32,669 new and resale homes closed escrow in California during October 2010, down 21% from one year ago when 41,280 sales closed escrow. Statewide, sales volume has continued to show its recent downward trend both in annual and monthly sales: home sales have dropped slowly but consistently since June of this year. Southern California (SoCal) home sales are trending downward more quickly than Northern California (NorCal).
Real estate owned (REO) resales accounted for 36% of all resales in the third quarter 2010— down from 39% of resales one year earlier. Declining REOs are good news, but the drop is not likely to continue into 2011, as delinquencies have recently been on the rise in California.
Speculators and investors accounted for 22% of resales in SoCal and 20% in the Bay Area. The high-tier home market, or “jumbo loans” (here represented by all loans of over $419,000) accounted for 18% of resales in SoCal and 34% of NorCal sales, up from 16% and 31% one year earlier. The rise in jumbo loans indicates high-tier properties are becoming an increasing portion of total home sales, most likely due to increasing defaults in the high-tier range, which forces owners to sell their properties at lower and more attractive prices.
Federal Housing Administration (FHA)-insured loans represented 36% of SoCal and 26% of Bay Area mortgages recorded in August 2010, virtually unchanged from their numbers one year earlier. These drops in FHA-insured originations are consistent with the fact that expensive homes have become a higher percentage of resales. This will change in the future, however, as other government agencies are now guaranteeing almost all conventional loans, including loans with lower downpayments and downpayments from unconventional sources (such as gifts).
Adjustable rate mortgages (ARMs) made up 5% of total mortgages in SoCal and 9% of NorCal mortgages. This reflects a slight downward trend line in ARMS which peaked in May 2010 at 6.5% of total mortgages, and is a good indicator the market volume will not increase nor will prices over the next 12 to 24 months.
Cash purchases represented 27% of SoCal and 26% of NorCal sales in October, indicating that speculators are still at work, probably flipping under land sales contracts or let-to-buy arrangements called lease-option sales which go unrecorded. These transactions remain, for the most part, invisible to the public.
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