27,320 new and resale homes closed escrow in California during February 2011, down 2.8% from one year ago when 28,111 sales closed escrow. Statewide, sales volume has continued to show its recent downward trend in sales. Both Southern California (SoCal) and Northern California (NorCal) extended the dramatic fall that took place in January.
Real estate owned (REO) resales accounted for 38% of all resales in the fourth quarter 2010— up from 37% one year earlier. [For our most current data on REOs statewide, see first tuesday’s Market Chart, REO Resales.]
Absentee homebuyers (a group generally composed of speculators and investors) accounted for 26% of resales in SoCal (a new historic record) and 23% in the Bay Area. “Jumbo loans” (here represented by all loans of over $417,000) accounted for 16% of sales in SoCal and 27% of Bay Area sales, shifting slightly from last year’s numbers of 15% and 27%, respectively. 2010 saw a sharp rise in the use of jumbo loans, likely attributable to an increase in foreclosures among high-tier properties (although jumbo use remains far below its height in the boom times of 2006 and 2007).
Federal Housing Administration (FHA)-insured loans represented 32% of SoCal and 23% of Bay Area mortgages recorded, a shift from 37% and 27%, respectively, recorded one year earlier. The current proportion of FHA loans remains abnormally high by historical standards, although it has dropped in recent months. This downward trend will continue in the future, as other government agencies are now guaranteeing almost all conventional loans, including loans with lower down payments and down payments from unconventional sources (such as gifts).
Adjustable rate mortgages (ARMs) made up 8% of all SoCal mortgages and 12% of Bay Area mortgages. This reflects a slight downward trend line in the use of ARMs in SoCal, but a rise in their use in the Bay Area. ARMs peaked across California in May 2010, and any drop in ARMs is a good indicator the market volume and pricing will not increase over the next 12 to 24 months. The increase in the use of ARMs in the Bay area is to be watched, as any increase over the next six months will very likely push prices of high-tier homes upward excessively. [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 a record 32% of SoCal and 31% of Bay Area sales in February, a rise in both districts that indicates 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. The recent spike in cash purchases indicates that speculators are once again optimistic about a potential recovery in real estate sales and pricing, but both have shown only torpid growth thus far.
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 February Home Sales” from MDA Dataquick