Home sales volume in April 2012 was at the highest level since June of 2011, and up 9% from one year earlier. 38,241 new and resale home transactions closed escrow in California in April 2012, up 2% from March 2012, when 37,481 homes were sold.
Here are some other key factors controlling California’s housing market:
Absentee homebuyers (a group generally composed of speculators, buy-to-let investors and renovation contractors) accounted for 28% of Southern California (SoCal) April sales, down from the record high of 30% in February 2012. Absentee buyers made up 24% of Bay Area homebuyers, down only slightly from a record 26% in February 2012. Sales of single family residences (SFRs) to owner-occupant homebuyers remain low.
first tuesday forecasts that prices will not rise significantly for years. As buyers realize this fact, absentee homebuyers will leave the market, making room for homeowner offers.
Jumbo loans (loans over the old conforming limit of $417,000) accounted for 19% of April 2012 sales in SoCal, up three percentage points from one year earlier. Jumbos made up 36% of Bay Area sales, up from 31% last month and 32% a year earlier. Jumbo use has risen since 2009, especially in the Bay Area, but remains far below its market share height in the boom times of 2006 and 2007.
FHA-insured loans made up 29% of SoCal mortgage recordings, the lowest level since late 2008, and down from 34% one year earlier. FHA-insured loans made up 18% of Bay Area mortgages, down from 21% in March 2012 and 25% in April 2011. Use of FHA-insured loans in the Bay Area was at its lowest level since August of 2008, when only 15% of mortgage loans were FHA-insured
first tuesday anticipates that the percentage of FHA-insured loans will drop further as we move through the this year and next. The combined annual rate of interest and private mortgage insurance (PMI) is currently lower than the combined rate on FHA-insured loans, making FHA loans less appealing than private PMI options.
Even more important, the FHA’s recent increases in mortgage insurance premium (MIP) rates will accelerate the use (and guarantee the strength) of PMI-insured loans over FHA-insured loans, although the FHA remains the surest way to get a loan for borrowers with low savings and low credit.
Adjustable rate mortgages (ARMs) made up 7% of all SoCal mortgages, up from 6% in March and down from 9% a year ago. ARM use in the Bay Area rose to 15%, up from 12% the prior month and level with one year earlier, not a good sign for price stability. ARM use tends to remain relatively low unless prices begin to rise, pushing homebuyers to overreach on amenity value.
Cash purchases represented a record 32% of SoCal sales, level with last month and with one year earlier. 29% of Bay Area sales were cash purchases in April 2012, near the record level of 32% set in February. The continuing high volume of cash purchasers means that speculators remain confident of a quick price recovery, and of their ability to turn a profit on the resale of a property within a few years.
first tuesday take
Over the last 19 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 upward trend from year to year.
Until approximately 2016, home sales volume will continue to rise slowly and unsteadily, while pricing remains flat but for the annual rate of inflation. 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. Newly released employment numbers for April 2012 shows no signs of improving, with only 14,000 jobs gained statewide. first tuesday forecasts a continuing low rate of approximately 15,000 new jobs gained monthly for the remainder of the year.
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, however, expect sales volume to drop back to current levels.
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 and throughout the booming 1950s 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 April Home Sales” from DataQuick