Thursday, October 26, 2006

"More Than 10%"

From the Wall Street Journal (also here):

In some areas, prices are only just beginning to fall back toward realistic levels, says Thomas Lawler, a housing economist in Vienna, Va. He believes that prices could fall more than 10% from their peak levels in markets such as Sacramento, Calif.; San Diego; Las Vegas; Reno, Nev.; Phoenix and parts of northern Virginia and Florida.


karl marx brothers said...
This comment has been removed by a blog administrator.
JR said...

Lawler..."believes that prices could fall more than 10% from their peak levels in markets such as Sacramento....."

Wow, is he going out on a limb...considering the CAR stats already have us dropping 6.3% from the peak. And the reality "on the ground" easily supports 20% in many areas, like Placer County.

I think I will make a "prediction". The United States will land a man on the moon in 1969.

Come on, tell us something we don't already know. Give us your estimate of how deep this landing will be and what will be the duration. THAT would be interesting.

Anonymous said...

Sacramento is easily on track for a 50% drop.

What I don't get is how existing home sales are down nationally 1.9% by NAR and CAR has California at 30% plus decline. So what the hell happened? Were the rest of states not down by that much. This just does not make sense. Nationally should be down a lot more. I think the National Association of Realtors are bunch of crooks and liars and fudge the numbers.

sippn said...

Right on JR, you think that prof at CAL needs an assistant?

JR said...


Assistant? Absolutely. Send him a cheerleader from Stanford. She'll set him to speak....

sippn said...

Anonymous 3:38

You might take notice that the world doesn't revolve around Sacramento or CA for that.

Hey look at Atlanta...90,000 plus inventory and medium price is UP.

WHat the...

HEY OUT THERE...don't you know your supposed to stop buying homes!

Garth Farkley said...

Sippn said,

"medium price is UP"

Wow, that's a great statistic. Can you tell me where to find the "Medium Rare" price?

Well done!

Anonymous said...

I think other cheaper areas won't fall as much because people from places with expensive housing (like Sacramento) will be forced to sell and move to cheaper places, especially since Sacramento doesn't really have an economy (other than construction which is on the down cycle) to support expensive housing (unlike the Bay Area which does).

Anonymous said...

anonymous 07:37

Agreed, except in the Sacramento region there are entrepreneurs separate from the Giant Leech of the State Government, only it isn't downtown...

Along Auburn Folsom there are numerous small startups the slop over from high tech...the "urban" scene already happens out in Old Town Folsom at night, and along that corridor is where the "action" will be...

All of the "growth" downtown/midtown Sacramento has been driven by heavily subsidized (taxpayer money given to millionaires) projects...which caused a wildly speculative market driven to outrageous lengths by greedy and maniupulative Real Estate types...

Garth Farkley said...

Anonymous said:

"I think other cheaper areas won't fall as much..."

When the housing crash pushes us into a hard recession NLT May '07 the cheaper places won't have jobs. So people won't be able to move there and buy houses. Rust belt house prices are "cheap" and falling faster than anywhere else.

Anonymous said...

It all depends what you mean by cheaper homes? Cheap homes in the hood areas of Sacramento will get a 60% haircut easy. Oak Park, South Natomas, Northhiglands, Florin area.

Anonymous said...

Along Auburn Folsom there are numerous small startups the slop over from high tech...the "urban" scene already happens out in Old Town Folsom at night, and along that corridor is where the "action" will be...

I guess living in Folsom and breathing in the asbestos is cool. Personally I would not step foot in that town. Asbestos is all over the place.

Anonymous said...

Hey Sippin, check this out.

Recently reported (new home sale) increases have been subsequently revised downwards, primarily due to cancellations. Sales in June, July and August were revised down by 67,000.

Where is this headline in the Press for this. The spin “doesn’t stop ever” is the new slogan of the NAR.

Anonymous said...



California "State Rock" is Serpentine...

Occurs along fault lines...

Studies on asbestos done on shipyard workers during WWII...fails to mention the other "cause" of lung cancer in these same studies, smoking...

Anonymous said...

It's just like the people in the real estate biz to make an analysis based on hindsight. Davis homes will drop by at least 9.9% by tomorrow is my prediction. I already know of a couple of homes purchased last year where the neighbors are asking the same exact model for almost $100K less this year (purchase price in 2005 $530K+, asking today $450K). Do the math and you'll see that I'm a friggin psychic too!

JR said...

Lander, this if fascinating information from Business week:

"How common is this boom-bust-boom pattern? Over the past three decades about 40% of housing busts in big metro areas have eventually been followed by strong recoveries. That's according to a BusinessWeek analysis of inflation-adjusted housing prices. In an additional 15% of markets, prices adjusted for inflation barely got back to their previous peaks after 15 years. In the remaining 45% or so of markets, prices adjusted for inflation were still down a decade and a half after their pre-bust peaks."

"The disparity between winners and losers was striking: Among the winning markets, the average inflation-adjusted gain after 15 years was 43%, while among the losers the average inflation-adjusted loss was 19%."

All the people like Sippin who say wait 6 months and the market will turn, reread the above article and go to this link for more details:

There is NO QUICK RECOVERY from a housing bust. It takes 2-5 years to stop the slide, 3-5 years to level out and 5 TO 10 YEARS AFTER THAT, 60% OF THE HOUSING MARKETS WILL STILL BE UNDER THIER PRIOR PEAKS, AFTER INFLATION.

So if you bought in 2005, the odds are, your house unlikely to return achieve that value by 2020.

sippn said...

If you're going to pick on me, bring the big guns.

"Restricted supply leads to more volatility in prices," business week...

That would be CA.

They also cited places like Vegas and Phoenix for slow appreciation becuase its easy to build there. Not here.

The last 2 I've been through here recovered in less than 5.

ALso remember, their calculations don't take into account that you have to pay rent anyway, deduct that from your cost and the return is much better.

Do you feel lucky?

HappyinSF said...

Asbestos is the ONLY known cause of mesothelioma, a cancer of the outer lining of the lungs and chest cavity. (As far as I know it is ALWAYS fatal and within about 1-2 years of diagnosis) It is thought that smoking increases your risk in combination with asbestos. I'm pretty sure it is well documented that serpentine rock is being disturbed by construction up in those parts and that asbestos fibers are being found in air sampling reports, but I don't care enough to try and dig up articles. But I do recall some Sac Bee reporting on the subject. If I were moving to Folsom I would want to be educated on the subject just as I would want to know what's in the ceiling tile, acoustic spray, insulation in ANY house I were purchasing.

Anonymous said...

Some folks still think this is a "soft-landing"

Check this out from Today's Stockton Record:

"S.J. County sales off 33 percent
Record Staff Writer
Published Friday, Oct 27, 2006

In San Joaquin County, the housing market has been hit hard since last fall, after five-plus years of a boom that saw prices rise between 25 percent and 40 percent annually.

The latest quarterly study of new home sales in the county, released last week, indicated that sales took a nearly 33 percent dive from the third quarter of last year to the recent third quarter, but prices slipped 2.3 percent as buyers backed away from record-high prices.

The Gregory Group, a real estate information and consulting service in Folsom, reported 621 sales in the third quarter countywide, a nearly 21 percent drop from 783 in the previous quarter. That number was nearly 33 percent less than the 912 houses sold in the third quarter of 2005.
The average sales price last quarter of $541,070 stood below the record price of $553,715 in the third quarter of last year.

Home builders began offering real estate agents sales commissions for the first time in years and also have offered extras to buyers, ranging from free pools and flat-screen TVs to backyard landscaping and gift cards worth thousands of dollars, in an attempt to keep sales afloat.

Greg Paquin, president of the Gregory Group, said the market may have hit a "soft landing."

"All in all, given what's going on in the market, I don't think that's so bad," he said when the report was issued.

Contact reporter Bruce Spence at (209) 943-8581 or"

JR said...


How can you say our supply is limited? We are building in 7 different directions in Sacramento. We are much more like Las Vegas and Phoenix than any other areas in CA.

And I disagree with Business Week's claim "Restricted supply leads to more volatility in prices." The bay area is less volatile. It does not drop as much or as fast in a downturn, due to the geographic and political reasons.

All in all, you and I are not that far apart. Five years is a number I can agree with, provided that is to the bottom of the trough.

The first foreclosure notice was filed this week at the Estate at Lincoln Crossing. The next 20 will take another year to sort out and then take thru 2008 to get sold off. So there is three years from the 2005 peak, right there.

And yes, I do feel pretty lucky. I feel lucky the seller did not accept my $840,000 offer on his overpriced box last November, lucky that Lander has this web site and links it to many other sites with valuable data, and lucky that I can see home prices must revert to the fundamental mean before people get back to home buying in a meaningful way.

I feel lucky my stocks have grown in value these last few months, and lucky my T-bills earn nearly 5% and Arnold can't get his 9.3% tax from the interest I collect.

Conversely, that $840,000 house is now worth $655,000 and I would feel very unlucky losing that equity and being saddled with the resulting high debt ratio.

We must really celebrate. I'll have to by you Heineken some time.

sippn said...

Yes I believe artificially tight supply in Sacramento created a lag in filling the demand over the past few years...that lag fueled the price run up. If supply were allowed ot balance with demand then, we wouldn't be seeing as big a problem now, we wouldn't be seeing development leapfroging several counties away to supply Sac with affordable housing...etc.

Now that the Dow topped 12K, are you going to stay in? is it a stock bubble or a pause on the way up? If it tanks, can you live in it anyway?

Garth, can ewe smell check this fore me? Mines on the lamb.

JR said...


You're too funny. But leave Garth alone. He had me laughing on the floor.

I sort of agree with your theory, except I believe it was artificially high DEMAND that fueled the rapid run in prices. The say 25% of the buyers were flippers and you know the financing has never been easier. People are still buying $750,000 homes and getting $120,000 back from the seller at COE.

There is no shortage of developable land around here...thank you Angelo. And under normal buyer circumstances, we can build all the homes we need to meet normal demand. The irrational exuberance (if I may use this over worn phrase) caused the over bidding. Now it will just settle out to normal, perhaps a bit below.

The public home builders must keep building. They have lots, employees, stock holders and can still make a profit with a 40% pricing correction (assuming commodities and soft costs follow the trend down too.)

It will be the existing homeowners and flippers that will hinder or help the recovery time frame in this cycle. If they all hold out for the last dollar of equity, it will be a slow grind over many years, while the builders clean their clocks and they finally accept their fate. If they realize the best thing to do now is to accept the market and move on, we will get back to normal more quickly.

I hope it happens sooner than later. I am looking for a good auction for lots and/or homes in late 2007.