Market ActivityCalifornia single-family home and condominium sales fell 16.8 percent in September from August, but were nearly unchanged from a year ago. An 18.7 percent monthly drop in distressed property sales drove the decline in September sales. Bear in mind that September’s double-digit drop in sales is not unusual for this time of year because sales volume typically declines in fall and winter.

To get a clearer picture of current real estate sales trends and to eliminate seasonal factors, we compare September 2013 property sales to September sales in prior years. Last month’s sales were slightly lower than sales in September 2012 and the lowest since September 2007. Dividing sales into their distressed and non-distressed components, distressed property sales fell 47.7 percent in the past 12 months while non-distressed sales jumped 40.2 percent. Though distressed property sales declined in September, they still accounted for 24.2 percent of total sales, which is historically very high. In six of California’s largest counties — Stanislaus, Solano, San Joaquin, San Bernardino, Kern and Fresno — distressed property sales represented 32 to 35 percent of total sales.

Dividing distressed property sales into short sales and bank REO resales can provide a better understanding of underlying trends. Short sales fell 18.3 percent in September and are down 46.3 from a year ago. Also, bank REO resales are down 19.5 percent for the month and down 50.2 percent year-over-year.

Homeowner Equity

The steady rise in home prices since January 2012 has allowed thousands of California homeowners to shift from being underwater to having positive equity so they can refinance or sell their homes. Since July, the number of homeowners with more than 10 percent equity in their homes has increased by 10.4 percent, or 465,000. The number of homeowners who are moderately to severely underwater has fallen by 37.1 percent or 682,000.Despite the improvement, large numbers of underwater homeowners remain a drag on the California real estate market. In September, nearly one in four, or 1.5 million (22 percent) of California’s 6.8 million homeowners were underwater while more than 420,000 (6 percent) were barely above water (less than 10 percent equity in their homes). Since closing costs are 6 to 10 percent of a home’s sale price, these homeowners are effectively underwater. Added together, 28 percent of homeowners (nearly 2.0 million) are underwater or barely above water, which effectively shuts them out of the California real estate market. Several of the largest counties in California continue to struggle with much higher levels of negative equity. In Fresno, Merced, Solano, San Joaquin, and San Bernardino counties, 27 to 34 percent of homeowners, or one in three, are moderately to severely underwater.

Median Prices

The median sale price of a California home fell $5,000, or 1.4 percent, to $355,000 in September from $360,000 in August, the second consecutive monthly decline. Year-over-year median prices increased 24.6 percent from $285,000 to $355,000.Rapid monthly home price increases that typified the California real estate market earlier this year appear to have slowed ore reversed course in direct response to a 100-basis-point increase in mortgage interest rates in June. Despite the slowdown in price appreciation statewide, homes in Orange, Placer and Riverside counties still experienced solid price appreciation in distressed and non-distressed properties.Rapid changes in the mix of distressed and non-distressed property sales from 2012 to 2013 continue to influence the year-over-year change in median prices. In September 2012, distressed property sales accounted for 46.1 percent of sales. By September 2013, distressed property sales had fallen to 24.2 percent of sales.The following graph highlights median sales price trends from January 2002 to September 2013. Aggregate single-family home median sales prices are shown in blue, and distressed and non-distressed median prices are shown in red and green, respectively.

Cash Sales

In September 2013, cash sales represented 24.5 percent of total sales, up 0.1 percentage points from 24.4 percent in August. Taking a longer-term view, cash sales as a percent of sales oscillated between 28 percent and 31 percent from January 2012 through January 2013. They peaked at 33.0 percent in February 2013 and have been below 25 percent since August 2013. From a historic perspective, cash sales remain high and are an important part of the real estate marketplace even though they are now trending lower.

Flipping

Mirroring the normal seasonal slowdown, September 2013 flipping (reselling a property within six months) fell 10.3 percent from August but was up 4.8 percent from a year ago. Flips represented 4.7 percent of total sales in September, up from 4.3 percent in August.Taking a longer-term view, in 2011, as housing prices trended sideways, flipping was basically flat, ranging from 2.5 percent of sales in January to 2.7 percent of sales in December 2011. In 2012, flipping as a percent of sales began to increase, rising from 2.9 percent of sales in January 2012 and peaking in February 2013 at 5.5 percent. Flipping retreated from February 2013 to June 2013, reaching an interim bottom of 4.1 percent of sales. In the past three months, flipping has edged higher because investment returns remain attractive.In September, flipping as a percent of sales was highest in San Diego, Sacramento, Fresno and San Joaquin counties.

Investor (LLC and LP) Purchases

September 2013 investor purchases fell 18.0 percent from August. Investor purchases are defined as a market or third party purchase at a trustee sale by a limited liability corporation (LLC) or a limited partnership (LP). In general, investor purchases have been trending lower since peaking in October 2012 and are now 54.9 percent below that peak. This is being driven primarily by the increase in purchase prices. As prices increase, the potential return on investment (ROI) for holding properties as rentals decrease, making it less attractive to investors.

Foreclosures

September foreclosure sales fell to their lowest level in seven years. California Notices of Default fell 21.6 percent in September, the largest one-month decline since March, and are down 56.1 percent for the year. Meanwhile, Notices of Trustee Sale dropped 20.3 percent for the month and fell 61.5 percent for the year. Foreclosure sales gained 1.8 percent for the month but remain near their lowest levels since January 2007.