December 2010

By Carmen Hirciag, membership development manager

As you prepare for the year ahead, it’s important to revisit what transpired in the housing market in 2010 in order to determine what can be anticipated in 2011.  It is evident that 2010 has been a year of transition toward stability in the housing market when looking at three main housing indicators:  median price, sales and unsold inventory.

The state median price, at $296,820 in November, experienced its first year-over-year decline after 12 consecutive months of gains.  With a 21 percent rise above the February 2009 trough of $245,230, the median price in California could be an indication of the beginning of stability in the market.

Year-to-date sales dropped 9.8 percent in November, consistent with our forecast of a 10 percent annual decrease.  The seasonally adjusted sales in November were up 93 percent from the trough of 254,650 three years ago, and were 19 percent above the long run annual average over the past 39 years.  Despite the year-to-date drop, sales figures are faring reasonably well when historical data is taken into consideration.

The unsold inventory index is a good indicator of home prices because when the housing supply falls below seven months, it usually leads to price appreciation.  The November unsold inventory index was 6.2 months.  Because this index has maintained a relatively healthy range in 2010, between 4.6 and 6.6 months, it is another indication of the beginning of stability in the California housing market.

The number of distressed sales compared to overall sales is also important in determining the health of the real estate market.  For the past few years, we have seen significant numbers of distressed properties on the market.  In 2010, the share of distressed sales relative to all sales declined to 41 percent from 46 percent in 2009.  Although there are still many distressed properties for sale, this reduction is a good sign that the market is heading in the right direction. While the percentage of foreclosures and REOs declined since last year, the percentage of short sales increased from 14 percent in 2009 to 22 percent in 2010.  However, short sales tend to be higher priced and stay on the market and in escrow longer than REOs and foreclosures. Because short sales are more favorable financially for banks and we are seeing them in higher frequencies, this could lead to improvement in lending conditions, which would be favorable for the housing market.

While we still anticipate 2011 to be a transition year, it will continue moving further toward stabilization.  We expect the annual sales and median price to increase two percent to 502,000 and $312,500, respectively. There are some wildcards that will prevent the housing market from reaching a full recovery in the near term: the possibility of another recession, Federal economic policies, negative equity homeowners and shadow inventory.  Despite these uncertainties, there will be some tremendous opportunities in the housing market for first-time buyers, investors, long time owners and international buyers.  These opportunities will pave the way to recovery in 2012 and beyond.

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