Thursday, September 14, 2006

Equity Locust Invasion Wanes

From the Sacramento Bee:

Investors Ron Rael of Novato and Kirk McKinney of Pacifica had a ride of their lives during Sacramento's housing boom. They bought houses low and watched the values go sky-high while renting them out. In hindsight, Sacramento's fast rise from a relatively inexpensive market to one of the priciest in the West could make almost any investor appear like a genius.

No more. The investors' game has moved to Texas, New Mexico and Oklahoma, they say. Neither Rael, McKinney nor any of their Bay Area investor colleagues much care now for Sacramento's languid market...

Much diminished, too, amid the still-expensive price tags of 2006 is the rush of Bay Area residents toward Sacramento's home prices. "You got more bang for your buck a couple of years ago than you do today," said Poppy Stercl, a mortgage broker who lives in Rocklin. She said people who once came with $300,000 in equity to buy houses for cash now find they can't do it when the prices top $500,000...

"The prices aren't competitive anymore. They're just lousy California high," said Stephen Levy, director of the Palo Alto-based Center for the Continuing Study of the California Economy. "For eight, nine or 10 years, the Sacramento median price was near the national average and now it's more than double the national average..."

Collectively, these sentiments have become key factors in Sacramento's flat or falling prices and its record pileup of more than 15,000 homes for sale as summer's big buying season comes to an end. The wave of investors and Bay Area arrivals who helped drive the region's real estate market to what many believe were unreasonable heights has primed it now for an aftermath that no one can yet measure. Adding to the uncertainty is the continuing inability of many locals to afford even today's weakened prices as the market slowdown enters its second year.

"You had something that other counties didn't, a big influx of buyers from other areas," said John Karevoll, analyst for the La Jolla-based research firm DataQuick Information Systems. "Now the market is going back to core activity where local demand is self-generated."

Even as high-flying real estate markets from San Diego to Boston are coming back to earth, some believe Sacramento is particularly vulnerable because outside forces that propelled it skyward have dissipated.

Oh. Sacramento is special after all.
In the first quarter of 2004, more than one in four houses sold in Sacramento County were to investors and second-home buyers. But at last count this summer it was closer to one in six, according to DataQuick...

Altogether, investors bought more than 73,000 homes in Amador, El Dorado, Nevada, Placer, Sacramento, Sutter, Yolo and Yuba counties between 2000 and June 2006, DataQuick reported. More than 22,000 of them were from buyers with Bay Area addresses. But those numbers are now falling greatly.

Similarly, the percentage of "flippers" buying in the Sacramento region fell by half between March 2005 and last June, according to, a San Juan Capistrano real estate Web site. In early 2005, nearly 6 percent of the region's home sales were properties owned less than half a year. None could be considered part of the region's "core housing market of putting roofs over their heads," said Mike Ela of

Then, the Sacramento region ranked second statewide for "flipping," the business of buying a house and quickly reselling it for profit. Only San Joaquin County had more, with its rapid home appreciation also fueled by Bay Area migration. But by early this summer, "flipping" represented only 2.4 percent of sales in the capital region -- while 28 percent of investor-sellers reported losing money on their deals, Ela reported...


hemorrhoidforhousing said...

Hmmm...I'm thinking the nice house along the American River in Fair Oaks may be something I can look at in about a year or two.

Reality has a way of coming back and biting those who chose to disregard it.

sf jack said...

"Reality has a way of coming back and biting those who chose to disregard it."

I remember saying those exact words in 2000.

Though I probably threw in some other choice words on occasion.

Now I get to say them again in 2006, being a double-bubble survivor, of sorts.

Anonymous said...

I don't think price drops will be as dramatic as many housing bears think. Much of the drop will be due to inflation rather than a decline in nominal prices.

If nominal prices drop, say, 15 percent over the next three years, then stay flat for the following three years, that would equate to about a one-third drop in real prices over 6 years, assuming an annual inflation rate of 3 percent over the 6-year period.

I don't think we'll see much more than a real decline of one-third, which would be quite substantial. Yet this could be accomplished with quite undramatic drops, relatively speaking, in nominal prices.

I think nominal prices will decline 10-15 percent as the cycle completes itself, but that will be about it.

Anonymous said...

depends on whether Bush decides to bomb Iran, if China pulls money out of the treasury market and if oil prices and interest rates go through the roof.