The article included below from this weekend’s National Mortgage News talks about how the number of single family home sales in CA doubled between January 2009 and January 2008….while the median home price dropped over 40% (during the same period). The article also mentions that the CAR unsold inventory index dropped to 6.7 months in January 2009, from 16.6 months for the same period a year ago....indicating supply is decreasing.
On the surface, the article might lead one to believe that the CA single family real estate market is stabilizing and the rate of home price declines should begin to slow down. However, the unfortunate fact is that there has been no improvement in CA's real economy during the last year.
Instead the situation has gotten significantly worse, as evidenced by company layoff announcements which are now ubiquitous and reflected in the increased and increasing CA state unemployment rate. This leads me to a hypothesis that “reality” is likely different than one would think based on the CAR home sales and unsold inventory level data.
California's single family real estate unsold inventory levels are likely artificially low right now, as inventory has been held on Bank/Investor balance sheets for 2 reasons:
1. The moratorium on foreclosures at several large Banks/Servicers including Fannie Mae and Freddie Mac
2. A general slowdown in property disposition activity as Servicers first waited to learn the details of the Obama housing plan (announced about a week ago) and now start the process of assessing borrower's eligibility for loan modification or refinance under the expanded set of guidelines under the Obama plan. It is only after this process is completed that Servicer's will start to move forward with alternate plans (including possible foreclosure) on those borrowers who didn’t qualify for a loan modification or refinance.
The truth is the Obama plan (both on loan modifications and refinances) – which only applies to mortgages that have a conforming loan balance - is less likely to help CA home owners than those in states where home prices were lower (i.e., more conforming) during the boom period.
As a result, a large percentage of the assets held on balance sheet will likely need to be sold in the future. While it’s impossible to really know where the CA real estate market will go (as this will be impacted by many yet unknown factors)….my gut instincts tell me there is likely another leg down to come for CA home prices.
PS: Here's the article I mentioned:
CA Home SalesDouble in Jan.
By Jennifer Harmon
LOS ANGELES-Statewide home sales in January edged past 600,000, double the year before, signifying that the market is gradually working its way through the large numbers of distressed sales caused by the mortgage crisis, according to the president of the California Association of Realtors.
While the median price of a home fell 40.5% in California in January, single-family home sales increased 100.8% with a total of 624,940 homes, according to CAR. The resale activity was up from the revised 311,160 sales pace recorded in January 2008. Sales in January 2009 increased 14% compared with December.
Click here for the full article: NMN Article
It’s hard to find much good news nowadays, surrounded as we are by doom and gloom attitudes and news at work, in the media and in conversations. However, I see at least 2 important areas where the current trend is positive for us as a society: Housing Affordability and Humility.
First, as a result of the housing crisis and the tremendous (and at least for now, continuing) declines in the prices of residential real estate, home or condo ownership is suddenly becoming a viable possibility for many lower income families. As an example, please check out the press release below from the California Association of Realtors (a trade organization) which discusses the massive improvements in housing affordability in California over the past 12 months. The analysis below is grounded in Q4 08 vs. Q4 07 data and will continue to “improve” (from a lower income family standpoint) in the coming months. This information is a far cry from conversations I remember just a few years ago regarding how housing had become a “luxury product” in California. Given the tremendous and well acknowledged familial and social benefits of home ownership, this significant improvement in housing affordability is great news for California and for Los Angeles.
Second, one of my least favorite aspects of the boom days was the massive inflation of ego’s all around me. Many people made much easy money during the boom, and in too many cases this financial success was accompanied by an increased sense of relative self-importance (for reasons discussed by both Nassim Nicholas Taleb and Malcolm Gladwell in recent books). The current crisis is quickly downsizing people’s ego’s and I, for one, think a humbler, gentler us will be a better us as a whole.
Entry-level housing affordability increases to 59 percent
Click here for the full article: Full Article
Wednesday, Feb. 18, 2009
C.A.R. reports entry-level housing affordability increases to 59 percent
LOS ANGELES (Feb. 18) The percentage of households that could afford to buy an entry-level home in California stood at 59 percent in the fourth quarter of 2008, compared with 33 percent for the same period a year ago, according to a report released today by the CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.).
C.A.R.’s First Time Buyer Housing Affordability Index (FTB-HAI) measures the percentage of households that can afford to purchase an entry-level home in California. C.A.R. also reports first-time buyer indexes for regions and select counties within the state. The Index is the most fundamental measure of housing well-being for first-time buyers in the state.
The minimum household income needed to purchase an entry-level home at $248,030 in California in the fourth quarter of 2008 was $48,900, based on an adjustable interest rate of 6.02 percent and assuming a 10 percent down payment. First-time buyers typically purchase a home equal to 85 percent of the prevailing median price. The monthly payment including taxes and insurance was $1,630 for the fourth quarter of 2008.
At $48,900, the minimum qualifying income was 42 percent lower than a year earlier when households needed $83,700 to qualify for a loan on an entry-level home. Recent decreases in home prices and mortgage rates have brought affordability into better alignment with income levels of the typical California households, where the median household income is $59,160.
At 76 percent, the High Desert region was the most affordable area in the state. The San Luis Obispo County region was the least affordable in the state at 44 percent, followed by the Los Angeles County region at 46 percent.
The First-Time Buyer Housing Affordability Index also rose 6 percentage points in the fourth quarter of this year compared with the third quarter of 2008, due to a 14.1 percent decrease in the entry-level median home price.
Historical affordability data can be found at: historic data.