California Real Estate Market Recovery: Sales Boom, Unsold Inventory Drops

LOS ANGELES (May 28) – Home sales increased 49.2% in April in California compared with the same period a year ago, while the median price of an existing home declined 36.5%, the CALIFORNIA ASSOCIATION OF REALTORS (C.A.R.) reported today.“With annualized sales at 540,360 units, April marked the eighth consecutive month of home sales above the 500,000 level,” said C.A.R. President James Liptak.

Closed escrow sales of existing, single-family detached homes in California totaled 540,360 in April at a seasonally adjusted annualized rate, according to information collected by C.A.R. from more than 90 local REALTOR associations statewide. Statewide home resale activity increased 49.2% from the revised 362,170 sales pace recorded in April 2008 (see chart above). Sales in April 2009 increased 3.2% compared with the previous month.

The median price of an existing, single-family detached home in California during April 2009 was $256,700, a 36.5% decrease from the revised $404,470 median for April 2008, C.A.R. reported. The April 2009 median price rose 1.4% compared with March’s $253,040 median price.

C.A.R.’s Unsold Inventory Index for existing, single-family detached homes in April 2009 was 4.6 months, compared with 9.8 months (revised) for the same period a year ago (see chart below). The index indicates the number of months needed to deplete the supply of homes on the market at the current sales rate. The median number of days it took to sell a single-family home was 48.7 days in April 2009, compared with 51.8 days for the same period a year ago.

In March, the California median home price showed the first monthly increase since August 2007, and has now increased for two months in a row with the monthly increase in April. Falling prices compared to last year are stimulating unit sales, homes are selling faster than last year, unsold inventory of homes is decreasing as the market clears excess supply. Markets are working for California real estate.

Comments

[srla:]

What about the apparently vast shadow inventory of foreclosed properties being withheld from the market by the banks? It seems the overwhelming majority of home owners are also withholding their properties from the market if they at all can, in hopes of a return to bubble pricing.

Given that sales have increased in higher end areas due to prices in those areas finally falling, a rise in the MEDIAN sales price is inevitable.

What we're currently seeing is the result of the Fed's massive Treasury buy-backs (and attendant historic lows in mortgage interest) combined with state and federal tax credits, after-effects of a foreclosure moratorium, and the above mentioned withholding of foreclosed properties from the market. Hardly evidence that "Markets are working for California real estate." Rather, massive government intervention and bank manipulation have lead to the current reduction in reported supply.

But given the 11% CA unemployment rate, the end of the foreclosure moratorium, the looming Alt-A recast wave, and growing number of prime defaults, can this current trend possibly be expected to persist?

May 31 04:54 AM

[OptimizedPrime:]

Cool. Prices drop by 36% and things start moving a little. I guess there are still people out there.

The high-end is another story though. Is anybody else seeing what I am seeing? Absolute nuclear winter in the high-end? Without the ability to upgrade based on a spring-board of equity from the previous house, the high-end has absolutely no support. Nobody can upgrade when they are at equal or negative equity in their current home. Yet this drove virtually the entire high-end market before the correction (i.e. when prices went up by 10% per year you house-flipped your way to the high-end).

Combine this with the fact that the only loan in existence right now is a conforming one (under $750k) and you have a recipe for absolutely zero demand at the high-end. So much for "great properties never go down in price". Quite the opposite from the looks of things.

Oh yeah, and when will things "come back"? When the bubble re-inflates. When the lower-end houses are filled with morons with no money again. When money is free again. When people believe that houses are an infallible investment that only goes up and never goes down. When people believe the old platitudes spewed by real estate agents for the last decade ("in the long run, prices always go up" or "it's the great american investment").

In other words, when will things "come back" to the go-go years of 2006? NEVER! At least not in our lifetime. Bubbles do not reinflate. They pop and they stay popped. YHOO is not going to 170 again. Pets.com is not going to have a $50 billion valuation again. Never.

When are people holding high-end properties going to get this and end the stalemate there? All they are doing is throwing away money waiting for a payday that will never come.

May 31 05:05 AM

[jeandit75:]

srla, don't expect Perry to answer you. His intent is not to create a discussion but rather talk his book. You made good points. There is not end in sight for falling home prices for the time being.

May 31 05:07 AM

[capital pains:]

Of all the meaningless factiods spewed forth on the housing market,
the ridiculous "existing homes sales" numbers are the most absurd.
When the manipulated market sees a monthly increase in the number, the CNBC cheerleaders and their less than forthcoming guests, break out the bubbly. They can't contain their glee.!
As home prices continue to tank (and they will), existing home sales will show increases. In Nevada, for instance, the median home price fell to $125,000 last month. No doubt when that price falls another 10%, (and it will), sales will continue to skyrocket. We are in the 3rd phase flippers market. The burning match will always be passed around. And their will always be suckers getting burned. The real estate market has no bottom in this environment. I don't need to read a book about it. I can simply look at my own neighborhood.

May 31 11:13 AM

[Mad Hedge F...:]

I'm not buying it. That great sucking sound you hear is the air going out of the housing recovery- punctured by the collapse of the bond market and the spike in interest rates. Interest rates on 30 year fixed rate mortgages gapped up from 5.03% to 5.29% in just one day, up from the 4.50% low two months ago. This underlines what a difficult position the government is now in. While all the stimulus spending is great, the need for epic financing is triggering a collapse of the dollar and the bond market. The resulting soaring interest rates are bound to snuff out any recovery. Obama is truly caught between the Scylla and the Charybdis.

May 31 12:38 PM

[Urbane Gori...:]

The comments make much more sense than the article. I own two homes in California and we have further to go. Just focus on two facts:

- Shadow repos are still not marketed.
- The only employment gains in Calif are government jobs and Arnold is cutting those.

In the immortal words of those philosophical geniuses "Aerosmith' "... Lovin' in an elevator.... Living it up while we're going down!"

Prices have another 10 to 15% to go..

May 31 03:07 PM

[dirtyharry:]

"Falling prices compared to last year are stimulating unit sales, homes are selling faster than last year, unsold inventory of homes is decreasing as the market clears excess supply. Markets are working for California real estate."

As a California real estate broker myself, I am both a little surprised and pleased that inventories are dropping. However, whether or not "markets are working" is open to interpretation. The combination of ultra-low rates and diminished prices is definitely at the heart of the higher number of units moving.

This then begs the questions: 1) Now that rates are rising again, will that remove the affordability? Unless prices drop more to compensate for higher rates, the obvious answer is 'yes' and 2) With the Option ARM implosion just around the corner, will a new rash of foreclosures ensue causing CA inventories to jump?

For those that haven't see the graphical representation, please see here:

optionarmageddon.ml-im...

We are in the "trough" between to massive waves of mortgage resets. One thing not commonly discussed about the upcoming implosion is the internal break-down of which states will be most affected. It turns out, five states make up 75% of all Option ARMs ever written. They are: CA, FL, NV, AZ, and VA. It should come as no surprise that these were all "bubble states". The Option ARMs were used to help make overpriced homes affordable to buyers that never would have qualified under traditional underwriting guidelines.

A whopping 19% of ALL Option ARMs were writtin in CA - just about 1 out of 5. This means CA will be hit with resets disproportionally when compared to many other parts of the country. As much as I'd like to see my home market recover, I'm a realist. We have a three year, bumpy road ahead of us. Factoring in the lower inventories we're currently experiencing, I believe that under the best circumstances we can hope for a market that drops no more than 10% from here and then flattens until the rest of the excess inventory is sold off. However, the fundamentals suggest it will be worse: Another 20%+ down from here. Only time will tell, but I certainly wouldn't advise any friend or family member that "now is the time to buy in CA." By the numbers, I suspect the best time to buy in CA will be the winter of 2011, rolling into the early months of 2012.

May 31 05:54 PM

[Can'tSpotAB...:]

Hat tip to the original poster.....

Dr Perry's record speaks for itself....


No credit crunch: seekingalpha.com/artic...

US Economy doing quite well: seekingalpha.com/artic...

We're still a long way from a banking crisis: seekingalpha.com/artic...

A little perspective, according to the world of Dr. Mark Perry:

First, there's no recession:
mjperry.blogspot.com/2...

Second, the monetary base was growing at an acceptable rate:
mjperry.blogspot.com/2...

Third, the big one, there is no credit crisis:
mjperry.blogspot.com/2...

mjperry.blogspot.com/2...

mjperry.blogspot.com/2...

Especially because, "banks are lending at record levels":
mjperry.blogspot.com/2...

Remember, this is an *economist* saying this. And yet I highly doubt that any respected economist would buy this, nor is the market (A2/P2 less AA spread, TED spread both blown out to ridiculous levels).
www.federalreserve.gov...

May 31 09:38 PM

[swalter:]

Mark-what are your credientials? We need full disclosure.

Jun 01 10:18 AM