California’s Unsold Inventory Index (UII), a closely watched index indicating the number of months needed to deplete the supply of homes on the market at the current sales rate, declined to 3.8 months in December, the lowest level in five years, according to the CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.). By comparison, the UII for existing, single-family homes stood at 5.6 months in December 2008.

Some economists believe that California’s housing inventory is artificially low because many
discretionary sellers—homeowners who do not have to sell their homes—are waiting on the
sidelines until home prices rise. Others believe there are more foreclosures to come, as
unemployment in the state continues to rise. However, C.A.R. predicts that foreclosures will
remain flat in 2010 compared with 2009, as lenders are listing properties for sale at a more
metered pace.

California’s housing market has shown signs of stabilization since early last year. Sales of
existing, single-family homes bottomed out in August 2007, and the median home price reached its trough in February 2009.

In December, the median price of an existing, single-family home rose to $306,820, an 8.4
percent rise year-over-year, the second consecutive year-over-year increase, and the 10th
straight month-over-month increase, according to C.A.R.’s December sales and price report.

With affordability near-historic highs, low interest rates, and home buyer tax credits, many
properties in California are receiving multiple offers and sparking bidding wars. Home buyers
who find themselves in bidding wars should work closely with their REALTOR® to ensure they are crafting realistic offers that are more likely to be accepted by the seller.