With buyers returning to the market to take advantage of the discount home
prices, government tax credits, and interest rates, the existing home
market in California experienced strong sales throughout 2009. As expected,
distressed properties generated more interest from buyers because of their
deeply discounted prices, but many home sellers of non-distressed
properties responded promptly and cut their price accordingly to stay
competitive in the market. Sales of all homes increased, inventory
fell to below-normal levels, and home prices adjusted upward in response to
tight inventory levels.
The State of the California Housing Market report takes a comprehensive
look at these recent developments in the California real estate market and
provides an outlook for 2010. In particular, the report examines the impact
of the federal first-time buyer tax credit on home buyers, analyzes the
sales trends of distressed and non-distressed properties, and takes a
closer look at the surge in the share of FHA-insured loans.
• The share of first-time buyers surged from 35.9 percent in 2008 to
47.0 percent in 2009, and
increased for the third consecutive year. The proportion
of first-time buyers exceeded the long-run
average of 38.6 percent, and the share was the highest since
1995 when more than half of all
buyers were first-timers.
• The federal tax credit was a big factor in many first-time buyers’
decision to purchase a home, as
69 percent of those surveyed said that the federal tax credit
was either “very important” or “most
important” in their home buying decision.
• Many first-time buyers were interested in distressed properties
with deeply discounted price tags.
In fact, over half of all first-time buyers (51.3 percent)
either bought an REO/foreclosed property
or a short sale in 2009.
• Low home prices not only encouraged first-time buyers to purchase
their entry-level home, but
also lured investors who wanted to add a piece of real estate
to their portfolio. Home buyers who
purchased their properties primarily for investment purposes
and tax considerations increased
from 14.0 percent in 2008 to 16.8 percent in 2009.
• Prices of distressed properties fell more sharply in 2009 than did
prices of non-distressed
properties. The median price of distressed properties declined
24.2 percent from $330,000 in
2008 to $250,000 in 2009, while the median price of
non-distressed properties dropped 10.4
percent from $541,000 in 2008 to $485,000 in 2009.
• Sellers who planned on purchasing another home, or had already
bought another home, declined
from 43.1 percent in 2008 to 39.4 percent in 2009. The
share of home sellers who expressed an
intention to repurchase peaked at 74 percent in 2004 and
has declined in each of the subsequent
• The rapid growth in FHA-insured loans continued in 2009, with its
share of total first mortgages
soaring from 18.9 percent in 2008 to 32 percent in 2009.
VA loans, meanwhile, adjusted slightly
upward from 2.7 percent in 2008 to 4.7 percent in
• One-third (32.9 percent) of all sellers sold their home with a loss
in 2009, a jump from the 22.2
percent recorded in 2008. It was the highest on record
since C.A.R started tracking net cash
losses, and was more than triple the long-run average of