39,760 homes sales closed escrow in December 2012. This is up 6% from November 2012, and up 5% from one year earlier.

A total of 447,573 homes sales closed in 2012. This is up 8% from 2011. Home sales rose in the latter half of 2012, mainly due to speculator/cash activity. In turn, 2013 will likely see a roughly 10% increase in sales volume over 2012, fueled mostly by zero-bounded interest rates.

The bumpy recovery pattern continues as home sales rise and fall from month to month. However, the overall trend is slowly tilting upwards. The recovery will gain sustainable momentum after 18-24 months of sufficient job growth, ending around 2016. Progress is being made on that front, but January 2013 sales data will give us a better vantage point.

Related articles:
Jobs move real estate

Other key factors controlling California’s housing market follow.

Absentee homebuyers: to hold or to fold?

Absentee homebuyers (speculators, buy-to-let investors and renovation contractors) accounted for 29% of Southern California (SoCal) December sales. This is up from November 2012, and near the February 2012 high of 30%. Absentee homebuyers made up 26% of Bay Area homebuyers in December 2012, up from November 2012 and up from 24% one year earlier.

Cash purchases (mostly speculators) remained at a record high in December, representing 34% of SoCal sales. This is level with the previous month and up from 30% one year earlier.

29% of Bay Area sales were cash purchases in December 2012. This is level with November 2012 and up from 27% a year ago.

Speculators will remain motivated to buy only so long as they believe home prices will rise quickly. Time will tell whether these highly optimistic expectations —facing interest rate increases —are to be justified. The likelihood dims each month as low interest rates will come to an end.

If short-term speculators realize they cannot make as quick a profit as anticipated, they will leave the market. The inventory they leave behind will be consumed by occupying homebuyers. Homebuyer occupants currently have difficulty competing with the attractive financing (cash offers) speculators provide sellers.

Jumbo loans: room at the top

Jumbo loans (loans over the old conforming limit of $417,000) accounted for 22% of December 2012 sales in SoCal. This is up from the prior month and up from 15% one year earlier.

Jumbos made up 40% of Bay Area sales. This is down slightly from last month and up from 27% a year earlier.

Jumbo use has risen statewide — particularly in the pricey Bay Area — since 2009. Use continues to rise as high-end property sellers finally abandon their sticky price delusions. Despite this increase, jumbo use and related sales remain far below their peaks in the 2006-2007 Boom.

FHA Loans: phase out has begun

Federal Housing Administration (FHA)-insured loans made up 23% of SoCal mortgage recordings. This is down slightly from last month, and down from 31% one year earlier.

FHA-insured loans made up 19% of Bay Area mortgages in December 2012. This is up from 17% in November and down from 23% one year earlier.

FHA-insured loan use across California is at its lowest level since late 2008. first tuesday anticipates the percentage of FHA-insured loans will steadily drop through this recovery and hit a bottom around 2018. Higher FHA insurance premiums make conventional loans with private mortgage insurance (PMI) more appealing.

FHA buyer standards have also become stricter in this recovery. Nonetheless, FHA-insured financing remains popular among determined first-time homebuyers with low savings and low credit scores.

Related articles:
FHA, PMI, or neither?

ARMs: holding lenders at bay

Adjustable rate mortgages (ARMs) made up 6% of all SoCal mortgages. This is up slightly from November and down slightly from a year ago.

ARM use in the Bay Area was at 11% in December. This is down slightly from the prior month and down from12% one year earlier.

ARM use will remain relatively low until property prices rise beyond 5% annually. Then ARMs will increase as agents push homebuyers to overreach on amenity value.

Re: California December Home Sales from DataQuick