Those looking for sure signs of economic recovery in the housing market will have to wait a little longer. Home sales in March 2012 were up from January 2012 and February 2012, but they have yet to show significant improvement over 2011. 37,481 new and resale home transactions closed escrow in California in March 2012, up 3% from one year ago when 36,417 sales closed escrow, and up 27% from February 2012.

Here are some other key facts about California’s housing market:

Absentee Homebuyers

Absentee homebuyers (a group generally composed of speculators, buy-to-let investors and renovation contractors) accounted for 28% of Southern California (SoCal) March sales, down from the record high of 30% in February 2012. Absentee buyers made up 24% of NorCal homebuyers, down from a record 26% in February 2012. Sales of Single family residences (SFRs) to owner-occupant homebuyers remain low.

Buyers may be starting to realize that prices will not rise significantly for months, or even years. A drop in absentee homebuyers, and a less urgent sales environment, will make room for homeowner offers to compete with non-occupying buyers.

Jumbo loans

Jumbo loans (loans over the old conforming limit of $417,000) accounted for 16% of March sales in SoCal, level with one year earlier. Jumbos made up 31% of Bay Area sales, up from 27% last month, but roughly level with one year earlier. Jumbo use has risen since 2009, but remains far below its market share height in the boom times of 2006 and 2007.

FHA Loans

FHA-insured loans made up 30% of SoCal mortgage recordings, the lowest level since late 2008, down from 32% one year earlier. FHA-insured loans made up 23% of Bay Area mortgages, relatively unchanged from February but down sharply from 29% one year earlier.

first tuesday anticipates that this still-high percentage of FHA-insured loans will drop further as we move through the this year and next. 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’s recent increases in mortgage insurance premium (MIP) rates will accelerate the use of PMI-insured loans rather than FHA-insured loans, although the FHA remains the surest way to get a loan for borrowers with low savings.

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Adjustable rate mortgages (ARMs) made up 6% of all SoCal mortgages, level with February and down from 8% a year ago. ARM use in the Bay Area remained at the prior month level of 12% of all mortgages, down two percentage points from one year ago. ARM use will remain relatively low until prices begin to rise once again, pushing homebuyers to overreach on amenity value.

Cash Purchases

Cash purchases represented a record 32% of SoCal sales and 29% of Bay Area sales in February 2012, near the record levels of 34% and 32% set last month. The continuing high volume of 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 only the faintest possible 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. We anticipate a measurable rise in sales volume in approximately 2016.

For now, signs indicate home sales volume will continue to rise slowly and unsteadily, while pricing remains flat at least until 2016. 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.  2012 shows signs of improvement, and is likely to maintain a rate of around 18,000 monthly.

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Current market rates

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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 through the end of 2014.  Once the Fed increases interest rates from their current zero bound trap, expect sales volume to drop.

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).

Re: “California March Home Sales” from DataQuick