The Unsold Inventory Index was 6.7 months in January, compared with 16.6 months in January 2008 (a reduction of almost 10 months), and the median number of days it took to sell a single-family home was 49.9 days in January 2009, compared with 70.8 days in January 2008 (almost a 21 day reduction).

Bottom Line: The way the media reports it, you would think we were years away from a solid recovery in the real estate market, especially in states like California, when some of the housing data suggest otherwise. The 40.5% fall in California home prices is helping to stimulate home sales there, as the Law of Demand would predict.

Overall sales volume has increased in California by 20.5%, from $1.32 billion a year ago to $1.58 billion in January this year, the Inventory Index has decreased by almost 10 months, and the median number of day to sell a home decreased by almost 21 days. In other words, market forces are working in the California real estate market.


At 3/05/2009 10:31 AM, Anonymous Mike Stewart Vancouver Real Estate Video Blog said...

This is great news!

Good to see more volume, but those price numbers are shocking!

I hadn't realised prices had fallen that much in California.

Looks like people are realising this is a great opportunity to buy.

Do you think this could be a sign that the California market is nearing bottom?

With this level of volume and market participation, I would say it might.

At 3/05/2009 10:57 AM, Anonymous Anonymous said...

If prices are still falling at this clip, does it really matter that much if volume is picking back up?

California real estate wont bottom for years, and when it does, prepare for it to go sideways for decades. It amazes me that people in the real estate business in CA still cling to the old norms that never made any sense. Denial is a powerful thing.

At 3/05/2009 12:03 PM, Anonymous Anonymous said...

The key to California pricing is affordability. From what I've read, 60% of the population in California can now afford to buy a home, up substantially from even the pre-boom/bubble years.

Lots of investors are piling in to buy up the distress sales (and rent them out), which is a sure sign that it now makes more sense to own than rent. And that accounts for the big increases in volume.

Market forces are at work. I'd say California, just as it overpriced itself on the upside, is now underpricing itself on the way down due to forced liquidations (foreclosures).

In true free market economics, investors with cash on the sidelines, earning a paltry (or negative) real return, are now looking at real estate and seeing that they can earn up to 10% cash-on-cash by buying and renting out a property. Not much downside, a decent return and an inflation hedge all-in-one.

What's the risk -- another 10-15% on the downside?

If we're not AT the bottom, we're sure close to it.

At 3/05/2009 12:08 PM, Anonymous Anonymous said...

Also, remember that while the median price may have fallen by 40.5%, that doesn't mean all homes have fallen in price by that amount.

Median prices are falling rapidly due to the fact that lower-priced homes are moving much more quickly than high-end homes. Investors are grabbing the cheap foreclosure that make for good rentals; they're not buying the luxury market (which is quite stagnant).

So, when ten homes sell for $150,000 for every 1 home at $500,000, the median falls rapidly. And, the media loves to quote the median price.

To judge overall home appreciation/depreciation, a much better barometer is to take a look at price-per-square-foot averages.

At 3/05/2009 1:53 PM, Anonymous Anonymous said...

What is meant by a solid recovery in the real estate market?

Sales volume or price bottoming?

The subprime foreclosure crisis has peaked in California. The Mortgage Bankers Association state that national subprime delinquencies/foreclosures are now back to 2007q1 levels. But the option arm recast crisis, predominately in California lies ahead.

At 3/05/2009 10:38 PM, Anonymous Anthony Carr said...

Unfortunately, the way the media and others track "success" in a real estate market is ONLY by way of pricing.

The only way to turn a market around is via the pricing barriers that has locked out so many buyers in the past. It hurts - a lot - but it is the one item on the shelf that will stimulate a recovery.

As go the pending sales and sales, so goes the inventory and that will create price stability and appreciation -- a lot sooner than most naysayers are willing to admit.

The same thing is happening all over Florida, Las Vegas, Washington DC and other markets.

At 3/06/2009 5:58 AM, Blogger OA said...

For California, the last bust in 1990 took all the way through maybe 2003 to recover the prices. Then they shot to the moon.

So a bottom being a saucer shape is probably right. There's 10% unemployment, so it clearly won't be a V.

At 3/06/2009 8:22 AM, Blogger Jack Miller said...

The real estate bottom is being described in the way that the blind men described the elephant. The bottom that occurred in Florida 5 months ago certainly looks different than the bottom that just occurred in California. Right new, first time home buyers with good credit scores can now a $250,000 house with no net money down. They have to pay down about 3% or about $8,000 to get an FHA loan but, for the next year, Uncle Sam will give first time buyers an $8,000 refund. Buyers see a dramatic V bottom. Indeed, buyers will suddenly have $8,000 in equity. As the recovery takes hold, he is likely to see above average appreciation. If homes appreciate by 8% over the next year, the $250,000 home will increase in value to $270,000. The new owners equity will jump from $8,000 to $28,000 and they will have "cashed out" $8,000 of the dollars. The value of this "gift" will have jumped to 350% in one year.

For the person who bought the same equivalent house at the top in 2006 for $416,000, his bottom looks a lot more like the bottom of a soup bowl. He watched his value drop from $416,000 to $250,000 before stabilizing. It will take many years for him to get "back to even". However, if we look at his equity, which is probably currently a negative equity, it too will make a vicious turn. This owner will never get the benefit of the $8,000 credit. Indeed, in California, the state also gives a $10,000 credit. So, in California, the first time buyers initial gift is $18,000!

The statements about median prices are true. During recessions, a lot of "down sizing" naturally occurs. Buyers tend to buy smaller houses, but, housing markets always work from the bottom up. The new buyer who gets the $8,000 credit will buy the $250,000 house but the seller of the $250,000 will likely trade up to a $350,000 and so on.

At 3/06/2009 8:12 PM, Anonymous Anonymous said...

When all the numbers are crunched there are multiple conclusions that can be made. Firstly, Los Angeles County is one of the largest counties in the country and has one of the highest FHA loan limits allowed. There are properties in LA County that sell for under $100,000...and in the millions. Median numbers are tricky, as that differs greatly from an average. The new FHA loan limtis allow anyone to buy a home with a loan up to $729, can buy a million dollar home with an FHA loan. Of course the sales numbers are going to jump through the roof.

At 3/07/2009 12:14 PM, Anonymous Anonymous said...

If it looks like, smells like, feels like and sounds like a bubble-guess what??!!
Wonder what the next bubble is going to be? Ideas??

At 3/12/2009 1:16 PM, Anonymous aroy3719 said...

We are NOWHERE near the bottom in CA or elsewhere. The published numbers of houses on the market are very misleading. The banks are holding on to a HUGE amount of inventory right now and piling up everyday. Finally when the floodgates break, there will be a huge number of properties hit the market and we are going to see at least another 50% in drop in home prices.

At 3/17/2009 7:32 PM, Anonymous Anonymous said...

Unit sales going up is an excellent indicator that the market is hitting bottom and of course it is because low prices and cheap rates are being incentives. And of course real estate prices will EVENTUALLLY go back up! We don't live in Bizarro World where markets only go one direction forever. The market goes up and then goes down and then goes back up again and again and again! People were too optimistic that the profits would go on forever and surprise they bubbbled. Now too many people are convinced the market will never recover. Real estate is the one investment where you can read the headlines and KNOW when to buy and sell. Right now is a "BUYERS MARKET". Don't miss it over the next 18 to 24 months.


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