36,215 new and resale homes closed escrow in California during December 2010, down 13% from one year ago when 41,837 sales closed escrow. Statewide, sales volume has continued to show its recent downward trend in annual sales, although December’s numbers are a notable jump to the highest sales since June of 2010, when 44,345 sales closed. Home sales jumped slightly more dramatically in Southern California (SoCal) than in Northern California (NorCal).
Real estate owned (REO) resales accounted for 36% of all resales in the third quarter 2010— down from 39% of resales one year earlier. Declining REOs are good news, but the drop is not likely to continue into 2011, as delinquencies have recently been on the rise in California. [For our most current data on REOs statewide, see first tuesday’s Market Chart, REO Resales.]
Speculator and investor-homebuyers accounted for 23% of resales in SoCal and 19% in the Bay Area. The high-tier home market, or “jumbo loans” (here represented by all loans of over $417,000) accounted for 18% of resales in SoCal and 31% of Bay Area sales, up from 17% and 30% one year earlier, respectively. The rise in jumbo loans indicates that high-tier properties are becoming a larger portion of total home sales, most likely due to increasing defaults in the high-tier range, which forces owners to sell their properties at lower and more attractive prices.
Federal Housing Administration (FHA)-insured loans represented 33% of SoCal and 24% of Bay Area mortgages recorded, down from 35% and 25%, respectively, from one year earlier. This downward trend will continue into the future as other government agencies are now guaranteeing almost all conventional loans, including conventional loans with lower downpayments and downpayments from unconventional sources (such as gifts). This trend will allow home prices to firm up, and sets the stage for an annual rise in pricing which will likely rise at the same rate as increased employment in California, since construction starts will remain low into 2012.
Adjustable rate mortgages (ARMs) made up 6% of all mortgages in SoCal and 9% of Bay Area mortgages. This reflects a slight rise in ARM use over the past year, and indicates there is some risk of home price inflation. ARM use is still far below its historic average. [For more information on ARMs in the real estate market, see first tuesday’s Market Chart, The Danger of an ARMs Buildup]
Cash purchases represented 27% of SoCal and 24% of Bay Area sales in December, indicating that speculators are still at work, probably flipping under land sales contracts or let-to-buy arrangements, called lease-option sales, which go unrecorded. These transactions remain, for the most part, invisible to the public.
This month’s sales also complete 2010’s home sales, which finished slightly higher than 2008 (although lower than 2009). In 2010, a total of 421,634 homes were sold in California, down from 465,654 in 2009, and up from 392,326 in 2007, the recent annual low for home sales. 228,655 homes were sold in SoCal, and 192,979 were sold in NorCal, down from 245,331 and 220,060, respectively, in 2009.
Home sales have remained somewhat constant since 2008, but are far below their numbers at the peak of the housing boom, in 2005. In 2005, 753,876 homes were sold statewide, with 355,698 sold in SoCal and 398,178 sold in NorCal. first tuesday does not expect home sales to return to 2005 numbers until the 2016 to 2018 “boomlet” period, at the earliest, although we anticipate the possible beginnings of an actual recovery in sales volume during 2013, with a recovery in prices to follow one year later.
For more extensive history and analysis of monthly and annual home sales in California, see the first tuesday market charts feature Home Sales Volume and Price Peaks.]
Re: “California December Home Sales” from MDA Dataquick