Wednesday, August 16, 2006

Sacramento Sellers "Cut and Run," Median Price Drops 5% YOY

Soft landing or hard? From the Sacramento Bee:

Sacramento County posted urban California's steepest year-over-year fall in home prices during July as more buyers waited out a slumping market and sellers showed increasing willingness to cut and run.

Median sales prices for both new and resale homes and condominiums fell 5 percent below July 2005 levels, according to La Jolla-based researcher DataQuick Information Services. For existing single-family homes, the largest segment of the market, prices fell 3.2 percent below July 2005 to $353,250...

July represented the second straight month that Sacramento County sales prices fell below last year's levels. Among urban areas, Sacramento joins San Diego and San Mateo counties and the city of San Francisco with median home prices now below where they were a year ago.

DataQuick's newest statistics, gathered from county property records, clearly show the growing advantage to buyers in a market with falling prices and a record inventory of 15,474 homes for sale. That's more than twice the inventory of July 2005.

In El Dorado, Placer, Sacramento and Yolo counties, July also marked the 16th straight month that the number of sales were down from the same month from a year earlier. March 2005 was the last month showing higher sales than the previous year.

19 comments:

Happy Renter said...
This comment has been removed by a blog administrator.
Agent Bubble said...

Finally a little redemption from all those skeptics out there!

Happy in SF said...

Whoo Hoo! Wow, housing all of the sudden seems like a very bad investment indeed.

Lander said...

This just in: The definition of "soft landing" has been revised down to -10% (at least for Sacramento)!

John in Rocklin said...

I hear some faint music....is that the theme song to Jaws? The sharks can't be circling this early, can they???.....what are the words... done,done,done,done,done,done..........they must be talking about appreciation over the next 3-4 years....

Anonymous said...

Well, well, well and we're just starting to get warmed up. If the inventory numbers continue to build look out below. 100% up over a 5 year period could easily give back 25-40%. Hang in all, this is just beginning to get interesting. Don't get in the way of this market or you're likely to go upside down on your investment.

crispy&cole said...

5% DOWN! This is only the beginning! Looks like the flippers and FB's are going to get crushed!

Happy Renter said...

No champaign, but I've got a cold beer, cheers and congrats to all.Whahoooooooooo! I was right and I'm going to rub it in everyones face. My humbleness has been striped away, after years of condescending speech from RE bulls.
Thanks lander. Thank you all.
Whahoooooooo!

John in Rocklin said...

A couple of notes on this "event".

Everyone, not just homeowners will likely suffer from the coming housing downturn. We will all lose some level of incomes, job security, value, and prosperity. While this is something we have and should be prepared for, we will all feel the pain. It will come in many forms. Where ever you work, it is tied to the housing industry. If your business volume is down, people will be layed off work. Your brother in law, the sheetrocker will start sleeping on YOUR couch. Your parents will be unable to sell their home to fund their prosperous "equity" retirement. This is nothing to pray for or celebrate, because if it all comes true to the level it could drop, half the people reading and writing on this blog may be in bread lines.

While it has taken restraint and discipline to stay out of the bubble market's irrational exuberance, please use the same restraint and discipline to work toward an orderly transition. As they say, "Be careful what you pray for, you may just get it".

Max said...

All I can say is wow. I don’t think even the most pessimistic bubble watchers predicted this. Here’s some quick math:

$100,000 down on a $500,000 house, 4% IO:

Carrying costs = $9,600
5% price reduction = $25,000
7% commission and fees for sale = $33,250
Total Losses = $67,850

These guys are in a lot of trouble when their loan resets. No way the lender will do a $500,000 refi on a $475,000 house. Flippers In Trouble indeed.

drwende said...

I soooo predicted this. My ex-pal the property investor belittled me mercilessly for not understanding basic economics.

I've been working on investing strategies for a ravaged economy -- only wish I'd thought to start that project earlier, as it's pretty challenging, and traditional stock picking methods won't work well.

Okay, having called it, I get to plug the book I wrote last winter -- Sacramento housing market collapses, people get murdered, read the online serial at http://killingrealestate.com/

I swear, Lander, that's my last self-serving plug here!

Duplex84 said...

The duplex flippers are the ones that I'm waiting to eat for lunch in '08. Look at those 30 year old bare bones 2&1's for sale on Dean and Montrose in Folsom - for $500K plus!

And they only rent for about 1K per side. Never mind financing costs on these deals. An all cash buyer would be much better off putting his money in the bank without any risks of moveouts, repairs, etc.

Max said...

Hey drwende,

You might just have some new entries for the "Encyclopedia of White-Collar & Corporate Crime" after this is all over as well!

Max

Anonymous said...

drwende,

I would suspect your investment thesis depends on identifying long term trends and then capitalizing on those investments best suited for the trend. Personally, IMHO excess liquidity, leveraged debt, high govt budget deficits, high trade deficits, and negative personal savings dooms the dollar. Its much like the replay of the 70's when nothing but hard assets (including real estate) were the only positive performing assets during the decade. Ironically, its during this period gold was decoupled from the dollar and allowed the govt to print money to service debt. I wonder if we're in for a bout of stagflation as well. Since then the dollar's purchasing power continues to lose value, hence, the price of homes, groceries, commodities, gasoline, precious metals, etc, continued to rise. Those that blame the oil companies for the high price of gasoline should really understand that $3.00 gas prices are really the same $1.75-2.00 prices we paid in 2000 if we allow for the dollar's depreciation over the same time period. The same could be said for real estate except for one caveat...As Greenspan put it..."Irrational Exhuberance"... only this time it was in the real estate market which he so adeptly fueled with free money. I fear the dot.bomb implosion may have been a precursor to an even greater downturn in the real estate market and with it our economy in general. My tendancy is to agree with John in Rocklin. We had better hope this market decline is orderly and somewhat balanced or we might be facing a long winter of problems that we'll all have to deal with.

Happy in SF said...

Man oh man, I am so sick of all the comments on Sac Bee about if you can't afford a house right now it's because you are a total loser! I want all of their phone numbers so I can call them all in a year from now.

rocklin renter said...

No worries SF.

If all they have is an ad hominem attack, well, they are now just grasping those last few straws before they fall right over that cliff.

Kübler-Ross "Anger" stage.

Next stop: "Barganing".

Happy in SF said...

Wow, thanks, I just learned a very apt latin term.
I'm also totally sick of the dude that feels the need to post that this thing is not their problem and then goes on to describe the great deal they got in 2001. Why are they on there anyways? I guess the answer is that for the last 5 years they have been looking at comps, giggling and rubbing their hands together and are now worried about all that money.

rocklin renter said...

2001?

I doubt it. I'd bet these are the 2004 variety folks that are seeing the market inch ever closer to their purchase price. Right now they are very, very nervous and as displayed in those comments, probably very edgey.

It is hard to accept that they are soon going to be underwater - all the while they stare at that $60k H2 and $60k Malibu in their driveway that was paid for with their HELOC funny money.

Just wait till it hits or goes below their purchase price. I would bet they get pretty ornery then. The prospect of not being able to refi and their ARM coming due soon may be too much to bear for some.

Anonymous said...

Should start a blog:

Bako, Armpit of Calfornia.

How is that pimp daddy idiot David Crisp doing.

Did they repossess his McLaren Mercedes yet?
----------------------------------
http://www.sacbee.com/content/business/projects/boom/story/13702903p-14545580c.html

Bakersfield real estate mogul David Crisp, 26, who once loaded UPS trucks for a living, now drives a $560,000 Mercedes-Benz McLaren sports car.

BAKERSFIELD - In another era, David Crisp might have raised cotton or drilled for oil.

But nowadays the business of Bakersfield is real estate, and Crisp, 26, makes his millions buying and selling property in the second-hottest housing market in the nation. He does it in a style that would make an oil tycoon proud, tooling around his hometown in a $560,000 Mercedes-Benz McLaren sports car and flying investors around on private jets.

"The young hotshot of Bakersfield real estate," says his 58-year-old business partner, Carl Cole.

UCDavis Health
Crisp personifies the California housing boom at its most extreme - a boom so powerful that it's turning even places like Bakersfield into hotbeds of high-end homes and gated communities. In this city of long-standing economic stagnation and a cowtown reputation, the median home price has nearly tripled in four years to $293,765.

In those same four years, Crisp has gone from waiting tables and loading UPS trucks to co-owning a firm that figures to sell $300 million in real estate in 2005. He's building a $5 million mansion in Bakersfield's ritziest development and planning a high-rise condominium-retail tower.

Like many caught up in the California housing boom, he's convinced that the good times won't end soon. Crisp remains optimistic despite warnings, in Bakersfield and elsewhere, that the market is cooling.

"Every month is better than the last month," Crisp said. "It's not slowing down. We're still selling three houses a day."

Feeding the market is a stream of homebuyers, mainly from Southern California, seeking relatively affordable housing. Bakersfield's population has grown 19 percent in five years - about twice the state rate - to 295,893. Many newcomers are retirees, or commuters with jobs 90 miles away back in Los Angeles.

"For the family, it's more safe than L.A.," said Intae Lah, a financial consultant who moved his family to Bakersfield three years ago. "And houses are cheaper."

Lah spends half the week living and working in Los Angeles but says the arrangement is worth it. He and his wife, Stacy, paid $430,000 for a 3,500-square-foot home in the posh Seven Oaks development.

Bakersfield also has attracted more than its share of investors, many of whom sell or "flip" properties soon after buying them. Some 17 percent of the homes sold in Bakersfield last year went to investors, the ninth-highest percentage in the nation, said market researcher LoanPerformance.

All this adds up to one hot market. Sales volume jumped 20 percent last year. And in the 12 months ending June 30, prices increased 33.9 percent, making Bakersfield the strongest market in California and the second-strongest in the country (behind Naples, Fla.), according to the U.S. government.

While the boom has sparked complaints about traffic congestion and an erosion of Bakersfield's small-town culture, it's helped the economy.

Kern County unemployment fell to 7.5 percent in August, down a full percentage point from the year before. The city's unemployment rate was 5.2 percent, matching the state's.

Jobs are growing at 2.3 percent a year, higher than the state average of 1.5 percent. The Dreyer's ice cream factory just added 400 jobs, and Target has opened a 1,000-employee warehouse.

There are new restaurants like California Pizza Kitchen and Elephant Bar. The county is building a new terminal at Meadows Field Airport, which just added nonstop flights to Las Vegas and Salt Lake City.

And if the adopted hometown of country music icon Buck Owens hasn't completely shed its honky-tonk image - well, take a look at the gated communities with names like Bellagio and Legends.

"We used to sell one or two $1 million houses a year," said homebuilder Dave Packer. "Right now ... there are probably 10 or 20 on the market."

Some worry that Bakersfield, like the rest of California, has become too dependent on real estate. Nearly half the 5,500 jobs created in Bakersfield in the past year can be traced to the housing boom, including jobs in construction, retailing and restaurants.

Now the boom seems to be tapering off. The number of houses on the market has doubled since May, and they're taking longer to sell, said real estate appraiser Gary Crabtree. The median sale price actually dipped slightly from August to September, according to figures he compiled.

"It's still a hot market," said agent Mary Christenson, who deals in high-end properties. "But now we're back to doing an open house now and then."

Although real estate sales often slow after the school year starts, there's something more going on now. Investors are shying away, Crabtree said. In the first six months of the year they made 22 percent of Bakersfield's home purchases; in August, just 8 percent.

He said investors have realized they can't earn enough in rent to justify the prices they've been paying.

That's because Bakersfield, despite its caviar real estate market, remains a hamburger town. Ranch hands and oil-field roustabouts are still well-represented in the area's work force. The city has a California State University campus, but fewer than 16 percent of Bakersfield's residents have college degrees. That percentage is about half the state average, according to U.S. Census figures.

"We don't have an abundance of high-paying jobs," Crabtree said. "The economy is one that doesn't support the price levels."

But Bakersfield leaders say that while the extraordinary price increases may fade, the economy won't.

"It's not going to feel like quite the same glory days, but that's because it's been such an incredible pace," said Patrick Collins, head of the Kern County Economic Development Corp. "We're still going to experience a fairly strong economy."

Many see a community that's come into its own. The old Bakersfield, defined by farming and oil, is giving way to a 21st century economy - literally and figuratively - as new housing developments swallow ranchland and infringe on oil fields.

"Bakersfield's been known as the armpit of California," Crisp said. "I always said I'd move out of this town. Now it's definitely hit the map."

Crisp got his real estate license while attending Bakersfield College. While working for a local real estate firm, he challenged colleague Cole to see who could sell the most houses. The two then formed a team and this year, at Crisp's urging, started Crisp & Cole Real Estate.

"He's the idea man. ... He's the driving force," Cole said. "David's kind of the bling."

Crisp & Cole does nothing halfway. It owns a lending business. It's building a studio to produce the 30-minute TV shows it airs to showcase listings. It will spend $1 million this year on leased jets to transport investors looking at buying apartment complexes in Bakersfield and Las Vegas.

Agents must wear suits and drive fancy cars (BMW or Mercedes). If they can't afford the car, the firm will front them the money, Cole said.

Crisp said he's a successful investor in his own right. He recently got a $1.9 million offer on a home he'd purchased a day earlier for $1.5 million, he said.

"He got into the real estate business right when it was starting to boom here ... and he has just the right personality for it," said Crisp's mother-in-law, Leslie Sluga, who has bought and sold investment properties with his help. "You can't tell him 'no.' He just doesn't understand the word 'no.' It's kind of scary sometimes."

The suits and cars - his and his agents' - are just part of the package. When Crisp started out, he figured "no one's going to trust a 21-year-old kid." So he decided he had to make himself look successful.

He hasn't stopped. When he made a speech at his old high school recently, the first question from the students was about his silver Mercedes, Crisp said.

"Everybody in town knows I have it," he said with a smile.

Even his new home is about marketing.

Upgrading from a place he bought last year for $487,500, Crisp is building a $5 million mansion for his wife and two children that will include a movie room, escalator and indoor basketball court.

The 18,000-square-foot property is going up in Seven Oaks, a country-club community developed by Castle & Cooke Inc., the firm controlled by Dole Food tycoon David Murdock.

More than a home, the new pad will be used to entertain potential investors in Crisp's grandest idea to date: a 24-story condominium-retail tower, probably in downtown Bakersfield. The project, which Crisp believes will materialize by his 30th birthday, would be twice as high as the city's tallest building.

Crisp disputes those who say the boom is ending. Bakersfield has another two or three years before it "levels out," he said.

He said he isn't blind to the possibility of a bust. He said he saw his father make and lose a fortune in wireless communications.

That "taught me a life lesson about how quickly you can lose it," Crisp said. "Do I have a 'no fear' attitude? No, I don't. I don't want to lose everything."