As you prepare for the year ahead, it is important to revisit what transpired in the housing market in 2010 in order to help determine what can be anticipated in the coming year. It is evident that 2010 has been a year of transition toward stability in the housing market when looking at three main housing indicators: median price, sales and unsold inventory.

The state median price, at $296,820 in November, experienced its first year-over-year decline after 12 consecutive months of gains. With a 21 percent rise above the February 2009 trough of $245,230, the median price in California could be an indication of the beginning of stability in the housing market.

Year-to-date sales dropped 9.8 percent in November, consistent with our forecast of a 10 percent annual decrease. The seasonally adjusted sales in November were up 93 percent from the trough of 254,650 three years ago, and were 19 percent above the long run annual average over the past 39 years. Despite the year-to-date drop, sales figures are faring reasonably well when historical data is taken into consideration.

The unsold inventory index is a good indicator of home prices; when the housing supply falls below seven months, it usually leads to price appreciation. The November unsold inventory index was 6.2 months, indicating the length of time necessary to sell the entire, current housing supply. This figure is 13 percent below the long-run average of 7.1 months and 63 percent below the recent peak in January 2008 at 16.6 months. Because this index has maintained a relatively healthy range in 2010, between 4.6 and 6.6 months, it is another indication of the beginning of stability in the California housing market.

In addition to these three main housing indicators, it is necessary to also examine other factors affecting the state of the housing market, such as the type of sales, size of downpayments and types of mortgages.

By Carmen Hirciag

C.A.R.