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Th e M Rep o RT | 57 O r i g i nat i O n s e r v i c i n g a na ly t i c s s e c O n da r y m a r k e t ANALYTICS Department LocaL eDition homebuilding has strengthened since dropping at the start of the year, much of the recovery has been in the multifamily segment. In a letter to clients, analysts for Wells Fargo's Economics Group said demand for new single-family homes will need to get more of a boost from stronger economic growth. "The number of quality jobs added so far in this recovery has been more supportive of apartment demand than single-family homes," the group said. Meanwhile, building permits for new construction were at a seasonally adjusted annual rate of 991,000, a 6.4-percent decline from April's revised rate of 1.06 million. While permits for single- family homebuilding were up 3.7 percent, that gain was more than offset by a 20.4-percent fall in multifamily issuance. Tuesday's release comes a day after the latest measure of builder confidence from the National Association of Home Builders (NAHB), which showed a pickup in sentiment as sales expectations improved. However, Wells Fargo's analysts have their doubts: "While the NAHB/Wells Fargo Home Builders' Market Index posted a solid 4-point gain in June, we do not expect conditions to materially improve that quickly." Weak year continues for california Californian home markets are inChing upward, priCing out median earners and Causing a slowdown. California // California home sales and prices were both on the rise in May, but the year as a whole still looks grim for the Golden State. Compared to April, May home sales statewide increased 3.5 percent, according to real estate website PropertyRadar. Compared to a year ago, May sales fell short 11.1 percent. PropertyRadar reports that year-to-date sales are the lowest they've been since the start of the recession. "What continues to surprise us month-after-month is that in the fifth year of a so-called recovery, year-to-date real estate sales are on track to be the lowest since 2007," said Madeline Schnapp, director of economic research at PropertyRadar. Schnapp blamed this year's weakness on government policies that caused supply constraints along with high demand from all-cash buyers, both of which have pushed prices in the state up beyond the reach of median income home- buyers in many areas. The median price of a California home in May was up 2.7 percent to $385,000, the highest it's been since December 2007. Driving the monthly increase was a shift in the balance of non-distressed to distressed sales. According to the company, higher-priced non-distressed properties accounted for nearly 81 percent of total sales during the month. In a state where only eight of the 26 largest counties are priced within a median income earner's means, the continuing upward trend presents a challenge. "Real estate prices continue to march higher on declining sales volume, which is an unhealthy combination," Schnapp said. "At some point you run out of buyers willing to pay these prices, setting the stage for a decline in sales volume, which we are already seeing, and later for the possibility of a price correction." At the same time, because the rise in prices stems from a market shift and not an underlying gain in home values, negative equity is still a major problem in the state, according to PropertyRadar. The site estimates 13.5 percent of homes in California remain underwater, above the national average of 12.4 percent reported by CoreLogic for the first quarter. ANALYTICS