California was one of the first states to enter the housing downturn. Could it be one of the first to recover?
First-time home buyers and investors are jumping to take advantage of state and federal tax incentives, low interest rates, and prices that are more affordable than they have been in many years. California's median home price climbed in April on a monthly basis for the second straight month. That hasn't happened since August 2007, the California Association of Realtors reported on May 28. Home sales in April rose 49% compared with April 2008.
The most promising sign of stabilization is the strikingly low inventory of unsold homes—well below the historical average. It would now take 4.6 months to deplete the state's supply of unsold houses at the current sales pace. Supply was as high as 16.6 months in January 2008, and the long-term average for the state is about seven months.
The median price for a single-family home in California was $256,700 in April, down 36.5% from a year earlier but 1.4% higher than the previous month, according to the California Association of Realtors. Other states aren't faring as well. Inventory levels in Arizona and Nevada remain high. And Florida's supply of unsold homes is two or three times normal levels, according to John Burns Real Estate Consulting in Irvine, Calif.
tens of thousands of foreclosures expected
Despite the positive signs, California faces a bumpy road to recovery. Unemployment is still rising, foreclosures are expected to accelerate in coming months, and the luxury market is weak not only because jumbo loans are expensive and difficult to get approved but also because few buyers are willing or able to take a risk on pricey properties. Even the California Association of Realtors&mda—which is saying prices are likely close to the bottom—expects some additional pressure on prices as tens of thousands of foreclosed properties enter the market later this year.
But home prices, which have fallen more than 50% from their peak in some areas of the state, probably won't fall as far or as fast, said Delores Conway, director of the University of Southern California Casden Real Estate Economics Forecast. "There are a lot of headwinds, but we have tailwinds as well," Conway said. "If we were in a normal economy, we'd be fine. The problem is, this is still not a normal economy, and there's still a lot of uncertainty out there."
Mark Goldman, a mortgage broker and lecturer in real estate at San Diego State University, says the bottoming of the California market might feel a bit like a rough airplane landing. "Imagine the runway as the theoretical bottom of the market," he says. "I'm confident we're near a bottom," Goldman adds. "But nobody knows we've hit a bottom until we've passed it."
San Diego, which was one of the first bubble markets to burst, now is one of the tightest markets in the state. It had only a three-month supply of unsold homes in April, according to the California Association of Realtors, which ranked California counties for BusinessWeek.com, based on the tightest inventory levels. Other tight markets include Sacramento County and Riverside/San Bernardino counties (in Southern California's Inland Empire), which also have less than four months of inventory.
California's $10,000 tax credit for new buyers
Peter Toner, a Realtor at Prudential California Realty in San Diego, says luxury homes are lingering on the market, but properties listed for less than $400,000 are selling quickly. In many cases, these are also homes that are selling at a steep discount.
"You've got people making multiple offers on multiple properties because they're eager to acquire something," Toner says. "Anything that can be bought right away—like a foreclosure or a seller who has a home that is properly presented and isn't underwater—they're hot to trot."
California has some advantages over other states that were also ravaged by the housing slump. Construction in the state's coastal areas was fairly limited during the boom and—unlike Florida and Nevada—builders focused on single-family homes rather than condos, resulting in fewer new housing units. And California, despite its economic problems, has a diverse job market, natural beauty, top schools, cultural depth, and great weather.
Moreover, in March the state also began offering a $10,000 tax credit for buyers of new homes. That's in addition to the federal government's $8,000 credit for first-time buyers. Buyers now feel a sense of urgency to take advantage of the programs before they end, says Lisa Marquis Jackson, a vice-president at John Burns Real Estate Consulting.
"I don't think there's a fear [among buyers] of home prices falling a whole bunch more," Jackson says. "Now the fear is if you're going to have a job or not." John Burns, president of the firm, says he expects San Diego to lead the way in recovery. But California's not out of the woods. "We're probably in the seventh inning of the downturn," Burns says. "Sales volumes are increasing, and supply is coming down, but until job growth returns, we probably don't see prices stabilizing."Click here to see 10 of California's tightest housing markets.