Monday, July 10, 2006

Sacramento "Market Slide Was So Sudden"

From a broker's press release:

Northern California home sellers suddenly face liquidity issues in a falling real estate market...In Sacramento, Placer and Eldorado Counties we see about ninety to one hundred net pending sales per day against an average of about two hundred and fifty to three hundred new listings. On average, there are greater than three hundred daily property price reductions, and for the last few days that number has eclipsed four hundred.

Why is this important? Had one religiously followed the daily real estate market activity over the course of the last two years, and fully understood what they were following, it would have been possible to anticipate a market correction. If one's belief was strong enough they could have sold the market short, at the very least they could have liquidated at the top of this market cycle.

But what does one do now if they need to sell, and they are one of the fifteen thousand strong that have listed their property for sale with a Broker? Do not despair; first understand that many of the listings that you as a seller will be competing against have been listed too high for the present market conditions. This is evidenced by the fact that on average there are greater than three hundred daily downward price adjustments as previously mentioned. Moreover, the actual market slide was so sudden that it would be hard for many to comprehend what happened and to adjust to the new real estate environment...

The Central Valley is the enigma, and in contrast to forecasted gains anticipated in other areas of the state, the market has sharply declined, essentially wiping out two years of gains. Thus the reality is that whether we like it or not, the Central Valley's real estate market is faced with some real liquidity issues. Even though the decline in prices is not reflected in the published median price statistics, the decline really exists. As a result of the liquidity issues it will take some time to be a realized decline, versus today's wholesale markdown in prices, or unrealized decline.

22 comments:

Max said...

This totally agrees with what I've been seeing. Pending sales as a percent of market has been declining steadily since May. The cause is still up for debate, however. I haven’t seen any published reports that mention tighter lending standards, and consumer spending is still strong. I really could just be that demand (aka investors) has gone elsewhere (Seattle and Boise).

Happy Renter said...

I for one am totally shocked and never saw it coming. God help us all.

smoggiebakersfield said...

"Max said...
This totally agrees with what I've been seeing. Pending sales as a percent of market has been declining steadily since May. The cause is still up for debate, however. I haven’t seen any published reports that mention tighter lending standards, and consumer spending is still strong. I really could just be that demand (aka investors) has gone elsewhere (Seattle and Boise)."

Why would demand by investers decline in Nothern California.
As we all know California is the hottest market in the nation, Florida may be inline? In some areas of California home appreciation
rates have risen 330% plus in five years. My question is how can anyone whether, "investors", first time home buyer's or the person relocating can afford to buy in today's market? Today's prices coupled with higher interest rates leads to a melting market. This market is far from being normal.

Anonymous said...

No spectulator...lots of inventory. No liquidity or easy money...lots more inventory. When the 1% adjustables reset over the next 2 years...more inventory at distressed prices. The first time buyer is basically out of the market because prices are out of reach...add more inventory. That leaves people transferring in, baby boomers, and move up buyers. Without the first time buyer and a reasonable number of speculators, this represents nothing like a normal market. "Yesterday's prices" won't sell homes and buyers are astute enough to know when they are in the driver's seat. This might take several years to shake out and prices could slip well below 2002 levels. Markets tend to over correct and there will be an excellent time to buy...when is a big ?. Pray the economy holds because if it slows down keys will be under the mat and California goes net negative on population growth.

Anonymous said...

For those prospective renters out there...keep in mind that many speculators who got cheap negative am and adjustable rate mortgages are now renting their homes. Once the resets start these landlords could be upside down to the point of losing their investment. If you are a renter under these conditions and your landlord bellies up, you are at risk. You might want to inquire what type of financing is on the property before you rent.

Martin said...

"the market has sharply declined, essentially wiping out two years of gains."

I would be interested to see actual numbers to support that statement of fact, and if the facts do not support the statement, then what does that say about the author?

Anonymous said...

CAN'T BE TRUE
"wiping out 2 years of gains" At this point that simply can't be true without it showing up in the hard data. Losing 2 years of gains means that a house listing at $400K two months ago is now listing below $300K and there's little evidence of that. Keep your cool. Prices may decline that much over time but its not going to happen over night and its not goign to happen without some clear negative changes in the median price data.

tom stone said...

lending standards are still breathtaking...to anyone who has an appreciation of risk.the rates have risen enough that many are priced out,and more than one year,but not quite two years of appreciation is gone in sonoma and contra costa countioes are gone,based on actual sales i have seen in the last month.this market is changing rapidly,and inventories are continuing to grow at very high rates.demand is lessening but thereis still no shortage of fools and never will be.

Anonymous said...

CAN'T BE TRUE?

Sure it can. The numbers are given out by the California Association of Realtors. This is akin to the wolf guarding the hen house. These C.A.R. numbers get massaged to make a case for buying real estate by those selling real estate. How else can you keep hundreds of thousands of California agents paying their dues?
Liken it to getting inflation figures from the US Govt on the CPI and PPI that shows inflation tame(except for daily food and energy costs), or the major homebuilders saying the market's fine, demand is strong, and then revising their figures downward in their quarterly forecasts. It can be true if one's willing to look beyond the "data".

Max said...

One thing that characterizes bubble is their irrationality. Just like fashion and pop music, they depend on mass human behavior, and are highly unpredictable. The best we can do is try and predict magnitude, but timing is a bitch. Why was disco dead by 1980? Who knew it would die in 1978?

I will say that it looks like flippers are getting out of the market. One in five houses for sale in Sacramento were sold once before within the last two years. Sounds like housing is becoming unfashionable to me.

Happy Renter said...

"CAN'T BE TRUE
"wiping out 2 years of gains" At this point that simply can't be true without it showing up in the hard data. Losing 2 years of gains means that a house listing at $400K two months ago is now listing below $300K and there's little evidence of that."

Looking at the entire market I agree, the market has not slid that fast. However, The homes in the $750,000+ may have slid that far.
There is a 17 month supply of homes in that price range and in the past 2 years the appreciation for the really high end homes has been in the 20% range. We are seeing $750,000 homes now go for $600,000. This puts alot of downword pressure on the whole market but the more affordable homes will hold their value for awhile. They'll fall when the price gap narrows to the choice of $300,000 for a house in the getto or $400,000 for a house in the foothills or midtown?

Anonymous said...

The bigger problem may be in the ancillary industries that support a burgeoning real estate market now cooled. As the market turns down, demand for construction equipment, construction trades, RE agents, raw materials, mortgage and title companies, inspectors, appraisers, landscapers, pool builders, home improvement retailers, nursuries, etc. diminishes to meet a reduced buyer activity. For every RE agent making a living during boom times there must be nearly 20 additional jobs behind that will drop off dramatically when the market cools. Of course some of the builders are committed to complete their projects, even at the tail end of the cycle but we should see fewer and fewer new developments if we're pushing bubble status. It's better to hold land in inventory and live to fight another day than to chance a development that would require huge write downs or incentives to move the product. With so much tied to RE market, any significant turndown will affect the overall economy in the area and I would think in a very significant way.

Anonymous said...

"prices could slip well below 2002 levels."

Interest rates are at 2002 levels so I think you are on the money!

Anonymous said...

Interesting stuff. I'm moving to Sacramento next month with my family. I'll be renting for 6 months while I look for places. I'd like to optimize the approximately $500K I'm going to spend on the house -- ie good neighborhoods, schools, etc. Any advice for me? Are there particular areas that look like they've already come down significantly? Should I rent for a year and wait even longer?

Happy Renter said...

Should I rent for a year and wait even longer?

Yes, Rent you can rent a beautiful home for half of what a payment would be and their are plenty available.I'd look in the midtown area to rent.

drwende said...

So far, numbers don't seem to support the market sliding to 2004 levels BUT there are two intervening factors:

1. Way more homes are sold with substantial "incentives."

2. Median selling price doesn't adjust for the size of the house, so more 4/3's could be selling in a price range that used to be dominated by 3/2's.

I'm not saying I entirely believe that's what's happening, just that it's possible.

The broker may also be trying to push buyers to lowball their prices in order to get ahead of a declining market and sell those houses fast. In this market, you don't want to be the agent whose contract expires after 6 months, and the seller then changes to a different agency.

drwende said...

Oh -- I looked at the broker's Web site. He's flat-fee. So he definitely wants to sell the houses fast and easy, no holding out for a mythical higher price.

He'll be part of driving prices even lower.

Happy Renter said...

2.5 months till the market starts slowing and the YOY declines start two show. The clock is ticking for HB's and Realtors, this winter will not be kind. Think Neopoleans march back from Russia.

B. Durbin said...

Where to look in Sacramento? Try on the same side of the river as your job. As with everywhere else, a shortage of bridges makes for chokepoints. Also note that I-5 is a good bet, but NOT 99. The lack of a connecting route on the east side funnels way too many drdivers onto 99.

Aside from that, check the flood maps and make sure there isn't a drain on the street in front of your house. I once drove through a localized flood at the top of an on-ramp... no puddles on the highway twenty feet below, but one and a half feet around the drain.

Oh, and one more thing: "Near the UC Davis Med Center" is often used as shorthand for Oak Park. Big no-no unless you're one of those types that likes to try to reclaim ghetto-ized neighborhoods.

Happy in SF said...

Oak Park is probably the worst place you could live, sometimes Med Center really does mean Med Center which is nowhere near as bad. Actually driving through Med Center area it looks alright, in fact most of my friends who own homes live there as 5 years ago those were the last 100k homes near downtown. One of my friends did have a problem with people knocking on his door in the middle of the night looking for drugs. After he started answering the door with a shotgun the late night calls stopped.

Anonymous said...

Where to look in the sacramento area? if you have kids,Try the roseville area, They have great schools, my kids go to the roseville schools. If no kids, then midtown or downtown is great for entertainment and restaurants.

Anonymous said...

Moving to Sac? where are your going to work? I'm closing on a home in Auburn. Same size house and neighborhood 6 months ago sold for 70k more. make sure you low ball the seller.