Sunday, December 31, 2006

2006: "Year of the Hangover" 2007: ?

From the Sacramento Bee:

"In the boom-and-bust history of Sacramento's growth, from Sutter's Fort to today's metropolitan area of nearly 2 million people, 2006 was a year of the hangover. For the real estate dreamers, the fast-money speculators and everyday sellers of thousands of homes, the year abruptly crashed the housing party, ending the sure thing and the easy bet. The spring rebound, which many hoped would reignite the five-year boom in home prices, failed to materialize. Then home prices began to fall. A year just hours from ending saw an entirely new real estate cycle."
"Who now has the crystal ball for 2007? Will it be a better year?"

Leigh Rutledge, 2006 president of the Sacramento Association of Realtors:

  • "I don't see any price increases. I think we're going to have a similar year."
Scott Syphax, president and chief executive officer of Nehemiah Corp. of America, a Sacramento-based community developer:
  • "Flat appreciation. And that's the best you can hope for."
  • "The people that I run into who are the most unrealistic are the speculators and investors because they had a particular rate of return or amount of appreciation they were looking for, and it's sort of like the world's flat. It doesn't matter whether or not the world's round. Some of them are still not ready to accept that."
John Karevoll, analyst with La Jolla-based DataQuick Information Systems:
  • "But for right now it does look like things are flattening out. We've basically come as far off the peak as we're going to be, with adjustments, you know."
  • "You've got this enormous amount of inventory ... and it will go down -- it will go down by spring, significantly. A lot of these people will say, 'Well, I can't sell it for $500,000, so I'm going to sit on it.' They're going to just take them off the market. That's going to bring a bit more balance to the market."
  • "There may be another percent or two of price decreases ahead of us. I think the sales counts will stay roughly where they are right now. That's kind of my 80 percent projection. If any of the dire, ominous stuff happens ... then things could get bloody. I don't think they will get bloody, but there is a chance they could."
Kathryn Boyce, analyst with Costa Mesa-based Hanley Wood Market Intelligence, a home-building market researcher:
  • "I think with new-home sales, I think prices are still going to drop some and (new-home builders are) going to (cut back on) the incentives."
  • "I think that the prices are going to drop more. I think the incentives, those $150,000 incentives, aren't going to be there any more. I think they're still always going to have incentives. It's just not going to be to the crazed amounts that they are right now. I think it will stay relatively the same way as it is now. We're going to stay good in '07 and probably come back up in '08."
Greg Paquin, president of the Gregory Group, a real estate consulting firm based in Folsom:
  • "I would suggest on the new-home side that we haven't reached the bottom point yet, and I'm optimistic we will in 2007. ... I think next year is going to be very similar to this year. I don't necessarily think it's going to go down a whole lot more. I think new-home sales are going to be relatively the same as this year."
  • "I think sales on the new-home side are going to be pretty consistent with this year. I think we'll see a little bit of a bump in '08 in terms of sales volume. In terms of pricing we may see a consistent level. Maybe a little lower next year, not significantly by any means. And then maybe net pricing is a little bit up."
From the SF Chronicle:
2008 and beyond: "It wouldn't surprise me if it took five years for sales volume to return to normal and to see some significant appreciation," he [Ed Leamer, Director, UCLA Anderson Forecast] said.

The interior areas of California, where much of the housing boom and bust has been due to new homes, will recover more quickly than the coast, he said. The sharp drop in prices in places such as Sacramento and Southern California's Inland Empire mean a faster correction is in store for those regions, he said. "The interior has a different cycle," Leamer said. "The coastal areas all had relatively small amounts of building and huge amounts of appreciation."
From the Auburn Journal:
Mark Wexler and Alice Brooks will be very busy. The palmist consultant and astrologer from Auburn suspect that this change in the stars and the coming new year will lead to many people seeking their services to find out what's in store for 2007. "Oh yeah. Everybody wants a reading for the new year," said Wexler.

The coming of a new year not only means we look back on what happened over the last 12 months, but we also tend to look ahead and speculate on what the new year will hold. Will the loveless find love? Will the burned out find satisfaction on the job? Will the housing market heat up or continue cooling off?

Many people ask these questions of Wexler and Brooks. "There's a curiosity," Brooks said. "Maybe people feel like they're on the wrong road and they need help."


Perfect Storm said...

John Karevoll

"You've got this enormous amount of inventory ... and it will go down -- it will go down by spring, significantly. A lot of these people will say, 'Well, I can't sell it for $500,000, so I'm going to sit on it.' They're going to just take them off the market. That's going to bring a bit more balance to the market."

Yeah you go man, you tell them, we just won't list. That's right take that. If I lose my job, job transfer, get a divorce, health problems, house goes into foreclosure due to my toxic mortgage, house burns down, drug addicts move next door, I will just pay two mortgages or go rent and rent my house out for negative cash flow. I will show them.

John Karevoll is a tool.

drwende said...

Okay, here's what's going to happen with whether people list or not:

1. Homeowners who might have sold to grab profits and move up won't list. They'll sit tight.

2. Specuvestors who have one or two money-losing rentals will hold and dribble money until the first couple of major repair bills come in or losses go up substantially.

3. Recent homeowners who want or need to move will try renting their "old" homes rather than selling them. This will drive rental prices down further.

4. Recent homeowners who can't handle their exotic mortgages or qualify for a refi will default. Banks can afford to dump houses cheaper than owners, so that'll drive prices down further.

5. Longer-term homeowners who need to sell will slash prices. If you bought at $200,000, you still make a profit selling at $250,000. But your neighbor who bought at $400,000 is screwed when the value of his house drops to $250,000.

6. Specuvestors who bought multiple properties, all of which are losing money on rent, are going to be dependent on keeping rent losses to a bearable level. If exotic financing was also involved, there will be some bankruptcies, dropping large numbers of houses on the market as defaults.

In neighborhoods that saw high turnover during the boom, and where specuvesting is 25% or more of all homes, there's going to be a wobble of decreased inventory through spring -- and then the bottom is going to fall out of the market. Next fall will be ugly in West Sacramento, Natomas, and Elk Grove, even as housing pundits point to tiny inventories in Land Park and the nicer sections of Davis.

Anonymous said...

All of them were way too optimistic.

Prices will drop 30% this year.

Why? Fannie won't allow borrowers to qualify for teaser payments.

patient renter said...

"You've got this enormous amount of inventory ... and it will go down -- it will go down by spring, significantly."

This guy is either on something, lying, or just out of touch with reality.

Lander said...

It's an interesting prediction for Mr. Karevoll to make considering DataQuick doesn't gather inventory data (if my memory is correct).