Could it be? Could home sales in California actually be rising from the grave? Recent reports indicate there is a lot of activity going on that may indicate a reawakening of the California housing market.
As many of you know, no state has been harder hit by the housing bust than California. Foreclosures in California have piled up since the beginning of the real estate downturn and California has endured some of the worst declines in property value and prices in the nation. According to a report by the California Association of Realtors (CAR), the median price of a single-family home sold in February 2009 was $247,590, down a whopping 41% from February 2008.
But the median price of a single family home isn't the only thing that's dropped; new home construction in California has nearly disappeared. According to the National Association of Homebuilders (NAH), housing permits in December 2008 shrank to about a quarter of what they were during the boom years.
Aside from all of the gloom and doom, there actually may be light at the end of the tunnel. There are signs that the California housing market may be coming out of this tailspin. Sales volume is increasing, investors are returning to investing in real estate, and home inventories are shrinking.
Buyers are Buying
Low prices have brought out buyers by the droves. In February, according to CAR, buyers purchased more than 600,000 homes, more than 80% more than they bought in February 2007. Most of this buying activity is where home prices are off anywhere from 40-60% from peak prices.
In fact, according to CAR, existing home sales have been rising strongly year on year for the past eleven months. Unsold inventory of existing homes, in months of supply, has fallen to just 6.5 months for detached home listings, down from an astronomical 15 months just one year ago. In metro areas like Sacramento and San Diego, unsold home inventories have dropped to 4.0 months at current sales rates!
The biggest gains in sales and largest decrease in inventory appear to be occurring in the lower-priced listings, listings $300,000 and less, which are more attractive and affordable for potential home buyers.
Two major factors for this is foreclosures and distressed sales. In fact, months of inventory for property prices at or below $750,000 have been cut in half from a year ago!
As an example, in the Sun City area of Riverside County, home prices have fallen more than 35% over the past 12 months. Nearly two-thirds of home sales in the Sun City area in February were foreclosed properties owned by banks. According to CAR, the sales rebound is largely centered around areas that have experienced the biggest impact from the subprime crisis.
In more stable communities where fewer homes were saddled with toxic mortgages, prices have not crashed as badly and sales are rebounding more slowly. But foreclosures still play a major part of sales in these areas.
Most analysts foresee continued price declines in California, according to Nicholas Retsinas, director of Harvard's Joint Center for Housing Studies. "But [there'll be] a slowing of that decline, which portends the end of price drops."
There might be signs that this is already happening. In Long Beach, price per square foot increased 5%, to $360, in February.
Investors are Returning
Another positive sign that real estate markets in California don't have much further to fall is that investors are returning to some markets. Some investors are even putting groups of investors together who are planning on buying single family homes in bulk.
As an example, John Dugan, a real estate investor in based in San Francisco, has purchased 3-840 square foot, 2 bedroom/1 bath duplexes in Sacramento for between $35,000 to $80,000 each, down from the $180,000 to $200,000 selling prices these townhomes sold for just a few years ago.
Using a portion of cash from his IRA, John paid cash for the first townhouse. He rents it out for $750 a month, realizing a profit of $550 after dues and common charges. That's an extremely nice $19% ROI (return on investment), without figuring on appreciation.
"This kind of pricing is something you only think of as Midwestern, not Californian," he said.
Supply is Dropping
In a typical, "normal" real estate market, supply should be in the six to seven month range of supply. According to CAR, unsold home inventory in California now compares favorably with the rest of the nation, where there is a 9.7 month supply of homes on the market (source: NAR).
One wildcard, however, is that banks have kept many repossessed homes off the market. Banks are "spoon feeding" foreclosed homes out very slowly so they don't overload the market. If they release a lot of properties during the heavy spring buying season, they "will be eaten right up by buyers."
Could the end be near?
All of these factors add up to a more optimistic forecast for California, which is seen as a harbinger of things to come for the rest of the country.
If home prices should happen to continue to decline for the rest of 2009, the pace of that decline will slow, but we could see home price stabilization by early next year.
To Buy or Not to Buy
Is it a Buyer's Market? Is now the time to buy your home? You be the judge