Is that light we see at the end of the tunnel? 29,630 new and resale home transactions closed escrow in California in February 2012, up 9% from one year ago when 27,320 sales closed escrow, and up 5% from January 2012. The uptick in sales can be traced back to cash buyers and absentee buyers — investors rather than owner-occupants.

Real estate owned property (REO) resales made up roughly 34% of all sales in the fourth quarter of 2011 — down from 38% one year earlier. first tuesday expects REOs to remain plentiful through 2016, until mortgage delinquencies return to pre-recession levels. The normal REO resale percentage before 2007 was approximately 7%, and that number will set the bar for any assessment of economic recovery.

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Absentee homebuyers (a group generally composed of speculators, buy-to-let investors and renovation contractors) accounted for a record high of 30% of Southern California (SoCal) February sales. A record was also set in the Bay Area, where 26% of sales were to absentee buyers, up one percentage point from last month. Sales to homebuyers who will actually inhabit their single family residences (SFRs) remain low.

Jumbo loans (loans over the old conforming limit of $417,000) accounted for 14% of February sales in SoCal, down from 16% one year earlier. Jumbos made up 27% of Bay Area sales, roughly level with one year earlier. Jumbo loans have risen since 2009 due to an increase in foreclosures among high-tier properties and the Federal Housing Administration’s  (FHA’s) increase of their loan insurance ceiling to $724,000. Nonetheless, jumbo use is far below its market share height in the boom times of 2006 and 2007.

FHA-insured loans made up 31% of SoCal mortgage recordings, roughly even with January and down from 32% one year earlier. FHA-insured loans made up 23% of Bay Area mortgages, relatively unchanged from January and one year earlier.

first tuesday anticipates that this abnormally high percentage of FHA-insured loans will drop in the near future. The combined rate of interest and private mortgage insurance (PMI) is currently lower than the combined rate on FHA-insured loans, making FHA loans less appealing. Even more important, the FHA recently announced  significant increases in mortgage insurance premium (MIP) rates, which will accelerate the use of PMI-insured loans rather than FHA-insured loans.

Adjustable rate mortgages (ARMs) made up 6% of all SoCal mortgages, level with January and down from 8% a year ago. ARM use in the Bay Area remained at 12% of all mortgages, level with one year ago. ARM use will remain relatively low until prices begin to rise once again, pushing homebuyers to overreach on amenity value. Current home pricing trends suggest that price rise will take place first in Northern California.

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Cash purchases represented a record 33% of SoCal sales and 32% of Bay Area sales in February 2012. The continuing increase in cash purchasers means that speculators remain confident of a price recovery, and of their ability to turn a profit on the resale of a property.

first tuesday take: Over the last 18 months, home prices have risen and fallen from quarter to quarter in a “bumpy plateau.” Home sales volume has done the same, showing at best a very slight upward trend from year to year. Both home sales volume and home pricing are likely to remain at present levels until employment and homebuyer confidence improve significantly.

For now, signs indicate home sales volume will continue to rise slowly and unsteadily, while pricing remains flat for at least two more years. Home sales volume is unlikely to show any sustained improvement until California experiences 18 continuous months of major increases in employment (25,000-30,000 new jobs per month on average); support that has yet to begin. In 2011, an average 13,000 new jobs were created monthly.

In the absence of job increases or a confidence uptick, low interest rates and home prices remain the sole drivers of real estate sales volume (excepting, of course, client advice from well-informed agents). first tuesday anticipates a slight rise in sales volume in the first half of 2012, sparked by the temporary confluence of low mortgage rates and low home prices.  Once the Fed increases interest rates from their current zero bound, expect sales volume to drop.

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A total of 413,479 homes were sold statewide in 2011, a drop of 2% from 421,634 in 2010.  first tuesday anticipates a further drop to 407,000 annual home sales in 2012 before yearly sales volume begins to fully bottom in early 2013.

Expect annual price increases to be modest, even after 2015. If the historical trends at the end of the Great Depression in the 1940s are any guide to this Lesser Depression (and thus far they have proven highly relevant), real estate prices are not likely to rise faster than the rate of inflation reported in the Consumer Price Index (CPI).

For the moment, the best brokerage game in town appears to be home purchases by employed families and buy-to-let investors, since property management is a recession-proof occupation. Non-residential tenants considering a move by relocating to another building will also find themselves well situated in both coastal and inland locations.

Re: “California February Home Sales” from MDA Dataquick