California Sales Improve to Pre-Credit Crunch Levels

The California housing market continued to reel from the joint effects of tighter underwriting standards, the ongoing credit or liquidity crunch, and a softening economy. However, home sales have improved in recent months and are now within range of pre-credit crunch levels according to C.A.R. Sales of existing detached single family homes exceeded 300,000 for the second month in a row with seasonally adjusted and annualized sales of 343,220 homes in February. Sales rose 9.5 percent compared to January when 313,580 homes were sold, but declined steeply from 480,170 sales in February 2007, equivalent to a 28.5 percent year-to-year decrease.

Sales have now increased four months in a row from a low point of 265,030 sales in October of last year, and are just shy of sales in the 350,000-range that prevailed in the summer of 2007 just before the credit crunch drove sales down. Based on C.A.R. research, the background or ‘baseline' amount of activity that occurs regardless of whether the market is in a slow or active mode is thought to be roughly 350,000 sales, given the state's demographics and stock of homes. During the worst of the credit crunch, activity fell below that range because of difficulty in securing funding for loans among buyers who otherwise could and would buy a home at this time. As time has passed, adjustments by both borrowers and lenders have enabled the market to move forward at a somewhat improved pace.

The median price, however, continued to decline by record margins in February. The median price in California was $409,240, down 4.8 percent from the January median of $429,790 and down by a record-setting 26.2 percent from the February 2007 median price of $554,280. The median price in February was 31.5 percent below the record median of $597,640 that was set in April of last year. The statewide median was last in the low $400,000 range during late 2003 and early 2004.

The credit crunch, tighter underwriting standards, and significantly higher jumbo loan rates all contributed to a steep decrease in sales of homes above $500,000 as a share of the statewide market. This affected the mix of statewide sales and gave rise to the record-setting 26.2 percent decrease in the median. -- By comparison, the average year-to-year change in median prices across the regions of California was a somewhat smaller 19.8 percent decline in February.

Even if monthly sales for the state have shown improvement in recent months, sales for all of 2008 are still expected to decrease 6 percent annually compared to 2007. Moreover, home prices face stiff headwinds because of the large number of distressed sales that are expected throughout the year. On the bright side, lower prices and mortgage rates help affordability, while higher loan limits in 2008 should provide some welcome relief from the credit crunch.

from Southland Regional Association of Realtors