August 2004

Economic Update

June was a good month for California's real estate and construction markets. Home building rebounded while home sales maintained an impressive pace. The pattern was uneven, however, as Southern California enjoyed the strongest gains, while the San Francisco Bay area slowed sharply from last year's building pace.

• After slowing in April and May, home building came roaring back in June, rising nearly 12 percent from May's pace. Total residential construction authorized by permits reached 220,000 units on a seasonally adjusted-annual rate basis. Both single and multi-family construction made solid gains. The typically more volatile multi-family sector rose over 45 percent from May, while single-family construction grew 5.5 percent.
  
  
• During the first six months of 2004, home building activity was up 3.4 percent from the same months of 2003. Strong gains in Southern California have compensated for sharp reductions in the San Francisco Bay Area. The strongest year-over-year growth thus far in 2004 occurred in the Los Angeles-Long Beach-Glendale and Riverside-San Bernardino-Ontario metropolitan areas, growing 18 percent and 15 percent respectively from the same months in 2003.
  
  
• Nonresidential building also made strong gains in June-recovering from a May slowdown as well. Total nonresidential construction topped a seasonally adjusted-annual rate of $17.5 billion, for a 29.7-percent improvement over June 2003, as measured by the value of permits issued. This is the strongest building pace recorded since August 2001. Even though all building categories recorded robust year-over-year gains in June, strong growth in the construction of office buildings and stores accounted for most of the acceleration.
  
  
• The prospect of higher mortgage rates continued to push tentative homebuyers to take action in June. Sales of existing single-family homes totaled 633,670 units on a seasonally adjusted-annual rate basis, slightly better than May's sales pace. Overall, home sales during the first six months of 2004 are 7.4 percent better than the same months of 2003.
  
  
• Home prices continued to press upward, but the rate of appreciation appears to be moderating. The median price of existing single-family homes sold in June reached $469,170-more than 25 percent higher than the June 2003 median. On a month-to-month basis however, home price inflation has moderated dramatically and steadily since March when the median price shot up 8.5 percent. The median rose only 1.2 percent in June from the preceding month.
  
  
• Southern California is experiencing the fastest rising home prices. In the Los Angeles region, the median price of an existing, single-family detached home climbed 31.6 percent in June compared to the same month of 2003. During the same period, the median home price in the San Francisco Bay Area rose 14.5 percent.
  
  
• Led by rising home prices, California's home affordability rate to dropped to 19 percent in May (according to the California Association of Realtors). A year earlier, California's affordability index, which measures the percentage of households that can afford to purchase a median-priced home, was 27 percent. The national rate stood at 55 percent in May 2004.

Strong Commercial Building

Preliminary General Fund agency cash for July was $108 million above the 2004 Budget Act forecast of $4.245 billion.

• Personal income tax revenues in July were $6 million above the month's forecast of $2.45 billion. Withholding receipts, which were 5.1 percent above the year-ago level, were $41 million below the forecast of $2.251 billion. All other receipts were $51 million higher than the projected level of $359 million and refunds were $4 million above the estimate of $160 million.
  
  
• Sales and use tax receipts were $8 million above the month's forecast of $1.353 billion. July represents the final payment for second quarter taxable sales, which was due on July 31, and a portion of this payment is received in early August. A more complete picture of second quarter sales will be available in mid-August, when all of the second quarter receipts have been processed.
  
  
• Corporation tax revenues were $60 million above the month's forecast of $237 million. Prepayments, which were 28.4 percent above the July 2003 level, were $41 million above the forecast of $203 million. Final and other payments were $20 million below the projected levels of $130 million and refunds were $39 million less than the estimate of $96 million.
  
  
• Revenues from the insurance, estate, alcoholic beverage, and tobacco taxes came in $41 million above the $99 million that was expected, due in large part to the estate tax. The remaining revenues-pooled money interest income and "other" revenues-were $7 million below the month's estimate of $106 million.
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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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