36,417 new and resale homes closed escrow in California during March 2011, down 2.4% from one year ago when 37,295 sales closed escrow. Single family residence (SFR) sales volume broke its recent downward trend. The Bay Area recorded its highest number of March home sales since 2007.
Real estate owned (REO) resales accounted for an estimated 38% of all resales in the fourth quarter 2010— up from 37% one year earlier.
Absentee homebuyers (a group generally composed of speculators and investors) accounted for 26% of Southern California (SoCal) resales (near the historic record of 26.4% set in February 2011) and 22% in the Bay Area. “Jumbo loans” (here represented by all loans of over $417,000) accounted for 16% of sales in SoCal, unchanged from last year, and 30% of Bay Area sales, slipping slightly from 31% last year. 2010 saw a sharp rise in the use of Jumbo loans, likely attributable to an increase in foreclosures among high-tier properties, but Jumbo use remains far below its height in the boom times of 2006 and 2007.
Federal Housing Administration (FHA)-insured loans represented 32% of SoCal mortgages recorded in March 2011, down from 37% one year earlier, and at the lowest level since August 2008. FHA-insured loans made up 22% of Bay Area mortgages recorded, a slight fall from 24%, recorded one year earlier. The current proportion of FHA-insured loans remains abnormally high by historical standards, although it has dropped in recent months. This downward trend will continue in the future, as other government agencies and private mortgage insurers (PMIs) are now guaranteeing almost all conventional loans, including loans with lower down payments and down payments from unconventional sources (such as gifts).
Adjustable rate mortgages (ARMs) made up 8% of all SoCal mortgages, relatively unchanged from last month, but up significantly from last year’s level of 5%. ARM use in the Bay Area has increased even more dramatically in recent months, rising from 9% one year ago to a current 14%. ARMs peaked across California in May 2010, and any drop in ARMs is a good indicator the market volume and pricing will not increase over the next 12 to 24 months. The increase in the use of ARMs in the Bay Area is to be watched, as any increase over the next six months will very likely artificially sustain or push prices of high-tier homes upward excessively.
Cash purchases represented 31% of SoCal and 28% of Bay Area sales in March 2011. Although these numbers are down slightly from February 2011’s record high, they remain abnormally high in both districts, indicating speculators are still at work, probably flipping under land sales contracts or let-to-buy arrangements called lease-option sales, which go unrecorded. These transactions remain, for the most part, invisible to the public. The recent spike in cash purchases indicates that speculators are once again optimistic about a potential recovery in real estate sales and pricing, but both have shown only torpid growth thus far.