California is one of five states with the most “negative equity” in its home market, according to a report by CoreLogic Inc.

The Santa Ana business (NYSE: CLGX) said 33 percent of residential properties with mortgages in the Golden State were “underwater,” meaning the property is worth less than is owed on the loan. The figures are for the end of the second quarter.

That works out to 2.26 million underwater properties in the state. Another 286,000 homes were “near negative equity.”

Total outstanding mortgage debt in California was $2.03 trillion at the end of the second quarter, according to the report.

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But with statistics, context is everything, and these articles show a fundamental lack of understanding of current context and specifically what’s going on in SF.

The first chart below is of the last 2 years’ home sales in SF. July 2010 is indeed well below May 2010, as well as well below July 09 and July 08. However, this is almost completely a function of the fact that deals that would have naturally and typically accepted offers (ratified) in May 2010 were rushed into April so as to meet the Federal Tax Credit deadline. Because of that crush of April ratifications, closed sales in May and June soared way over the sales rate of past years, AND May ratifications this year were much lower than normal. Typically May is one of the highest ratification months of the year; low May ratifications translated to lower July closings. Typically, July is one of the highest closed sales months because of the high May ratifications. With the unusual events this year, the numbers were thrown off – which created the dramatic percentage declines everyone is chattering on about.

Remember: closed sales are 30 – 60 days behind the market (the time of offers being accepted). To get a sense of current market activity, one looks atratifications, as in the second chart below.

In the third chart below, the Months’ Supply of Inventory for SF  houses and condos is shown over the past 2 years. MSI, at a moderately low 3.8 months of inventory, hasn’t budged in three months – again one can see the effect of the April tax credit rush on the chart — and it is almost exactly the same as in July 08 and July 09.  (The lower the MSI, the hotter the market.)

Closed Home Sales in SF over the past 25 Months:

Below, we see the huge surge of ratifications in April which (stealing normal early May ratifications) led to the large decline in May. Thus May’s number of accepted offers is below past years. But June 2010 ratifications are above last year’s. And July’s ratifications are above July 2009 and July 2008. That is not an indication of a collapsing market. Yes, the market surged in April due to the expiring tax credit, but except for the initial effect on May ratifications (and the resulting effect on July closings), the expiring tax credit hasn’t affected June and July ratifications at all.

Accepted Offers on SF Homes over the past 25 Months:

Since the SF home market started recovering in spring 2009 from the “crash” of autumn 2008, Months’ Supply of Inventory has been very stable, delineating a relatively stable market, running typically between 3 to 4 months of inventory. This is generally considered a moderately low MSI, signifying a relatively strong and consistent buyer demand. Again, it is unchanged for three months, and almost identical to the MSI recorded one year ago and two years ago.

Months’ Supply of Inventory: San Francisco Houses & Condos

Bay Area home values experienced moderate increases over the past year, but it was a scattered revival as values still slumped in about a third of the region’s ZIP codes, according to a real estate report being released today.

Overall Bay Area home values in the second quarter rose 4.1 percent compared with the same period last year, hitting a median of about $497,000, roughly back to the level of late 2003, according to real-estate valuation service Zillow.com. By comparison, the national median fell 3.2 percent year over year, Zillow said.

“The Bay Area is doing a lot better than the rest of the country now,” said Stan Humphries, Zillow chief economist. “It has stabilized tremendously, and we’re seeing some robust housing appreciation. Still, the dynamics of the market remain very challenging because of larger macro-economic headwinds.”

Negative equity remains high, with about 20 percent of all debtors of mortgaged homes in the region underwater – owing more on their homes than the homes are worth. That’s better than last year, when about 30 percent were underwater, but still a worrisome number.

Pressure on prices

Inventory levels are starting to increase as more “sideline sellers” no longer can wait and put their homes on the market. A big influx of that pent-up supply could drive down prices again.

Foreclosure sales are down from their peak, but still high, another factor that depresses prices. Almost a quarter (23.6 percent) of homes sold in the nine-county region in the second quarter were foreclosures being unloaded by banks. Nationally, foreclosure sales were 16.9 percent of all sales.

Of the region’s non-foreclosure sales during the quarter, 31.3 percent were homes that sold at a loss.

“That’s a very compelling metric and gives some sense of the amount of pain that’s out there at the household level,” Humphries said.

Christopher Thornberg, principal at Los Angeles consulting firm Beacon Economics, said he thinks rising home prices are a direct result of historically low interest rates, with a little extra fuel from both federal and state tax incentives for home buyers…Read more.

Here is another link to a table that shows the sales activity for last year, by zipcode, for the cities of the Bay Area.

Credit: Michael Macor / The Chronicle

Bay Area home sales slumped by almost 23 percent last month compared with last year as the federal home buyer tax credit expired and buyers stayed on the sidelines despite record-low interest rates, according to a real estate report released Thursday.

“It was a significant drop,” said Andrew LePage, an analyst with MDA DataQuick, the San Diego real estate service that released the report. “It was to be expected (after the tax credit expired), but no one knew the magnitude. For seasonal reasons, you normally see a bit of a drop from June to July, but this was triple that.”

A total of 6,773 homes, including existing homes, condos and new homes, changed hands in the nine-county region in July, DataQuick said. That was a 22.8 percent decline from the same time last year and represented the lowest July sales volume in 15 years. For existing single-family homes, sales were down 22.5 percent to 5,104 homes.

The median price edged up as more high-end homes changed hands. For existing homes, it rose 5.9 percent to $432,500. For all homes, it was up 1.8 percent to $402,000. The median is skewed by the mixture of homes sold.

Real estate agents say that inventory – the number of homes for sale – is clearly on the rise, even as demand is dropping.

“Alameda and Contra Costa (counties) have almost doubled our inventory since December,” said Glen Bell of Keller Williams Realty in Berkeley. “Normally you get an increase of maybe 20 percent or 30 percent from the end of the year through the early summer, but I’ve never seen this kind of increase.”

In December, those counties had 1.7 months’ worth of homes for sale; in July they had a 3.5-month supply. (That represents how long it would take to sell all the homes on the market at the current sales rate.) While that’s still below the historic average of five months’ supply, “the trend is clearly swinging to more inventory,” Bell said…Read more.