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Rates, tight inventory dampen California home sales

Home prices could eventually stabilize sparking new demand

California home sales dipped 5.9% from 2012 to 2013 as the market felt the pinch of tighter inventory levels and higher prices, the California Association of Realtors reported this past month.

Higher home prices and tighter inventory levels in December pushed out potential buyers, marking the fifth straight month of declines, C.A.R. said.

But the tight inventory could start easing in the coming months.

"While the month-to-month price gain was higher than normal, home prices have been stabilizing in the second half of 2013, which is positive news for buyers who have been putting their home search on hold until prices leveled off," said C.A.R. Vice President and Chief Economist Leslie Appleton-Young.

Distressed sales started to play a lesser role in the state’s market, which tend to rise at the end of the year as lenders try to move the properties off their books.   

"However, the supply of foreclosures and short sales is the lowest it’s been since well before the financial crisis, greatly constraining the number of these transactions," said Kevin Brown, C.A.R president.

"In addition, housing prices are improving across the board, even reaching pre-2007 levels in parts of the Bay Area. Higher prices and rising rates as the Fed slowly tapers are additional factors in the sales slowdown evidenced in the December numbers," Brown explained.

But the transition period from December to the New Year is usually somewhat slow, according to market observers.

"This is something we encounter every year from around Thanksgiving and mid-January, which is not hugely significant by itself," said Sophia Delacotte, a Realtor in Silicon Valley, Calif.

Delacotte noted that although shorts sales are falling, if you look at the history of short sales and the introduction of HARP, it was a given that as time goes on there would be less and less.

Appleton-Young added that, "California’s housing market experienced strong price growth throughout the year, with the median price surging 27.5% for the year as a whole from $319,300 in 2012 to $407,180 in 2013. But again, the increase in the median price can be partly attributed to the increase in sales of higher-priced properties, where tight inventory was less of a factor."

Meanwhile, closed escrow sales of existing, single-family detached homes in California accrued to a seasonally adjusted annualized rate of 361,890 units in December.

In December, sales were down 6.7% from a revised 387,860 in November and down 18.6% from 444,770 units a year prior.

Home prices finally reversed a three-month decline and edged higher in December.

Additionally, the statewide median price of an existing, single-family detached home grew 3.7% from November’s median price of $422,210 to $438,040 in December.

December’s price was 19.7% higher than the revised $365,840 recorded in December 2012, marking a year and a half of double-digit annual gains and the first time in 15 months that the annual increase was below 20%.

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