Is California Real Estate Turning a Corner?
One of the noteworthy characteristics of California’s housing market is that it fell early and it fell hard — crowning the state as a leading indicator of the crash that was to come. Given last week’s housing news, could California now be leading the nation out of its real estate woes?
According to the latest S&P/Case-Shiller home price index, home prices in the Golden State showed strong gains. Los Angeles prices rose 1.8% (on a seasonally adjusted basis) in January, while San Diego’s prices inched up 0.9% and San Francisco’s, 0.6%. The index of 20 metropolitan areas rose 0.3% from December.
Those figures come on top of data from MDA DataQuick, which last month reported that statewide home sales for February were up nearly 1% from January, although they were down 3.8% from February 2009. And the median price paid for a home ($249,000) increased 11.2% from the year prior, according to DataQuick.
While California home prices are still far below the peak levels of 2006, some economists think California is on its way out of the woods. “Now we’re seeing the interior [of the state] has stabilized – because prices have fallen by 50% to 60% already,” says Stuart Gabriel, director of UCLA’s Ziman Center for Real Estate. The combination of cuts in price, reductions in mortgage rates and all sorts of state and federal programs to incentivize buying activity have brought stability. “Prices are increasing only modestly, but for all intents and purposes, they’ve stopped falling,” Gabriel says.
Anecdotally, too, real estate agents are seeing increased activity in their local areas.
Jim Chapin, a realtor with Legacy Real Estate & Associates in the San Francisco Bay area, who covers the southern Alameda and Contra Costa counties, says he’s seeing an upward trend in the market, and even an increase in the average sale price of homes. Also improved is the time it takes to get a home sold. At the end of December, the average number of days on the market was 92; now it’s down to 60, he says. “We’re encouraged by what we’re seeing here,” Chapin says.
David Kerr, a ZipRealty agent in the Oakland, Calif., area, says he’s seen a shift from last year as well. “In my case, I’m already two-thirds above of where I was this time last year in terms of number of clients in contract,” Kerr says.
Indeed, the first-time home buyer tax credit – soon to expire – has been one major driver of the activity. Another has been short sales. Banks are finally speeding up the process of these transactions. “I just submitted a short-sale offer with a buyer, and it was approved in less than a month,” Kerr says; last year the same sale could have taken six months to close.
And despite the state’s financial woes, the governor is trying to prolong whatever nascent recovery might be happening with $200 million worth of renewed state tax credits for home buyers. Worth up to $10,000, spread evenly over three years, the credit is available to anyone who buys a newly built home or to first-time home buyers who purchase a newly built or existing home. (Buyers must close between May 1 and either Dec. 31 or whenever the money set aside for the program runs out, whichever comes first.)
The tax credits might draw out a few more buyers, but what’s really going to drive price increases here – as well as in the rest of the country – is economic fundamentals. That means jobs, people’s income and population growth, says Gary Painter, a professor and director of research at the University of Southern California’s Lusk Center for Real Estate. As of February, California’s unemployment rate was 12.5%, while the national rate for March remained at 9.7%.
“You’re definitely seeing not a lot of days on the market and not a lot of inventory – so that’s encouraging,” says Painter. “But it’s going to take a while before there’s enough job growth and income growth that will stabilize and increase housing demand.”
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