Thursday, January 19, 2006

Home Prices Decline For 4th Straight Month; Existing Home Sales Down 30%

Looks like Sacramento County is landing. From the Sacramento Bee:

Sales of existing homes in the capital region fell 30 percent in December compared with a year ago as Sacramento County's median sale price dipped for the fourth consecutive month, to $355,000, DataQuick Information Systems reported Thursday.

The median price also dipped 6 percent in Yolo County, to $410,000, compared with November.But the declines weren't widespread. Placer and El Dorado counties saw the median sales price of home rise in December, to $485,000 and $455,000, respectively. In fact, median prices across the four-county capital region remained 11 to 20 percent higher than one year ago.
I read somewhere that monthly declines are not considered meaningful until six months. We will see what the next two months bring. However, the Yolo 6% decline in median price seems quite steep for a one month period.

December also saw a drop of 17 percent from the previous month -- the biggest month-to-month drop in 2005 -- in the number of homes on the market -- a possible boost for sellers, who gain when fewer homes are on the market.

I discussed the inventory drop in a prior posting. The huge increase in December expired listings may explain some of that drop. The Sacramento Housing Bubble blog is showing that inventory in the region has increased by about 900 listings since the beginning of January.


Anonymous said...

Gee, it sure is getting cold in here.

Here are the king and queen of stupidity:

Two real estate "professionals" who paid $800,000 for a house in Broderick / West Sac, where the bullets fly nightly.

Gee, honey are those firecrackers that we are hearing?

Built on the boom: Realty feels a chill
Days of torrid buying, prices giving way to 'for sale' cycle
By Andrew LePage and Dale Kasler -- Bee Staff Writers
Published 2:15 am PST Sunday, December 18, 2005
Story appeared on Page A1 of The Bee
The day was sizzling hot. So was the market.
On a sun-scorched Saturday 18 months ago, hordes of people lined up for hours outside a sales trailer in a West Sacramento housing development called The Rivers. Their prize: stylish homes at $550,000 and up.

Now they're lining up to sell. The homes that sold in July 2004 have just been completed, and some owners want out. On one small street, Woodhaven Place, five buyers have put their properties on the market. Three have already dropped their asking prices.

"If I had known a year later that there would be a million homes listed, I might not have bought," said Lynette Wall, a real estate agent who helped her husband buy an $809,000 home on Woodhaven.
Now, facing a $6,000 monthly payment on a vacant house, they've put it up for sale. But there are no illusions about a big payoff; she says they're hoping to make "a little bit of money."

A wintry chill has descended on the Sacramento housing market. Sales have slowed, cancellations of new-home purchases have soared, and prices in some areas are edging downward - signaling the end of an epic housing boom that increased wealth, generated jobs and turned real estate into the healthiest sector of an otherwise sluggish economy.

Experts aren't sure how much the market will weaken, but most say the region is experiencing something beyond a seasonal lull. And it appears the area's troubles are worse than in most other parts of California.

"At the moment it is one of the weakest in the state," said economist G.U. Krueger of Irvine consulting firm Institutional Housing Partners. "I can't see anything that's weaker."

Still, most experts don't see Sacramento crashing. They predict a soft landing in which prices stagnate or decline modestly for a while, and then increase slightly over the next year or two.

But brisk sales and 25 percent annual price gains - fed by low interest rates, easy credit and a tide of Bay Area transplants - are over. Real estate agents now talk about the biggest inventory of unsold homes in a decade.

"For Sale" signs have doubled in the past six months. Cancellations of new-home purchases shot up 260 percent in the third quarter over last year, says Hanley Wood Market Intelligence.

Michael "Brick" Brickner, an agent with Lyon Real Estate in Sacramento, said he's "scared as hell" that a slew of homeowners will list their properties come January, figuring the new year is a better time to sell. If that happens, "it's going to be a lot more challenging to sell a house."

Some segments of the market are in tougher shape than others. West Sacramento and Lincoln, where construction and prices exploded, are among the most susceptible to price decline, experts say. Anything above $650,000, regardless of location, could see price slippage - the inventory in that range keeps growing, as builders continue to churn out high-end homes.

Rising mortgage rates, now above 6 percent, are a key reason why the market is slowing. In addition, banks are tightening their lending standards, especially on the riskier types of loans that helped fuel the boom.

"You can't buy as much house, it's not as easy to qualify and (lenders) are looking more carefully at borrowers and appraisals," said Vicky Henderson, a loan consultant at Vitek Mortgage Group in Sacramento.

Sacramento may be particularly vulnerable. Bay Area emigrants aren't snapping up Sacramento properties as quickly because it's taking them longer to sell their existing homes, said analyst Greg Paquin of the Gregory Group in Folsom.

Another issue: Investors are leaving. For the first nine months of the year, 16 percent of all sales in the area went to investors or speculators, one of the highest percentages in the nation, according to market researcher LoanPerformance Inc. Krueger says many investors, sensing the market has peaked, are cashing out of Sacramento and putting their money into less expensive markets in the Midwest and South.

"I felt there were just way too many investors out there, and everyone was talking about real estate," said Edwin Covarrubias, 35, a full-time Bay Area real estate investor who sold two Sacramento homes during the past year and is plowing his profits into duplexes in Texas.

He still owns rental property in Sacramento and plans to buy here again, possibly as early as next summer. By then, he figures, prices will have dropped as much as 10 percent.

Such expectations are making homebuyers pickier. After several years of bidding feverishly, Sacramentans are making offers below the asking price.

"I'm looking for a bargain," Rose Chan said recently as she and two friends toured new $900,000 homes in West Sacramento's Bridgeway Lakes development. Stopping in at Shea Homes' sales office for the Westport neighborhood, she was told she could receive $65,000 in builder "upgrades" and other incentives on a $948,000 home.

But Chan wasn't ready to bite.

"It's too early to buy," said Chan, an accountant who lives in Sacramento's Arden Park area.

The slowdown is ironic in one respect: Prices have risen so sharply, fewer Sacramentans are able to buy. Just one in five Sacramentans can afford a median-priced home, says the California Association of Realtors.

In the Sacramento resale market, sales volume fell nearly 20 percent in October from a year ago, said DataQuick Information Systems. The median price of a resale home in Sacramento County fell 2 percent to $363,000 in October from $372,000 in August, according to DataQuick.

Resale prices are still about 17 percent higher than a year ago. But until recently, the year-to-year gains were 25 percent, among the nation's highest.

As for new homes, prices could take a hit because builders keep building. "The new-home market is more volatile than the resale market because of builders' desire to meet their monthly sales quota," said John Burns, a real estate consultant in Irvine.

Sales of new homes in the area fell 49 percent in the September-through-November period compared with last year, according to the Building Industry Association, which tracks 55 percent of the market.

Builders are offering incentives worth thousands of dollars and are giving away upgrades - nicer kitchen counters, for example - ordered by previous buyers who backed out.

"None of us is saying, 'Ah, it's just seasonality and it will pick up in January,' " said Kevin Carson, president of the Sacramento division of John Laing Homes.

The slowdown could deprive Sacramento of its strongest economic engine the past few years. Construction accounted for 26 percent of the region's 147,400 new jobs the past 12 months.

Experts hope the rest of the job market will pick up the slack.

"I think we have enough fundamental strengths in our economy," said David Lyons, labor market consultant at the state Employment Development Department. "Technology's coming back. You know, Intel is quietly hiring."

But Stephen Levy, head of the Center for Continuing Study of the California Economy, said the slowdown will be felt statewide.

Though it won't be as severe as the early 1990s recession, "it will be a drag next year," he said.

And the dropoff in price appreciation will curb the "wealth effect" that's enabled homeowners to borrow against their equity to raise cash for new cars, home improvements and other goodies.

"It definitely worries me," said UCLA economist Ryan Ratcliff. "It's been sort of the life preserver ... of spending, nationally and locally."

Of course, this could be nothing more than a temporary lull. Last fall, for example, Orange County prices dropped below their May 2004 peak but bounced back early this year.

Sacramento may see a return to a "normal" market, said Jeff Culbertson, the regional head of Coldwell Banker.

"Normal is where people can make an educated decision," he said. What's not normal "is people lined up outside homes waiting to make purchases."

Not too long ago, it seemed normal to wait in line to buy a house. It was a sign of the boom, like hard hats and road graders: homebuyers queuing up at a new subdivision.

On a Saturday in July 2004, the line formed at The Rivers, outside a sales trailer operated by Sacramento homebuilder JTS Communities Inc.

Perched next to an old golf course just minutes from downtown Sacramento, the subdivision is one of several projects bringing high-end housing to West Sacramento.

On this day, 70 lots were being released. As the line of buyers lengthened, sales people passed out water bottles to the parched masses.

John McConnell, an Elk Grove building contractor, waited in line with his real estate agent and future wife, Lynette Wall. Hours later they got inside the trailer and he reserved a two-story, 3,100-square-foot home on Woodhaven Place. The price: $809,000, including an unexpected $85,000 "lot premium" for sites next to the golf course. But he wasn't complaining.

"At the time we all thought it was a fairly good deal," McConnell said.

An agent who works for Wall snapped up a property on Woodhaven, too. When the trailer closed, at 10 p.m., the lots were gone.

McConnell said he and Wall originally planned to live on Woodhaven. By the time construction was completed two months ago, they'd changed their minds. The purchase was now an investment - and a somewhat risky one at that.

They listed the property in early October for $885,000. Soon they dropped it to $880,000.

They need $860,000 to break even, Wall said, given the closing costs they paid, the $6,000 monthly mortgage payments and a 3 percent commission to the buyer's agent.

Complicating things: competition. Four other homebuyers on the two-block street are trying to sell, including Wall's agent. And the builder is offering discounts on four other Woodhaven homes it hasn't yet sold. All told, one-fourth of the street is for sale.

Wall has faith, but acknowledged she's getting uneasy.

"I knew it was going to have to slow down (but) I didn't think we would have so much inventory," Wall said. "I'm hoping somebody will offer me a fair deal that'll make me a little bit of money."

Anonymous said...

You'll be lucky if you don't go so underwater that you start singing the theme to "Jaws".