Affordability Issues Impacting California Home Sales

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According to the California Association of Realtors (C.A.R.), California's housing market ticked upward in March to reach the highest level in four months, but sales were still lower than a year ago as declining housing affordability continues to put downward pressure on the market.
 
Closed escrow sales of existing, single-family detached homes in California totaled a seasonally adjusted annualized rate of 367,000 units in March, according to C.A.R. March marked the fifth straight month that sales were below the 400,000 level and the eighth straight decline on a year-over-year basis.  Sales in March increased 1.4 percent from a revised 361,790 in February but were down 12.3 percent from a revised 418,310 in March 2013.  The statewide sales figure represents what would be the total number of homes sold during 2014 if sales maintained the March pace throughout the year.  It is adjusted to account for seasonal factors that typically influence home sales.
 
"While the demand for housing was up from February, the market is taking a hit from lower housing affordability compared to a year ago, which led to a decline in home sales from last year," said C.A.R. President Kevin Brown.  "Moreover, concerns over tighter lending standards and increased borrowing costs are also contributing factors to the sluggish market as they both negatively impact the bottom line of home buyers who obtain financing through mortgages."
 
The statewide median price of an existing, single-family detached home reversed a two-month decline and rose 7.7 percent from February's median price of $404,250 to $435,470 in March.  March's price was 14.9 percent higher than the revised $379,000 recorded in March 2013, marking more than two full years of consecutive year-over-year price increases and the 21st straight month of double-digit annual gains, as sales of higher priced homes made up a larger share of the market compared to a year ago.  The median sales price is the point at which half of homes sold for more and half sold for less; it is influenced by the types of homes selling as well as a general change in values.
 
As World Property Channel has previously reported, San Francisco's housing market has had some of the steepest increases in home prices since the market bottom in 2009, rising over fifty percent in value according to S/P Case Shiller.
 
"While housing inventory has loosened since last year, it's still below what's considered typical in a normal market," said C.A.R. Vice President and Chief Economist Leslie Appleton-Young.  "Many of the listings continue to be priced above what the market will bear and are not moving.  As such, even with improved home prices over the past year, new listings are lagging because would-be sellers who have limited options on where to move are hesitant to put their properties on the market."
 
Other key facts from C.A.R.'s March 2014 resale housing report include:
 

• Housing inventory tightened in March, with the available supply of existing, single-family detached homes for sale slipping last month to 4 months, down from February's Unsold Inventory Index of 4.7 months. The index was 2.9 months in March 2013.  The index indicates the number of months needed to sell the supply of homes on the market at the current sales rate.  A six- to seven-month supply is considered typical in a normal market.

• The median number of days it took to sell a single-family home fell to 35 days in March, down from 40 days in February but up from 29.4 days in March 2013.

• Mortgage rates edged up in March, with the 30-year, fixed-mortgage interest rate averaging 4.34 percent, up from 4.30 percent in February and up from 3.57 percent in March 2013, according to Freddie Mac.  Adjustable-mortgage interest rates in March averaged 2.48 percent, down from 2.54 in February and down from 2.63 percent in March 2013.