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Are we seeing the end of California’s housing juggernaut?

Except for Silicon Valley, home-price appreciation has all but stopped

The number of homes sold in the state of California continue to remain relatively low due to lack of available housing inventory and a decline in affordability, a new report from PropertyRadar showed.

According to PropertyRadar’s report, seasonal forces pushed California single-family home and condominium sales down 4.3% to 35,629 for the month of September, from a revised total of 37,227 in August.

On a year-over-year basis, sales were up 5.8% from 33,674 in September 2014.

According to PropertyRadar’s report, the yearly increase was driven by a 9.4% increase in non-distressed property sales. 

In the first three quarters of 2015, sales are up 7.1% compared to the same period in 2014. Despite the increase, sales remain far below 2002 through 2007, PropertyRadar’s report showed.

“When you take a step back and look at sales volumes over a longer period of time, they remain weak,” said Madeline Schnapp, Director of Economic Research for PropertyRadar. “Lack of inventory and declining affordability are holding sales back.”

According to PropertyRadar’s report, the median price of a California home in September was $405,000, which was down 2.4% from a revised $415,000 in August. It was also down 2.6% from the 2015 high of $416,000 in July.

On a year-over-year basis, the median price of a California home was up 3.3% from $392,000 in September 2014.

Prices may be up on a yearly basis, but Schnapp said that price appreciation in many parts of the state has slowed or stopped entirely.

In fact, on a monthly basis, prices were lower in 21 of California’s 26 largest counties, Schnapp said.

According to PropertyRadar’s report, the counties with the largest price declines were Contra Costa (-5%), Kern (-5.2%) and San Mateo (-3.3%). 

San Francisco prices fell 11.8% for the month but the decline is likely an artifact of the mix of homes sold rather than an actual price decline, PropertyRadar’s report showed.

On an annual basis, prices are still appreciating, but in general at a much slower pace.

Home prices in a few northern California counties, mostly concentrated in the Bay Area, continue to appreciate rapidly. Counties experiencing the highest annual price appreciation were Santa Cruz (+18.1%), Merced (+15%), Santa Clara (+13.8%) and San Mateo (+11.3%).

“Homes in the Silicon Valley corridor, consisting of San Francisco, San Mateo and Santa Clara counties, continue to buck statewide trends and are experiencing double-digit price appreciation,” Schnapp said. “The increased demand from plentiful well-paying jobs, sky high rents, and fear of higher mortgage interest rates have propelled home prices into the stratosphere.”

Schnapp said that in September, more than half of all homes sold in San Francisco and San Mateo counties exceeded $1 million.

“I am frequently asked how long can this continue?” Schnapp said of the San Francisco price explosion. “My answer is, ‘Until you run out of eager buyers and bankers willing to lend,’ and we clearly are not there yet.”

PropertyRadar’s report also showed that cash sales fell 7% in September to 7,243 and represented 20.3% of total sales, down 0.6% from 20.9% of total sales in August.

Cash sales as a percentage of total sales remain elevated but have been steadily declining since reaching a peak of 45.1% of total sales in August 2011.

"Cash does not seem to be in short supply in the Silicon Valley corridor," said Schnapp. "So far in 2015, 21.5% of sales were for cash and 61% of buyers put down at least 20% of the purchase price. At median prices bouncing off of a million dollars, that is an impressive statistic."

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