By Sara Sutachan, senior research analyst and Robert Kleinhenz, deputy chief economist
In February, closed escrow sales of existing, single-family detached homes in California dipped to a seasonally adjusted annualized rate of 497,660 in February, down 9.0 percent from January’s revised pace of 547,080 and down 4.0 percent from the 518,390 sales pace recorded in February 2010. This weaker than expected performance came on the heels of three consecutive months of gains that had been driven by robo-signing delays, thus pushing sales from September and October into the period from November through January.
The California statewide median price was $271,320, down 2.8 percent from $279,140 in January and down 2.5 percent from the $278,190 median price for February 2010. Since 1979, the January-to-February change in the median price has averaged a drop of 0.1 percent. However, the market has experienced more pronounced median price changes over the last four years, with an average December-to-January decline of 9.6 percent, followed by an average January-to-February decline of 2.3 percent.
This three year phenomenon does not seem to be a fluke. Instead it is more likely a result of bank behavior. In looking at C.A.R.’s distressed sales statistics derived from over 70 MLS’s across the state, there is an increased concentration in Bank Owned or REO sales in the final months of each year that has carried over into the first two months of the next year. This spike in distressed properties in the beginning months of the year could drive the price downward during those time periods.
The seasonal spike in distressed property sales coincides with a recurring annual pattern in high end homes around the holidays through the first few months of the year. Over that time interval, both the number and percentage of high end home sales ($1 million and higher) typically decline each year. Together with the seasonal spike in distressed properties, the typical drop in the median price has become amplified.
In both 2009 and 2010, the steep month-to-month declines in the median price in January and February were offset as the market moved into the peak months beginning in March and running through the summer so that by mid-year the median had returned to the late-season levels of the previous year. However, the market and median price were boosted in 2009 and the first half of 2010 by Federal tax credits which have since expired. In 2011, the market must move forward on its own as economic conditions improve. Whether the median price will show a seasonal bounce in the coming months remains to be seen.
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