July 2007

Mixed Market Performance Across Price Ranges
Robert Kleinhenz, Ph.D., Deputy Chief Economist & Oscar Wei, Sr. Research Analyst

Sales activity in the California housing market continued to slump as it entered into what is traditionally the busiest time of year. Seasonally adjusted, annualized sales of existing detached homes fell 25 percent year-to-year to 366,370 units in May, compared to 488,260 units the same month a year ago. Sales were last below this level in September 1995 when sales fell to 361,420. Sales have averaged 416,260 units since the start of the year, down 18.7 percent on a year-to-date basis, but sales have dipped below 400,000 in the past two months.  Weakness in sales continues to be driven by tighter underwriting standards since the start of the year, low affordability, and the adverse psychological impact of news regarding foreclosures and the sub-prime situation.

The statewide median price dropped by a slight 1.1 percent from the record high of $597,640 set in April to $591,180 in May. Still the May median price was second highest on record. The median price increased 4.8 percent year-to-year from the median of $563,860 a year ago. The month-to-month drop in the price was somewhat unexpected, as the median typically increases from April to May.  The last time the statewide median price experienced a drop from April to May was in 1995, when it declined 0.2% from $176,770 to $176,450.

While the median price at the state level continued to increase on a year-to-year basis, price movements at the regional level were varied across markets.  At the regional/county level, year-to-year price changes ranged from a low of a 7.5 percent decline to a high of 25.1 percent gain. The month-to month changes ranged from a decrease of 10.2 percent to an increase of 8.9 percent. Again, the month-to-month declines are a typical of this time of year when the market typically gains momentum. Across the state, regional median prices averaged 4.7 percent below their peak prices of the last two years. The San Francisco Bay Area was the only region that reached a new high in May with a median price of $853,910.

The recent series of year-to-year increases in the statewide median price have been at odds with the trend at the regional level, where median prices have generally registered one or more year-to-year decreases. This has to do with the change in the mix of homes sold.  When sales are grouped by price range, it becomes apparent that the lower and middle segments of the market have been harder hit than the higher end of the market, both in terms of sales and price changes.

When sales from January through May of this year are compared with the same period in 2006, sales of homes below $500,000 declined 24.1 percent, and sales of homes between $500,000 and $750,000 fell 25.5 percent, while sales of homes above $750,000 declined by just 3.1 percent. 

Because sales above $750,000 have shown a much smaller decrease than sales below $750,000, they accounted for a larger share of total sales, increasing from 22 percent of all sales from January through May of 2006 to 27 percent of total sales for the same time period in 2007. By contrast, sales of homes below $750,000 decreased from 78 percent of total sales in the market last year to 73 percent this year. Meanwhile, prices of homes sold below $750,000 fell by 0.4 percent since the beginning of the year, while prices of those above that threshold increased by 1.4 percent. Together with the change in the mix of total sales, the relative stronger performance at the high end of the market has pulled the statewide median price up, despite decreases in the other segments of the market.

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