California Housing Market 2003 Finishes on High Note
February 25, 2004
by Robert Kleinhenz, Ph.D., Deputy Chief Economist
The California housing market registered its highest level of December sales ever as 2003 ended its record-setting performance. Seasonally adjusted and annualized sales in December rose to 637,080 units, the highest December total ever and the third highest seasonally adjusted monthly sales total on record. December sales rose 1.6 percent compared to November 2003 and 11.0 percent compared to sales in December 2002. The median price likewise finished strong with a record monthly high of $405,520, up 20.7 percent from December 2002.
Annual figures for California, which were released earlier this month, showed annual sales for the year of 601,770 units, up 5.1 percent from the previous record of 572,550 units that was achieved in 2002. This marks the first year in which annual California sales of detached existing single-family homes broke the 600,000 mark, and the eighth year of the current upswing in the housing market. Home sales exceeded expectations because interest rates remained at their lowest levels in decades throughout the year and fueled tremendous demand for homes.
The annual median price likewise exceeded expectations, rising to a record level of $372,720. This was a 17.9 percent increase over the revised 2002 median of $316,130. The California median price has now risen 7 years in a row. Every region of the state experienced record high median prices and record or near-record high levels of sales. The Bay Area continued to be the highest-priced region of the state with an annual median of $558,100, while the Riverside/San Bernardino region saw the largest year-to-year percentage increase in its median, rising 25.2 percent to $220,940.
The essential ingredient to the market's performance over the past 2 years has been a very low interest rate climate, which has unleashed the state's strong demographics in the California's housing market. The state adds 600 thousand new residents a year and between 230 and 250 thousand new households annually. Within the overall population, the ethnic segment is growing and contributing significantly to the first-time homebuying segment, while individuals in the Boomer Generation age group are leading the way with tradeup purchases and second home purchases.
Interest rates also played a key role in the state's affordability situation. If not for low interest rates, the state's Housing Affordability Index would have plunged below 20 percent as home prices increased by nearly 20 percent over the past 2 years. In fact, rates fell from 7 percent at the start of 2002 to 6 percent at yearend and remained near 6 percent for all of 2003, so that the affordability index finished at 23 percent in December 2003.
Source: Califronia Realtors Association