Volume 33, Number 1 January 2012

Improved Economic Conditions Provided Support to the Housing Market

By: Oscar Wei, senior research analyst

 The California housing market ended 2011 on a solid note, with seasonally adjusted annualized sales reaching 520,940 units in December, an increase of 3.3 percent from November but virtually unchanged from December 2010. It was, nonetheless, the highest sales level since January 2011. For the year as a whole, 2011 exceeded 2010 by 1.1 percent with annual sales of existing detached home at 497,860 units. The statewide median home price improved slightly by 1.8 percent to $285,920 from November, but dropped 6.2 percent from December 2010.

A particular highlight worth mentioning is the strong sales trend of distressed properties towards the end of the year. While equity sales in December had a healthy month-to-month increase of 5.7 percent in sales (non-seasonally adjusted), distressed sales increased significantly more with a 14.5 percent jump from November. As lenders pushed to close bank owned properties (REOs) and short sales to move them off their balance sheets before the end of the year, distressed sales tend to show a stronger performance than equity sales towards the year-end.

Sales in the fourth quarter of 2011 were relatively strong when compared to the rest of the year and one contributing factor was the improvement in the level of consumer confidence. After hitting a recent bottom of 40.9 in October 2011, the consumer confidence index bounced back and surged in the November and December. The index jumped to 55.2 in November and climbed again to 64.8 in December. The back-to-back increase was the effect of the economy showing some signs of growth in the last quarter of 2011. The unemployment rate declining consecutively for four months, retail sales increasing on a year-over-year basis in each of the last three months of 2011, and the fourth quarter GDP showing the largest year-over-year increase in the last six quarters were all encouraging news to consumers that bodes well for a recovering housing market.

Another reason for a strong year-end finish in sales was the record-low interest rate levels. Mortgage rates had been trending downward since July of last year after the Federal Reserve announced its commitment to keep interest rates low until at least 2013. The average rate for 30-year fixed rate mortgages had since declined to below four percent, and set a historical record low of 3.96 percent in December 2011. With rates dropping more than three quarters of a percent in the last twelve months and home prices holding steady at or below the same level as a year ago, the increase in housing affordability convinced many buyers who were previously on the fence to finally make a home purchase.

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Mortgage Update – Interest Rates

Interest Rates update

Trends In California Real Estate – Dec 2011

Volume 32, Number 12 December 2011

2011 Housing Market Wrap Up and 2012 Outlook

By: Robert Kleinhenz, deputy chief economist and Oscar Wei, senior research analyst

California home sales improved both on a monthly and on an annual basis in November, exceeding the 500,000 benchmark for the first time in seven months. With monthly and yearly gains of slightly over 2 percent, there were 503,570 units of existing detached homes sold when measured on a seasonally adjusted and annualized basis. Sales were the strongest in eight months and now stand 1.2 percent higher than last year on a year-to-date basis.

Despite softening slightly from October, California pending home sales improved on a year-to-year basis
for the seventh consecutive month. The C.A.R. Pending Home Sales Index was at 109.8 in November, a decrease of 9.1 percent from October but up 11 percent from a year ago. The strong year-over-year growth in pending sales observed in the last few months suggests that closed sales in December will exceed last year’s December sales figure.

As for home prices, California’s median price was $280,960 in November, an increase of 1 percent from a month ago, but down 5.2 percent from a year earlier. The statewide median price had been holding steady at about $290,000 from February of this year through September, so the decline over the past two months may be explained in part by a seasonal slowdown that is typical for the time of year. Part of the decline,
however, could also be attributed to the cut in high cost loan limits by Fannie Mae and Freddie Mac as of October, which may have stifled activity in the middle-tier of the California marketplace (see article “Restoration of FHA High Cost Limit to Help Challenged Market Segment” in Market Data section on C.A.R. Web site).

Sales are on track to beat last year’s total annual sales of 491,000 homes, and C.A.R. forecasts a slight one percent increase in sales next year to about 496,000 homes. With normal market activity thought to be 500,000 or so sales annually, sales this year and next will be slightly below normal.

The statewide median price will finish 2011 somewhat below last year’s median price, down by somewhere between 3 and 6 percent year-to-year. However, the median price is expected to edge up by about 2 percent next year over this year’s annual median.

The new year will be a transition year for the housing market, very much like 2011. The market’s performance will hinge heavily on the performance of the U.S. and global economies, so it will be important to follow the economy as well as the housing market. Unexpected events hindered economic growth in 2011 and could do so again in 2012. However, if there is sustained improvement in economy, the housing market could perform better than the C.A.R. forecast.

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Happy New Year!

January Community Events

One Warm Coat, Food Bank, Toys for Tots

We are taking collections this holiday season to help support the local community. Give me a call (925-400-7020) if you want me to stop by to pick up any items to be donated to One Warm Coat, the Food Bank, or Toys for Tots.