Economic Update

California's real estate markets have evened out in recent months. The red-hot price gains achieved early in the year have given way to relative stability. The state's median home price appears to have reached a plateau around $465,000. The pace of home sales remains strong but has also leveled off. Both developments will be welcome news for the state's home affordability.

California's industry employment rose 8,700 in November, the state's fourth consecutive monthly gain. Even though it was considerably less than the 42,400 job gain in October, the four-month total gain was 63,700. On a year-over-year basis, nonfarm employment in October was up nearly 146,900, or 1.0 percent.
November's job gains were led by Information, which added 7,200 jobs. Construction gained 5,400 jobs; Trade, Transportation and Utilities, 4,300; Educational and Health Services, 1,600 jobs; Financial Activities, 1,300; and Leisure and Hospitality, 1000. Losing industry sectors were led, unusually, by Professional and Business Services, which dropped 5,800 jobs. Government lost 4,400 jobs; Other Services, 900; Manufacturing, 700; and Natural Resources and Mining, 300.
Over the last 12 months, industry employment rose by 65,500 in Professional and Business Services; 35,500 in Construction; 23,900 in Trade, Transportation and Utilities; 21,700 in Leisure and Hospitality; 20,800 in Educational and Health Services; 8,500 in Financial Activities; and 1,200 in Manufacturing. Employment fell by 22,200 in Government; 3,800 in Other Services; 3,600 in Information; and 600 in Natural Resources and Mining.
After accelerating for three months in a row, home building slowed sharply in October. Permits were issued for 173,000 residential units on a seasonally adjusted annual rate basis. This is the slowest pace since December 2002, and a 24-percent slowdown from September. The deceleration was spread evenly across both single-family and multi-family sectors.
California's real estate markets appear to have transitioned to a calmer, yet more sustainable, environment. Much of the dramatic pick-up in home prices and sales occurred in the midst of 2003 or in the early months of 2004. For the most part, real estate markets have been much more stable recently. While on a year-over-year basis home prices are up more than 20 percent, month-to-month gains since April have averaged barely 3 percent on an annualized basis. The pace of home sales accelerated over 7 percent during the first six months of 2004, compared to the same months of 2003. However, they have actually slowed from their year-ago pace during the most recent four months.
The pace of home sales in California increased modestly in October. Existing single-family home sales reached a seasonally adjusted annualized rate of 639,570 units, a 2-percent acceleration from September. The California Association of Realtors' Unsold Inventory Index—the number of months needed to deplete the supply of homes on the market at the current sales rate—was 3.7 months in October. It stood at 2.1 months in October 2003.
Home prices dropped for the second consecutive month in October, staying within the narrow range they have been in since May. Residential price inflation is still running strong in several regions, but it is balanced by flat or softening prices in many other areas. The median price of existing single-family homes sold dropped to $460,370, a 0.7 percent decline from September.

Home Prices & Sales Flatten Out

Monthly Cash Report

Preliminary General Fund agency cash for November was $30 million below the 2004 Budget Act forecast of $5.463 billion. Year-to-date, revenues are $1.045 billion above expectations. .

Personal income tax revenues were $66 million above the month’s forecast of $2.286 billion. Withholding was $77 million above the estimate of $2.262 billion, 24.4 percent above the year-ago level. Other receipts were $77 million above the $298 million estimate. These gains were partially offset by refunds, which came in $88 million higher than the forecast of $274 million. Year-to-date collections are $356 million above forecast.
Sales and use tax receipts were $23 million below the month’s forecast of $2.668 billion. November cash includes the final payment for third quarter sales, as well as the first prepayment for fourth quarter sales. Through November, the sales tax is $10 million below the forecast of $10.143 billion.
Corporation tax revenues were $51 million below the month’s forecast of -$50 million. November receipts are often negative due to refunds exceeding payments. Other payments, primarily audit and settlement moneys, were $8 million above the estimate of $97 million. However, prepayments and refunds combined to more than offset the small gain in other payments. Prepayments were $18 million below the estimate of $123 million and refunds were $41 million above the estimate of $270 million. Although refunds were greater than expected, this may just be a cash flow effect. Refunds could have been accelerated from December, which is typically the largest month for this component.
To date, this tax is up $556 million from forecast.Revenues from the insurance, estate, alcoholic beverage, and tobacco taxes came in $10 million above the $79 million that was expected, due to strength in the estate tax. The remaining revenues—pooled money interest income and “other” revenues—were $32 million below the month's estimate of $480 million, due to lower-than-expected "other" revenues. .

General Fund Agency Cash
2004-05 Budget Act Forecast

2004-05 Comparison of Actual and Forecast
Agency General Fund Revenues

For more information, please contact the California Department of Finance,
Room 1145, State Capitol, Sacramento, CA or call (916) 323-0648.

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