California housing market shows pockets of recovery

A surge in home sales that started in some of California’s more affordable inland areas has begun to spread to several more expensive coastal areas, another indicator that the state’s real estate market may be in recovery mode.
Many homes in the lower end of the market are receiving multiple offers, with some prospective buyers bidding well above asking prices. Inventory levels for homes priced under $500,000 stood at 3.2 months in May 2009, compared with 9.4 months in May 2008.

Some buyers, especially those in historically higher-priced markets such as the San Francisco Bay Area, are newly optimistic about buying homes and are realizing that the combination of low interest rates, favorable home prices, and first-time home buyer tax credits may not realign for many years.

Some housing economists caution against interpreting signs of increased sales activity as meaning the market has bottomed.  Interest rates on 30-year, fixed-rate prime mortgages have risen above 5 percent in recent weeks and could continue to increase as fears of inflation impact interest rates.  Additionally, the federal tax credit for first-time home buyers is scheduled to end Nov. 30, which may remove the incentive to purchase.

Although the median price in the state has risen for four consecutive
months, prices in some higher-income neighborhoods still are declining. Some agents say that declining prices in these neighborhoods are a reflection of borrowers’ problems getting jumbo mortgages to make purchases.

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