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Based on an analysis of early 2010 housing data, the U.S. real estate market showed clear signs of softening, with mixed pricing signals and a decline in sales volume pointing toward a potential second dip in home values. Key trends included stronger performance in Southern California, intense competition for lower-priced homes, and a noticeable shift in buyer demand from foreclosures to short sales. While government tax credits provided a temporary boost, rising interest rates and high unemployment continued to pose significant challenges to a full market recovery.
In January 2010, national home price data revealed a significant loss of momentum. After adjusting for seasonal patterns, prices were essentially flat, increasing just 0.3% from December 2009 and falling 0.7% compared to January of the previous year. This stagnation led many analysts to forecast a further price decline for the spring. The market was notably regional, with Los Angeles seeing a 1.8% monthly increase, while cities like Chicago and Seattle experienced the most significant drops. Since the market peak in May 2006, U.S. home prices had fallen by an average of 29%. Other reports, such as one from the Federal Housing Finance Agency (FHFA), indicated a 0.6% price decline in January, though this may have reflected a shift in sales toward less expensive properties rather than a drop in value for individual homes.
Sales volume declined nationally but showed resilience in specific markets. According to the National Association of Realtors (NAR), existing home sales decreased by 0.6% from January to February 2010, while inventory rose by 9.5%. In contrast, California saw a 0.9% increase in sales, driven entirely by massive volume in the Southern California low-end market. This created intense competition. For example, based on our experience assessment, 95% of offers made on Bay Area homes under $500,000 faced competing bids. Nationally, competition remained strong for entry-level homes but softened slightly overall, with 57% of offers facing competition in March compared to over 60% during the winter.
Two major tax credits influenced buyer behavior. The federal First-Time Homebuyer Tax Credit, offering up to $8,000, was set to expire for purchases closed by June 30, 2010, which was expected to create a small surge in sales. Meanwhile, California approved a new state-level credit of $10,000 for homebuyers, effective May 1, 2010, applicable to both new and existing homes. Additionally, federal programs that subsidized and streamlined the short sale process prompted a shift in buyer demand. In a short sale, the homeowner sells the property for less than the mortgage balance, requiring bank approval. With banks like Wells Fargo improving their approval timelines, short sales became a more accessible alternative to foreclosures.
Buyer interest was shifting from foreclosures to short sales. One reason was a simple reduction in available foreclosure inventory; foreclosure-related filings decreased by 2% in February 2010. In California, foreclosures made up 44% of existing home sales, down from 59% a year prior. This decline in foreclosure supply was a positive long-term trend for price stabilization. The growing preference for short sales was also aided by more efficient bank approval processes, making them a more predictable option for buyers seeking a deal.
For potential buyers and sellers in a fluctuating market, the key takeaways are:
