The California Association of Realtors' (C.A.R.) most recent market data indicates a rather surprising price rebound in home prices despite continuing mortgage defaults and foreclosures. The figures for May 2010 show an increase of 23.2% in the median home price when compared with the same period last year. "Home sales posted their third largest increase on record for May, due in part to first-time homebuyers who timed the open and close of escrow in order to capitalize on both the federal and state tax credits," commented C.A.R. President Steve Goodard.
The median price of an existing, single-family detached home in California in May 2009 was $263,440. As of May 2010 it was $324,430. Goodard attributes this jump in part to the lower than average Unsold Inventory Index. The Unsold Inventory Index historically runs about 7 months, meaning it would take about 7 months at the current rate of transactions to absorb all of the property on the market. Currently the Unsold Inventory Index is at 4.6 months.
When this index drops significantly below 7 months it means that houses are not sitting on the market very long and sellers can afford to demand more for their properties. The median number of days on market for a single-family home was 39.8 days in May 2010 as compared to the historical average of about 53 days. A 39.8 days-on-market average is a pretty hot buying environment.
Most of this heat, however, was caused by the homebuyer tax credits. Generous tax credits obviously are not sustainable over the long term. So, the current data makes it difficult to diagnose the real health of the California housing market. How many days would property really sit on the market with no incentives? How much inventory would really be building?
This staggering year-over-year appreciation can also be attributed to the fact that thirty year fixed rate mortgages are still below 5% making mortgage payments extremely affordable.
Seems to me that what we are witnessing is something akin to the initial bounce of a ball dropped from a significant height. The market fell so far so fast that one would expect an initial surge in prices as homebuyers jumped on the opportunity to buy a home in California for $263,440 with an $8,000 tax credit representing approximately 3% of the purchase price. Keep in mind that the tax credit , which in many instances was combined with a credit from the seller, constituted most of the downpayment.
More reliable market data will emerge as the tax credit stimulus is removed from the market.
No comments:
Post a Comment