February 2010

By Oscar Wei, Senior Research Analyst

After 21 months of consecutive year-over-year gains, the California housing market experienced its first sales decline since March 2008 when sales fell 24.4 percent. The seasonally adjusted annualized sales of existing single-family homes decreased 10.6 percent to 539,040 in January from 602,660 (revised) in the same month of last year. Sales dropped by 3.0 percent on a month-to-month basis when compared to December 2009. Despite the declines, home sales in January remained above 500,000 for the seventeenth consecutive month since July 2008.     

The median home price decreased 6.3 percent on a month-to-month basis to $287,440 in January from $306,820 in December, but increased 15.0 percent from a revised figure of $249,960 in the same month of last year. The year-to-year increase was the largest since December 2005 when the median price increased 15.4 percent year-over year. The monthly decline ended a10-month streak of monthly gains in the median price. Still, the January median price was 17.2 percent above the recent low of $245,170 reached in February 2009.

While the month-to-month decline in January 2010 was more significant than the historical monthly average decline of 0.3 percent, the drop of 6.3 percent from December 09 to January 10 was relatively modest when compared to the decline of 11.2 percent and 11.7 percent experienced in January 2008 and January 2009 respectively. 

The monthly decline in median price was larger than the normal seasonal adjustment partly because of the change in the mix of sales. The market segment of homes priced under $500,000, which had averaged 75 percent of the market for the last 6 months, increased to 77.4 percent in January, the highest since May of 2009. This increase in the share of lower-end homes, which placed downward pressure on the statewide median price, was attributed in a large part to an increase in distressed sales. While statewide statistics were not available, data from selected counties suggest that the ratio of distressed sales to total sales rose slightly from the end of last year for most regions in the state. Sacramento, for example, increased from 65 percent in December 2009 to 68 percent in January 2010; Los Angeles increased from 55 percent to 58 percent; and San Luis Obispo increased from 45 percent to 49 percent. 

The spur in home sales in the lower-priced market segment was also indicative of the continued interest in the purchase of entry-level homes, as many first-time buyers were motivated by the tax credit that was extended and expanded through April of this year. With this segment of the market receiving more support from first-time buyers and investors, sales of homes under $500,000 held up better than the rest of the market. As a result, the change in the proportion of sales lowered the general price level accordingly, and the median home price declined more significantly from last month than it would have otherwise.  

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