Tuesday, December 19, 2006

Incoming SacRealtor President: Current 'Market Change...A Piece of Cake'

The Sacramento Business Journal interviews Tracey Saizan, the incoming president of the Sacramento Association of Realtors:

We survived the market change of the early '90s, a real depression, so this current one is a piece of cake. I don't think this one is going to last very long because interest rates are very competitive, and as long as buyers are aware that the rates are good, they're going to be out buying.
...
Are agents bailing out of the real estate business?

We're starting to see the number of members (of the Realtors' association) change slightly, but we probably won't see a significant change for several more months. Many of the newer members who got into real estate when the getting-in was good and had a real easy time of it were surprised by this market correction. Those who didn't plan for it financially can only max out their credit cards for so long before they realize they're going to have to get another job.
From the Lincoln News Messenger:
While buzz about the real estate "bubble" continues to suggest a metaphorical "pop," a document compiled by Placer County Association of Realtors provided by [Realtor Denise] Graziani shows an average annual median price increase of 11.5 percent over the past 10 years in Placer County.
Curious they didn't look at 1990-1996 prices.
That median price peaked in August 2005 when it reached $517,500. Since that time, median home prices have dropped 15 percent to $438,000 in October 2006, the last available numbers.

"I think a lot of people now seem to be waiting the bottom of the market," [mortgage consultant Al] Savery said while transitioning to talk about the present real estate market.

The shift in home values, he said, is greatly impacted by the economic law of supply and demand. Builders and investors saturated the market with new homes. With the housing supply and the media's heavy coverage of the housing "bubble"; housing demand has dropped 40 percent since its peak in August 2005.

Savery added that another reason the median has declined is builders have offered significant reductions for a price at or below a resale home. "A builder's profit is most affected by how fast they sell their homes," Savery explained. "For projects financed by banks, the builder typically ends up owning the final 10 percent to 15 percent of the lots outright. All they have remaining is the construction loan and this is often less than the total cost of the home and lot. "That's why they can give $100,000 off incentives, their accounting costs will allow the deep discount."

Savery and Graziani agreed that these incentives have further pushed home prices down in the past few months. "Where it hurts is the person who's trying to sell their house who bought at the peak," Graziani said. "Now, they have to adjust their prices just to compete."

The result is that homes are typically staying on the market longer, for homes priced about $750,000 there is a 24- month inventory. For homes in a moderate $300,000 to $400,000 price range, there is a six- to seven-month inventory.
Change? Adjust? Shift? First Realtor capable of uttering the "D" words (decline, decrease, drop) gets a prize!

38 comments:

Anonymous said...

I don't think this one is going to last very long because interest rates are very competitive, and as long as buyers are aware that the rates are good, they're going to be out buying.

I think it was percieved appreciation that caused buyers to go out and buy not rates. A lot of buyers are getting loans now that no one would have even considered in 1990. Rates being low will not make a difference, although that does not make much difference to a sub-prime borrower whos ARM just adjusted to 9%. Oh by the way the Fed can lower rates all they want most ARMS are tied to LIBOR.

Housing Doom 2007

Perfect Storm

patient renter said...

"We survived the market change of the early '90s, a real depression, so this current one is a piece of cake."

By piece of cake, does she mean builders will celebrate their bankruptcies with cake, homeowners will celebrate losing their homes to forclosures with cake, builders will celebrate record drops in sales and profits with cake, realtors and mortgage companies will celebrate mass layoffs with cake, or we'll all celebrate how stupid this lady is with a nice piece of cake?



"As long as buyers are aware that the rates are good, they're going to be out buying."

The buyers must have missed the memo. As of today, there are still 13,000+ homes on the market in the 4 county area.

dirtdevil said...

Let them eat cake! I think the key "D" word for RE agents right now is "Denial."

John Lockwood said...

Really, I get a prize do I? Well let's hope it's not something cheap! I could use a new cross pen for my buyers to sign purchase agreements -- the black satin finished ones are pretty affordable.

"Prices were down substantially from last year in all categories. Prices declined:..." etc.

http://www.sacramento-home.com/real-estate-events/2006/placer-county-market-update-august-2006_241.html

"As a result, when we look at average square footage, we no longer find appreciation. Instead, we find a significant drop — of 23.4%, from November to November."

http://www.placerville-realestate.com/2006/12/15/real-estate-market-november-2006-pollock-pines/

At the same time, unit volume [in Granite Bay] decreased 47.2%, from 36 units last September to 19 units this September.

http://www.sacramento-home.com/real-estate-events/2006/granite-bay-real-estate-market-4_268.html

Etc. etc. etc.

By the way, the mailing address for my prize is:

John Lockwood
2606 Royal Park Drive
Cameron Park, CA 95682

If you give me a heads up before you send it, I'll arrange to take a picture of it along with a thank you link back.

Lander said...

Hope you like fruit cake!
LOL

patient renter said...

John: You're betraying your peers. Didn't you read the article? You rogue, you.

John Lockwood said...

1) Yes, I love fruitcake!

2) Am I betraying my peers, or am I betraying a pet mischaracterization of yours?

3) No really, fruitcake is fine. I can come pick it up and we can take a digital photo. :)

Gwynster said...

Straight from the typewriter of Jim Wasserman

More high-cost home loans look headed for foreclosure
http://www.sacbee.com/103/story/95150.html

Those sub-prime loans make up more of the market then anyone is willing to admit. In the past week I've seen everything:
Young couples with no credit (their own words), trying to buy a new 2500 sqft home with nothing down to a woman in the Covell Nuggett crying because she didn't sell her first home before buying a second and now can't unload either albatross.

Gwynster said...

More fun from the Bee
Violent crime up in county
http://www.sacbee.com/101/story/94842.html

During times of increasing economic pressure, crime rates increase. Gee what could be driving economic hardship in this area?

TS said...

can anyone direct me to the euphemism?,i need to talk to Ralph on the big white phone.my local paper described a drop on median price from $619k to $530k as a 7.7% decline...i miss the BEE.

JR said...

The subprime loans have contributed to the imbalanced frothy market place during the run up, by making credit so easy and approving loan amounts often in excess of values. Now, they are going to magnify the decline, as foreclosed homes languish on the market, stall sales momentum and sell at deep discounts.

Wasserman got his stats from this table: http://tinyurl.com/ylzvq3

What Wasserman did not say in his article is the foreclosure rate for typical loans during 1998-2001 was 4.8% (it dropped after that in the frothy market). Now, 21% of subprime loans will foreclose, usually in the first 24 months. It is said 48% of all new loans were sub-prime lately, which means 1 of every 10 homes in new subdivisons will be going dark between now and the end of 2008. That will not help the market. And, with the sub prime loans, the loss of principle will be much greater, plus sub prime lenders do not collect taxes and insurance, so add those costs into the mix. (Insanity defined: Lend 120% of value and waive tax and insurance reserves!)

One in ten new homes crashing is going to be a huge drag on the market for a long, long time.

Anonymous said...

I've been tracking weekly foreclosure rates for Sac on realtytrac.com and they've been going down, not up. Also, I notice from the table that JR linked that Sac is ranked 28th in the increased use of these types of loans, even behind the Oakland metro area (although the top 10 list is largely made up of other cities in the central valley). So, once again, I'm not getting excited . . . So far, this bubble bursting phenomenon is much ado about new subdivisions and nothing else (yawn!). As long as the economy remains strong and long term interest rates remain low (Attention: the fed has NO control over long term rates), I see an extremely soft, cushy, comfortable landing, feel free to move about the cabin.

Anonymous said...

"The subprime loans have contributed to the imbalanced frothy market place during the run up, by making credit so easy and approving loan amounts often in excess of values. Now, they are going to magnify the decline, as foreclosed homes languish on the market, stall sales momentum and sell at deep discounts."

Yep thats about right.

Housing Doom 2007

Perfect Storm

MarkJ said...

anon 9:25

Do you think it's a good time to buy right now???

When will people learn this crisis is about affordability...

patient renter said...

"Am I betraying my peers, or am I betraying a pet mischaracterization of yours?"

Calling the President of the Sac Association of realtors one of your peers is a mischaracterization? Don't think so.

Your peers would mislead people into thinking that now is a good time to buy (see the article). Anyone but a fool knows that now is not a good time to buy (see the articles you linked).

Anonymous said...

Anon 9:25

You should go buy up several houses since you seem to be convinced there is no bubble.

Housing Doom 2007

Perfect Storm

Dr. Brightside said...

JR,

Still waiting for prices to come down the 50%+ you predicted (on the inventory blog), as opposed to the 15% that I said had happened already (a few months ago if you recall and now the public data is out confirming)and another 5% to capitulate and bottom (almost there). Looks like inventory is going to drop before you get your wish. Hope you didn't short housing too much. You said you made good money before in Real Estate, maybe you should get back in now. It's easy to be one of the sheep, it's tougher to be a contrarian and call the bottom. We'll know by first half of 2007 who will have bragging rights.

Anonymous said...

Dr. Brightside,

You can not even see the bottom from here. Did you watch the news tonight on Channel 10. They predicted more foreclosures in Sacramento than we have ever seen before.

Anonymous said...

Is Brightside the same guy who thinks the 3 to 1 formula for housing means homes should increase in value 3 times faster than income? He is a joke.

Max said...

I would also direct people over to bubbletracking and scroll down to Sacramento. Notice anything peculiar about the Sac preforeclosure/foreclosure numbers?

Max said...

So, is the NAR trying to head off bad publicity?

NAR Concerned Over Rapid Increase in Foreclosure Rates

Anonymous said...

foreclosure figures are listed first, pre-foreclosures are listed next, with the % of pre-foreclosures moving forward to foreclosures in parentheses.

Sacramento 4 County Metro
10/31: 671/3,059 (21.9%)
11/30: 908/2,985 (30.4%)

Hey Dr Brightside foreclosures are ramping up, where all your buyers to snatch these up before they are sold on the County Court House steps.

Houisng Doom 2007

Perfect Storm

Anonymous said...

Perfect Storm:

I wouldn't say that this is necessarily a good time to buy. But for bubble sitters waiting for a 25% off sale in the good neighborhoods of Sacramento, I think they're going to have a very, very long wait. And who knows, by the time you can get 25% off, 30-y mortgages might be at 10%.

Also, here are auctions/preforeclosures for city of sac, from realtytrac.com. As you can see, the trend has been down, since preforeclosure comes first.

10/16/2006: 452/1392
11/20/2006: 511/1144
12/18/2006: 497/858

Max said...

And who knows, by the time you can get 25% off, 30-y mortgages might be at 10%.

You can always refi on lower interest rates. Kinda tough to renegotiate price.

As you can see, the trend has been down, since preforeclosure comes first.

Not surprising to see lower foreclosure numbers in the city, where the majority of activity has been in resale houses. What do the numbers look like in Elk Grove?

AgentBubble said...

Here are numbers straight from MLS:

Nov. 13
1,016 distressed props
15,530 total listings

Dec. 1
1,196 distressed props
14,358 total listings

Dec. 20
1,324 distressed props
12,786 total listings

My search included residential listings in the 4 county area classified as either short sale, REO, or foreclosure pending. There used to be a "foreclosure" box we could check but that has now been removed. I called MLS tech support and they didn't know why it was removed but assumed any prior property under that classification was moved to REO.

Distressed properties continue to climb as inventory continues to drop.

AgentBubble said...

Max said "What do the numbers look like in Elk Grove?"

Here are the stats for Elk Grove:

9/15
60 Distressed props
1440 Total listings
4.2% ratio

12/20
146 Distressed props
1134 Total listings
12.8% ratio

We went from 1 in every 24 homes for sale in Elk Grove being distressed to 1 in every 8. Keep it up Elk Grove!

Anonymous said...

You can always refi on lower interest rates. Kinda tough to renegotiate price.

You would only refi if rates drop, and lately they've been within a percent or two of their 30-year lows. What if they move up to their historical average of 8-10% (my guess) and stay there? Or go even higher? Then, the folks who got in at 6% are going to look pretty good. The difference between 6% and 8% on a $400K mortgage is about $500/month. I remember that one financial advisor used to say that the most expensive thing you'll ever buy is a mortgage (not a house).

What do the numbers look like in Elk Grove?

I'm not interested in Elk Grove or in new developments. My interest and perspective is in good, established neighborhoods in Sacramento.

happyinSF said...

Uhm "established", I seem to recall visiting my cousins in Elk Grove 30 years ago.
I also don't understand your argument regarding rising interest rates. Do you propose that raising interest rates will not put MORE downward pressure on prices? Will people all of the sudden have more monthly cash flow for mortgages? Will people who have a dollar today have 10 dollars tomorrow? it comes down to a family's income and what they can spend. Rates go up, prices will have to come down.

Anonymous said...

Rates go up, prices will have to come down.

You should compare Shiller's graph of historic home values with a graph of historic 30-y fixed mortgage rates. I don't think you'll find much of a relationship there. For example, the 1970s boom in home values occurred at the same time there was an inflationary spike that sent mortgage rates up above 15%. More recently, mortgage rates bottomed out in the 5% range in mid-2003 and home prices continued to climb, along with mortgage rates, through 2005.

Also, I didn't mean to imply that EG doesn't have good or established neighborhoods, just that my focus is Sacramento.

HappyinSF said...

Right now prices have no relation to wages. Sure, in the 1970's my mum paid her carmichael motgage on a single government typists' salary even with those high interest rates. During the boom, skyrocketing equity outpaced any raise in rates. This is a new era. I stand by my theory that people have x amount to spend, so in this market I see in my crystal ball a need to lower prices even MORE if rates rise in order to find a buyer.

happyinSF said...

OK I consulted a graph of 30 year fixed rate mortgages going back to 1983. What I see is a steady overall drop all the way to 2005. Interesting, there was a peak in 1989 at 10.84 followed by steady decline in rates during that housing crash to 7.15 in 1994. I assume at this time prices were dropping as well. While this does illustrate that rates did raise during the 80's boom, it was apparently necessary to have low interest rates during the crash, I assume in an attempt to avoid a recession.

John L. said...

"Calling the President of the Sac Association of realtors one of your peers is a mischaracterization? Don't think so."

No, you've got it all wrong. Your mischaracterization is that all Realtors® lie about the market. I've proved to you through the quotes that that's not the case, and all I didn't get was this lousy fruitcake.

"Your peers would mislead people into thinking that now is a good time to buy (see the article). Anyone but a fool knows that now is not a good time to buy (see the articles you linked)."

"See" the articles I linked? I WROTE the articles I linked.

In fact, now is a good time to buy. Prices are down. Interest is low. What more do you want, a government subsidy? When prices were high, the bubble blogs started saying it was a bad time to buy because prices were high. Now that prices have come down, you all think it's a bad time to buy because prices will come down more. Two minutes after prices start to rise again, you people will no doubt be whining that now is a bad time to buy because "you missed the trough".

Meantime, home buyers will ignore you, and they'll ignore me, too. One of the most hubristic features of bubbleheads I've read is the idea that consumers blindly follow Realtors'® opinion of the market, and only through the magic fairy wand of your selfless consumerism can these poor hapless fools be saved from themselves.

I give my buyers and my colleagues a lot more credit than that, but if you want to call the buyers fools and the people that help them liars, I'm sure that fills a niche as well -- I'm just not sure what it is.

Anonymous said...

. . . it was apparently necessary to have low interest rates during the crash, I assume in an attempt to avoid a recession.

This statement seems to imply that someone is controlling the level of long-term interest rates (~ mortgage rates), which is not correct. Long-term interest rates are determined by the market for US treasury bonds - when demand is high, rates go down, and when demand is low, rates climb. When buyers of bonds perceive that the risk of inflation is rising, they demand higher rates for bonds. Lately, inflation has been low and the demand for longer-term treasury debt has been high (China has been buying a lot of it), so rates have remained low.

The important thing is that mortgage rates have almost no correlation to housing prices because they are each affected by so many different factors in the economy.

Anonymous said...

John--Care to share with everyone how successful you've been this year in real estate? How about telling us how many home sales you were involved in? It appears (at least by your comments) that you're in the top 5% of your field. I believe they call it the Master's Club right? When was the last time you qualified for it?

HappyinSF said...

Anon,
Then what about Greenspan? I did say this was a "theory", yet what you say does not jive with the fact that demand was low in the early 90's while rates continued to decrease. Again, I said this was a new era, at no other time have people taken out this percentage of volitile loans due too the soaring prices with few who could afford anything with a fixed rate mortgage. Rates go up there will be even fewer buyers. Fewer buyers, less demand, less demand, lower prices. Yes there are going to be many more factors than interest rates at play as prices continue to fall.

Will somebody get johnny some cake..Please?? He's had a rough year. He's POd all the time, typing away with that vein poping out in his forehead.

patient renter said...

"In fact, now is a good time to buy. Prices are down. Interest is low. What more do you want, a government subsidy? "

It sounds like the characterization you assume I made about you was dead on, or it wouldn't hurt you to learn a bit more about the current status of the market you work in. It's simple: It is NOT a good time to buy when prices are depreciating and inventory is near record levels. The record inventory leaves plenty to choose from should someone choose to play it wise/safe and wait a while. You saying that now is a good time to buy makes you no better than the cheerleaders at the NAR, the CAR and the SAR (sac assn of realtors).

Unless you think that values have bottomed out or damn near close, you're not doing anyone a favor (except yourself) by telling them that now is a good time to buy. There's more to a mortgage payment than the interest rate.

Anonymous said...

Patient Renter:

For someone with "patient" in their name, you seem to be quite forceful with your opinions. Do you think that everyone sees the world and is in exactly the same situation as you? You can't imagine even one scenario where now might be a good time for a person/couple/family to buy a house? Thousands of people in the Sac region decided it was a good time to buy last month. But none of them are as smart as you, I guess. How do you know whether they might have had a growing family and needed more space, or maybe they had a job change, or maybe they got a great deal from a builder trying to clear inventory and were able to locate near some relatives who could help them with daycare? And maybe they're going to be in the same place long enough to ride out the bubble. In stock investing, it's often wise to go the opposite way of the herd. Also, in stock investing, market timers always underperform the indexes over the long term because it's impossible to spot market highs and lows except in hindsight. Good luck trying to find the bottom of this real estate market - I hope you have a lot of patience.

patient renter said...

Anon: When I say that now is not a good time to buy I'm definately not speaking of every single person, but it's very safe to say that most would be better off waiting and that advising someone otherwise is wreckless, in most cases. A general statement that now is a good time to buy is certainly wreckless. A lot of people have been hurt by the recent downturn and a lot more will be hurt. There's plenty of justification for being forceful in this.