How Much California Inventory? 3.9 Months from Public Data. A drop from 6 Months at the Start of the year and down from 16 Months Reached in Early 2008. Yet Distress Properties are still a Big Part of the Market.

According to recent data from the California Association of Realtors, there is only 3.9 months of unsold inventory on the market.  This is actually low.  For many that don’t follow the housing market a healthy amount of inventory hovers around 5 to 6 months.  3.9 months is well below that.  In early 2008 when few homes were selling, California had 16.6 months of inventory.  This is from CAR data so it varies by which metrics you look at.
When we look at the market snapshot, it is rather clear that lower prices have fueled home selling in the state:

The current median price for a California home according to CAR is $285,480 and that is down from $355,000 from a year ago.  At the peak, California reached a median home price of $558,000 which is simply incredible.  So using this data point, the California median home price is still down by over 48 percent from the peak price.  That is a lofty decline.

Let us look at some other data in the current market:

This chart helps to show that there has been some activity in the higher priced markets.  Clearly the under $500,000 range is the vast majority of the market but since January, homes in the $500k to $1 million range and those over $1 million have seen a bit more activity.  Yet the dominant force in the current market is the mix of lower priced distressed homes:

It is incredible that in 3 large areas of California Kern, the Inland Empire, and Solano distressed sales made up over 80 percent of all sales in March.  The number of distress sales still remains elevated.  You’ll notice in some areas like Marin and San Luis Obispo distress properties made up a smaller portion of all sales in June from March data.

The 3.9 months of inventory is somewhat suspect.  I’m not disagreeing with the figure but given that the foreclosure process is now muddy, how many homes are not making it to market because of:

(a) loan modifications

(b) banks delaying foreclosures

(c) lenders and servicers being overwhelmed

(d)  owners pulling inventory off the market for another day

You can call this the shadow inventory and the number is large but hard to quantify.  For example, according to DataQuick some 45,000 homes sold in California in July.  43 percent of these properties were foreclosure re-sales.  That is, from the 45,000 homes sold some 25,650 homes sold in the old fashioned way.

If we are to believe that 3.9 figure then are we to believe the market only has some 175,000 homes?  Maybe.  Let us get some quick figures from the MLS:

MLS

Southern California:      60,146

Northern California:      38,753

Total:                            98,899

If this were accurate, we’d have slightly above 2 months of inventory.  From the data I look at it doesn’t seem to include foreclosures or short-sales which make up nearly half of the market.  So 3.9 months sounds about correct.  But how long can this go?  We are entering a slower selling season with fall and winter.  The above data is probably why we have seen a slight rise in prices at the low range as investors and first-time buyers compete for the same homes.  Supply versus demand.
How long will this last?  Hard to say but 2010 should bring forward some interesting dynamics and will show us if California is really recovering.  As I pointed out, I think that 2010 will be a dud for California real estate.

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