The market has benefited over the past two years from the lowest mortgage rates in more than a generation, according to C.A.R. economists. Moreover, strong demand relative to supply has contributed to significant increases in the median price as the state's population has grown by 600,000 people per year, while new home production has fallen short of statewide household growth by at least 40,000 units for the past several years. Repeat homebuyers, who accounted for 70 percent of home sales in 2003, have increasingly dominated the residential real estate market, according to the report. Their market share has climbed steadily since the mid-1990s, when repeat buyers represented 50 percent of all homebuyers.

Across the state, inventory levels have been at record or near-record lows for most of the past two years, ranging between two and three and one-half months since early 2002. Time on market has ratcheted downward for eight consecutive years, and now stands at just two weeks, while the median price discount - the difference between list and sale price - was at 0.9 percent - the sixth consecutive year when the discount has been below 2 percent.

Favorable mortgage rates kept housing affordability from deteriorating throughout 2002

and the first half of 2003 despite strong price appreciation over that period. Over that time interval, the C.A.R. Housing Affordability Index hovered in the range of 30 percent, meaning that 30 percent of California households could afford to buy the median-priced home. Once mortgage rates bottomed out in mid-2003, affordability dropped below 25 percent for the first time in over a dozen years, raising concerns about access to homeownership on the part of first-time homebuying households.