Affordable Home Prices in 2010March 30, 2010 Affordable home prices, tax credits for home buyers, historically low mortgage interest rates, and a large number of distressed properties prompted many first time home buyers to enter the market in 2009 and now in 2010, according to the CALIFORNIA ASSOCIATION OF REALTORS(R)' (C.A.R.) 2009-2010 "State of the California Housing Market" report released today. The percent of first-time buyers increased dramatically in 2009, from 35.9 percent in 2008 to 47 percent in 2009, according to the report. The share of first-time buyers exceeded the long-run average of 38.6 percent and was the highest since 1995, when more than half of all buyers were first timers. According to a survey conducted by C.A.R. on the effectiveness of the federal tax credit for home buyers, nearly 40 percent said they would not have purchased a home if the federal tax credit was not offered. On the same note, nearly 70 percent of these buyers said the tax credit was either "very important" or "most important" in their decision to buy a home. The large number of distressed properties led to more than half of all first-time buyers purchasing an REO/foreclosure or short sale property. Many sellers sold their homes with a loss in 2009, and those who experienced a net cash loss increased for the fifth consecutive year. With one-third of sellers experiencing a net cash loss in 2009, it was the highest level on record since C.A.R. started tracking net cash losses in 1989, and was more than triple the long-run average of 9.3 percent. Following two consecutive years of significant declines in prices, the median net cash from home sales declined 50 percent last year to $50,000 from $100,000 in 2008. Although sellers experienced a steeper net cash loss, lower home prices across the state sent affordability for first-time buyers to record-high levels in 2009. Affordable home prices also enabled first-time buyers to purchase larger homes. The average size of a first-time buyer's house increased to 1,560 square feet in 2009 compared with 1,300 square feet in 2005. Lower home prices not only encouraged first-time buyers to purchase entry-level homes, but also lured investors. More than 70 percent of properties purchased by investors were either short sales or REO/foreclosures. The typical investment property was 1,367 square feet and had a median price of $232,750. Sales of high-end homes started picking up in late 2009, with the number of closings for homes priced $500,000 or higher rising 3 percent, and sales of homes priced $1 million or more experiencing their first year-to-year increase since July 2007. Statewide, annual sales of existing homes are projected to reach 527,500 units in 2010, a 2.7 percent decline compared with 2009's annual rate of 540,000 units. As conventional loans became more difficult to obtain, the percentage of FHA-insured loans as a first mortgage increased significantly in 2009. The percentage of home buyers utilizing an FHA-insured loan increased to 32 percent in 2009, compared with 18.9 percent in 2008, partially a result of the agency increasing its loan limit from $362,790 to $729,750. FHA loans typically require lower down payments and have less rigid credit-qualifying guidelines than conventional loans. The median down payment for FHA-insured loans was $9,888 compared with $92,000 for conventional purchase loans. |
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