Friday, January 12, 2007

'Maybe This is the Bottom'

From the Sacramento Bee:

After weathering one of their toughest periods in a decade, Sacramento-area home builders closed 2006 with a bang, boosting year-over-year quarterly sales of new homes for the first time since 2004 with steep price cuts and giveaways that often totaled as much as $150,000 per house.

The aggressive sales tactics, designed to clear excess stock off builders' books by Dec. 31, drove fourth-quarter sales 58 percent higher than the same time in 2005 and 25 percent above the third quarter of 2006, according to a report released today by the Gregory Group, a Folsom-based real estate consulting firm.

Lower median prices -- ranging from $353,689 in Natomas to $498,365 in Elk Grove to $524,001 in Roseville -- helped drive the 2,445 reported sales across the region, with prices dipping 4.7 percent below the same time last year. Only El Dorado Hills -- $863,684 -- and Rocklin -- $609,820 -- reported higher median sales prices than last year.
Placer County showed the quarter's biggest year-over-year sales gains as builders cut prices and offered huge incentives at large master-planned communities in Lincoln, Roseville and Rocklin. In Roseville, for example, fourth-quarter sales prices fell 11.3 percent from the same time in 2005 -- but the number of sales jumped 654.1 percent, from 37 to 279, according to the Gregory Group. Similarly, 11.3 percent sales price declines in Yolo County sparked a 245 percent gain in year-over-year sales.
It also marked an end to the rising inventory of unsold new homes that have swamped the market since 2005. According to the Gregory Group, 3,925 homes were for sale at the end of 2006, compared with 4,598 the previous quarter.
But even as builders celebrate a strong finish, 2006 still saw the fewest new home sales since 1998 in El Dorado, Placer, Sacramento, Sutter, Yolo and Yuba counties. Builders sold 9,588 single-family homes and condominiums during the year -- 4,500 fewer than in 2005.
"Maybe this is the bottom," Paquin said.
(In April 2006, Mr. Paquin predicted that sales in 2006 would be "even with or slightly less than the 14,094 homes sold last year.")
Whether he's right is still the key issue looming over a market that saw home prices double in five years. Paquin cautioned that one good quarter does not make a trend, and analysts nationally have differed over whether the downturn is ending. Recent reports of sales declines by several national builders prompted analysts to say the new home market may remain challenging "for the foreseeable future."
UPDATE: Chart Here

Also from the Bee:
Suzie Rivera's dream of home ownership may soon be within reach. The 53-year-old housekeeper for a local hospital lives in a rental home -- a neat, two-bedroom dwelling on 39th Street in Oak Park. Her daughter, Margarita, age 9, lives with her.

"I'd like to buy a house, not so much for myself as for my daughter," Rivera said last week. "Home prices are climbing so fast that by the time she's an adult, she won't be able to buy one."
Update: The Sacramento Business Journal also reports on new home sales:
But as sales perked up for new homes, prices generally fell. Paquin said that suggests builders are cutting deals...Incentives such as upgrades to appliances or floor coverings, which don't show up in a home's price, are making the true cost of a home even lower.

It's a rare situation when homebuilders can take heart in climbing sales and buyers in falling prices, Paquin said. "Look at Yolo County," Paquin said, where the average price plummeted by about $65,000. "The interesting thing is how rapidly it's going down. Buyers may be saying that, whether it's hit bottom or not, the prices are good enough for them."


Sippn said...

"clear excess stock off builders' books.."

"fourth-quarter sales 58 percent higher than.. 2005"
"25 percent above the third quarter of 2006"

Builders were also quoted that "they will build a few more at this loosing price for HappyRanter who missed out on the sale"

Oh sorry, that 3rd paragraph was a mistake.

rocklin renter said...

Logical fallacy:

"I'd like to buy a house, not so much for myself as for my daughter," Rivera said last week. "Home prices are climbing so fast that by the time she's an adult, she won't be able to buy one."

Uh-huh. (if you can't tell, I am rolling my eyes here)

Anywho, North American Title (on the first floor of my building) hosted a "Short-Sale Class" yesterday. Good for them. They are going to need plenty of people who understand the repercussions and who know how to do this properly in the months ahead.

Anonymous said...

Wait until all the flippers get hit with interest rate increases.

How about when the Feds finally wake up and realize alot of the investors bought using owner occupied loans.

Not only do you have devalued property also have borrowers that committed fraud:

Despite the damaged credit history and burdensome debt they're often left with, they aren't always innocent in the law's eyes since they often sign documents with inflated incomes. Often, the FBI's Ortega said, the buyer will sign an application saying the home will be owner-occupied to get a lower mortgage rate even though the property will be rented.

"Those misstatements translate to federal felonies," Ortega said. "It's a lie and it's a lie to obtain money, which makes it a fraud. By and large we haven't really pursued the straw borrowers, but if you get somebody who has done multiple properties, they're on the hot seat. They are criminally liable and could be indicted."

Anonymous said...

The folks hoping that we have found a bottom and now breathing a sigh of relief at some of the recent news that sales have picked up and inventories are coming down are not seeing the big picture.

I would submit that the sales spike last quarter was our first Suckers Rally. People who know that November/December are traditionally weak sales periods jumped into the market thinking that it should be the bottom and that things would rebound in the spring. These are people who are still generally optimistic on the value of Sacramento real estate... they are also Suckers.

I would submit that the real driver of up/down pricing pressure in the Sacramento market has entirely been supply vs. demand imbalance. Too much speculator/investor demand during the run up and now too much supply, coupled with the loss of speculator/investor demand coupled with speculators/investors now looking to rapidly exit the market by selling.

Here are some observations on inventory and where we may be heading in our imbalance.

Using the nice (although not recently updated) graphs at Lyon Real Estate,


It is easy to see that the normal low point in "re-sale" inventory occurs around December and that inventory rises going into the spring. This is a recurring trend year after year and there is no reason to expect a change for 2007. By comparing re-sale inventory from January last year to now, it is interesting to note that most counties in the Sacramento area are near 150% of where they were last year. If you project out that trend-line, what does that say about where inventory will be in July and August? With last year bringing record inventories it would seem that we are well on course to more than shatter every previous inventory record.

Here are some numbers:

1-14-07 MLS listings vs. 01-2006 (% change)

Placer - 2601 / 1742 (149%)
Sacramento - 8833 / 5933 (149%)
Yolo - 787 / 513 (153%)
El Dorado - 1449 / 1074 (135%)

We currently have last years May inventory levels in January!

Is there any chance that demand will somehow rocket up to meet this ever growing supply? The Suckers hope so, the rest of us will hold onto our hats as the bottom drops out this spring.

Diggin Deeper said...

Oh what a difference 6 months makes! All one has to do is look at the graphs Lander posted earlier in the month to know how foolish it is to buy into this market at the present time.