Friday, August 18, 2006

NAR 2005: 5% Price Decline "Extremely Unlikely" in Sacramento

Back in February, I mentioned the National Association of Realtors anti-bubble report on Sacramento. Included in that report was this gem:

[T]he local housing market is in excellent shape with a potential for significant housing equity gains....
Or not. The Bubble Meter blog has a great post deconstructing this forecast:
For metropolitan Sacramento, CA their anti bubble report (pdf) stated that
The local housing market will experience a price decline of 5% only under extreme unlikely scenarios. For example, mortgage rates rising to 7.8% in combination with 25,000 job losses could lead to a price decline.
However, according to data from DataQuick:
The new survey shows that median sales prices for new and resale homes and condominiums in Sacramento County fell 5 percent below July 2005 levels.
According to Freddie Mac interest rates on 30yr fixed averaged 6.52. Jobs are still plentiful in Sacramento as it "showed strong growth in online want ads." [Monster.com] The 'extremely unlikely scenario' where mortgage rates hit 7.8% in conjunction with 25,000 job losses in Sacramento area has not yet happened. Yet, median prices have already declined 5% (YoY) in Sacramento county.
So if we have a 5% decline without massive job lay-offs or high interest rates, what will happen to the Sacramento real estate market when the current business cycle ends (as it always does) and massive job losses commence? Again, from the report:
There have been few times when local prices declined. In nearly all these cases, the price declines were accompanied by sharp prolonged job losses. It is difficult to foresee a price decline in a job creating economy.
I guess Sacramento really is different.

11 comments:

Garth Farkley said...

The web page with Lyon's outlandish predictions is called "bias up":

http://www.biasup.org/Michael_Lyon.pdf

Freudian slip?

adopt-a-landlord said...

"The local housing market will experience a price decline of 5% only under extreme unlikely scenarios. For example, mortgage rates rising to 7.8% in combination with 25,000 job losses could lead to a price decline."

You missunderstood NAR's statement. When they referred to a 5% decline, they meant a 5% decline in relation to their reference year of 1997.

John in Rocklin said...

What are the words to the title song of the old TV show....."they call him Flipper, Flipper, faster than lightening,....no one you see is smarter than he....." Mike Lyon might want to watch some reruns on Nickleodeon......

ocrenter said...

lander, I'm looking forward to many more of these kind of posts. good job!

Ali, in Cali said...

This is just one more great post to prove that NAR has no trouble selling the masses on total bullarky. This is one that I would gladly show to any person who is thinking of buying a home in today's market, especially if they are running under the advice of a Realtor. Clearly, their predictions from a few months ago are waaayy off, and I suspect the predicitions and pitches I hear in Realtors making today will also prove themselves to be gross lies as well in the very near future.

Anonymous said...

What have the idiots at NAR been smoking?

You can look at their ASSumptions another way:

A 15% price decline is highly likely.

Anonymous said...

Check out this scary Craigslist ad from Davis, CA (Sac Area)

http://sacramento.craigslist.org/rfs/196043506.html

You mean for only an extra GRAND A MONTH, you’ll let me split the 10% appreciation? Wow, that sounds gr — Heyyyyyyy. What if it goes DOWN 10% in price? The ad should read, “I’m currently taking a bath in the real estate market. Anyone want to join me in the tub?”

And it’s only just begun, really…

David said...

Thanks for the link.

David
Bubble Meter Blog

Anonymous said...

What would you expect from the NAR? They've got almost a half million jobs in California at stake! A 5% decline would be a token and one which buyer's will likely scoff at. There's a huge market of $200,000 to $300,000 potential homeowners just waiting to pounce. Seller's will continue to believe they can move their $500,000 tract home to a missunderstood buying group with new psychology and perception that makes one hesitate and wait. When the housing construction layoffs start en masse this perception drives the price lower. Anything can happen but odds favor much lower than stable or slightly down. New home contractors will be key and will ratchet the market toward those that can afford to buy.

drwende said...

Really, what can the NAR say? "Run for your lives -- you overpaid and are about to see your property values plummet?" Telling the truth would make them look worse than continuing to lie and going down with the ship.

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