31,403 new and resale homes closed escrow in California during November 2010, down 12% from one year ago when 35,860 sales closed escrow. Statewide, sales volume has continued to show its recent downward trend both in annual and monthly sales: home sales have dropped slowly but consistently since June of this year. Southern California (SoCal) home sales are trending downward slightly more quickly than Northern California (NorCal). [For more information on California home sales, see the first tuesday Market Chart, Home sales volume and price peaks.]
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 the first tuesday Market Chart, REO Resales.]
Speculator and buy-to-let investors 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 $419,000) accounted for 18% of resales in SoCal and 32% of Bay Area sales, up from 15% and 30% one year earlier. The rise in jumbo loans indicates that high-tier properties are becoming an increasing 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 36% of SoCal and 25% of Bay Area mortgages recorded, virtually unchanged from their numbers one year earlier. This will change in the future, however, as other government agencies are now guaranteeing almost all conventional loans, including loans with lower downpayments and downpayments from unconventional sources (such as gifts).
Adjustable rate mortgages (ARMs) made up 6% of total mortgages in SoCal and 10% of Bay Area mortgages. This reflects a slight downward trend line in ARMs which peaked in May 2010, and is a good indicator the market volume will not increase nor will prices over the next 12 to 24 months. The increase in ARM use in the Bay area is to be watched, as it will very likely push prices of high-tier homes upward excessively if ARMs continue to increase over the next six months. [For more information on ARMs in the real estate market, see the first tuesday Market Chart, The Danger of an ARMs Buildup.]
Cash purchases represented 28% of SoCal and 26% of Bay Area sales in November, 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.
Re: “California November Home Sales” from MDA Dataquick