2011 Housing Market Wrap Up and 2012 Outlook, An Expected 2% Increase in Home Prices

By Robert Kleinhenz, deputy chief economist and Oscar Wei, senior research analyst

California home sales improved both on a monthly and on an annual basis in November, exceeding the 500,000 benchmark for the first time in seven months.  With monthly and yearly gains of slightly over 2 percent, there were 503,570 units of existing detached homes sold when measured on a seasonally adjusted and annualized basis. Sales were the strongest in eight months and now stand 1.2 percent higher than last year on a year-to-date basis. Despite softening slightly from October, California pending home sales improved on a year-to-year basis for the seventh consecutive month.  The C.A.R. Pending Home Sales Index was at 109.8 in November, a decrease of 9.1 percent from October but up 11 percent from a year ago.  The strong year-over-year growth in pending sales observed in the last few months suggests that closed sales in December will exceed last year’s December sales figure.
Dec Trends slide 1 As for home prices, California’s median price was $280,960 in November, an increase of 1 percent from a month ago, but down 5.2 percent from a year earlier. The statewide median price had been holding steady at about $290,000 from February of this year through September, so the decline over the past two months may be explained in part by a seasonal slowdown that is typical for the time of year. Part of the decline, however, could also be attributed to the cut in high cost loan limits by Fannie Mae and Freddie Mac as of October, which may have stifled activity in the middle-tier of the California marketplace (see article “Restoration of FHA High Cost Limit to Help Challenged Market Segment” in Market Data section on C.A.R. Web site).

Sales are on track to beat last year’s total annual sales of 491,000 homes, and C.A.R. forecasts a slight one percent increase in sales next year to about 496,000 homes. With normal market activity thought to be 500,000 or so sales annually, sales this year and next will be slightly below normal.

The statewide median price will finish 2011 somewhat below last year’s median price, down by somewhere between 3 and 6 percent year-to-year. However, the median price is expected to edge up by about 2 percent next year over this year’s annual median.

Dec Trends slide 2

The new year will be a transition year for the housing market, very much like 2011. The market’s performance will hinge heavily on the performance of the U.S. and global economies, so it will be important to follow the economy as well as the housing market. Unexpected events hindered economic growth in 2011 and could do so again in 2012.  However, if there is sustained improvement in economy, the housing market could perform better than the C.A.R. forecast.

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