(This guest post previously appeared at the author's blog)

CA housing is double-dipping right now. After surprisingly strong September through December sales due to the original Nov end date of the stimulus coupled with a sharp drop in mortgage rates in Sept, January and February CA sales have dropped sharply, both coming in below year-ago levels.

February’s 28,111 sales was slightly higher than Jan’s 27,585 but still made for the SECOND straight YoY lower sales comparable. And last Jan & Feb -- coming off of a rotten 2008 -- the global financial markets were imploding, QE was new, prices were still falling and sentiment was terrible. This year with sentiment measurably better across everything lower house sales is remarkable.

Yes, sales usually fall in Jan & Feb, but with rates and tax stimulus at historic levels and most thinking both will end soon, seasonality should be somewhat muted like from Sept to Dec.

Bottom Line - Despite rates being at record lows and stimulus ending soon, sales are not picking up like they did last year three months before the Nov end of the original stimulus. The stimulus driven market hand-off to a normal market has not occurred.

Organic sales -- me selling a house to you and the true gauge of the health of the housing market -- have stabilized at very low levels due to epidemic effective negative equity while foreclosure-resales languish due to the artificial lack of supply. In addition, median prices are again trending lower, as organic sales remain depressed and over the past couple of months, distressed sales have picked up slightly as a percentage of total sales.





In Feb, new Notices-of-Default outpaced sales by 10%, meaning the supply pool is filling quicker than it’s draining, and the mid-to-high end market continues to fall. Lastly, comps were easy in Jan and Feb and the tough comps begin in March through year-end -- the first two months of 2010 were only a taster.

We are running out of sellers and buyers quickly, as HAMP has kept distress inventory at extremely low levels relative to last year and epidemic effective negative equity -- not enough equity to sell (pay a Realtor and put a down payment on a new house) and re-buy -- has trapped 10s of millions in their houses across the nation.

Additionally, flip-resales that have provided a noticeable boost in sales counts due to double-counting will diminish in 2010 due to the heavy handed foreclosure prevention in 2009, providing a further drag that few are looking for.

What now? With foreclosures artificially depressed for the past year due to HAMP and other aggressive initiatives, houses that are most in demand are becoming scarce.

The only way for the 2010 sales pace to keep up with the 2009 stimulus and distress driven market is for foreclosures and short sales to flood the market. This is what the two primary buyer groups -- investors and first-timers -- want. If foreclosures do not begin to crank up right now -- or for some reason HAFA is not rolled out as it should be - house sales will disappoint for most of 2010 just like you are seeing now but worse as comps get tougher.

In fact, sales could outright collapse without abundant distressed inventory as investors and first timers do not make up a strong foundation and can literally turn it off overnight.

Yes, if distressed properties flood the market prices will be negatively effected but not like during 2007-2008 because sales will pick up. And prices are under pressure again anyway.