September 2006

Prices Down in Some Regions as Slump Continues  
Robert A. Kleinhenz, Ph.D., Deputy Chief Economist

The California housing market in July continued to be well off the record-setting pace of last year, as monthly sales fell to the lowest level in 10 years and the pace of price appreciation continued to wane. Sales of existing detached homes fell 29.9 percent year-to-year from 647,910 homes in July 2005 to 453,980 homes this past July. This was the lowest monthly sales reading since July 1997 when there were 442,150 sales, a time when the market was in the early stages of the now defunct boom in home sales. Sales fell 6.1 percent month-to-month from the June sales figureof 483,690. Total year-to-date sales from January through July fell 22.0 percent compared to the same 7-month period last year, during which 5 of the 6 highest monthly sales figures were established.

At $567,360 in July, the median price fell slightly compared to the record June median of $575,800. But the larger story, of course, is the continuing slowdown in the year-to-year gains with each passing month in 2006. Having begun the year with a 13.8 percent year-to-year increase in January, the last three months have seen gains in the single digits, with the July median up just 5.1 percent compared to a year ago. By contrast, the median rose 16.9 percent year-over-year in July 2005 and 20.9 percent in July 2004.

Regionally, county and area medians in parts of the state have registered one or more year-to-year declines for the first time in a decade. Median prices in the Central Valley region, the Sacramento area, and San Diego each fell year-over-year in July for the first time since the late 1990' s Each of these markets had seen considerable home building activity in recent years, and increases in new home inventories this year have put pressure on the market for existing homes. Meanwhile, the Monterey region median declined against the prior year for the first time since early in this decade.

Elsewhere, the Northern Wine Country median has seen 2 successive months of year-over-year decreases, and the median in Palm Springs has fallen 3 months in a row. While both the Northern Wine Country and the Palm Springs regions have likely suffered from a decline in second-home activity, the Palm Springs market may also be experiencing a seasonal slowdown because of the summer time heat, as it has on occasion in the past. Palm Springs has also seen a spate of new homes in recent years, with inventories that may take some time to deplete.

Year-to-year changes in sales may become less severe in the last quarter of the year, as they will be gauged against weaker figures from late 2005. But the statewide median is likely to see little more than single-digit percentage gains through the balance of the year, while more individual regions and counties are expected to experience yearly declines in the coming months for the first time in many years.

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