Thursday, October 12, 2006

Not So Fast Elk Grove

The Sacramento Bee has an update on the so-called "fastest-growing" city in America:

Boom now barely an echo
Permits for new home construction in Elk Grove plummet to single digits.

Only two years ago, as home prices soared and buyers frantically snapped up new houses, builders worked at a manic pace. The city of Elk Grove issued hundreds of single-family building permits each month, hitting a peak of 553 permits in May 2004.

It wouldn't last.

Last month construction slowed to a trickle, the result of both a market slowdown and the virtual build-out of major housing developments initiated before mid-2000, when Elk Grove became a city. The city issued only seven single-family permits in September -- the first time in the six years since incorporation that such permits fell into the single digits.

11 comments:

Lander said...

Hat tip: Happy Renter

Anonymous said...

Maybe the DEA scared off too many potential buyers!

"FOR SALE, 1 year old home. Never lived in. Large rooms. Good circuitry. Low SMUD bills. Quiet neighborhood. No money down. Perfect for a green thumb."

Max said...

You might want to post this before Ben does:

New home sales lowest in eight years

In an interview this week, Wells Fargo Bank Chairman and Chief Executive Officer Richard Kovacevich said he believes real estate prices statewide will stabilize by next spring.

Buyers "may be under water 10 percent for a while, but you can ride it through," he said. "We have low unemployment, very low interest rates and expectations of a continued good economy, all conditions for a very healthy housing market."

rocklin renter said...

Well, at least 7 is a lucky number.


That is STAGGERING. 553 then, 7!!!!! now.

Wow, I'm speechless.

drwende said...

I've been watching asking prices in West Sacramento slide at a rate faster than anyone's projections... a house that was worth $400,000 this spring now lists for $365,000 or so.

This would put a buyer with 100% financing almost 10% underwater right now, with worse to come. If prices revert to where they're comparable to rents, that'd hit the projected average house price of $230,000, putting even buyers with 20% down much more than 10% underwater.

The problem with averages -- even the current grim ones -- is that they vastly underestimate how bad things will be in the worst-hit places. Once owners start defaulting, some neighborhoods will be left more than half vacant.

Anonymous said...

So what's a prospective buyer to do?

Do you wait for Elk Grove real estate prices to tank and buy, wondering whether another wave of Bay Area and other investors will also be buying at the same time such that you've got more renters around you than you're comfortable with?

Or do you pray for a default in Curtis Park and make yourself house poor?

I'm still waiting on the sidelines, renting . . . and despising my renting brethren for entertaining with their garages open and putting indoor furniture on their front porches . . .

drwende said...

There won't be another wave of Bay Area investors at the bottom of the market. Most of them will have taken a nasty haircut and won't have money to play with.

The "investors" getting burned are the Bay Area People who could afford to buy a house or two in the Valley, who got over-excited at how low prices seemed in the Valley, and who understood nothing about the local culture where they were buying. Their savings is sunk into these properties -- they can't get it out -- there is no more where that came from.

Wait for a plausible bottom of the market, then buy in as nice a neighborhood as you can comfortably afford. If the nice-nice-nice neighborhoods are out of reach, look for where locals are starting to drive out the specuvestors and renters.

Anonymous said...

"....asking prices in West Sacramento slide at a rate faster than anyone's projections... a house that was worth $400,000 this spring now lists for $365,000 or so."

One think I've seen with asking prices is sellers often are asking 20% more than the Fall 2005 high. This may not be a "medium price reduction" or a loss. Look at what they bought for.

I've seen several tract homes, closed in the past 12 months, listed for as much as 50% more than the purchase price.

Anonymous said...

People who could afford to buy a house or two in the Valley, who got over-excited at how low prices seemed in the Valley, and who understood nothing about the local culture where they were buying. Their savings is sunk into these properties -- they can't get it out -- there is no more where that came from.

Local culture of low paying jobs 40% lower salaries than in the Bay Area.

The jobs in Elk Grove are crappy food service and retail jobs. Can't pay for a $700,000 McMansion on those wages!

Anonymous said...

Watch the city go broke now that the fee revenue is down big time.

drwende said...

The jobs in Elk Grove are crappy food service and retail jobs. Can't pay for a $700,000 McMansion on those wages!

Exactly. That's why the bottom is going to be so low. The locals can't afford the peak prices. They also can't afford rent that would cover the costs of ownership for specuvestors that bought at peak prices.

The boom was built on Bay Area commuters (many of whom will give up and move back to the Bay Area, possibly as renters) and Bay Area investors. There is NO ONE to buy huge swaths of housing stock.

It's possible that some overbuilt, over-speculated areas will have prices fall to levels below 2002. I'm sure it'll happen in inflation-adjusted dollars; it might happen in nominal dollars.