Sacramento Market on the Rebound?

This blog often posts links to articles at the Sacramento Real Estate Blog (link also on right). John's posts often give a preview of trends that the Sacramento Bee reports later in the month. For the past few months, John's data has appeared quite negative for the Sacramento housing market, with reports of declining prices, sales, and increased expired to sold ratios. However, John recently reported that February's average sale price for Sacramento County increased by $4,000 and the median sale price increased by $2,500. The expired to sold ratio has also improved since the winter, although it is still up significantly compared with the prior year. On a less positive note, sales volume was down 35.6% from February last year, according to John's data. Inventory supply was at 7.4 months. Is this the start of a spring rebound?

Also upbeat in tone, the Sacramento Magazine had a lengthy article about the Sacramento housing market in its March issue. Some excerpts:

Buyers who haven't been getting much of a break in the past few years may indeed be out looking for bargains this spring. Depending on the price range, they could be in for a disappointment. Homes won't be appreciating at 20 to 25 percent a year as they have for the past three years, but prices aren't likely to plummet, either. In fact, when Mike Lyon, CEO of Lyon Real Estate, looks to the horizon, he sees respectable appreciation levels. "The crazy stuff is done," he says. "That's over. But under $500,000, you'll still get a nice appreciation-better than the stock market." Lyon agrees it's healthy for the market to slow down a bit.

"It's wonderful," he says. "As long as we have positive job growth in the Sacramento region, which compared to the Bay Area is pretty good, we are the game in Northern California. When you have job creation, you've got positive pressure on housing." Using numbers generated by Trendgraphix, which uses state and federal indices, Lyon says in 2006 many homes priced under $600,000 will continue to appreciate.

Above that number, things start to change. "The problem with above $600,000 is our income levels don't support that," Lyon says. "People are using equity to buy, and as rates go up, the equity isn't growing as quickly. So when you get into the upper end in some areas, especially in the foothills, I think those are subject to zero appreciation, and potentially negative as you get near or above $1 million. Between $600,000 and $1 million, it's questionable whether we will see appreciation [in 2006]. Over $1 million, I think there's a possibility of depreciation if we see interest rates get up to 7 percent..."

"I don't mind when people use the word 'bubble,'" says Singley, "but do I think we are in one now? No, I don't. And there are a lot of reasons why I think we are not. When the California Association of Realtors' chief economist, Leslie Appleton-Young, came to Sacramento in November, she gave us information about the market beginning at the national level, and then the state, and then about our own backyard, and she was very definite about the fact that we are not in a bubble. I had heard the term, but it's getting a little old. A soft landing is what [Appleton-Young] told us we would have, and I agree with her 100 percent."

Singley says that to find decreasing home prices, you'd have to look back to the early 1980s and the mid-'90s. "We had a huge drop-off in prices for reasons that don't exist now. We had horrible interest rates in the 1980s-I can remember 14 percent," she says. Singley also points to the job losses that resulted from base closures in the mid-'90s. "We don't have either of those conditions right now, and I don't think we are going to see them again..."

"The market goes up and levels off and then comes back again," he says. "It always bounces back. I think '06 is going to be as good a year as we've ever had. It doesn't look like they're going to do anything with interest rates, which keeps the market going good, and you've got people moving up and other people who are downsizing. And then there are people who are renting homes and looking at the taxes they pay and want to buy a house so they can get those income-tax write-offs. I think a lot of people will be getting out of rentals and buying houses" in 2006. Little does acknowledge that inventory is growing. "Six months ago, the sign hadn't gotten comfortable in the ground before you got your first offer," he says. "Things are taking a little longer now because there's more for buyers to choose from..."

Harry Duncan, president of Vitek Mortgage Group, based in Sacramento, agrees it's hard to make a call about long-term rates, but he's not afraid to say he doesn't see them moving up much this year. In fact, he says they might even come down a little bit during the second half of '06. "I think [activity] will pick up in the spring, and that we are looking at a soft landing," he says, adding that in his view, soaring house prices have been more of a drag on the market than interest rates. "Right now," he says, "I really don't think interest rates are having that much of an impact on the slowdown in the housing market. I believe it's really an issue of affordability." (It might be interesting, for example, to figure out if you could afford to buy a home on your street if you didn't have all that equity built up.)