It has piled up more foreclosures and has endured among the worst home-price declines. The median price of a single-family home sold in February was $247,590, down 41% from 12 months earlier, according to the California Association of Realtors (CAR).
And home construction in the Golden State has nearly vanished: December housing permits shrank to about a quarter of what they were during the boom years, according to the National Association of Homebuilders.
0:00/3:17Housing on the rebound?But there are signs that California's housing market may be coming out of this tailspin: Sales volume is increasing, investors are returning and inventory is shrinking.
Bringing back buyersLow prices have brought out droves of buyers. In February, they purchased more than 600,000 homes, some 80% more than they bought in February 2007, according to CAR. And most of this activity is where prices are off 40% to 60% from their peaks.
In the Sun City area of Riverside County, for example, prices have fallen more than 35% over the past 12 months. Two-thirds of February's sales in the area were of foreclosed properties owned by banks, according to Chuck Whitehead, broker with Coldwell Banker Associated Brokers.
"The sales rebound is largely centered around areas that have experienced the biggest impact from the subprime crisis," said CAR chief economist Leslie Appleton-Young.
How low can home prices go in your city?In more stable communities, where fewer homes were saddled with toxic mortgages, prices have not crashed as badly and sales are rebounding more slowly. But foreclosures still account for a significant portion of sales, according to Phil Jones, a broker with Coldwell Banker Coastal Alliance in Long Beach.
Most analysts foresee continued price declines in California, according to Nicholas Retsinas, director of Harvard's Joint Center for Housing Studies. "But [there'll be] a slowing of that decline, which portends the end of price drops."
That may already be happening in Long Beach, according to Jones. The measure he uses to judge market trends there, price per square foot, turned up in February, growing 5% to $360.
"Every one of my agents is very busy," Jones said.
Investing 2.0Another positive sign that markets don't have much further to fall is that investors are returning to some markets.
"I spoke with one investor who is putting together a group of buyers and they're ready to get back into the market," said Jones. "They're planning to buy single-family homes in bulk."
John Dugan is one such investor. The San Francisco-based medical supplies salesman is using a portion of his Entrust Group-managed IRA to buy townhouses in the Sacramento area.
So far he's purchased three 840-square-foot, two-bedroom, one-bath duplexes. He paid just $35,000 to $80,000 a piece - down from their $180,000 to $200,000 selling prices a few years ago.
He paid cash for the first property and rents it out for $750 a month, a profit of $550 after dues and common charges. That's a 19% return on investment, without figuring on appreciation.
"This kind of pricing is something you only think of as Midwestern, not Californian," he said.
Supply droppingThe booming sales have whittled away existing home inventory to just six and a half months - down from 15 months a year ago.
"Typically, I would describe a normal market as having a six to seven month supply of homes," said Appleton-Young. "We have that now."
California's inventory now compares favorably with the rest of the nation, where there's a 9.7 month supply of homes on the market, according to the National Association of Realtors.
One wildcard, however, is that banks have kept many repossessed homes off the market. "Banks are spoon feeding them out very slowly so they don't overload the market," said Whitehead. But, he added, if they release a lot of properties during the heavy spring buying season, they "will be eaten right up by buyers."
Could the end be near?All of those factors add up to a more optimistic forecast for California, which is seen as a harbinger of things to come for the rest of the country.
Appleton-Young said that while home prices should continue to decline for the rest of 2009, she predicts that the pace of decline will slow. In total, she's predicting a total loss of 19% for the year. But, "I think we could see home price stabilization by early next year," she said.
If that happens in California, it could spread to the rest of the hard-hit Sun Belt markets - and beyond.
"California was the pace setter for lots of the mortgage products that went toxic," said Retsinas. "The sense is if the problems can be addressed there, the rest of the country will follow."
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