Affordable home prices, tax credits for home buyers, historically low interest rates, and a large number of distressed properties prompted many first-time home buyers to enter the market in 2009, according to C.A.R.’s 2009-2010 “State of the California Housing Market” report released today.

California’s median home price hit bottom in February 2009 at $245,170.  Since then, the median home price has increased steadily in month-to-month comparisons, but remained below 2008 levels throughout 2009.  The annual median price is projected to increase to $280,000 in 2010 from $271,000 in 2009.

Homes priced $500,000 or less dominated the sales mix throughout 2008 and early 2009, but peaked at 85 percent in January 2009.  Meanwhile, the market share of homes sold for more than $500,000 increased from 15 percent in January 2009 to 25 percent in July 2009, holding steady around that figure for the remainder of last year.

C.A.R.’s “State of the California Housing Market 2009-2010” report is free to members of C.A.R. Click here for download instructions.

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U.S. home prices declined 0.1 percent on a seasonally adjusted basis from the third quarter to the fourth quarter of 2009, according to the most-recent Federal Housing Finance Agency’s (FHFA) monthly House Price Index (HPI). FHFA’s seasonally adjusted monthly index for December decreased 1.6 percent compared with November.

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From the Wall Street Journal – The number of homes listed for sale increased in many metropolitan areas in February.

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From CNN Money- The combination of affordable home prices, low interest rates, and the federal tax credit for home buyers have created an opportune time for many buyers to purchase a home.  Many real estate analysts also believe that most housing markets have stabilized, but that some markets may decline further.

MAKING SENSE OF THE STORY FOR CONSUMERS

• Buyers should keep in mind that housing markets are local and can vary greatly from one neighborhood to the next.  Working with a REALTOR® familiar with the area in which the buyer is searching can help the buyer select a house that best suits their needs.
• California’s housing market has shown signs of stabilization since early last year.  Sales of existing, single-family homes bottomed out in August 2007, and the median home price reached its trough in February 2009.  In January, California’s median home price was 17.2 percent above the low for the current cycle.
• The federal tax credit for home buyers was extended and expanded late last year.  Qualified first-time buyers may be eligible to receive a tax credit of up to $8,000 on homes purchased before April 30, 2010.  Repeat buyers may be eligible for a tax credit of up to $6,500.  Visit http://takeaction.realtoractioncenter.com/ct/HpLiI8s1zreC/ for more information about the federal tax credit for home buyers, including eligibility requirements.
• The Federal Reserve has helped maintain low interest rates, which, in turn, has assisted home buyers.  However, the agency plans to stop purchasing mortgage-backed securities at the end of this month, which likely will increase rates on 30-year fixed mortgages.  Buyers may be able to lock in a low interest rate by working with their lender.

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San Francisco Chronicle: The Federal Reserve is poised to turn off a major money spigot that has helped sustain the ailing real estate sector, as an extraordinary program under which the Fed has pumped $1.25 trillion into the mortgage market is slated to end March 31.

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Washington Post: 

Numerous articles have reported that homeowners are underwater and that strategic defaults are increasing.  However, a little known statistic by the Federal Reserve shows that home equity again is on the rise.

MAKING SENSE OF THE STORY FOR CONSUMERS

• The Federal Reserve conducts substantial research on mortgage balances and home-value changes in hundreds of local markets nationwide and reports its finding quarterly.  According to the Fed’s most recent “flow of funds” survey, homeowners’ net equity increased by nearly $1 trillion compared with the recession’s lowest point between the first and third quarters of 2009.  From June 30 to Sept. 30, net equity rose by $418 billion.
• According to a report by Zillow.com, the overall negative equity rate among U.S. homeowners remained flat in the fourth quarter at 21.4 percent.  This report, combined with other housing factors and studies, may indicate that the unprecedented reduction in home equity is shifting.
• Some homeowners, especially those in areas with high foreclosure rates, are choosing to strategically default on their mortgages, even though they can afford the mortgage.  Many homeowners who choose this approach do so because they do not see an economic rationale in continuing to make their mortgage payments.  Homeowners considering this option should be aware of the negative effect it will have on their credit status.  Foreclosures can remain on credit reports for up to seven years, likely increasing the interest rates the consumer pays for credit, and making it more difficult to receive approval on a new mortgage loan.

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Sales of existing homes, including single-family and condos, increased 13.9 percent to 6.03 million units in the fourth quarter, compared with 5.29 million units in the third quarter, according to a report by NAR.  Sales also were 27.2 percent higher than the fourth quarter of 2008.  Distressed properties accounted for 32 percent of fourth quarter transactions, a decline from 37 percent a year earlier.

The national median home price for existing, single-family homes was $172,900 in the fourth quarter, a 4.1 percent decrease compared with the fourth quarter of 2008.  In the West, which includes California, existing-home sales increased 16.2 percent in the fourth quarter to an annual rate of 1.38 million units, 18.2 percent higher than a year ago, according to the report.  The median home price of existing, single-family homes in the West was $227,200, a decline of 8.9 percent compared with the fourth quarter of 2008.

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The percentage of households that could afford to purchase an entry-level home in California remained at 64 percent in the fourth quarter of 2009, compared with 61 percent for the same period a year ago, according to a report released Friday by C.A.R.  C.A.R.’s First-time Buyer Housing Affordability Index (FTB-HAI) measures the percentage of households that can afford to purchase an entry-level home in California.

The minimum household income needed to purchase an entry-level home at $257,940 in California in the fourth quarter of 2009 was $44,100, based on an adjustable interest rate of 4.5 percent and assuming a 10 percent down payment. First-time buyers typically purchase a home equal to 85 percent of the prevailing median price. The monthly payment including taxes and insurance was $1,470 for the fourth quarter of 2009.

At $44,100, the minimum qualifying income was 4 percent lower than a year earlier when households needed $45,900 to qualify for a loan on an entry-level home. Home prices remained below peak levels, resulting in an improvement in housing affordability compared with the previous year.

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The percentage of homeowners who reduced their listing prices declined approximately 4 percent in January compared December, according to a monthly survey conducted by ZipRealty, which examines home listings in 27 major markets.

Slightly more than 40 percent of home listings experienced at least one price reduction in January, compared with 44 percent in December, according to the report.  On average, homeowners within all markets studied reduced list prices by $21,925.
 
The Los Angeles, San Diego, and San Francisco markets were among those with the lowest percentage of price-reduced homes, with Los Angeles and San Diego both coming in at 32.6 percent and San Francisco at 31.9 percent.

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From Reuters: 

A recent report shows that one in five U.S. homeowners owed more on their mortgage than their home was worth in the fourth quarter; however, California’s housing market is bucking the national trend and is telling a different story.

MAKING SENSE OF THE STORY FOR CONSUMERS

• Although the report by Zillow.com claims that the percentage of American single-family homes with mortgages in negative equity rose in the fourth quarter, the report does not account for seasonal changes.  The traditional home-buying season is April through August.  Historically, this time period also is when median home prices rise.  In September, median home prices generally show a declining trend, and remain steady from November through February.   The change in the median home price noted by Zillow.com is a typical year-end seasonality adjustment in price.
• Unlike the national median home price, the month-over-month changes in California’s median home price for 2009 were stronger than the long-run average.  Low interest rates and tax incentives led to a rise in the demand for housing.  As a result, housing inventory was constrained and created upward pressure on home prices.  
• California’s housing market has shown signs of stabilization since early last year.  Sales of existing, single-family homes bottomed out in August 2007, and the median home price reached its trough in February 2009.   In December, California’s median home price was 25.1 percent above the low for the current cycle.
• In December, the median price of an existing, single-family home rose to $306,820, an 8.4 percent rise year-over-year, the second consecutive year-over-year increase, and the 10th consecutive month-over-month increase, according to C.A.R.’s December sales and price report.
• Although home buyers should not focus solely on future home price appreciation, homeowners who purchase a median-priced house, live in their home for at least five years, and sell it at the then current median price, have averaged an annual rate of return of more than 11 percent, according to data collected by C.A.R. over the last 40 years.

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