MARKET DATA

With an imbalance between supply and demand, home buyers have been fiercely competing with each other. Nearly six of ten home sales (57 percent) received multiple offers. The share of home sales that received multiple offers was the highest in at least the last 12 years. On average, each home sale received 4.2 offers, a slight increase from 3.5 offers in 2011.

The fierce market competition led to fewer properties being sold under the list price. Historically, 68 percent of all homes sold below their asking price. In 2012, the share of home sales with a discount from the list price dropped to 59 percent, the lowest since 2005.

Bargain properties typically attracted more multiple offers. Seven of ten REO sales and short sales received multiple offers, while half of equity sales got more than one offer.

The share of all cash buyers has been on the rise since 2006. Almost one-third of all home buyers paid with all cash in 2012, and it was more than triple what it was in 2001 when the share was 8.8 percent.

Despite a slight dip from 2011, demand for investment properties and second homes remained strong in 2012. Sixteen percent of all sales went to investors, and seven percent went to second or vacation home buyers. For those who purchased an investment property, 83 percent bought it as a rental property and the rest of them bought it as an investment to flip.

The share of first-time buyers remained below the long run average of 39 percent but improved from 2011. After dropping for two consecutive years since it peaked in 2009, the proportion of first-time buyers increased from 34.2 percent in 2011 to 35.8 percent in 2012. Historically low levels of mortgage rates, which led to higher housing affordability across the state, were one of the contributing factors in the hike of the share of first-time buyers.

Many first-time buyers were interested in distressed properties with deeply discounted price tags. In fact, 40 percent of all first-time buyers either bought an REO sale or a short sale in 2012. With distressed sales properties being relatively more affordable, 41 percent of REO sales and 45 percent of short sales were purchased by first-time buyers.

Sellers who planned on purchasing another home rose for the second consecutive years, after six years of decline since 2005. Two of five (40 percent) home sellers planned to repurchase as the housing market started slowly recovering.

Home buyers bought for many different reasons. A quarter of the buyers bought because they were tired of renting a property. Nearly one of five (18%) bought their home because of investment and/or tax considerations. Other purchased because they desired a better location (15%), they wanted a bigger house (14%), or their family status changed (6%). More than half of the first-time buyers purchased their home because they were tired of renting, while the primary reason to buy for repeat buyers was for investment/tax considerations.

Source: C.A.R. 2012 Annual Housing Market Survey

MARKET HIGHLIGHTS

Existing home sales are expected to pick-up as the house price recovery allows homeowners who have been forced on the sidelines by negative equity to get back into the market.

For the first year since 2005, residential fixed investment (RFI) made positive contributions to GDP growth, adding 0.4 percent to growth in the fourth quarter and 0.3 percent for the year. Expect RFI to contribute upwards of 0.5 percent for 2013 as a whole.

Projecting housing starts in 2013 will increase to 950,000 units or about 22% higher than 2012 levels.

While most metro areas saw substantial run-ups in prices during the boom, well above income growth, the subsequent market correction was in many cases more severe.

The level of affordability in most markets suggests a continued improvement in home prices, and strong growth in sales and construction.

Source:  Freddie Mac, 2/13

Market Summary

One reason for strong sales in California was the record-low interest rate levels reached in 2012. Mortgage rates had been trending downward since July 2011 after the Federal Reserve announced its commitment to keep interest rates low until at least 2014. The average rate for 30-year fixed rate mortgages had since declined to below four percent, and set a historical record low of 3.35 percent in November 2012 and December 2012. With rates dropping consistently since early 2011 and home prices remaining significantly below the level reached in the cyclical peak in 2007, the increase in housing affordability convinced many buyers who were previously on the fence to finally make a home purchase.

With bank-owned properties being the best bargain in the market, the competition was most intense in the REO segment. More than seven of ten REO sales (71 percent) received multiple offers, an increase from 58 percent in 2011. The short sale market was not as competitive as the REO market, but nevertheless, nearly two-thirds of sales received more than one offer, a jump from 58 percent in 2011.

Source:  C.A.R. 2012 Annual Housing Market Survey