Thursday, September 28, 2006

'Most Pummeled' Award Goes to Sacramento

The San Diego Union-Tribune reports on UCLA's Anderson Forecast:

Edward Leamer, director of the forecast, said the state is only in the beginning stage of the price decline. A decline in the housing market generally begins with a slowdown in sales – which is what has happened over the past year, Leamer said. It often takes a year or two after a sales slowdown for prices to decline, he said. Prices have already declined in some regions of the state, led by San Diego and the Sacramento area.

"San Diego gets all the bad press, but Sacramento is the story that nobody knows about," Ratcliff said. "Sacramento has gotten the most pummeled over the last year." Ratcliff said that regions that have added the most new homes – either from new construction, such as in Sacramento, or condo conversions, such as in San Diego – will be the areas that suffer the sharpest and fastest declines.

Hat tip: Ben Jones

14 comments:

Lander said...

The rocket engine of the California economy for the past 16 years – the booming housing market – is broken and, if not headed for a total crash, the next several years won't be pleasant, warns a top economist with the University of California, Los Angeles...

"There is nothing in the historical record that suggests we can get quickly back to normal – after all we are going to have to get prices back in line with affordability, and that will take some considerable period of time. In the meantime, sales are sure to be way down," Mr. Leamer says.

Looking ahead, Mr. Leamer says Californians should expect home prices five years from now to be about the same as they are today, though lower in real terms by 15 percent to 20 percent.

Lander said...

This (housing souffle) came out of the oven in 2005 and is sitting there on the cooling rack. As long as the ingredients are still there, the souffle has no reason to collapse..."

"The economy in general is moderating," Snaith said. "I think the soft landing is still the story at this point. There were some concerns it might be the JetBlue landing where the front gear goes sideways and there are sparks and flames and everyone gets scared, but we're still OK."

Lander said...

"Expect home prices five years from now to be about the same as they are today, though lower in real [inflation-adjusted] terms by 15%-20%," the forecast said.

Although the statewide average price might not decline, a few areas where about 40% of the housing stock is new construction — such as in Yolo and Placer counties — are expected to see drops as builders cut prices to move inventory, UCLA economist Ryan Ratcliff said. In contrast, during the last housing market decline, which was accompanied by recessionary job losses, prices fell more than 10% statewide from their 1989 highs.

Anonymous said...

Great San Diego Housing Flip site

http://thisoldhouseflip.blogspot.com

Anonymous said...

My forecast: Ten to 15 percent nominal decline from peak (which was 6 to 12 months age) over 3 years, followed by flat for another 3 three years, equals a real decline of almost one-third (if my math is correct) looking 6 years out from the peak. Gradual appreciation after that.

Won't get much worse, at least in Sacto. Too much growth here and too many continuing Bay Area expats (road warriors and equity relocators) for things to be worse.

Those who plan to stay put in Sacto, and who need a house to live in, should probably look to buy in about 24 months, or sooner if they can find a deal.

chuck said...

The Joad Family of El Dorado Hills had it made, a nice 3600 sq ft home, near Serrano, with plenty good jobs in the retail business (Walmart) when all came to bust...

they got one of them no down payment, interest only ARM loans on that mighty fine property right next to Serrano...

but then the bottom fell out, and they just couldn't justify the $4500/month payments no mo, on Walmart salaries, cuz Billy Jean got a bellyache, and it was not no tumor but more chillren and she just be only 12,

so the Joads loaded their belongings, including their new matress on top of their Hummer and headed back to Oklahoma...

"California is a Garden of Eden, a Paradise to live in and see, but believe it or not, you won't find it so hot, if you ain't got the DoReMi".....Woody Guthrie

Franco said...
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Anonymous said...

Loved the Joad Family story. It's actually pretty accurate. I'm a local insider. But the average el dorado hills bubble head is more likely to be from San Jose and definitely blue collar. They live paycheck to paycheck on average. Yeah, I know, there are a few wealthy folks in edh. Home owners are flocking for the exits as we speak but there are few buyers relative to listings. As the ARM's adjust, it will be getting uglier. Without real earned income to support them as their housing payments inevitably increase, the listings will dramatically increase.

I don't agree with the anonymous realtor above that states that "things won't get much worse" in the sac area 'cause people will still be flocking to relocate from the bay area to sac. That's the same old argument the realtors have been using for the last few years to argue that home prices here will only go up with such demand from bay area transplants. There will be less need to relocate as prices drop in the bay area. I'm seeing a net migration of the "Road Warriors" returning to the bay area after battling the 5hr round trip commute for the past few years. What kind of life is that?

Anonymous said...

Lander - finally some reasonableness (I'm in the business). Thans for the input from UCLA.

Remember we saw "flat" pricing after the '80 and '91 slowdowns. I still remember being hungry in '96, so this rocket ship has been about '97-'05 at best.
We won't have to rely on just the bay area relos to boost demand, some people forgot about the birds and the bees - birth rate and immigration.

Some people will confuse a drop in the medium price with the idiot neighbor who priced their house 20% higher that the comp down the street last year - then had to drop down to normal.

JR said...

Anon 4:57 PM, says "...argue that home prices here will only go up with such demand from bay area transplants..."

I remember that case being made in the late 1970's. too!!! Then in the late 1980's!!! And now in the mid 2000's. It ALWAYS happens...a little irrational exuberence in periodically frothy markets and our prices are going to "hang with the bay area values forever."

IT NEVER STICKS. Please!! Sacramento is not a financial center with million dollar salarys. We will revert to the mean, supported by our median income. That will REQUIRE A 30%-50% DROP in home prices

and Anon 6:46 PM says...

..."Some people will confuse a drop in the medium price with the idiot neighbor who priced their house 20% higher that the comp down the street last year - then had to drop down to normal....".

You are right Anon. People should realize prices will drop from the CLOSED SALE PRICES of mid 2005. The fact some idiot added 20% more to an "asking" price a few months later does not make that price a starting point for the reversion to the mean.

Think about this...a $600,000 home purchased in June 2005 will eventually be worth $420,000 or less. The only variable will be how LONG IT TAKES TO GET THERE. The drop will either be in nominal terms over 3-5 years or eaten up thru inflation over 10 years, using zero appreciation. Both adjustments are very real.

One thing is fairly certain, there will be ZERO REAL APPRECIATION for the next FIVE YEARS in Sacramento. Why anyone would carry the costs and risks of new home ownership, when they could rent for 70% less over then next 5 years, is very baffling.

Anonymous said...

Yeah really,

Got to get back to intrinsics.

Sac is basically a cowtown / government town with decent salaries.

This ain't the Silicon Valley, so you are looking at a drop like what he or she said.

Anonymous said...

See, even people that mangle the English language know that the market is declining.....

OH MY GOD! said...
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Anonymous said...

Hey, that is a very good line. All caps and the housing meltdown. I directly correlate the two. Why don't you go look at the graphs at the bottom of this web site? There are three of them. They will SPEAK VOLUMES TO YOU, unless your head is stuck somewhere that daylight can not reach.

http://sacramentohousingbubble.blogspot.com/