The California Economy - Part 4: The Housing Market: Coastal Sales Up, while Inland Home Struggles Continue

As the economy goes, so, too, goes the housing market.

"An uneven recovery" is the consensus these days regarding the recovery of California's housing market, with coastal home sales surging in the fall, while inland housing markets are still mired with foreclosures due to a number of factors, employment being the main one.

Signs of improvement in Southern California

Along the Bay area and other coastal parts of the Golden State, housing market numbers are looking stronger.

Bianca Torres, who covers East Bay real estate for the San Francisco Business Times, found that the housing market in the Bay Area is "clearly benefiting from substantial job growth in recent years, but hiring seems to be pushing development of condos and apartments more than development of single family homes."

As an article from RealtyPin.com, posted on The Sacramento Bee web site reports, coastal communities such as San Diego County on the lower end of the state are showing signs of promise. Home prices in San Diego County are 13 percent higher than they were one year ago in the fall, in part due to unemployment in the area dropping by two percent since 2010.

"But, remember, the name of the game in California's housing market these days is "uneven," the story reports.  "Along with lower unemployment and higher demand, San Diego's higher home prices are also due to a falling inventory."

The report notes that the number of people selling their homes in San Diego County has fallen by 35 percent over the past year, a factor which plays well for home sellers as the field of competition drops, but does not add up well for home buyers, who would have to pay more with fewer choices.

Southern California's housing markets did particularly well last month, according to the Los Angeles Times, which noted that October 2012 sales in SoCal -- gathered from San Diego-based real estate firm DataQuick -- spiked upwards by 18 percent from September and rose 25.2 percent from last October, hitting a five-year high for that month.

DataQuick estimates showed that roughly 21,075 newly built and previously owned homes were sold throughout the six-county region last month. Furthermore, data from the San Diego firm is indicating that more home buyers looking to move into more expensive homes.

"Watching the market rebalance itself is fascinating," DataQuick President John Walsh told the Times. "In some categories and in some neighborhoods, demand outstrips supply, pushing up prices. In other areas, the market is still largely dormant."

Another telling sign of improvement in the Southern California area can be found in this key area--foreclosures.

While sales of previously foreclosed-upon homes peaked at 56.7 percent of the resale market in 2009, those same homes accounted for only 16.3 percent of the resale market in October, a drop from 16.6 percent in September and 32.8 percent in October 2011, the Times reports.

Foreclosures still a problem in mainland California

However, while the market is looking good for the coast, the picture is not all roses for inland communities in California on the housing front.

A recent report by Jerry Nickelsburg, adjunct professor and senior economist at University of California, Los Angeles, Anderson School of Management, argues that a number of factors are affecting housing markets across the state, but the major ones are foreclosure levels and employment.

Foreclosed homes sales across the state only comprised 20 percent of home sales in August, down by half from the 40 percent those home sales made up in January 2011.

While the coast has been experiencing success on the housing market, Nickelsburg points out, inland California has not been as fortunate. In fact, Nickelsburg writes, home sales volumes have been basically stagnant, holding at about 40,000 units per month since May.

"One might argue that inventories are low and demand is increasing with the result that two are canceling out in the sales figures, but it is hard to make that case over a 9-month period," he added.

The reason for inland housing sales are due to several factors.

"High unemployment, high foreclosures and considerable housing stress remain inland, and while tincture of time will be the curative, it is not as yet," Nickelsburg wrote.

Is the Housing Market in California on the path to a comeback?

The answer to the above question really depends on who you ask.

Nickelsburg says the housing market recovery in the Golden State is a mixed bag, both recovering and "still in the doldrums at the same time."

"The expectation is that the aggregate data [for the housing market] should begin to reflect much stronger housing growth in the coming years, but as we look at the data we need to keep in mind that some local markets will not yet have come to the party," he writes.

Still, there are others who say there is reason to believe that real estate in California is coming back on the right track. The California Association of Realtors reported in November that pending home sales across the state rose from September and last October, marking the first time that has happened in seven years, while the share of equity sales also ticked upwards on a smaller scale.

Pending homes sales went up by 4.3 percent from a revised 115.2  sales in September to 120.2 sales in October, based on signed contracts, the association announced. Those same sales were also up 3.6 percent from the 116.1 index recorded in October 2011.

"The strong pace of pending sales in October is a continuation of what we've experienced for most of 2012, with demand remaining robust across all parts of the state," said 2013 C.A.R. President Don Faught.  "Non-distressed sales - which are up nearly 50 percent from a year ago - are especially strong, while REO sales are down more than 51 percent, primarily due to a short supply of REOs.  The significant increase in non-distressed sales has driven the share of equity sales to its highest level in more than four years."

In addition, C.A.R. data shows that existing, single-family detached home sales in October rose 12.5 percent higher from a revised 484,050 in September and up 10.2 percent from a revised 493,790 in October 2011. The statewide median price of an existing, single-family detached home also dropped 1.1 percent from September's $345,000 median price to $341,370 in October. 

"Although the statewide median price was off its recent high reached last month, it is not unusual to see an October dip in price as we transition from the peak season to the low season," C.A.R. Vice President and Chief Economist Leslie Appleton-Young said in a statement. "The year-over-year price gain, on the other hand, has been accelerating since early 2012, as sales of higher-priced homes continue to improve.  With the supply shortage, especially of lower-priced homes, expected to remain an issue in the near future, we will likely see solid year-over-year price gains through the first quarter of next year, as sales of higher-priced homes grow."

Friday's Part 5 story on The California Economy Series will focus on: "Unemployment: Has it gotten Better or Worse?"