January 2007

Regional Markets Break Ranks from State
Robert Kleinhenz, Ph.D., Deputy Chief Economist

Conditions in the statewide housing market further stabilized in November 2006, as sales edged up and the California median price held steady. However, the California regions continued to break ranks from the statewide picture, both in terms of sales and prices.

For the fifth month in a row, seasonally adjusted, annualized sales for the state remained in the range of 450,000 homes. Sales rose slightly from 443,320 homes in October to 450,930 homes in November, but fell 22.2 percent year-to-year compared to the November 2005 figure of 579,560 homes. The statewide market remained on track for an anticipated 23 percent decline in sales for all of 2006.

The statewide median likewise showed little change, with a November median price of $555,290 which rose slightly from $551,620 a month earlier, and increased just 1.4 percent from the prior year median of $547,870. With inventory levels in the range of 7 months - the long run average - small single-digit percentage gains in the median price have been the norm since August.

The seemingly orderly transition to lower levels of activity at the state level belies a mixed bag of adjustments at the regional level. Sales in Southern California have tracked most closely with the state as a whole with a 22 percent decline for the region, compared to 23 percent for the state. The median price in the region has also behaved much like the state, with a series of single-digit year-over-year percentage gains in recent months. For November, the Southern California median stood at $544,020, up 2.7 percent year-to-year, but shy of the record high of $565,390 that was set in September 2006. Part of the drop-off from the record may be attributed to the seasonal decline in home prices;it is unlikely that the median will do much more than match the September 2006 record.

The Bay Area actually peaked in 2004, a year ahead of the statewide sales peak. With a 19 percent decline in 2006 on top of a 10 percent decline in 2005, sales in the region were 29 percent lower than the sales peak in 2004. Still, sales in 2006 remained higher than in 2001 when the region felt the effects of the dot-com meltdown. The median has generally fallen since the June 2006 record of $760,930, and stood at $738,900 in November. However, the market continued to post a small annual gain with a 2.2 percent increase over the $723,080 median of a year earlier.

Of the three regions, the Central Valley has experienced the greatest departure from the state, both during the upswing in the market and now during the slowdown. After rising more dramatically than the other regions of the state during the first half of the decade, sales in the Central Valley fell by 32 percent in 2006 alone, the largest decline among the California regions. The region has seen five consecutive months of year-to-year decreases in the median price, with a November median of $340,370 that was 3.9 percent lower than the prior November median of $354,200, and six percent below the region's record high of $363,720 that occurred in August 2005.

To learn more about our Trends Newsletter, please contact the Research & Economics Department at  research@car.org or (213) 739-8352.