Is there a New Housing Boom in California?

Housing sales in California picked up in October, prompting some to wonder if a recovery might be in the making.

An old proverb reminds us that, "it does not matter how deep you fall, what matters is how high you bounce back." Homeowners would certainly agree, particularly if the housing market were to stage a miraculous and historic recovery. That's why there's a tiny flame of excitement brewing about recent housing data out of California.

The start of something good?

The California Association of Realtors (CAR) reported that the Golden State's annualized home sales in October were 117 percent higher than they were in the same month in 2007. This is cause for a slight eyebrow raise, since California has been hit particularly hard by the housing decline and foreclosure crisis.

All that glitters is not gold, however.  The improved pace of home sales was coupled with a steep decline in home prices.  Between October 2007 and October 2008, the median price of a single-family home in California fell nearly 40 percent to $311,060.  

While declining home prices usually aren't a good thing, this may be the right medicine for California. Like other housing markets, California has been plagued by too many homes for sale, and too few qualified buyers. Cheaper housing prices can help by attracting more buyers and fostering more loan approvals, because qualifying for a $200,000 mortgage loan is a lot easier than qualifying for a $300,000 one.

A CAR spokesperson indicated that the CA home sales increase was primarily driven by sales in areas with large inventories of foreclosed and distressed properties. It's likely that the selection of competitively priced real estate in those markets lured bargain hunter buyers out of the woodwork.

Other home sales metrics showed improvement, as well. CAR's Unsold Inventory Index for existing, single-family homes shortened significantly from 15.2 months to 5.9 months. This means that at the current sales rate, it will take just less than six months to deplete the inventory of homes on the market. A related figure, the median number of days a single-family home stayed on the market before selling, also shortened-from 58.8 days in 2007 to 45 days this year.

Regional data shows pockets of strength

The CAR data shows year-over-year sales increases in all regions tracked, but the amount of those increases varied widely. Northern California sales, for example, rose only about 16 percent from last year. But Riverside/San Bernardino, the High Desert, and Monterey County all showed increases in excess of 200 percent. The Southern California counties of Los Angeles, Orange, San Diego, and Ventura demonstrated strength as well; sales in each of these regions rose more than 100 percent relative to last year.

CAR's Vice President and Chief Economist Leslie Appleton-Young did warn that the figures don't definitively predict a recovery in the making. But the homeowners of sunny CA probably don't care-they're as ready as anyone to accept some good news on the housing front.