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California's Recovery? The Truth Behind the Facade

Sales at lowest level since 2007 year-to-date

Although it’s been five years since the financial crisis, a full on recovery has yet to be seen in California, according to a recent report from PropertyRadar.

California single-family and condominium sales grew 3.5% in May 2014; however, this is still down 11.1% from May 2013. Year-to-date sales are the lowest level since 2007.

For May, non-distressed property sales increased 5% while sales of distressed properties dropped .7%.

“What continues to surprise us month after month is that in the fifth year of a so-called recovery, year-to-date real estate sales are on track to be the lowest since 2007,” said Madeline Schnapp, director of economic research for PropertyRadar.

“Government policies that have constrained supply coupled with high demand from all cash buyers pushed up real estate prices so quickly that in many parts of California the median income home buyer can no longer afford the median priced home,” Schnapp said.

The median price of a California home reached its highest level since December 2007 in May, up $10,000, or 2.7%, to $385,000 from $375,000 in April.

The uptick in sales is primarily due to a 4.5% increase in the sales volume of higher priced non-distressed properties, which accounted from nearly 81% of total sales.

Year-over-Year, median home prices jumped 10%.

“The significant jump in median home prices this past month is being driven by the change in mix between the sales of distressed properties versus sales of non-distressed properties, rather than a big jump in actual home values,” Schnapp explained.

“Just a few years ago, distressed properties accounted for 60 to 70 percent of sales as opposed to 19 percent today. Higher priced non-distressed property sales now dominate monthly sales numbers, so it should come as no surprise that median prices are up,” she added.

At local levels, median home prices in four Bay Area California counties – San Francisco, Marin, Santa Clara and San Mateo – are close to or exceed their pre-housing bubble peaks.

Meanwhile, in only 8 of the state’s 26 largest counties – Kern, Merced, Riverside, San Bernardino, Solano, Stanislaus and Tulare – can the median income homeowner in that county afford to purchase the median priced home.

“Real estate prices continue to march higher on declining sales volume which is an unhealthy combination,” said Schnapp. “At some point you run out of buyers willing to pay these prices setting the stage for a decline in sales volume, which we are already seeing, and later for the possibility of a price correction.”

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