Wednesday, September 05, 2007

Free Falling into Double-Digit Depreciation

"Yeah I'm Free...."

Asking prices in and around Sacramento appear to be free falling into fall. According to Housing Tracker, the median asking price plunged 14% from year ago levels. Since August 2005, the median has dropped 18.3%.





Triple (Double-Digit) Negative

Meanwhile, sold prices were firmly in the double-digit depreciation camp in August, according to the Sacramento Real Estate Blog. Last summer, the three price measures tracked by the blog (median, price per square foot, and average) went negative. Now all three of those measures show double-digit declines:

The average sale price was down 11% from last year’s average sale price of $409,081. At $325,000, this August’s median sale price was down 12.2% from last August’s median of $370,000. Sold price per square foot was down 12.7%, from $242.92 last year to $212.15 this year.
...
Last August less than one per cent of the homes that sold were REOs (”Real Estate Owned”, i.e., bank owned properties). This August that number has risen to 25.3%.
Welcome to the era of double-digit depreciation! Looks like the answer is: quicksand.


Agents of Change and Agents of Stabilization


The real estate agent to the masses, aka Agent Bubble, has the latest on regional sales at the Sacramento Real Estate Statistics blog.

Here are some other agent observations on the current and future state of the Sacramento real estate market:
  • Julie Jalone, Keep it Real in Sacramento

    I expect we will see some increased activity starting next week although I am beginning to think buying a house is not getting much positive reinforcement from friends and family as it has in the past. I overheard the following comment the other day from a mother talking to her daughter and son-in-law when they were telling her they were actively looking to buy their first home. Mom said. "Are you sure you want to buy now, I think you should wait and see if the prices come down more."
  • Jimmy Castro, Realty Times (8/30/07)

    Values have dropped substantially in the Sacramento area but are anticipated to stabilize by the end of the year.
  • Michelle Dinh and Julee Dinh Cooper, Realty Times (9/1/07)

    The month of August saw the real estate market continue to improve...We are anticipating that the remainder of 2007 will be stable and 2008 will be a good year in Sacramento real estate. The market seems to be flattening out. In most areas the reduction in home values seems to have diminished...While we do not expect to see a return to market-wide double digit annual appreciation anytime soon we do expect appreciation at a rate greater than inflation to return to the overall market in 2008.

Checkmate


Finally, fellow blogger Marinite rakes the NAR over the coals with this gem of a post:
Is anyone really surprised that the organization that argued most vociferously against the idea that there was a housing bubble (wrong, there is), that now is always the best time to buy (wrong), that on a national basis housing has never declined and so won't now (wrong), who, along with their lackeys, changed the way affordability is calculated so that things look more affordable than they really are (just plain wrong), now do an about-face, implicitly acknowledge that a bail-out is needed, and are practically begging for it? Silly you.

23 comments:

RMB said...

Where's sippn when you need him? I'm thinking the kool-aid got to him. Wow this is going down fast and we are at the end of summer when things really start to slow down for th next six month. What is going to be the outlook in December?

Rob Dawg said...

Check out the 25%ile price trend:

http://housing-watch.com/regionview.aspx?city=Sacramento&pct=25&g=m

-17.0% y-o-y. S'okay, things are fine. John Lockwood is expanding his business and his latest advice is "Let's go shopping."

Diggin Deeper said...
This comment has been removed by the author.
Diggin Deeper said...
This comment has been removed by the author.
Diggin Deeper said...

"While we do not expect to see a return to market-wide double digit annual appreciation anytime soon we do expect appreciation at a rate greater than inflation to return to the overall market in 2008."

Here's a thought you can take to the bank. At least the noose has some length to it. Current home pricing is MISinflation and its due to an oversupply of greed and miscalcualed demand. Pull it out and prices have much further to drop before people can pay true inflationary prices for the goods they need on a daily basis.

The mortgage and credit crunch facing this country is beginning to look more like an insolvency problem rather than one of "liquidity". The only way it gets fixed is if the debt goes away which is not happening any time soon.

paranoid renter said...

>>>>

The mortgage and credit crunch facing this country is beginning to look more like an insolvency problem rather than one of "liquidity". The only way it gets fixed is if the debt goes away which is not happening any time soon.
>>>

The banks probably saw this coming which is why they changed the rules on credit card debt and bankruptcy.

Sippn said...

Rob Dawg - hard to figure out what that site is, but I'm thinking its "asking prices" published in classic "unabomber" form.

I noticed some extraordinary asking prices increases in my old neighborhood starting in 2005. . . sellers asking 25% above what the best home in the neighborhood just sold for . . . so its about time.

Did some quick calcs, with the loss of low down, teaser rate loans, purchasing power decreases 30-50% vs. 2005. Ouch! That is most of the problem.

smf said...

"That is most of the problem."

Chicken or the egg issue here, because prices would have not gone so high if the financing was not available, and the financing became available to allow people to purchase homes.

Sippn said...

The teaser rate stuff goes back to the early 2000's or possibly late '90s.

Increasing purchasing power like that creates a lot of money in buyers pockets that will be spent. It gradually builds. Buyers "bid up" what they want. Highest bidder wins. The finance market effectively shut this down overnight (during the past year). It was the major support for the bubble.

AgentBubble said...

Regarding the Realty Times article:

IMHO, these two ladies are a couple of tools. Some comments:

"The month of August saw the real estate market continue to improve."

--I can only assume they are referring to 2005 or a different country with this ridiculous comment.

"The media has been making much of the fall in the median price of homes. This simply means that more lower priced homes are selling. It does not necessarily reflect a change in the value of any particular property. Only an analysis by an experienced real estate professional can tell you that."

--What??? Get real ladies. Sure, I haven't seen any changes in values for any properties. All is fine!

"Contact a reliable, experienced and knoledgeable real estate professional and find out what is really going on."

--Contact one that can spell too.

"The builders have changed their marketing to a more traditional approach. They will not be building homes until they have a contract with a purchaser."

--Builders had no choice in the matter. It's hard to build when you don't have any money for materials.

"We are anticipating that the remainer of 2007 will be stable and 2008 will be a good year in Sacramento real estate."

--psst....psst....Let me fill you in on a little secret...2007 WILL NOT be stable ladies. And 2008 will not be a good year in Sacramento real estate. Read any newspapers lately?

"In most areas the reduction in home values seems to have diminished."

--You have to be kidding me. April Fools already passed right? All you have to do is log into MLS and you can see the count of homes that have been reduced in price. In the last 24 hours, 707 homes have been reduced.

"The market for homes above $800,000 is continuing to see appreciation at a rate consistent with a normal market."

--Wrong. Ever heard of The Ranch in Wilton? Former million dollar homes now listed at $200-$300K less. 5500sf homes that sold for $1.4 million now listed at under a million. I can give you plenty of more examples if you need them!

"While we do not expect to see a return to market-wide double digit annual appreciation anytime soon we do expect appreciation at a rate greater than inflation to return to the overall market in 2008."

--How much are you willing to wager on this? Hopefully not your clients' future...

Diggin Deeper said...

AB....Whew, now that we got that straight, to the woodshed they go!

These poor gals need to check in with that young lady working at Denny's. At least she knew her options were limited and reacted in a responsible way. I suspect their futures are headed the same direction.

Patient Renter said...

Hahaha. Great response AB :)

wrong moves said...

You know, I want to believe all of the numbers showing prices going down, I reeeeally do. I have been tracking 79 properties for over 3 months now to see the difference in asking price and selling price. As of August 24th (the last time I tried to find sales) the few properties that I found sold were only 3.92% below asking price, all over $200ft/sq. I guess the positive side for me as a buyer is the fact that not a lot of homes are selling, so something will have to give eventually.

I just can't stomach paying over $200 ft/sq for a tract home with a little yard.

Rob Dawg said...

Sippn said...
Rob Dawg - hard to figure out what that site is, but I'm thinking its "asking prices" published in classic "unabomber" form.


And also:

wrong moves said... As of August 24th (the last time I tried to find sales) the few properties that I found sold were only 3.92% below asking price

Yes, the housing tracker site is asking prices but according to "wrong moves" and the ever so optimistic John Lockwood selling prices are within 3-4% of asking. I'm pretty sure that this is after-the-fact MLS adjustments but still, the datum be what the datum are.

Sacto's real problem is the cost of land. Lumber, labor and many other things are cheap. Cement, copper excepted but their costs cannot have added more than 2-4% to the total price.

Cost of land = sales price + infrastructure charges.

The latter is not going away. At the same time the two echo effects that have driven prices are sure to decline; SF overflow and State government.

Sippn said...

"I'm pretty sure that this is after-the-fact MLS adjustments. . . "

Rob - don't think for a minute that they really give a s*** what "we" see in the sales vs asking prices. If you put a 100 agents in a room, they wouldn't agree on how to split a billion dollar lottery ticket.

AgentBubble said...

You know, I can't tell you how many times I've seen a listing go pending and then the same day the agent adjusts the listing price. Also, don't forget that there are still quite a few people getting 100% financing and that affects the sales price to list price ratios as well.

RMB said...

Ah jimmy, jimmy, jimmy. Mr. Castro is showing some of that fabulous financial acumen that I have come to expect from Realtors. If you can stomach the $1K loss per month, then soon, oh so soon grasshopper the equity appreciation train will leave the station again and you will be rolling in the dough.... Where is my trout when I really need it... How stupid can people be (rhetorical question because this guy is still a realtor) to buy into this BS. The market is falling and will continue to fall until all of this nonsense is let by the wayside.

wrong moves said...

AB said: Also, don't forget that there are still quite a few people getting 100% financing and that affects the sales price to list price ratios as well.

I have to confess to complete ignorance on this subject. How does the financing affect the sales price?

Thanks>

David said...

"As of August 24th (the last time I tried to find sales) the few properties that I found sold were only 3.92% below asking price"

And how many of these houses were relisted several times? One house down the street started at 330K, dropped price to 315, then 299, then 285, dropped off the scene for a week and is back on at 209K! So if it sells that is more then 30% off the original list price. And the original list for the house was typical for that size house in this neighborhood. Another started at 389K and is down to 285K. Both houses are well kept and would have easily sold for the original list price in 2005. So this speak of only a few percent below asking price is ridiculous, the asking prices have dropped substantially. They still need to drop more to regain sanity, though.

Diggin Deeper said...

In the south and southeast, you can buy a home for $75-90 per sq ft. Materials are marginally the same no matter where you build. I don't know if materials make up 40, 50, 60% of total cost because it really doesn't matter. In Sacramento buyers are having to pay well north of $200 per sq ft. for the same home. The standard answer given has to do with land, build-out costs, permitting, etc, etc.

I think it's pure BS

This market doesn't care if builders overpaid for land, nor does it care what the permits cost. It doesn't tag some high value-added to Sacramento's desireabiliy, or some cost of living adjusment because the weather is temperate. In the end it will prove as efficient as any other. Prices will remain only as high as largest body of buyers can afford regardless of the reasons why one has to pay more in Sacramento then they do in Savannah.

If we end up at $100-125 (or lower) per sq ft, so be it. If it's $150, so be it. But until those graphs park along the bottom and start their move upward, all we're getting on a monthly basis is a strong confirmation that home prices aren't going up anytime soon.

AgentBubble said...

I have to confess to complete ignorance on this subject. How does the financing affect the sales price?

A client with 100% financing has little to no negotiating power with the seller. They will require seller credits. So, instead of getting the house for less, they are actually paying more for the house since the seller is crediting them with money for closing costs.

Patrick Hake said...

Once again, no data on Sacramento County, but for Placer County the average reduction from asking for single family homes sold in August, 2007 was 3.23% not including seller credits towards buyer closing costs. The average reduction from the original asking price to the asking price on the day the offer was accepted was 4.00%.

The average reduction from asking in August, 2006 was 2.43% and the average reduction from the original asking price was 3.12%

I wrote a detailed article on discounts from asking at:
http://www.placercountyhomesandland.net/2007/07/how-much-will-t.html

wrong moves said...

David,
"how many of these houses were relisted several times?" My system of tracking houses is cumbersome and requires me looking up each property several times at intervals. I have found many houses that have been relisted at lower prices but sadly, the ones that sold were original (to me) list prices.

AB, thanks for clearing things up for me. Thankfully, I don't fall ito that demographic.

Diggin,
I could completely understand a currently built house actually costing $200ft/sq to build. Houses built in 1995 were not that expensive so what justifies that price today? I think it will come down to what the market will bear, simple math, sound economics what ever you want to call it. To put is simply, not many people in the Sacramento area can afford a 1500 ft/sq house at $200ft/sq. When you factor in PITI, that monthly tab can be a b1tch! Roseville/Rocklin will easily cost 4000 annually in taxes, I don't care what you buy.

Patrick,
I don't know how you are to work with, but I enjoy seeing your side of things. Thanks for chiming in.