Friday, July 13, 2007

Sacramento New Home Sales Crater; Record Inventory

The Sacramento Bee and the Sacramento Business Journal report on new home sales. Some highlights:

  • Sacramento new homes sales were down 43% in the 2nd Quarter from last year
  • Median price of new homes dropped 13% year-over-year (YoY)
  • Average price of new homes fell 11% YoY
  • New home/lots inventory is at the highest level ever seen by the Gregory Group
  • Total Inventory (new & existing) surpassed last year's high
  • Existing home inventory eclipsed last year's high

From the Sacramento Business Journal:

The outlook for homebuilders and homeowners looking to sell keeps getting worse. New-home sales were dismal in the second quarter. The number of new and existing homes on the Sacramento market has eclipsed last summer's inventory and stands at close to 22,000. Foreclosures in Sacramento County are 10 times what they were last year. And mortgage rates have risen over the past few months. "It's really a combination hitting all at once," said new-home analyst Greg Paquin, founder of The Gregory Group in Sacramento.
The Gregory Group reported inventory of 4,899 new homes or lots, the largest figure since the company began tracking new homes.

Existing homes on the market in Sacramento, Placer, El Dorado and Yolo counties, including condos and townhomes, total 17,041 as of the end of June, according to Lyon Real Estate's information company, Trendgraphix Inc. That's above the 15,900 resale homes on the market at the same time last year.

"We knew it would go over last year .... That's too much food on the table, and the buyers are going for the caviar," said Lyon chief executive officer Michael Lyon. "It goes to show that any sellers who thought there would be a quick recovery need to get that out of their heads. Things are selling when they're priced below the last comparable sale."
Prices are continuing to fall after an unprecedented run-up between 2000 and 2005. For new homes, the median price in the six-county region fell to $400,400, about a 12.9 percent decline from the same period last year. The median price for resale homes in Sacramento County is $339,000, about a 10 percent drop from last year.
From the Sacramento Bee:
No question about it. These are times that try builders' souls. Sales of new Sacramento-area houses, condominiums and townhouses fell in April, May and June to their lowest levels in 18 months, according to statistics released today. Average sales prices, too, are back to where they were three years ago.
Paquin said builders have cut production. But there are now more builders in more locations. Most bought land during the housing boom, he said, and must build despite the downturn.
But much as builders say now is the time to buy, buyers wait. "It's more a mental state of mind than an economic environment," said Michael Paris, Sacramento division president of Chicago-based Kimball Hill Homes.
"You talk to people, they have jobs, they're eating at restaurants, they're buying cars," Paquin said. "People are still driving to Tahoe. There's a sense that the economy is good and 'I'm not too worried about it. By the same token, I'll buy a house later.' "

The Gregory Group said 2007 second-quarter sales are the lowest since 1,549 sales were reported in the fourth quarter of 2005. If second-half sales mirror the first half in the six-county region, 2007 will see between 8,900 and 9,000 new home sales. That's about the same as 1998 and less than the 9,588 sales reported last year. The region's high was about 17,000 in 2004.
Paquin called it a "challenging environment" for builders. "I think next year is probably going to be more of the same. I think the expectation or hope now is that 2009, or late 2008, is when we're going to come out of this thing," he said.
Gregory Group Sales/Price Chart


Lander said...

From the Sacramento Bee:

People are notoriously fickle when looking at houses...When it's hot, like this time of year, they can be impossible.
Yet ... what if there's ice cream inside the house? Or cold bottled water, sodas and iced tea in a tub filled with ice? What if the air conditioner is really cranked up, revealing a huge difference between out there and in here?

"They tend to hang around a moment," says Lisa Morris, a Roseville real estate agent and home stager. Cooling your customers, indeed, is the tactic most recommended -- after fresh cookies on the stove.

Sacramento-based agent Patrick Lieuw is a big fan of backyard water misters as a sales tool.

Sippn said...

Still curious why Housing Tracker showed more than 18,000 last year, more than current... 17,906

Not good anyway, but Sac is one of the few markets that did not exceed last years inventory by 20-50% as many of the large markets did.

Lander said...

Which large markets?

Diggin Deeper said...

Do I hear em saying... "We give up"?

When the media caves with conviction, we're finally on the right track.

Now its up to the builders, banks, realtors and their sellers to drive prices down to a "perceived" value for potential buyers.

Imho, this is just a market acting like any other market that's seen a huge run up. It usually corrects to the favor of the buyer. And if it doesn't to the buyer's satisfaction...they don't buy.

Cold air conditioning, warm cookies and milk, and any other frothy gimmick aren't going to sell homes when the prices are too high and are not perceived as fair value.

rocklin renter said...

Maybe because we had our landslide of homes for sale last year, while these other "large markets" you speak of are just now falling off the cliff?


Oh, and different sites use different sources for their info. There is going to be discrepancy.

Perfect Storm said...

Oh if I could just find an open house with cool A/C and fresh cookies, I would buy a house. I would really!

Gwynster said...

Nothing smells quite like desparation like baking bread.

Gwynster said...

I know of 4 homes in Dixon that were taken off the MLS recently. They are REOs and will be auctioned at the 7-22 event. Multiply that a few times and there is your shortfall.

paranoid renter said...

How far down from the peak are current prices? Would it be 20% or more?

Patient Renter said...

"How far down from the peak are current prices? Would it be 20% or more?"

Yeah, YOY stuff is nice, but I too have been wondering where we are lately in relation to the peak (price/sq foot moreso than median).

anon1137 said...

I thought it was interesting in the sacbee article that builders say they are building higher density, smaller homes, with fewer standard options. Yet the prices have come down only 11% y-o-y throughout the region . . . which makes me think they're still trying to hold on to their profit margin, or rather, that they aren't taking the loss on the lower value of their land.

Sounds like they're offering 11% less product for a price that's 11% lower. Big deal, like, I feel their pain.

Diggin Deeper said...

"nothing says lovin like something from the oven"...

Looks like we're going back to formica, plastic sinks, shag carpeting, and linoleum.

Lander said...

Golyon now has May Sac County data:
$/SF from Peak: -11.8%
Ave. Asking $ from Peak: -18.8%
Supply: 10.2 months

Agent Bubble - any info on the June $/SF v. peak?

RE: New home prices since peak

I haven't been tracking Gregory Group figures for median "opened" sales prices. The article says that figure peaked a year ago.

The SacBee only started to list new home median prices (closed sales) about a year ago using DataQuick (and their coverage is not consistent). Back in December the SF Chronicle did report that Sacramento County's new home median price peaked in December 2005 at $476,500. Thus in Nov 2006, the median had declined 17.1% from peak. Unfortunately, DataQuick decided to change their methodology just a few months later, so comparing that peak to now is somewhat misleading. With that big caveat:

Dec 05: $476,500 (old method)
May 07: $362,500 (new method)
Change: -24%

Anyone want to buy me a DataQuick subscription? ;-)

Chris said...

Of course the $/SF has mix issues -- smaller houses == lower average prices but much higher $/SF. The fall in both these numbers probably reflects some of the smaller, denser philosophy the builders are going with.

Regardless, it's all in buyers' states of mind. So it'll bounce soon......

Patient Renter said...

"I thought it was interesting in the sacbee article that builders say they are building higher density"

I don't know about you, but I've seen some pretty damn dense construction over the last few years with very very small lots (a lot of this stuff was bought by speculators). I'm trying to imagine how it could possibly get any more dense, and who would possibly want to buy there.

Cmyst said...

I went to look at a very small subdivision off Pecan Ave/Greenback in Orangevale. Energy efficient homes with solar panels, less expensive than the Lennar homes in the EDH and Roseville subdivisions which feature the same energy efficiency standards and features.
I drove in, and drove out. The lots were ridiculously small. The houses already had a strike against them because they were 2-storey, and with their sf I can see why now.

Sittin' Out This One said...

In 2005, no one in the main stream media saw the correction coming. I happened across this blog in Dec. and it made a lot of sense to me.

Fast forward to July 2007: No one sees how serious this is becoming: 1) The home builders keep building to release sunk capital in lots, 2) The lenders keep foreclosing and dumping inventory in auctions, 3) the realtors are getting the shaft as sales drop to 1500/mon, 4) Resales are stagnating, 5) All this causes more price reductions....wash rinse repeat, wash rinse repeat.....

This really looks like it is going to get very ugly. And if the contagion transfers to the main economy, driving a recession, it is going to get brutal.

I keep thinking it may be a good time to buy. Then I review the overall data. It makes no sense to even touch a piece of real estate until the price equals 10 times the rent. Amazing stats Lander. Thank you for being so diligent.

paranoid renter said...

It makes no sense to even touch a piece of real estate until the price equals 10 times the rent.

This is certainly not true in places like the Bay Area and has not been true even before the bubble. Million dollar homes over there typically rent for $3000/mo.
Even in pre-bubble days those homes were around $600K and the rents were still close to $3000K (but a little less).

On the other hand, a 2BR condo that rents for about $1000/mo costs $200K in Roseville.

I think prices will fall but I doubt they will get to the range where they are 10x rent. That used to be a useful rule of thumb, but with 30 year fixed mortgages (as opposed to the 15 year fixed that people got in the past when this rule was true) things have changed. Homes have become relatively more expensive since the same amount of money buys a more expensive house with a 30 year loan. One of the ways of maintaining the bubble was getting to 40 year loans except that at that point the payments don't get affected that much.

smf said...

You are making absolutely no sense talking about how you don't think prices will fall down that much.

Sorry, there is no choice but for prices to correct to their logical level.

Even in San Francisco prior, you could pay 2X the rent for a similar house found in Sacramento. And the price for the house was 2X more as well.

A 30 year loan was the most expensive option, and the hybrid loans would give a value that was LOWER than a normal 30 year loan.

If people are forced to use these 30 year loans again, prices would DECLINE, since most people who bought these houses could not afford them with a normal loan.

jason said...

Great post! I am gonna share it with my own blog readers at ! Thanks.

paranoid renter said...


What % do prices have to fall for that equation to hold? It would have to fall more than 50% from today's prices. Do you really think that is likely?

Gwynster said...

Many have pointed out that a 30% decline in price with a 20% increase in salaries would bring us in line.

Normally I'd agree, except that the US is under too much pressure to keep wages down to compete with other economies. Helicopter drops to inflate our way out is possible but so incredibly stupid that I pretty much dissmiss it.

This is different then the 1970's downturn. We just don't have the right job base to see 20% increases. So look forward to long low decline and flat flat sales like 89 to 96 - just worse.

I've already seen 20% to 25% price declines in areas I'm watching. I think we'll see another 20% but over 2 yrs, maybe 3.

norcaljeff said...

I see Tim Lewis trying to buy down monthly home payments instead of lowering the prices on his homes in order to move inventory. I guess his sales guys either worked for car dealership or they stole a page out of their sales manual when they put this scheme together. Not sure why they can't figure out home prices are the problem, not the phoney monthly payment.

Lander said...

Not good anyway, but Sac is one of the few markets that did not exceed last years inventory by 20-50% as many of the large markets did.

Sacramento was one of the first markets to experience the inventory explosion. YOY increases are likely largest at the beginning of a bust, as inventory climbs and is compared to the extremely low levels of the boom. Thus in early 2006, inventory was increasing by over 150% YOY. That rate of increase is not likely to be repeated.

So actually, 20-50% YOY increases seems rather paltry compared to Sacramento's experience. Perhaps those other (unspecified) markets are just now peaking, or perhaps Sacramento really is special after all.

Patient Renter said...

"Which large markets?"

I think Sippn may have been referring to Phoenix? As you said though, Sacramento was just a frontrunner in its inventory runup, where we put up big numbers last year and other markets are just putting up big numbers for the first time this year.