Explaining the Current Market to Consumers

GENERAL MARKET INFO

· The main constraint on market activity at this time is the lack of funds available for loans because of the credit crunch, which has been compounded by tighter underwriting standards.

· Historically, mortgage rates on jumbo loans are 0.2 percent to 0.4 percent higher than those on conforming loans, but the spreads since the onset of the credit crunch have been double or even triple that.

· The lack of available funds for loans, even for qualified buyers, has resulted in a dearth of buyers who can close on a home purchase.

· The time a home remained on the market prior to selling improved to 46.1 days in September 2008, compared with 56.7 days (revised) for the same period a year ago.

· In September 2008, it would have taken 6.5 months to sell all the homes on the market at the current sales rate, an improvement compared to a year ago, when it would have taken 16 months (revised).

· Although the Federal Reserve Bank's action to reduce the federal funds rate to 3 percent will have little near-term direct effect on the housing market, the rate cuts should result in more favorable real estate finance rates as we move through the year.

· Successful passage in the U.S. Senate of the economic stimulus package approved by the U.S. House of Representatives should positively impact the market as buyers who previously would have to take out a jumbo loan will qualify for more affordable conforming loans, thanks to the proposal's plan to increase the conforming loan limit from $417,000 to as much as $729,750.


SALES ACTIVITY

· Sales continue to rise year-over-year, with sales in September increasing 96.7 percent in California, compared with the same period a year ago. Sales soared above the 500,000 unit threshold for the first time in more than two years.

· Month-to-month sales also continue to increase. Sales in September 2008 increased 2.3 percent compared with the previous month.

HOME PRICES

· The statewide median price of an existing, single-family detached home in California was $316480, a 40.9 percent decline from the revised $535,760 median for September 2007.

· The September 2008 median price fell 9.6 percent compared with August's revised $350,140 median price.

· One reason for the large year-to-year declines in the median price is the dramatic change in the mix of sales since the onset of the credit/liquidity crunch. A year ago, the under $500,000 price range accounted for 46 percent of sales, the middle segment ($500,000 to $1 million) made up 40 percent, and the greater than $1 million segment captured 14 percent of the market. As of September 2008, the mix had shifted to 76 percent, 18 percent, and 6 percent, respectively.

MORTGAGE RATES

· Interest rates continue to remain near their historic lows. Thirty-year, fixed-mortgage interest rates averaged 6.04 percent during September 2008, compared with 6.38 percent in September 2007, according to Freddie Mac.

· Adjustable-mortgage interest rates averaged 5.14 percent in September 2008, compared with 5.66 percent in September 2007.