The percentage of first-time home buyers in California increased from 35.9% in 2008 to 47% last year, according to the California Association of Realtors' (CAR) 2009-2010 ‘State of the California Housing Market‘ report. The share of first-time buyers exceeded the long-run average of 38.6% and was the highest since 1995, when more than half of all buyers were first timers.
‘It is clear that the federal tax credit for home buyers worked well in 2009 and is continuing to drive home sales,’ says Steve Goddard, CAR's president. ‘The home buyers' tax credit is arguably the most successful strategy employed by the government's efforts to stimulate the economy.’
According to a survey conducted by CAR on the effectiveness of the federal tax credit for home buyers, nearly 40% said they would not have purchased a home if the federal tax credit was not offered. On the same note, nearly 70% of these buyers said the tax credit was either "very important" or "most important" in their decision to buy a home. The large number of distressed properties led to more than half of all first-time buyers purchasing a bank-owned or short-sale property.
Statewide, real estate owned (REO)/foreclosure sales and short sales accounted for almost half of all annual sales in 2000 – an increase from 35.6% in 2008, according to CAR data. The median price of distressed properties declined nearly 25% to $250,000 in 2009, compared with $330,000 in 2008. Meanwhile, the median price of non-distressed properties decreased only 10.4% to $485,000, compared with $541,000 in 2008.
Many sellers sold their homes with a loss in 2009, and those who experienced a net cash loss increased for the fifth consecutive year. With one-third of sellers experiencing a net cash loss in 2009, it was the highest level on record since CAR started tracking net cash losses in 1989, and was more than triple the long-run average of 9.3%. Following two consecutive years of significant declines in prices, the median net cash from home sales declined 50% last year to $50,000 from $100,000 in 2008.
Lower home prices not only encouraged first-time buyers to purchase entry-level homes, but also lured investors. More than 70% of properties purchased by investors were either short sales or REO/foreclosures.
California's median home price hit bottom in February 2009, at $245,170. Since then, the median home price has increased steadily in month-to-month comparisons, but remained below 2008 levels throughout 2009. The annual median price is projected to increase to $280,000 in 2010 from $271,000 in 2009.
As conventional loans became more difficult to obtain, the percentage of Federal Housing Administration (FHA)-insured loans as a first mortgage increased significantly in 2009. The percentage of home buyers utilizing an FHA-insured loan increased to 32% in 2009, compared with 18.9% in 2008 – partially a result of the agency increasing its loan limit from $362,790 to $729,750. The median down payment for FHA-insured loans was $9,888, compared with $92,000 for conventional purchase loans.