The California residential real estate market in 2005 will be one for the record books, eclipsing the annual sales and median home price records set in 2004, according to the California Association of Realtors® (C.A.R.).

Sales of detached, existing single-family homes are expected to have reached 635,000 in 2005, an increase of 1.8 percent over last year's record sales of 624,700. Sales are anticipated to decline by 2 percent in 2006.

2005 will be a record year for home prices. The median price of a single-family home in California crossed the $500,000 threshold for the first time in April 2005. The annual median is expected to have reached $523,150 in 2005 and increase 10 percent to $573,500 in 2006.

The median price of a single-family home increased by double-digits for the fourth consecutive year in 2005, though the pace of price appreciation slowed from the 18 to 21 percent annual gains of the previous three years to 16 percent in 2005.

C.A.R.'s Unsold Inventory Index averaged 3.3 months in 2005. Inventory levels are expected to rise moderately in 2006, but will remain low by historic standards, fueling continued price appreciation in the California market.

The interest rate for a fixed-rate mortgage (FRM) remained below 6 percent for much of 2005, only surpassing 6 percent in the last months of the year. For all of 2005, the FRM averaged 5.8 percent. In 2006, the interest rate for the FRM is projected to increase but remain low by historic standards in the low- to mid-6 percent range.

The interest rate for a one-year adjustable-rate mortgage (ARM) averaged 4.5 percent in 2005, finishing just over 5 percent at year-end. The interest rate for the one-year ARM is expected to remain within the low- to mid-5 percent range during 2006.

With home prices reaching record levels, more homebuyers extended themselves financially in 2005 by utilizing alternative loan products. The share of homebuyers who used adjustable-rate and hybrid loans increased from 11 percent in 2003 to 43 percent in 2005, while the share of fixed-rate loans dropped from 89 percent in 2003 to 57 percent in 2005. The last time more than 40 percent of homebuyers used adjustable-rate loans was in 1994.

Fannie Mae and Freddie Mac increased the single-family conforming mortgage loan limit from $359,650 in 2005 to $417,000 in 2006, which could benefit more than 28,590 families in California. However, the increase in the loan limit is still far too low to benefit most homebuyers in California, as the median price of a home in California is 29 percent higher than the new loan limits. Nineteen counties in California have a median home price above the new limit.

Internet use by homebuyers and sellers continued to climb in 2005. Based on C.A.R.'s "Internet Versus Traditional Buyers Survey," the percentage of homebuyers using the Internet increased from 56 percent in 2004 to 62 percent in 2005. The share of sellers who used the Internet in their homeselling process surpassed 50 percent for the first time, rising from 47 percent in 2004 to 57 percent in 2005, according to C.A.R.'s "Survey of California Home Sellers."