Thursday, November 16, 2006

Stockton Housing Market Prediction 2007: Prices Headed Down by 7-10%

From the Stockton Record:

[Jerry] Abbott [president and co-owner of Coldwell Banker Grupe, Stockton] said he thinks sales prices will continue to drop through next year, perhaps in the 7 percent-10 percent range, and continue on into at least early 2008.
...
Abbott said sales competition from homebuilders continues to be intense as they offer incentives, cut prices or put new homes on the market at lower prices in order to keep sales moving."It feels about the same, unfortunately," said Lorrie Docter, owner/broker of Docter & Docter Realtors, Stockton. "We're still looking at a lot of price reductions, and it seems properties priced really well still take awhile to sell."
...
For those trying to sell, Docter said, "the adjustments have been so drastic compared with when prices were coming up so quickly." Docter, who described herself as a perennial optimist, said the market may stabilize by springtime, but it may be another year before the area sees another "normal" market.
...
The median sales prices for San Joaquin County basically held flat, slipping from $400,000 in September to $399,000 last month. That's down from a high of $425,000 in July. Sales countywide also fell, from 449 in September to 406 last month, a nearly 10 percent decline. Pending sales increased 6 percent, though, from 479 in September to 506 last month.

13 comments:

Anonymous said...

7-10 percent further decline would be a total of 15 to 20 percent decline from the peak. That would probably be the largest decline on record.

brother wherefore art thou said...

pretty soon maybe even a (gasp)regular person like a fireman, police officer or teacher can afford to live in the communities they work . .. imagine that !?

Anonymous said...

It is much cheaper to rent a house in the San Francisco Bay Area than it is to own that same house, even with the deductibility of mortgage interest figured in. It is possible to rent a good house for $1800/month. That same house would cost about $700,000. Assume 6% interest we can see that a buyer loses at least $4,936 per month by buying. Renting is a loss of course, but buying is a much bigger loss.
Renting:
Rent: $1,800
----------------------
Monthly Loss: $1,800

Buying:
Property Tax: $486 ($729 per month at 1.25% before deduction, $486 lost after deduction.)
Interest: $2,333 ($3500 per month at 6% before deduction, $2333 lost after deduction.)
Other Costs: $450 (Insurance, maintenance, long commute, etc.)
Principal loss: $1,667 (Modest 3% yearly loss on $700,000. Reality will be much worse.)
----------------------
Monthly Loss: $4,936

This is a very conservative estimate of the loss from owning per month.

Anybody who buys now would be a fool. We are on track for 50% decline by 2008. If a person buys a home now they wil lose $100,000 of dollars.

JR said...

Anon 2:28,

The decline in home values exceeded 25% from 1990 to 1995. 15-20% does not even get you on the scoreboard.

All these real estate industry forecasts are tainted by their prejudice.

Why, if we had a run up of over 100% in 5 years, does it surprise anyone that we will see a 40% drop? It will take 5 years to play out, just like the early '90's. Inflation will eat into 10% (2%/year) and we will see real prices drop of 30-40%. Think about it....the $450,000, 2,000 sf house that sold for $225/sf in 2005, is going to sell for $270,000 in 2008. US Home is selling 2,000 sf homes in Lincoln for $375,000 right now and they'll probably throw in another $25,000 in incentives if you close by 12/31/06. That is a 22% drop right there, and we know prices will drop further next year. Their building costs are declining every day as commodities drop and subs lower their bids to keep work and land drops by 50%.

Anyone buying a home today is in for a big surprise tomorrow, and all the way thru 2010.

Anonymous said...

I second the above statement. My parents bought a house a 2000 for just over 200,000 in El Dorado Hills and sold it for 575,000 last year. That's nearly a 200% increase! A 20% drop is nothing. 30% is nothing! Prices doubled ALL OVER northern california. 50% should be a likely drop, and even more in some areas. Anyone who says otherwise has a short term memory.

Anonymous said...

Yes, the price drop for homes will definitely exceed 15-20%. It already has. Look at the builder adds this morning in the Bee. Here is one: 2,570 sf home, $362,591 + $10,000 closing costs. You may also take your mother in law Realtor and get another 3% off, as they will cooperate with her now!

So there you have it: $133/sf for a brand new home. That is a 32% reduction from the level at which they sold 100s of the same models ($504,164). And we are still in 2006.

All these people waiting to sell in a spring market rebound in 2007 are going to be handed their hats. The homebuilders have to keep moving product or they go BK. The can keep selling homes when prices get down to the median level of affordability based on income, rent and cost. So yes, that 2,000 sf home will be selling at $270,000 in 2010.

Anonymous said...

Jr,

I haven't seen any data that suggests a greater than 25% decline in the 1990's. Maybe you're referring to a regional decline. At any rate ask those who bought in 2005 if they think a 15-20% decline doesn't get on their "scoreboard."

While a price decline is encouragin g to me as a renter who would like to buy someday, I think the 50% decline predictions are as over-stated as the 2005 "appreciation without end" thoeries.

While a 2,000 sq ft home for $270000 sounds attractive to me, can you imagine the effect on the economy? It would probably lead to a depression never before experienced.

Gwynster said...

damn there was another article in the Sacbee on the housing prices in Oct with some good comments and now I can't find it! Are they deleting comments that don't pain their version of a rosey outcome?

Gwynster said...

Why would a 50%reduction be out of line? The prices were less then that 6 yrs ago and we haven't really created any new jobs here other then construction related or low paying serive positions?

JR said...

Anon 9:47,

You are correct. I was referring to homes I actually owned in 1995, which had dropped in value 25-30% from 1990 values. So that would be a regional subset of the whole market.

And yes, any decline in home values gets on the scoreboard, particularly for recent and current buyers, who will be upside down now and even more upside down next year. I certainly did not mean to imply anything different. I am just saying a 15-20% decline projection is too low as an end score. You see the post by Anon 6:45, above you, who shows how one builder has reduced prices by 33% already.

Your assertion that a big drop in values will lead to a depression is misguided. Keep in mind that only a small percentage of the population bought homes in 2002-2006. While these people are going to be upside down on value, the majority of the population still has substantial equity in their homes, even after a big reduction in value. The adjustment is not causing them economic hardship (other than a net worth decline) and their loans do not exceed their home values.

Texas went thru a 50% decline in housing values when the oil bubble popped in 1984. This did not lead to depression type events (food lines, etc.) You should also know that the value of housing never recovered in Texas. During the last 22 years, housing appreciation there has never equaled the rate of inflation.

I have not forecasted a 50% decline in value. I simply make a strong case for a 30% decline from June 2005, thru June 2008, with a stagnating value thru 2010. Inflation at 2%/year will eat up the rest. So in 2010, that 2000 sf home will cost $275,000. That equates to an inflation adjusted 40% decline from the $450,000 value in June 2005.

If you are a betting man, I will put a bottle of Opus One on the line and we can drink either yours or mine in 2010.

Anonymous said...

If you are a betting man, I will put a bottle of Opus One on the line and we can drink either yours or mine in 2010.

If Sac June 2008 values are at least 30% lower than June 2005, we should all go over to Lander's house, park our cars on his front lawn, and party in his garage with the door open.

JR said...

Anon 2:55,

That is a great idea and a foregone conclusion (See Anon 6:45, who documented the HB drop of 32%). I'll even bring some Heineken for Sippin.

So Lander, 2008 is on the calendar.

patient renter said...

Anon 9:47:

"While a 2,000 sq ft home for $270000 sounds attractive to me, can you imagine the effect on the economy?"

2k sq. feet for $270,000 was more than normal 5 years ago. Normal, in terms of cost to income ratio is all that matters in determining how things will play out. Whether or not the economy is hurt badly won't stop things from happening if they are going to happen.