California Home Prices Head Higher By Cari Tuna The Wall Street Journal 03-19-2010

California Home Prices Head Higher
Demand for Costlier Properties Grows, but Total Sales Fell in February for the Second Straight Month
By Cari Tuna
The Wall Street Journal
March 19, 2010

The California housing market is showing more signs of stabilization—at least for now—as sales of bank-owned and bargain-basement homes in inland areas partially give way to sales of costlier homes toward the coast, according to a new report.

California's median home price rose 11.2% in February from February 2009, although home sales in the state slipped for the second consecutive month compared with a year earlier, according to a report released Thursday by MDA DataQuick, a La Jolla, Calif., housing-data provider.

The median home price increased to $249,000 in February from $224,000 a year earlier, DataQuick said. The median price rose 0.8% from January 2010. Home sales in the state fell 3.8% in February from a year earlier to 28,111 sales, but were up 0.9% from January 2010, DataQuick said.

The San Francisco Bay Area's median home price rose 20% from February 2009 to $354,000, while home sales fell from year-earlier levels for the second straight month. In Southern California, the median home price rose 10% to $275,000, led by a 13% rise in San Diego, while the number of home sales rose from year-earlier levels for the 20th consecutive month.

The increase in the statewide median price—the biggest year-over-year jump since March 2006—partially reflected a shift in the types of homes being sold in the state, as fewer foreclosures and stiff competition for bargains ate up inventory at the market's lower end, said DataQuick analyst Andrew LePage. "There has been a shift in what's selling and what's not selling," Mr. LePage said. "The high end has woken up, whereas it was comatose a year ago."

But prices are "still way below any peak we saw two or three years back," he added.

The change can be seen in the experience of Rich Barbaria of Campbell, Calif. After searching on and off for a year, including bidding unsuccessfully on several bank-owned homes, the 31-year-old mechanical engineer last month offered $455,000 for a three-bedroom, two-bathroom house in Morgan Hill, a city in southern Santa Clara County. The sale closed this week.

"I finally found something in a better area than I was expecting," said Mr. Barbaria, who added that he bought the home from its owners and faced no competing bids. But he thinks he spent slightly more than he would have last year when home prices hit bottom. Indeed, Santa Clara County's median home price rose to $460,000 in February, up 12.5% from a year earlier, DataQuick said.

Despite the stabilization in home prices, housing experts said, the hard-hit state isn't out of the woods.

"The rebound in prices is artificial," boosted by federal and state efforts to stimulate demand among buyers and stem foreclosures, said Sam Khater, a senior economist at First American CoreLogic, a Santa Ana, Calif., research firm.

While the percentage of existing homes sold last month that had been foreclosed on in the prior year fell to 44.3% from an all-time high of 58.8% in February 2009, it edged up from 43.8% in January 2010, DataQuick said.

Meanwhile, default notices, the first step in the foreclosure process, jumped 19.7% in February from January, though they were down 37.7% from February 2009, according to a report released earlier this month by research firm ForeclosureRadar.com.

"I think that the market is going to struggle for some time," said Mr. Khater, who noted that California's unemployment rate was 12.5% in January and the percentage of California mortgage holders who were at least 90 days late on payments increased to 11.6%.

"You've got quite a bit of road to go before you see the light."