Tuesday, June 20, 2006

SacBee/Real Estate Pundits: Don't Worry, Be Happy!

Care for a drink?

I suppose its progress (from a skeptic's point of view) when the current market is being compared to the last housing bust. We're no longer in a "housing boom," Toto.
No panic on housing slowdown
The conditions are much more favorable for a rebound than in the 1990s bust, experts say.

In October 1990, local real estate leader Michael Lyon heard a sound he has never forgotten. It was the silence of phones that had abruptly stopped ringing. Sacramento's sizzling 1980s housing boom was over, and the 1990s bust had begun. When it finally ended, it set records for the number of homes for sale, and flattened prices in Sacramento and Yolo counties for eight years. "It was ugly," said Lyon, head of Lyon Real Estate.

The region's housing market is stalling again. After an even more remarkable seven-year housing boom, the slowdown is driving up resale inventory and triggering speculation about an uncertain future. But this sagging market isn't much like the 1990s version.
Absolutely correct. Some say it is has the potential to be much worse given that this recent boom was "more remarkable" than the 80's one.
Some analysts say the reasons help explain why the present downturn may be shorter and less severe. The differences between that market and this one? "We are having job growth. We are having population growth. We're still having in-migration from the Bay Area," said John Schleimer, a Roseville-based consultant for the home-building industry.

But there's one big problem. "The prices got too high," he said. "When we cracked $500,000 for the median, we outstripped the ability of peoples' incomes to pay." Sacramento's 1990s real estate bust was marked not by impossible prices but by a lethal convergence of negatives: a statewide recession, local military base closings, job losses and higher costs of borrowing...

The result: From June 1991 to October 1997, the collective median price for existing homes in El Dorado, Placer, Sacramento and Yolo counties bounced up and down before resuming steady, dependable appreciation. The story was worse in individual counties. Sacramento County's $132,000 median home value in 1991 slid to $111,250 by 1997, then crept up to $131,000 in mid-1999, according to La Jolla-based property researcher DataQuick. Likewise, Yolo County's median value of $159,500 in 1991 took until 1999 to reach $160,000. Median is the point where half cost more and half less.
Wait. I thought real estate prices never go down.
"I bought in '95. Boy am I glad," said David Lyons, who analyzes the Sacramento job market for the California Employment Development Department. "I never fathomed we'd see the prices we see now." Wassmer also bought an east Sacramento home in 1995, "at the (price) trough," as he recalls it. He remembers the owner owed money to the bank after selling. "To get rid of his house he had to pay money. That's how it was then," Wassmer said.

Amid the capital region's job losses and the stagnation in its home values and population growth, the number of "For Sale" signs peaked at 13,507 in April 1992, a record that still stands. At the time it totaled about 2.5 percent of the region's residential units.

That same percentage today would mean 19,000 homes for sale, when adjusted for the 210,000 new dwelling units built since 1992, according to the Construction Industry Research Board. At last count, slightly more than 13,000 "For Sale" signs graced the region, according to TrendGraphix, a division of Lyon Real Estate based in Sacramento.

Even with so many homes for sale, the publicly traded home builders that now dominate the Sacramento market say their industry reacts faster to oversupply than a decade ago. "In the 1990s the market was driven by private builders, and they took longer to correct," said Doug Pautsch, president of the Sacramento division for Dallas-based Centex Homes.

The region's jobless picture also is different. March 1993 unemployment ranged from 7.8 percent in Sacramento County to 8.9 percent in El Dorado County. Last month it was 4.2 percent in the four-county region, according to figures released last week by the state EDD.

Senior economist Christopher Thornberg of the UCLA Anderson Forecast said it's not unusual for a strong economy to coexist with a weak housing market. Indeed, he said a strong economy signals home values could hold steady without rising "for five or six years."

That's contrary to the quicker turnaround many are predicting for Sacramento.

"People don't move when the economy is growing," Thornberg said. "They hunker down and pay their mortgage so you see fewer transactions...As long as people stay in their homes, it takes longer to work off the inventory and longer for prices to converge with the fundamental price."

But in a critical difference from the 1990s, a sizable majority of borrowers now use riskier adjustable rate mortgages. In March, nearly 68 percent of home buyers used financing where monthly payments can rise with hikes in interest rates. Statistics show that more people are falling behind on payments, the first step in having their homes repossessed. Many believe that's Sacramento's weak spot -- its potential for a wave of foreclosure sales that could flood the market and depress property values regionwide.

Yet economists like Wassmer and consultants like Schleimer say they doubt Sacramento will see a 1990s-level slowdown. Even as a new report by Global Insight and National City Corp. suggests the market remains 53 percent overvalued, their counterpoint is the region's strong economic fundamentals.

"We have two, if not four, slow quarters ahead, then we'll start to see some improvements in the market," Schleimer said. "We've seen the market soften on price, but that was bound to happen," added the EDD's Lyons. "I'm not convinced we're going to see anything more than a correction in the market."


norcal ray said...

Excuse me experts in the article but I think you guys will be proven wrong with your soft landing

Please review your history books on the RE market in Calif the last 30 years and you will see a big RE downturn every decade: 70, 80, 90's. Does not matter how prices got too high each time, each time the market fell hard for different reasons but usually there was a recession. Don't expect a soft landing this time.

doug_rwc said...

Good site. During the early 1990s recession, total civilian employment slipped by only 6,000 jobs out of 714,000. Number of job losses due to the shut down of bases - don't know. However, not surprisingly, job losses were concentrated in construction, which saw a 26% drop in two years and realtors which saw a drop of 10% after 5 years. Not insignificant, but not the doom and gloom, either. If the percentage drops in construction and related employment mirror the early 90's recession, you can expect about 20,000 real estate and construction job losses, which would bump the local unemployment rate up by 2%.

Other job growth offset the loss in construction, so the net loss in jobs was only 6,000. A good site for historic data on employment is

Anyone know of a good site for housing starts?

James said...

Cars and real estate are newspapers' number one source of ad revenue. Musta been a phone call to the Ed. from developers, 'help us out here with a puff piece, will ya?'

Max said...

All of a sudden, the Bee started throwing around 19,000 listings as an equivalent to the 13,500 record in 1992, based on the number of houses in the region now vs then. I think their timing is suspect since we’re going to hit the population adjusted record of 17,900 real soon.

Anything to avoid calling it "record inventory". :)


tom stone said...

all of the "soft landing " require assumptions that are unrealistic,to say the least.does anyone really think that the loan resets won't cause massive problems? if you put the average of 2% down,and qualified at last years rates with a stated income loan,how are you going to qualify at this years rates? especially if the home value has dropped at all.and it won't affect the economy significantly? give me a freaking break.

Gwynster said...

I started to track the local numbers for myself on my blog. Everyone in Davis has been saying that it can't happen here because Davis is special yada yada yada.

Davis housing numbers from Zip Realty:

Single Family Homes 215
With reduced prices 110
Percentage 51%

Condominiums 34
With reduced prices 14
Percentage 41%

Desparate pick of the day: MLS# 60064527
633 A ST, Davis, CA 95616
Listed 6/09/06 for $775,000
Reduced to $750,000 on 6/19/06

Max said...

I've got a better one than that:

MLS# 60028144
510 E St
Davis, CA 95616

Price: $749,000
Beds: 4 Baths: 3
Size: 1679 Square Feet

Down 9.7% from $829,000 On 04-15
Down 6.3% from $799,000 On 04-21
Down 2.5% from $768,000 On 05-04

Anonymous said...

What is all that hissing that I hear?

Welcome to South Elk Grove home of the slow market, houses overpriced 50%, high gas prices, wannabe middle class buyers on goofball no doc interest only flexible pay mortgages and no decent paying jobs in this south area slum to be.

You want to see UGLY?

Go to the following link:


496 houses in preforclosure in Elk Grove up from 231 homes in the middle of May.