2004 Mid-Year Housing Report
Market Trends -
August 2004
- Robert A. Kleinhenz, Ph.D., Deputy Chief Economist, CAR California Association of Realtors
The California housing market posted its highest quarterly sales performance on record in the second quarter of 2004 while the statewide median home price achieved a new high, even as the fixed rate crossed the 6 percent threshold for the first time since last September. Second quarter sales reached 635,580 units, rising 6.2 percent compared to the first quarter of this year and 10.4 percent above the same quarter a year ago. Year-to-date sales were up 7.4 percent compared to the first half of 2003. Despite the increase in mortgage rates from a 2004 low of 5.45 percent in March to a peak of 6.29 percent in June, consumers acted quickly in the second quarter in anticipation of higher interest rates later in the year.
The second quarter median price reached a record high of $461,730, an increase of nearly $100,000 over the second quarter 2003 median of $368,620. The median rose 25.3 percent year-to-year, the largest such increase on record going back to 1988. The median price has risen in 13 successive quarters going back to the second quarter of 2001. While a large quarterly increase is typical of the shift from the off-peak period of the first quarter to the start of the peak season in the second quarter, the 13.1 percent quarter-to-quarter increase in the second quarter of 2004 was also the largest such increase on record going back to 1988.
Led by Orange County with a 38.7 percent year-to-year rise, median prices in the metro areas of Southern California experienced year-over-year increases in excess of 30 percent. Orange County again led the way with a record high median price of $655,270, followed by Ventura at $618,260. The Inland Empire had the lowest median price of any metro area in Southern California at $294,470. The Central Valley continued to be the most affordable region of the state with a median of $270,650, a 22.7 percent increase over the second quarter 2003 median of $220,630. With the worst of the economic contraction behind it, the Bay Area saw its median climb by an impressive 18.7 percent year-to-year to $647,310. Sales in all three regions of the state were up, with the pace in Central Valley showing the biggest year-to-date increase at 21.6 percent, the Bay Area advancing by 16.5 percent, and the supply-constrained Southern California region up 2.6 percent.
The housing market, through the balance of the year, will be shaped by the direction of mortgage rates, inventories, and affordability. Despite anticipated rate hikes by the Fed, mortgage rates have dipped in recent weeks in reaction to weaker-than-expected economic conditions. If the economy continues to show weakness, mortgage rates should stay in the high five to low six percent range and drive sales up. If there is more uniform improvement in the economy, rates will rise more quickly. The recent increase in inventories should benefit supply-constrained areas, and enable sales to continue at a strong pace. However, some areas of the state will be adversely affected by the pinch of affordability. Overall, annual sales in the state market are expected to increase by 2 to 3 percent this year over last year’s record level, while the median price is expected to climb by just over 20 percent to a new record as well.
