The inventory of California homes shrunk to a 5-year low in December, dropping to 50 days from 243 a year ago, according to estimates by the California Association of REALTORS®.

Because California’s housing market is the largest in the country, economists watch it closely as a predictor of where the rest of the country is going.

Continuing recovery will depend on the state’s ability to overcome its 12.4 unemployment rate.

“I’m convinced that once the general public believes prices have bottomed out and are coming up, more people will put their homes on the market,” says Andrew LePage, an analyst at MDA DataQuick, a provider of housing data. “And that will probably coincide with the economy and job market improving.”

Meanwhile practitioners are finding the market frustrating.

“Right now, we need more listings,” says Lianne Pinkston, a Coldwell Banker associate in Morgan Hill, Calif., south of San Jose. “I have an all-cash investor, and they’ve wanted to buy a duplex or four-plex, and they’ve been making all-cash offers for over the asking price, and they’re still not getting anything.”

Source: The Wall Street Journal, Jim Carlton (01/23/2010)