California Housing Market Shows Incremental Improvements

As our most populous state, changes in the California economy have a massive impact on the country’s economy as a whole.  During the housing bubble home prices in California escalated out of control, and during the ensuing market crash California got hammered.  There is some good news, however, as the California housing market is slowly recovering because low home prices, low current mortgage rates, and tax incentives are encouraging people to buy.

According to a report from MDA DataQuick, year-over-year new home sales increased 17 percent in Southern California in the first quarter of 2010. This is still far below pre-recession numbers, as almost 17,000 new homes were sold in Southern California in the first quarter of 2006.

Reports from the L.A. Times suggest that builders are no longer building homes on spec, and people are no longer looking to purchase homes to flip for a quick profit.  McMansions are out, and smaller, more conservative homes are in.  There is an increased emphasis on location, with people eskewing larger homes with elaborate  features in favor of smaller homes with shorter commutes.

The California Association of Realtors reports that year-over-year home sales increased 2.5 percent in March, and the year-over-year median price of existing homes rose 20.8 percent in March, the largest increase in five years.

Foreclosures continue to dog the California market.  Banks seized a record number of homes last month, but the number of houses entering the foreclosure process is starting to ebb.  California had nearly 70,000 foreclosure filings in April, which is extremely high, but down 25 percent month-over-month and 28 percent year-over-year.  Unemployment in California remains above the national average, and is the main hurdle to further recovery in the housing market.

The amount of time that houses linger on the market is starting to fall as well.  The average amount of time it took to sell a house in April was 40 days, down from 49 days in April 2009.  Excess housing supply is beginning to come down as well, with the unsold inventory index fell to five months, down from 5.6 months the previous year.

Nationwide, new home sales rose 24 percent in March (month-over-month) and 24 percent year over year.  The Price Shiller House Price Index showed annual price increases in both San Francisco and Los Angeles.  The Dow Jones Home Construction Index Fund, which measures the stocks of several large home builders is up over 25 percent since the beginning of the year, a favorable sign for the construction industry.

New home sales were helped by the first-time home buyer tax credit, which expired at the end of April.  In order to stimulate further growth, California instituted a state tax credit of up to $10,000 in order to replace the federal credit and further stimulate home sales.

What do you think about the prospects for recovery in California?  Let us know in the comments section below.