California Housing Market Made Exceptional Gains Last Month

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Considering that the West Coast was the functional ground zero of the 2008 housing crash, it’s always heartening to hear that California’s property sector continues to stabilize. While much of California’s most sought-after property is condensed in urban areas, and city markets have shown some of the strongest rebounds in the past two quarters, it appears that the Golden State’s real estate has paced an even more pronounced recovery than those found in other hard-hit states. Retrospective analysis of April’s market figures demonstrates that statewide, California’s property made exceptional value gains.

As disclosed by the Los Angeles Times, median home prices in California rose 3.5% from March and a full 22.7% from April 2012. Citing figures from DataQuick, the median home price climbed to $324,000 last month, which marks the highest median value since 2008. All signs point to this surge in property values being regionally comprehensive, as both the Los Angeles metro area and greater southern California as well as the San Francisco Bay Area demonstrated similar market trends.

So What’s the Cause?

All things considered, the escalation in home values seems driven by a trinity of economic incentives – low interest rates, pent-up homebuyer demand, and an increasingly stable local economy. While the California (and nationwide) job market has nowhere near reached pre-recession health, it has rebounded to the point where many previously hesitant buyers are looking at more secure assets and professional prospects. In addition, the mortgage industry has also paced a substantial recovery since Q4 2012, with the nationwide default rate having hit the lowest point in three years. Lending bodies are more comfortable providing home loans, and prospective homeowners also have the windfall capital necessary to manage newly opened mortgage.

Beyond this, the mortgage rate remains at record lows, leaving the prospect of opening a mortgage a less intimidating and more financial sustainable prospect. As I’d noted in a prior post, suppressed mortgage will likely, at least for the immediate future, provide continuing momentum for the housing recovery. Much of the potential health (or lack thereof) in the housing market seems the ability to attract first-time buyers to the fold, the overwhelming amount of which are looking at more restricted assets than those who already maintain property. Many likely saw their parents or peers get burned by underwater mortgages or toxic equity after the crash, and will require serious validation that their own purchase ventures won’t be similarly troubled.

It seems a coalescing of these factors, combined with accelerated homebuyer interest, have worked wonders for California’s property market since the opening of 2013. April proved to be an exceptionally good month, and even the foreclosure rate has dipped remarkably since the same period last year. The Los Angeles Times report noted that only 13.5% of previously owned homes that were sold last month were foreclosures, compared to a full 30.3% in April 2012. Assuming conditions maintain as is, we’re slated to see a standout year for West Coast property, which will likely be partnered with bumper profits among homebuilders with a strong operation foothold throughout California.

Photo: doublej11

About Author

Harrison Stowe is a writer for NVR Inc., a prime developer of Baltimore new homes. Addressing a range of topics including investing, mortgages, and real estate, Stowe combines finance knowledge with additional experience working with Ryan Homes in the current real estate market.

8 Comments

  1. Let’s not forget the MAJOR hedge fund activity in SoCAL.

    My primary residence in Los Angeles has increased in value by over 20% in the past 12 months 🙂 I am seriously considering selling in 2014 when I can avoid capital gains tax and using the gain to purchase more property. Thanks hedgefunds!

  2. Buy on the dip sell on the way up, don’t try to find the top, and don’t be to greedy. Best motto for any investment including RE or anything else.

    California has always fascinated me, it’s like the best place one could live if it wasn’t for the government and the taxes. Why did you folks allow your government to wreck paradise?

    Imagine what your properties would be worth if your tax structure and government resembled Texas.

    Don’t get me wrong not happy with PA taxes either, but CA is just absurd and the State in for all intentional purposes bankrupt.

    I suppose people figure the Big “O” in Washington will bail them out in the end, probably right too.

  3. California. Irrational exuberance. La-La land. Economy is in worst shape than California real estate market will accept. Rose colored glasses. It will falter…again.

  4. Dennis,

    If CA taxes were like Texas, property would be worth much less as Texas’ property taxes are more than double the rate than in CA. If you hold your property for a while, then it can be much more as Texas doesn’t have Prop. 13 that limits increases in tax rate to 2%.

    Economy seems to really be picking up in CA too. The Bay Area has been booming for a while with its tech economy that is the envy of the world and now Southern California really seems to be hitting its stride of late. The Inland areas still seem to struggle, but that has been changing too of late. The big 3 T’s of the economy — tourism, technology, and trade are coming around.

    The state budget is in much better shape as well as Gov. Brown has done a wonderful job in fixing the mess and they are talking about how to handle the surplus.

  5. If it is anything like the Salt Lake Real Estate market one of the biggest drivers is lack of inventory. We have been at the lowest levels for years. New home construction is going mad at the moment.

  6. Tell me about it!

    I’m a new RE investor in Orange County. Last summer, with the help of my broker, I managed to pick up a bank-owned home (all cash) in one of the beach cities. I’ve been renting it out.

    My broker mentioned to me a couple of weeks ago that she knows some other investors who would be willing to pay 45-50% more than what I paid for it.

    But I’m going to hold on to it. I love the cash flow.

    Prices have been rising here so fast recently, it’s getting hard to find bargains. Inventory is low. Hedge fund activity is pervasive, creating a highly competitive market.

    I know one investor-developer who has been hired by a hedge fund to buy up properties, but there just aren’t enough of them available.

  7. Shari Posey on

    Here’s my opinion of California…property taxes are generally 1.2% of the sales price and only increase by 2% per year and they decrease when the market goes down. Our income taxes aren’t bad IMO–on $200k taxable income the tax is about $12k. To me It’s a small price to pay to live in warm weather and sunshine year-round. We don’t have an air-conditioner, we put the heat on about 10 times per year so our electric bill is about $45 per month, I run on the beach 3 times per week and hike in the local mountains a few times per month. Yes, our real estate is expensive. Even in the down market it still was kind of expensive but lots of people love living here.

    Before California…
    I lived in Dallas (Plano) and owned a home there for around 14 years and it barely increase in value to cover the cost of living.

    Do I think these current increases are sustainable? I wish I had a crystal ball. My gut says no but when I consider that we have so many multiple offers, many of which are all cash, it’s obvious the demand is there as long as interest rates don’t go crazy, which would of course affect the national real estate market.

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