Recovery in California real estate market fuelled by tax incentives, experts suggest

The median property prices in the state in May was $278,000, a 9% increase from April, taking the annual increase to 20.9%, according to figures MDA DataQuick of San Diego.
 
In its latest report the company said it is not necessarily a rise in the actual valuation of homes that is pushing figures up, but more a continued shift in sales away from cheaper, inland areas of the state toward more coastal markets.
 
That shift is being driven partly by an increasing willingness of owners in pricier neighborhoods to sell at a lower price but mostly due to a surge of buyers rushing to close sales to take advantage of state and federal tax incentives, DataQuick said.
 
But it could be a false recovery. Experts fear that once the effects of the tax credits wane, sales and prices could slump again.
 
‘In the second half of the year, there’s obviously going to be less wind in the market’s sails, given the fading tax credits. A healthier job market and low mortgage rates will be key to driving demand,’ said MDA DataQuick President John Walsh.
 
‘Of course, you are going to see a slowdown; these programmes basically steal sales from the future. Now that may be a good policy option, but understand when you get to the future you are going to feel the effects of that. It’s just the nature of the beast,’ explained Christopher Thornberg, principal of Beacon Economics.
 
Federal credits of up to $8,000 for first time buyers and $6,500 for some current homeowners are available for that deals that were reached by April 30 and close by June 30, though Senate Democrats have moved to extend the closing deadline to the end of September.
 
Not all parts of California are experiencing a recovery, the data also shows. Sales rose in the four most expensive counties, led by a 28% gain in Santa Clara. They climbed 24% in San Mateo and San Francisco and 20% in Marin. Transactions increased 8.l% in Alameda, 5% in Napa and 0.6% in Contra Costa. Solano and Sonoma had sales declines of 7.6% and 4.9%, respectively.
 
Median prices climbed in eight of the nine counties, up 25% to $293,750 in Contra Costa, up 18% to $525,000 in Santa Clara and up 18% to $390,000 in Alameda. Solano saw a 16% rise to $219,000.
 
Prices rose 11% to $335,000 in Sonoma, 10% to $605,000 in San Mateo, 9% to $675,500 in Marin, and 0.4% to $636,500 in San Francisco. Napa showed the only decline, falling 5.4% to $350,000, the MDA DataQuick report also showed.