April 2006

Bumpy Start Continues, Inventories Climb
Robert Kleinhenz, DeputyChief Economist

Housing market sales activity in California remained well below last year's sales pace in February, as inventory levels climbed and the pace of price appreciation continued to slow. Sales of existing detached homes rose 2.7 percent from a five-year low of 500,470 homes in January to 513,740 homes in February, but fell 15.5 percent compared to February 2005, when sales were at a near-record level of 608,160 units. The February median price stood at $535,470, rising 13.7 percent year-to-year from the February 2005 median of $470,920, but fell 2.9 percent compared to the January median of $551,300. In fact, the statewide median in February fell to its lowest level in the past nine months, a sign that the pace of price appreciation continues to slow.

As mentioned last month, the unsold inventory index has seen some sizable increases in recent months. February was no exception as the unsold inventory index rose to 6.7 compared to a revised value of 5.7 months for January. The February reading was more than double that of last year, and quadruple that of February 2004, when the index stood at a near-record low of 1.8 months. Most significantly, it rose to its highest level since early 1998 when the index was in the 7 month range.

Being the ratio of listings to sales, the unsold inventory index may increase as a result of an increase in listings, a decrease in sales, or both. In fact, both have occurred in recent months. While sales fell significantly compared to a year ago, listings in February were nearly 50 percent higher than a year earlier, and triple the levels of two years ago, when listings fell to their lowest levels ever.

Listings remained low by historic standards, even with the recent increases. Listings in February were 15 percent lower than the long run average going back to 1988, and well below the all-time high that was set in May 1992, when listings were nearly double the long-run average. Thus, while below average number of listings implies continued price appreciation, increases in the number of listings over time tend to temper those rates of appreciation.

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