Affordability is likely culprit
After four years of dizzying housing gains, the California Association of Realtors (C.A.R.) announces that price appreciation and home sales slowed in 2006, due partly to the smallest share of first-time homebuyers buying homes in recent memory. California impacts national figures because one out of every nine people in America lives there.
First-time homebuyers declined from 30.5 percent in 2005 to 27.1 percent in 2006, according to new C.A.R. survey, contributing to statewide declines in sales of existing single-family homes of 23 percent. Price appreciation also slowed dramatically as the year progressed.
Further evidence that affordability is the likely culprit is the fact that the share of buyers who used a second mortgage climbed from 38 percent in 2005 to 43 percent in 2006, says C.A.R.. That's more than triple the percentage since 2001 and the highest percentage since 1982.
The use of alternative loan products also registered a sharp increase, particularly zero-down payment loans. "Home buyers with zero-down payments increased significantly from 4.5 percent in 2000 to 21.1 percent in 2006," said C.A.R. Vice President and Chief Economist Leslie Appleton-Young. "Two out of five first-time buyers made a zero-down payment on their home purchase, while just one in 10 repeat buyers purchased their home with no down payment."
"The interest rate environment also played a significant role in the housing market of the past few years," she said. "From 2002 through the first half of 2005, interest rates were either expected to fall or remain at attractive levels. When the fixed-rate temporarily exceeded 6 percent in 2003 and 2004, sales slowed. But in each case, market activity accelerated when the rate fell below that threshold. By contrast, when the fixed-rate moved past 6 percent in late 2005, it remained there. Expectations adjusted and anticipated further rate increases, contributing to the slowdown in sales in late 2005 and into 2006."
That means that home sales in California fell in 2006 after four years of record expansion. "The statewide median price saw shrinking gains throughout the year, slowing from a 14 percent year-to-year increase in January 2006 to just under 2 percent as the year drew to a close," said C.A.R. President Colleen Badagliacco. "That's a far cry from the string of double-digit annual percentage gains that prevailed during the first half of this decade."
"Over the period 2003 through 2005, inventories were lean, multiple offers were common, and buyers and sellers alike knew they needed to move quickly to consummate a transaction," she said. "But as the market began to slow in late 2005, buyers sensed that they would get a better deal if they waited, while sellers still hoped to sell their home at a premium. This drove a wedge between buyer psychology and seller psychology, creating more market friction and leading to a slowdown in activity."
First-time homebuyers declined from 30.5 percent in 2005 to 27.1 percent in 2006, according to new C.A.R. survey, contributing to statewide declines in sales of existing single-family homes of 23 percent. Price appreciation also slowed dramatically as the year progressed.
Further evidence that affordability is the likely culprit is the fact that the share of buyers who used a second mortgage climbed from 38 percent in 2005 to 43 percent in 2006, says C.A.R.. That's more than triple the percentage since 2001 and the highest percentage since 1982.
The use of alternative loan products also registered a sharp increase, particularly zero-down payment loans. "Home buyers with zero-down payments increased significantly from 4.5 percent in 2000 to 21.1 percent in 2006," said C.A.R. Vice President and Chief Economist Leslie Appleton-Young. "Two out of five first-time buyers made a zero-down payment on their home purchase, while just one in 10 repeat buyers purchased their home with no down payment."
"The interest rate environment also played a significant role in the housing market of the past few years," she said. "From 2002 through the first half of 2005, interest rates were either expected to fall or remain at attractive levels. When the fixed-rate temporarily exceeded 6 percent in 2003 and 2004, sales slowed. But in each case, market activity accelerated when the rate fell below that threshold. By contrast, when the fixed-rate moved past 6 percent in late 2005, it remained there. Expectations adjusted and anticipated further rate increases, contributing to the slowdown in sales in late 2005 and into 2006."
That means that home sales in California fell in 2006 after four years of record expansion. "The statewide median price saw shrinking gains throughout the year, slowing from a 14 percent year-to-year increase in January 2006 to just under 2 percent as the year drew to a close," said C.A.R. President Colleen Badagliacco. "That's a far cry from the string of double-digit annual percentage gains that prevailed during the first half of this decade."
"Over the period 2003 through 2005, inventories were lean, multiple offers were common, and buyers and sellers alike knew they needed to move quickly to consummate a transaction," she said. "But as the market began to slow in late 2005, buyers sensed that they would get a better deal if they waited, while sellers still hoped to sell their home at a premium. This drove a wedge between buyer psychology and seller psychology, creating more market friction and leading to a slowdown in activity."
posted by Ken Calhoon at 7:57 AM
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