California real estate prices expected to rise 10% next year

Realtor group forecast also calls for slight dip in sales
Inman News
The California residential real estate market in 2005 is expected to sales and price records set last year, the California Association of Realtors reported this week.

The trade group announced some key housing market statistics from 2005 and a look ahead to 2006:

    • Sales of detached, existing single-family homes are expected to reach 635,000
      in 2005, an increase of 1.8 percent over last year's record sales of 624,700.
      Sales are anticipated to decline by 2 percent in 2006.

    • This year will be a record year for home prices. The median price of a single-
      family home in California crossed the $500,000 threshold for the first time in
      April 2005. The annual median is expected to reach $523,150 in 2005 and
      increase 10 percent to $573,500 in 2006.

    • The median price of a single-family home increased by double-digits for the
      fourth consecutive year in 2005, though the pace of price appreciation slowed
      from the 18 to 21 percent annual gains of the previous three years to 16
      percent in 2005.

    • CAR's Unsold Inventory Index averaged 3.3 months in 2005. Inventory levels are
      expected to rise moderately in 2006 but will remain low by historic standards,
      fueling continued price appreciation in the California market, according to
      the association's forecast.

    • The interest rate for a fixed-rate mortgage remained below 6 percent for much
      of 2005, only surpassing 6 percent in the last months of the year. For all of
      2005, the fixed-rate mortgage averaged 5.8 percent. In 2006, the interest rate
      for the FRM is projected to increase but remain low by historic standards in
      the low- to mid-6 percent range.

    • The interest rate for a one-year adjustable-rate mortgage averaged 4.5 percent
      in 2005, finishing just over 5 percent at year-end. The interest rate for the
      one-year adjustable-rate mortgage is expected to remain within the low- to mid-
      5 percent range during 2006.

    • With home prices reaching record levels, more home buyers extended themselves
      financially in 2005 by utilizing alternative loan products. The share of home
      buyers who used adjustable-rate and hybrid loans increased from 11 percent in
      2003 to 43 percent in 2005, while the share of fixed-rate loans dropped from
      89 percent in 2003 to 57 percent in 2005. The last time more than 40 percent
      of home buyers used adjustable-rate loans was in 1994.

    • Fannie Mae and Freddie Mac increased the single-family conforming mortgage
      loan limit from $359,650 this year to $417,000 in 2006, which could benefit
      more than 28,590 families in California. However, the increase in the loan
      limit is still far too low to benefit most home buyers in California, as the
      median price of a home in California is 29 percent higher than the new loan
      limits. Nineteen counties in California have a median home price above the new
      limit.

    • Internet use by home buyers and sellers continued to climb in 2005. Based on
      CAR's "Internet Versus Traditional Buyers Survey," the percentage of home
      buyers using the Internet increased from 56 percent in 2004 to 62 percent in
      2005.

    • The share of sellers who used the Internet in their home-selling process
      surpassed 50 percent for the first time, rising from 47 percent in 2004 to 57
      percent in 2005, according to CAR's "Survey of California Home Sellers."

The California Association of Realtors, with about 180,000 members, is one of the largest trade groups in the United States.