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2008-2009
State of the California Housing Market - Highlights
Sacramento, March 12, 2009
Amarveer Dhillon
Outlook and Forecast
Sales of existing detached homes hit bottom in the last quarter
of 2007, and have since gradually climbed back. Following two years
of steep declines exceeding 20 percent, annual sales in the California
housing market are expected to increase 12 percent to 395,600 in
sales in 2008, with a further 12.5 percent increase projected in
2009. The increase in sales is largely attributed to the growth
in the absorption of distressed properties with huge mark-downs
in prices.
Home prices have shown significant and unprecedented downward
movement over the past year. The pile-up in foreclosures, real-estate
owned properties (REOs), and short sales will continue to put downward
pressure on home prices until mortgage problems begin to subside
in the second half of 2009. The market will continue to experience
large year-to-year decreases in the coming months, and the statewide
median price is expected to decline 31.7 percent for 2008, the first
decline since 1996. Housing market analysts predict that the home
prices are likely to decline in 2009 (some predict that it could
decline up to 20 percent in some areas, depending on govts capability
on stabalizing home prices by reducing foreclosures, trouble loan
modification terms, location, investor confidence financial market
/ credit availability, affordability / job market / un-employment
statistics).
This year’s State of the California Housing Market report
examines the developments in the housing market sales and real estate
finance over the past year, places recent events into a historical
context, and looks ahead to 2009. The annual report also provides
detailed statistics on consumer demographics, data on home buying
and selling behaviors, analysis on current housing market conditions,
and insights on the direction of the market.
Key Findings
- The steep decline in price largely resulted from the increase
in the share of distressed sales across the state. According to
the annual survey results, one-third of all home sales were distressed
sales, with a 2 to 1 ratio between REOs and short sales.
- Many home sellers sold their properties at a loss, as the increase
in repair costs/price adjustments cut into their equity gains.
The number of sellers who sold their home with a loss almost doubled
from 11.9 percent in 2007 to a record-setting 22.2 percent in
2008. This was well above 1.9 percent in 2006, and was almost
triple the long-term average of 7.7 percent.
- Home buyers took advantage of falling home prices and buying
bigger houses at a lower price per square foot compared to previous
year. The median price per square foot declined for the second
year in a row since peaking in 2006, and was the lowest since
2003.
- FHA and VA loans have become widely used as a result of the
changing environment in the financial market. FHA loans as a first
mortgage accounted for just one percent of total mortgages for
most of this decade. With higher loan limits in 2008, FHA loans
jumped from 1.2 percent of all loans in 2007 to 18.8 percent.
VA loans, meanwhile, increased from 0.3 percent in 2007 to 2.7
percent in 2008.
- The share of home buyers who had a zero down payment declined
abruptly from 17.7 percent in 2007 to 3.4 percent in 2008, the
lowest level in at least the last ten years. The decline was more
obvious for first-time buyers than for repeat buyers.
- Consistent with the increasing trend of distressed sales, almost
one of five (19.8 percent) sellers sold their property because
the property was in foreclosure, short sales, or default, an increase
of 6 percent from 2007. “Change in family status”
was one of the most important reason to sell, increasing from
9.8 percent in 2007 to 19.1 percent in 2008. “Retirement
or moving to a retirement community” followed with 11.5
percent, a decline from 15.3 percent in 2008. The desire for a
better location, which was the number one reason to sell, dropped
by more than half from 17.5 percent in 2007 to 8.1 percent.
- Three of five (56.6 percent) first-time buyers bought their
property primarily because they were tired of renting. Other important
reasons for buying properties include
o Desire for a larger house (9.2 percent)
o Desire for a better location (9.2 percent)
o Change in family status (7.9 percent)
o Investment and tax considerations (7.0 percent)
• The single most important reason to buy for repeat buyers
was their “desire for a better/other location” (21.2
percent) and their “desire (for) a larger home” (19.5
percent). Other important reasons for buying properties include
o Investment and tax considerations (18.0 percent)
o Changed jobs (8.0 percent)
o Change in family status (7.3 percent)
o Tired of renting (7.1 percent)
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