The conclusion from the California Budget Project’s ominously titled “Locked Out 2008: The Housing Boom and Beyond” report:
California’s home sales and prices boomed in recent years, driven in part by loosened mortgage underwriting standards and the promotion of loans with risky features – such as ARMs with short-term teaser rates – that allowed many Californians to buy a piece of the “American Dream.” As teaser rates have expired, mortgage payments have jumped to unaffordable levels for many homeowners, helping to trigger a rising wave of foreclosures that could exacerbate the state’s current economic slowdown. Although the housing downturn has been dramatic, other characteristics of California’s housing market – such as lack of affordability and high rates of overcrowding – have remained relatively constant.
And setting the stage for the upcoming DataQuick sales report for Nothern California:
Analysts point to two key reasons that the median home price continued to increase during 2006 and early 2007 as sales declined. First, home prices “tend to be ‘sticky’ on the downside” of a housing-market cycle, because some sellers take their homes off the market if they cannot sell for their preferred price, which initially keeps home prices from falling. Second, the composition of home sales had changed. The downturn in sales was most apparent in neighborhoods with lower-priced homes, in part due to rising foreclosures, tightened underwriting standards, and the decline of investment funds for subprime loans. Meanwhile, sales of higher-priced homes remained steadier as Californians with higher incomes continued to purchase homes. As a result, higher-priced homes made up a larger share of sales, thereby boosting the statewide median home price even as overall sales declined.
Or as we often write in far fewer words, “think mix.”
∙ Locked Out 2008: The Housing Boom and Beyond (pdf) [California Budget Project]
∙ Locked Out 2008: Profile of California Counties (pdf) [California Budget Project]