June 2006

Mid-Year Forecast Update
Robert Kleinhenz, Deputy Chief Economist

Statewide sales of detached existing single family homes continued to slide in April, as the housing market in the first part of 2006 has slowed in comparison to the record setting pace of the past two years. The rate of price appreciation has also slowed in recent months, despite a continued upward trend in the statewide median price.

At 516,960 homes, April sales fell 21.4 percent compared to the April 2005 sales figure of 658,060, which is the second-highest monthly sales pace onrecord. Sales also registered a 4.1 percent decline compared to March 2006 when sales stood at 539,170 homes. While the median price increased 10.2 percent year-to-year from $510,400 in April 2005 to $562,380 this past April, the pace of annual price appreciation was at its lowest level since November 2001, when the median rose 7.8 percent. The April median was just shy of the March median of $562,630, and continued to fall short of last year?s peak price of $568,730, which was established in August2005.

The slowdown in market activity has contributed to lower rates of price appreciation, but supply conditions are also much less constrained this year compared to the last two years. Statewide listings in April climbed to their highest levels since 1997, and stood on a par with the average number of listings over the past 25 years.

C.A.R. released its mid-year housing forecast update earlier this month, reporting revisions to its annual forecast that was published in mid-September 2005. The annual median price is projected to reach $566,000 in 2006, up from the 2005 median of $524,020. This is based on an anticipated 8.0 percent increase, which was revised downward from the September forecast of 10 percent. Price appreciation will slow through the balance of the year, with year-to-year gains in the median price falling below 10 percent during the second half of 2006.

Home sales are expected to decline 16.8 percent from the 2005 record sales figure of 624,960 to 520,000 homes. This represents a downwardrevision from the September forecast, which called for a two percent decline. Sales throughout the year are expected to follow the trend that began in early 2006. Many of the year-to-year changes will be measured against extraordinary figures from last year:  Five of the six highest monthly sales figures on record occurred in the first 9 months of 2005. As such, year-to-year comparisons should improve during the last quarter of this year.

Higher rates and higher prices have contributed greatly to current market conditions, as affordability constraints have pinched sales in many parts of the state. Moreover, there is a divergence in market psychology between buyers and sellers. Over the past two years, the market moved briskly, buyers and sellers alike knew this, and acted accordingly. By contrast, buyers now sense that the recent increase in inventories affords them both greater selection and leverage than before, while many sellers still expect to sell their home well above the sales price of the last transaction in their neighborhood, a difference in perceptions that adds friction to the market.

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