California Home Prices Stabilizing

Home prices in southern California have declined by 51.1% from their peak levels reached in July 2007. The most severe declines have been in Riverside and San Bernardino (composing the Inland Empire) where prices are down 58.3% and 63.6%, respectively. While prices have declined precipitously from their peak, they have remained fairly very stable at approximately $250,000 since the beginning of 2009. As such, year-over-year volumes have increased approximately 30-50% for each month this year. Foreclosures have driven a significant chunk of this volume, with DQ News reporting that distressed sales comprised 53.6% of total sales in April. In the worst markets, foreclosures account for nearly 70% of sales. While foreclosures and plummeting prices reflect the difficult challenges in California’s housing market, I would argue that the market is firmly in the correction phase. Savvy investors and first time homebuyers are taking advantage of low prices, cheap financing (thanks to the artificial suppression of mortgage rates by the Fed), and government incentive programs (i.e. $10,000 CA home price credit; $8,000 federal tax credit for new home buyers), which in turn is helping the market slowly find a bottom.