Thursday, January 18, 2007

Sacramento Real Estate 2006: "A Scary Tale"

From the Sacramento Bee:
'06 housing stats tell a scary tale
Dwindling sales and ever-plunging prices mark boom's end.


The couple fell in love with the 2,400-square-foot Arden Hills home and watched the price tumble from $745,000 to $699,000 -- then to $624,000. The Aizenbergs offered $575,000. Then came a $600,000 counteroffer. "We said $585,000 and they said 'Yes,'" says Aizenberg, a Wachovia Securities vice president who moved into the house in mid-December.

Perhaps no story better captures Sacramento-area real estate during 2006, a year when a small number of buyers wielded immense power amid greater supply than demand.
...
A turbulent 12 months that brought a definitive end to the housing boom also closed with lower prices. Median sales prices -- the point where half cost more and half cost less -- were down 16.9 percent in Placer County from December 2005. Yolo County reported prices down 14.1 percent. Sacramento County prices were down 7 percent.

DataQuick attributed much of the year-over-year declines -- the steepest among California's urban counties -- to huge discounts offered by new home builders eager to clear inventory before year's end. Price cuts from $30,000 to $100,000 were not uncommon as 2006 ended.
...
The number of homes for sale in El Dorado, Placer, Sacramento and Yolo counties also continued a five-month fall to 10,931 by month's end, according to Sacramento researcher TrendGraphix. That's 4,500 fewer houses for sale than last July. In 2005, the year ended with 8,538 homes on the market.
In other words, 2007 began with 28% more homes on the market than 2006.

24 comments:

Anonymous said...

Dataquick has reported Stanislaus County median home price increased $12,500 to $377,500 for December with sales increasing 20% month over month. Interesting numbers for the traditionally slow sales period.

Anonymous said...

Dataquick includes foreclosures as if they were sales. Since they rely on County supplied data for deed transfer info, they call all transfers of title a "sale"!

I guess its sorta true, the banks are in fact buying them back...

Rob Dawg said...

Someone else had surely bought a similar Arden Hills plan a year earlier, Dec '05, for $150,000 more than the Aizenbergs. Even if they put down 20% they are underwater. Ouch.

Anonymous said...

At what value does Dataquick assign to "bank" deals?

drwende said...

If Dataquick is actually tracking title transfers, then defaults would have to be assigned the value remaining on the mortgage. That's the only logical way to do it. So yes, defaulting on a lot of upside-down mortgages would raise the median sale price.

Rob Dawg said...

I'm not sure if DQ biases up. An auction failure would record at the outstanding 1st mortgage most of the time. If there were only one lien then yes upward bias but for every case of 2 or more liens this is a downward bias.

Real said...

I realize that all the renters are hoping to see the bottom fall out of the market so they can be right in their decision not to purchase, but this article contained a pretty insightful graph which was NOT mentioned in the article itself

http://media.sacbee.com/smedia/2007/01/17/18/91-re2.standalone.prod_affiliate.4.gif

If you focus on existing home sales (which would be the cause of the upside down mortgages and 'pain' in the market) you will see that Sac median price fell by <2% over the last 12 months. The big drop in prices was for new home sales - this drop is likely driven by type of homes offered, etc (lower end to appeal to more buyers) as well as an inventory glut.

Of course, a new home also typically means the house is further and further away from the city centers, etc which also dictate a decrease as commute time and cost (gas prices) will influence consumer behavior. So, the example given in the article seems 100% inconsistent with the median sales data for Sac which show only a 2% drop over 12 months vs. the 20% drop over a few hours as told by the article.

drwende said...

RC, that'd be true if the value of the first lien (the 80% of the sale price) were less than the fair market value of the house... which is to say, it'd be true in normal times.

I'm not so sure it's true now, especially on a difference as small as $12,500. The median sale price in much of the Central Valley has slipped 10-15%, but that means half of all houses have lost *more* than that amount...

Anonymous said...

This is entirely anecdotal, but I believe 20% to be fairly indicative of the price reductions so far (and not just for Sac). I sold my house in the Bay Area last summer for 20% less than the price I believe I would have gotten in the prior year, and purchased a home in East Sac for more than 20% off the original asking price. It may go down from here, but I'm not concerned, a home is something to enjoy and I'm not going to spend my time trying to time the market in homes, stocks, bonds or anything else.

Anonymous said...

Such a small % drop is nothing. I have seen 20% haircuts already.

Even some of the architects I work for call the housing market dead. Essentially all architects are working on are projects that are 'affordable housing'

Real said...

Essentially all architects are working on are projects that are 'affordable housing'

I would argue that you just made my point on why the median price of new home sales has tanked 16% - it is not 16% on identical homes, more a skewing of homes towards affordable housing vs. $500K minimum like were being built almost exclusively 1 year ago. Given this skewing - what is the true drop in price? Existing sales say 2% over the last 12 months - hardly a 'bubble bursting'.

Sippn said...

Knowing the neighborhood as I do, they paid what it was worth, it wasn't worth $745K in the peak.

They paid 20% more that what the seller paid for 2 years prior, almost double what it sold for in '98.

Its in a nice area, but busy street.

THis isn't a good example of prices dropping (depreciation), but of a seller getting caught trying to make a killing by over pricing. Seller still made over $150k in 2 years, tax free.

Real said...

sippn - thank you. My point exactly. This is not a 20% 'hard landing' in 2 months time. What was the zillow.com estimate when the house was listed at $745K?

Sippn said...

Zillow was beta testing then (early 2006) but currently show home as most expensive 2400sf on block, but within $50K.

Location is critical, 1 mile southwest, a 50 year old 1800 sf sold for $649K in a week a few months ago, flipper got it, gutted it.


But I've seen a lot of people in 2006, take a high 2005 price from their street and add 25-40% - was never going to get that, but the final sold price is usually still OK.

Sippn said...

Yea Real, just read your previous post. You're right on about change in the mix of new homes selling affecting median prices, although discounting of 15+% was advertised in 4th quarter.

Mix is also what caused Nevada County to rise 145%.

More condos coming on this year.

Repeat Again, Affordability said...

"It may go down from here, but I'm not concerned, a home is something to enjoy and I'm not going to spend my time trying to time the market in homes, stocks, bonds or anything else."

It's not about timing the market for first-time buyers. It's all about affordability, nothing more, nothing less. The simple fact is the vast majority of first-time buyers cannot afford to buy without suicide loans. When the time comes that prices are more in-line with incomes then first-timers will buy.

patient renter said...

Real:

"Existing sales say 2% over the last 12 months - hardly a 'bubble bursting'."

The reason that the drop in prices of new homes is so great compared to existing homes is simply because builders are actually lowering their prices and getting sales whereas existing homeowners are clinging to their high prices. Thus their homes do not sell and the median price statistic for existing homes stays unchanged.

The inventory levels (which are going up again) are all the evidence you need that the true value of existing homes isn't in line with list prices, otherwise they'd be selling. End of story.

Real said...

patient renter: I think you need to re-read the article. How inventory in the 4 county area is down 35% since july and using Decemeber sales as the run rate for the counties, you get less that 4 months of inventory. If your argument was true, you would see closer to zero sales instead of the 1600 existing homes in the 4 county area which sold. Simply put, your argument does not make sense. As to the above post talking about people being under-water - well, a 1.7% drop in existing Sac homes does not force a seller to walk away or sell at a 20% discount to their last purchase price. What we see is a decrease in list price (flat market) rather than a decrease in sales price - this is simple math people, not even a debate.

Confused said...

Real:
Not sure how you came up with that 4 month figure. Care to clarify?

anon1137 said...

From my perspective, December's sales number don't look good for bubble watchers, unless you're in the market for a new home. Numbers of sales are falling, but prices aren't moving much . . . and let's face it, it's all about prices. This bubble is going to deflate slowly unless there's trouble in the overall economy.

I'm also disturbed that there aren't any posts from Perfect Storm about falling knives on this thread.

Real said...

Confused
Not sure how you came up with that 4 month figure. Care to clarify?

Go to the actual Sac Beee article and you will find the graphic at the bottom with the actual data. Attached is a link:
http://media.sacbee.com/smedia/2007/01/17/18/91-re2.standalone.prod_affiliate.4.gif

You can add up all of the home sales for the 4 county area - you will get about 2600 total sales. Then compare this to the inventory number listed in the articel - about 10.9K at the end of December (at the end of the article where it states inventory is down from 15K in July)

I think you can do the math here 10.9K/2.6K = ~4 months of inventory.

I also invite you to look at the price decline for existing homes in those counties - Sac is down only 1.7% - and they call that a 'crash'? Seems like the crash may be in 'list price' which planned on another 20% run up, but the actual sales data shows existing houses in the Sac Area have really not declined at all. As posted above, the decline is in New Homes, which is likely driven in a large part by builder switching from building $500K minimum 2400 foot^2 houses to $300K 1400 foot^2 houses.

Lander said...

Real-

I think you are comparing oranges to apples.

You said:
You can add up all of the home sales for the 4 county area - you will get about 2600 total sales.

The only number that comes close to 2600 is the 4-county ALL HOMES sales (existing detached + existing condos + new homes), which totals 2,824.

The inventory number comes from TrendGraphix, which does NOT include new home invetory OR non-MLS existing home sales. The DQ numbers represent all sales recorded by the county, including MLS, non-MLS, and new homes. Therefore, you are significantly underestimating inventory numbers and/or overestimating sales.

If you are going to calculate months of inventory, you should use the same source, which measures the same thing. DQ does not publish inventory information, so we are left with older TrendGraphix numbers from November (go to the golyon link at right).

The most recent data (for Nov. 2006) shows inventory for Sac County at 8,017 and sales at 943. That translates into 8.5 months of inventory of MLS existing homes.

patient renter said...

Real:

"patient renter: I think you need to re-read the article. How inventory in the 4 county area is down 35% since july and using Decemeber sales as the run rate for the counties, you get less that 4 months of inventory."

I didn't think it was even necessary to point out that inventory being down is a seasonal norm. We all know this, so I shouldn't even have to say it. Year over year, inventory is still way up and is climbing at the moment. Right now we have the same amount of inventory that we had mid Spring last year, and last year was a record year. I'll skip the supply and demand talk and simply say that all this inventory means much lower prices on ALL homes, particularly when compounded with rising default notices, forclosures, 1 trillion in mortgages adjusting (mostly up) this year, massive sales drops, tighter lending standards, etc., etc.

Perfect Storm said...

Real you need to get real. Your offically at troll status. At least Sippin does his homework.