Guest Column: California's Spring Home-Buying Season – What Lies Ahead?

Published July 10, 2014

By Leslie Appleton-Young

There is no doubt that the upbeat expectations for the economy and the housing market in the first half of 2014 have failed to materialize. Nationally, the exceptionally cold winter has taken most of the blame for the 2.9 percent contraction in gross domestic product (GDP) in the first quarter. In the California existing single-family residential market, sales began declining last summer as the abrupt rise in rates experienced in late-spring forced the market to take a breather. The urgency factor declined as market participants waited to see what was going to happen next. This slowdown lasted through the first quarter of 2014 but appears to be over, at least for now. The last few months of data and the very robust pending sales figures that were released on June 30 indicate that the spring home-buying season is off to a strong start.

But will it last? Despite the fact that the California housing market has been in recovery mode since 2009, it's fair to say that 2013 was the "break-out" year for the industry, signaling a return to a "normal" market. In 2013, more than 80 percent of the sales of existing single family homes were traditional sellers with equity in their homes at the time of sale. Today (May 2014) 88 percent of the sales are traditional, equity sales. So the distressed-heavy market conditions are in the past. Looking ahead, what can we now expect through the end of 2014?

Leslie Appleton-Young, Vice President and Chief Economist for the California Association of Realtors, is a member of the Controller's Council of Economic Advisors. The opinions in this article are presented in the spirit of spurring discussion and reflect those of the authors and not necessarily the Controller or his office.


Figure 2: Sales of Existing Detached Homes

California, May 2014 Sales: 391,030 Units, -11.2% YTD, -9.5% YTY

Sales of Existing Detached Homes

Sales are seasonally adjusted and annualized

Source: California Association of Realtors

Figure 3: Affordability Eroding as Rates and Prices Rise

California vs. U.S.

Affordability Eroding as Rates and Prices Rise

Source: California Association of Realtors

Figure 4: Affordability Peaked in 2012, Dropping Since Then

HAI Peak vs. Current

Affordability Peaked in 2012, Dropping Since Then

Source: California Association of Realtors

Figure 5: Median Price of Existing Detached Homes

California, May 2014: $465,960, Up 11.7% YTY

Median Price of Existing Detached Homes

Source: California Association of Realtors

Figure 6: Unsold Inventory Index

California, May 2014: 3.6 Months

Unsold Inventory Index

Note: Unsold Inventory Index represents the number of months it would take to sell the remaining inventory for the month in question.

Source: California Association of Realtors

Figure 7: Percent of Job Losses in Post-WWII Recessions

Aligned At Maximum Job Losses

Percent of Job Losses in Post-WWII Recessions

Source: http://www.calculatedriskblog.com/

Table 3: California Housing Market Outlook

 Indicator  2009  2010   2011  2012  2013  2014p  2015f
 SFH Resales (000s)  474.9  416.5  422.6  439.8  413.9  395.7  417.9
 % Change  24.5%  -12.3%  1.4%  4.1%  -5.9%  -4.4%  5.6%
 Median Price ($000s)  $275.0  $305.0  $286.0  $319.3  $407.2  $447.8  $463.7
 % Change  -21.1%  10.9%  -6.2%  11.6%  27.5%  10.0%  3.5%
 30-Yr FRM  5.0%  4.7%  4.5%  3.7%  4.0%  4.6%  5.3%
 1-Yr ARM  4.7%  3.8%  3.0%  2.7%  2.6%  2.5%  3.0%

Source: California Association of Realtors

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