California home sales increased by 18% in May compared to May 2007. May marks the second month of increased sales volume in California. In May, home sales exceeded 400,000 for the first time since early 2007.
Experts believe that this may be due to increased bargain hunting: if the price is right, people will buy. Since there are large shares of distressed homes for sale in many parts of the California, prices have sunk drastically. For example, prices have fallen 30-35% between May 2007 and May 2008 based on a report from the California Association of Realtors (CAR). The state-wide median price for a home sold during the month was $384,840, down from $594,530 last May. Consequently, the typical mortgage payment that home buyers committed themselves to paying last month was $1,569, which was down from a revised $1,645 in April and down from $2,266 for May a year ago. The decline in home prices reflects depreciation, a greater proportion of lower-priced homes selling, and increased short sales.
Additionally, prior to April 2008, home sales saw a steady decline for 30 consecutive months. That severe price drop reflects the fact that there are so many distressed sales and low-priced homes on the market, according to CAR. Thus, we are seeing is larger number of short sales and foreclosures (a short-sale is when a lender agrees to accept less for the house than what is owed). For example, 38.3 percent of home sold in May were foreclosure resales, up from a revised 37.6 percent in April and 5.4 percent in May 2007.
Most industry analysts agree that the big inventory overhang will have to be whittled down substantially more before home prices can begin to recover. Note California experienced some of the biggest price increases during the bubble years, and the state has been hit hard during the current crunch.
Nonetheless, this sales increase is at least somewhat encouraging given record price declines all over the country. At the very least, some of the distressed homes have finally found new owners thereby giving the former owners some much needed relief.