Real Estate Market

California home sellers' losses become first-time home buyers' gains

by Broderick Perkins

(03/15/2010) As economic turmoil forced most California home sales last year, doors opened to a near record share of first-time home buyers.

According to the California Association of Realtors' (CAR) "2009-2010 Survey of California Home Sellers", 67 percent of all home sellers in California did so in 2009 because they had a tough time making the mortgage payment.

Unemployment and adjustable rate mortgage (ARM) resets, along with tough underwriting and equity losses preventing refinanced bailouts, converged on home owners, forcing them to sell, the report said.

Meanwhile, CAR's "2009-2010 "State of the California Housing Market" said first-time buyers enjoyed the spoils. First-timers represented nearly half, 47 percent, of all Golden State home buyers in 2009.

The first-time home buyer share exceeded the state's long-run average of 38.6 percent and was the highest since 1995, when more than half of all buyers were first-timers.

"It is clear that the federal tax credit for home buyers worked well in 2009 and is continuing to drive home sales," said CAR President Steve Goddard.

"The home buyer tax credit is arguably the most successful strategy employed by the government's efforts to stimulate the economy," Goddard added.

Some qualified Californian home buyers enjoyed both a federal and state home buying tax credit totaling as much as $18,000. The state version, for new homes only, ran out of cash months after it was introduced last year.

Home buyers also cashed in on distressed properties. More than half of all first-time buyers purchased a foreclosure or short sale property. Distressed properties accounted for almost half of all the state's sales in 2009, an increase from 35.6 percent in 2008.

"2009-2010 Survey of California Home Sellers" also found:

• On average, homes sold for $20,958 less than the original asking price in 2009. The median difference between the selling and listing price was $32,315. The list-to-sold-price ratio was $30,000 below list for first-time sellers, but only $8,000 below list for those who had sold before.

• Among sellers, 44 percent were first-time sellers, a 33 percent increase from 2008, and nearly three times the 2007 percentage of 15 percent.

• Sellers in 2009 cited difficulty meeting the monthly mortgage obligations (30 percent); job loss (18 percent); and a higher mortgage payment (15 percent) as the primary motivation to sell. In 2008, only 20 percent cited the ability to meet their mortgage payment obligation; while 11 percent sold due to financial difficulties.

• Financial difficulties caused 63 percent of homes to fall out of escrow prior to closing often because the buyer could not land mortgages, the buyer backed out, buyer's remorse and home prices declined, among other reasons.

2009-2010 "State of the California Housing Market" also found:

• One-third of sellers experienced a net cash loss in 2009, the highest level on record since CAR started tracking the statistic in 1989.

• The median net cash gain from home sales declined 50 percent last year to $50,000 from $100,000 in 2008.

• Nearly 40 percent of buyers were prompted to buy by the federal tax credit.

• Lower home prices boosted affordability. CAR's First-Time Buyer Housing Affordability Index rose to a record 64 percent in the third quarter of 2009.

• Lower-priced distressed properties prompted more than half buyers to take the plunge. More than 70 percent of properties purchased by investors were either short sales or foreclosures.

• Low-down payment Federal Housing Administration (FHA) loans were also a lure. The percentage of home buyers using an FHA-insured loan increased to 32 percent in 2009, compared with 18.9 percent in 2008. The median down payment for FHA-insured loans was $9,888 compared with $92,000 for conventional purchase loans.

• The median price of distressed properties declined nearly one quarter to $250,000 in 2009 compared with $330,000 in 2008; non-distressed property prices decreased only 10.4 percent to $485,000 in 2009 compared with $541,000 in 2008.

• Over all, California's median home price hit bottom in February 2009 at $245,170; for the year 2009, the median was listed at $271,000 and is projected to increase to only $280,000 in 2010.

• 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.

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