Thursday, February 02, 2006

Now is the Time to "Stop the Bleeding"

The latest from Andrew LePage of the Sacramento Bee.

A month ago Jerry Wright figured a simple newspaper ad was all it would take to sell a 1,400-square-foot rental home he owns in Roseville for $359,000. Not many homes sell for less there. But he found barely a trickle of demand. "It's been very quiet," Wright said. "I've been getting very few phone calls." Last week Wright, a real estate agent, decided it was time to "stop the bleeding." He put a renter back in the home to cover his mortgage. When the market picks up, he'll consider selling again. When will that be? That's what everyone is trying to figure out.
Wait-I thought smaller, less expensive homes were still selling like hotcakes.
Until recently, home sales were on a blistering pace. But for the first time in years, a rapidly slowing market has left would-be buyers and sellers facing conflicting signals about what to do next. Buy now - or hope for a drop in prices? Try to sell now - or hope that demand bounces back in the spring?

"What's the right answer?" asked Pam Petterle, Prudential California Realty's regional manager. "It's a crapshoot out there. Nobody knows for sure."

Among those struggling to get a read on the market is Michelle Winkel, out browsing open houses in her Land Park neighborhood Sunday. She and her partner are torn between investing in stocks or a rental home. "We don't want to buy something now that could be quite a bit cheaper in a year," Winkel said.

Few areas appear as murky as the Sacramento region. Over the past six months, the four-county region has experienced one of the most dramatic slowdowns among large U.S. housing markets.

Sales of new homes in Sacramento, Placer, El Dorado and Yolo counties plunged 57 percent in the last three months of 2005, compared with both the previous quarter and fourth-quarter 2004, according to the Gregory Group, a Folsom-based industry research firm. Sales of existing homes in December fell 30 percent from a year ago, according to DataQuick Information Systems.

TrendGraphix, a local data firm, found the average time to sell a home was 48 days - the highest in four years.

The slower market, which builders and brokers say perked up a bit last month, has left home values stagnant since summer. "I've seen no rise (in values) except in a few areas," says Nolan Lum, a veteran local appraiser. That leaves agents, mortgage brokers and others struggling to craft plans for the spring. Many agents are encouraging would-be sellers to put their homes up for sale soon, arguing they need to beat the anticipated crush of competition.

Erin and Ron Steward will do just that. They tried to sell their Foothill Farms house in the fall, then took it off the market. They plan to re-list it later this month for $449,000, $40,000 less than their initial price.

"I think a lot more houses are going to come on the market in March," Erin Steward said. Others are holding off. They want to see a rebound before they throw up a "For Sale" sign. Prudential's Petterle doesn't think that's wise. She says new listings in the spring will compete with homes that have been for sale for up to six months - ones whose prices have been reduced multiple times. "Sellers waiting for spring may have to start a lot lower (in price) than they thought they would have to," she said.

One way for buyers and sellers to get a better gauge of the market is to first hit some open houses. "If you see eight people one weekend (at an open house) and then 15 the next, it doesn't take a brain surgeon" to figure out the trend, said Michael Lyon, head of Lyon Real Estate in Sacramento. Lyon and others figure that interest should pick up after Sunday's Super Bowl - and then really take off in March and April.

Scott Syphax, head of Sacramento-based Nehemiah Corp. of America, pioneer of a popular down payment assistance program, said first-time buyers should hold off until the warmer weather, when a trend likely will emerge. "If the market does what it has traditionally done - pick up steam - in the spring, then if you're interested in a house get into the market," Syphax said. "If it appears to be slow, then probably waiting a few more months will work to your favor."

...or a few years?

Most housing analysts expect modest, if any, price appreciation this year. In the new home market, where prices soared in recent years, many builders have either cut prices or offered incentives worth thousands of dollars. Jay and Grace Calman, Vallejo residents who've been shopping in new subdivisions here for months, said they've seen builder incentives worth up to $70,000. The couple, who are buying a $527,000, 2,200-square-foot home under construction in Elk Grove, got a $15,000 incentive from their builder. Jay Calman's advice to buyers: "Be patient and be willing to wheel and deal with them."
You can find more incentives here.
Incentives also are catching on in the resale market. Regina Luster, a state worker, has been trying to sell her 2,100-square-foot rental home in the Pocket since October for $559,000. She recently tried to sweeten the deal by offering to cover closing costs and lend a buyer enough to cover a 10 percent down payment. "It's an effort to let buyers know you're flexible - that you're trying to work with them and not just trying to take advantage of a market that no longer exists," Luster said.
How about a price cut?
There are some signs the gloom of the last few months may lift, though perhaps not enough to entirely halt the incentives. The region is adding jobs at a respectable clip, which historically has meant housing demand won't plummet. Another ingredient: Rates for 30-year mortgages now average around 6.1 percent - low in a historical context.
But how many of those jobs are tied to the real estate industry [Sacramento Housing Bubble blog]?

"There will be a pickup in demand in spring, just like there always is," said economist G.U. Krueger, who follows housing trends here for Institutional Housing Partners, an Irvine-based investment adviser. "Will the pickup go back to where it was last year? I don't think so," he said. "Will it come back up from the dismal state we were in during the winter? Yes, it will be much better than that."


hemorrhoidforhousing said...

It's always hard for the sellers to reconize when the market has turned. People are finally realizing paying 50% of the their take home pay to the house doesn't work. Reality is setting in, slowly but surely. Now things are going to get interesting.

Out at the peak said...

Everyone keeps talking about post-Super Bowl. I guess we'll find out soon!

Happy Renter said...

Superbowl is a little early. I bought into it to when that rumor first started but from what I gather the slaughter will begin in march/april. That's when the serious inventory will be dumped.
You can get last years history from pricing trends