32,669 new and resale home transactions closed escrow in California during November 2011, up 4% from 31,403 transactions one year ago. November is the fourth consecutive month in 2011 in which home sales volume surpassed the corresponding month in 2010. [For more extensive history and analysis of monthly and annual home sales in California, see the first tuesday Market Chart, Home Sales Volume and Price Peaks.]

November’s numbers are down 4% from October; a typical drop for this time of year. This is the third consecutive month of declining home sales volume statewide.

The recovery’s overall bumpy plateau recovery trend continues to reflect the fact that home sales volume leveled in 2011, following a decline that set in after mid-2010. Annual home sales volume is expected to remain at or below 2010’s numbers through the end of 2012 (price movement, however, will lag for even longer).

Real estate owned property (REO) resales made up roughly 34% of all sales in the third quarter of 2011— down slightly from 36% one year earlier. However, this still-high proportion of REOs is expected to remain a constant for three or four years to come. In 2012, delinquencies are expected to be more efficiently foreclosed by servicers under contracts with big mortgage banks, which have thus far proven hesitant to foreclose in large numbers. [For our most current data on REOs statewide, see the first tuesday Market Chart, REO Resales.]

Absentee homebuyers (a group generally composed of speculators, investors and building contractors) accounted for 25% of Southern California (SoCal) sales, level with October. Just under 23% of Bay Area sales were to absentee buyers, up one percent from last month. Current absentee homebuyer levels remain near the historic records of 26% in SoCal and 23% in the Bay Area, set in January and February of 2011 respectively.

“Jumbo loans” (loans over the old conforming limit of $417,000) accounted for 15% of sales in SoCal, down 3% from one year earlier, and 30% of Bay Area sales, a slip from 33% one year earlier. 2010 saw a sharp rise over 2009 in the use of jumbo loans, likely attributable 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. Jumbo use is far below its market share height in the boom times of 2006 and 2007.

FHA-insured loans made up 32% of SoCal mortgage recordings, level with October but down from 36% one year earlier. FHA-insured loans made up 22% of Bay Area mortgages, up one percent from October and slipping from 24% recorded one year earlier.

first tuesday forecasts this percentage for FHA-insured loans will continue to drop in the future, as buyer’s agents become aware that other government agencies and private mortgage insurers now guarantee almost all types of highly-leveraged conventional loans, including loans with low down payments and down payments from unconventional sources (family loans, gifts).

Importantly, the combined rate of interest and private mortgage insurance (PMI) is currently lower than the combined rate on FHA-insured loans, making the FHA loan less appealing by government design, a good thing for stabilizing the multiple listing service (MLS) market. [For a comparative cost analysis of FHA-insured and PMI-insured loans, see the first tuesday Market Chart, FHA, PMI, or neither?]

Adjustable rate mortgages (ARMs) made up 6% of all SoCal mortgages, down one percent from October, but up one percent from one year ago. ARM use in the Bay Area month over month dropped one percent, to 12% of all mortgages, still up from 9% one year ago. This relatively low volume of ARMs places no pressure on prices, and keeps buyers from overreaching in amenity value.

Cash purchases represented 29% of SoCal sales and 28% of Bay Area sales in November 2011. Although these numbers are down slightly from February 2011’s record of 32%, they remain abnormally high in both districts, indicating speculators are still at work.

The ongoing spike in cash purchases indicates that speculators are still optimistic about a potential recovery in real estate sales volume and pricing. However, both sales aspects have slipped since late 2010; not a good sign for speculators, who require very high profits to be successful.

first tuesday take: Over the last 12 months, home prices have risen and fallen from quarter to quarter, but there have been no signs of any sustained increase in sales volume or pricing. Instead, the recent trend in both sales volume and pricing reflects a slow drop since mid-2010, and both are likely to remain low until employment and homebuyer confidence improve significantly. At the moment, interest rates are slipping and prices are low: the right combination for a sales volume increase in early 2012 (if employment and confidence will just rise to support it). [For more on homebuyer confidence, see the first tuesday Market Chart, Trends in homebuyer expectations; for more on California employment, see the first tuesday Market Chart, Jobs move real estate.]

For now, signs indicate that continued vacillation in both home sales volume and pricing on the washboard plateau of a real estate recovery – one quarter up, the next one down – will be the norm for at least two more years, and will probably continue through 2015. Home sales volume, especially, is unlikely to show any sustained improvement until California experiences 18 continuous months of major monthly increases in employment numbers: support that has yet to begin. [For more on current home pricing, see the first tuesday Market Chart, California tiered home pricing.]

In the absence of job increases and 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). The dynamite combination of low mortgage rates and low home prices is certain to spark a slight rise in sales volume going into 2012, but no more than that. Price movement exceeding the rate of consumer inflation is still years away.

Be warned: any significant increase in sales volume or prices will lead to a corresponding rise in interest rates and put an end to that run within 12 to 18 months (as occurred in 1984, 1994 and 2004 following recessions). Only statewide employment gains of 400,000 or more new jobs annually for a couple of years, as took place in the late 1990s, can produce a full recovery for California’s real estate markets. Another bubble, in real estate or jobs, is entirely out of the question. [For more on the influence of rates on home sales, see the first tuesday Market Chart, Buyer Purchasing Power.]

Even after 2015, expect annual price increases to be modest. 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 at or faster than the rate of inflation reported in the Consumer Price Index (CPI). Today’s interest rates, which are essentially zero, can do nothing but rise, and thus will be unable to bolster pricing. [For the most current CPI in Los Angeles, San Francisco and San Diego, see the first tuesday Market Chart, Current market rates.]

Remember, the game-changing 2008 recession ended in mid-2009, but an ongoing financial crisis remains, superimposed on the economic recovery. Going forward, real estate (asset) prices cannot (generally) rise faster than the rate of consumer inflation without a drop in interest rates or a jump in the state’s gross domestic product (GDP), as happened in the 1980s and 1990s – neither of which are anywhere on the horizon.

For the moment, home purchases by employed families and buy-to-let investors appear to be the best game in town, besides commercial tenants considering a move by renting a replacement building.

Re: “California November Home Sales” from MDA Dataquick