Supply Constraints and the Change in the Mix of Sales Led to the Recent Price Increase
After a brief market slow-down in June, California home sales bounced back and improved both on a month-to-month basis and on a year-to-year basis. Sales of existing single-family homes jumped 15.3 percent to 529,230 in July from 459,140 in the same month of last year. Sales also increased 2.0 percent from 518,680 registered in June 2012, and were up 7.1 percent from last year for the first seven months of the year. Demand for residential properties remained solid as mortgage rates continued to decline on a weekly basis throughout July, dropping from 3.66 percent on June 28 to 3.49 percent on July 26 (according to survey results produced by Freddie Mac). The increase in home sales could also be attributed to a bounce back of the consumer confidence in July, as the Pacific West Consumer Confidence jumped from 49.3 in June to 60.7 in July.
Meanwhile, the statewide median price continued to increase on a year-to-year basis for the fifth straight month, recording the highest mark in almost four years at $333,860, as compared to $320,540 in June 2012 and $296,160 in July 2011. The hike in price was due to upward price pressure resulting from supply constraint, as well as more demand for higher-priced homes. Unsold Inventory for homes declined 30 percent from the same month of last year and the decrease was more pronounced in the lower-price segments than the upper-priced segments (see Table 1). This was due in part to the lack of supply in bank-owned (REO) properties, as REO inventory dropped by more than half from the same time last year (Table 2).
While the tight supply of inventory was putting upward pressure on home prices, it was also restraining sales demand in California in the lower price segments. Sales under $200k dropped 9.4 percent year-to-year, while sales between $200k – 300k increased modestly by 4.6 percent year-to-year. Sales growth for homes priced above $300k, however, was more robust. Sales in the $300k -$400k segment increased 17.7 percent from last year; sales for homes priced between $400k and $500k grew 17.9 percent on a year-to-year basis; and sales above $500k surged 27.7 percent from the previous year.
The supply shortage continued to hurt sales at lower-price segments, while sales in the higher-priced segments continued to grow faster than sales in general. Housing markets such as those in the Bay Area and in Orange County where many high-priced homes were sold experienced double-digit year-over-year gain in sales. On the other hand, counties in the Inland Empire and the Central Valley region where REO properties dominated showed minimal growth or even decrease in sales, as lack of inventory remained an issue in those areas. This imbalance between supply and demand ultimately led to a change in the mix of sales that pushed the statewide median price higher. With inventory expected to remain significantly below the long run average for the upcoming months, the median price will likely be subjected to upward pressure in the foreseeable future.