Wednesday, October 17, 2007

'Negative press is a major factor keeping inexperienced buyers at bay'

From the Sacramento Association of Realtors:

“An influx of homes on the market, along with the subprime mortgage situation, has slowed activity, but homes are still being sold,” says 2007 Association President and REALTOR® President Tracey Saizan...If you have good credit and want a lifetime investment, now is an excellent time to buy. The credit crunch is contributing to the notable inventory and negative press is a major factor keeping inexperienced buyers at bay,” continues Saizan, “but REALTORS® who have experienced these market fluctuations are patient and will endure the softness in this market.”
MLS Statistics for September 2007, Sacramento County and West Sacramento

Change in Median Price
  • Since Sep 2006: -11.8%
  • Since 2005 peak: -18.5%
  • Consecutive months of YoY declines: 15
  • Consecutive months of double-digit YoY declines: 2
Change in Sales
  • Since Sep 2006: -36.1%
  • Since 2004 peak: -69.6%
  • Consecutive months of YoY declines: 28
  • Consecutive months of double-digit declines: 25

70 comments:

Gwynster said...

Lander,

after seeing the numbers "and want a lifetime investment" takes on a whole new meaning >; )

Nice find

bubblemachine said...

If you have good credit and want a lifetime investment, now is an excellent time to buy.

ROTFLMAO

Oh well, at least President Saizan has the REALTOR® talking points well memorized.

paranoid renter said...

More like a lifetime money sink.

I'm grateful for the net and all of the wonderful housing blogs.

smf said...

OMG! OMG! OMG!

Just when I thought things couldn't get worse, I took a trip thru Shingle Springs Road.

I have NEVER seen such a large quantity of 'For Sale' signs!

I mean, why?

Cmyst said...

SMF, I'm sayin'!

The Sig and I were driving up to Cool recently and there were tons, too.

mechanico said...

I feel like an addict waiting for the DQnews figures.

anon1137 said...

Just out of curiosity, is this the kind of negative press she's talking about?

(all quotes by economist Christopher Thornberg from yesterday's news):


We're on our way down and still picking up speed," said Christopher Thornberg, a Los Angeles-based economist who four years ago warned that the pace of housing price gains in the region couldn't be sustained.

. . . .

"This thing's going to get worse when the peak of resets occur next year," Thornberg, the L.A. economist, said. His prediction: Southern California sales and prices will decline into 2009.

. . . .

“We have a big mess on our hands,” he said, referring to the nation’s faulty mortgage scene. “We have a high chance of recession in the next year.”

. . . .

“Housing is by no means done. The peak of the resets is in the middle of next year. The worst is in front of us, not behind us,” Thornberg said.

David said...

'Negative press is a major factor keeping inexperienced buyers at bay'

You didn't complain when the positive press lead the "inexperienced" buyers to buy overpriced housing. The inexperienced buyers have all been burned and you are left with the experienced buyers who see right through your BS.

smf said...

Cmyst

You are right. I mean, the houses are all set up in acreage, so there weren't many houses around. But guessing from the signs, it looked like 50% of the homes were for sale in that road.

Shows the depth of the insanity that the bubble reached.

mopar777 said...

A good armchair sport for everyone right now is predicting the bottom. I heard on the top of the hour CBS news today that "the pain will continue perhaps into 2009."
Guess what you idiot realtors reading this: THE PAIN COULD END NEXT MONTH if you get real with your clients. PRICE THAT HOME AT 5X FAMILY INCOME IN IT'S NEIGHBORHOOD!
To the sellers and flippers reading this: THE PARTY'S OVER AND YOU LOST!
That's why they call it high stakes betting - you might lose your financial future. Even The Donald's lost his a$$ before.
I want you to visualize yourselves driving back from Reno on a Sunday night after a REALLY BAD weekend at the blackjack tables. That perhaps is the only way you and your angry wife are ever going to rationalize what's happening to you now.

Rob Dawg said...
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Giacomo said...

I'm not looking for the bottom NOW, because it hasn't even appeared on the horizon yet. Wake me up next summer, I'm going to take a little nap.

Giacomo said...

Hasn't Tracey Saizan gotten the memo from the state association (CAR)? It's time to chastise the sellers for their stubbornness, not try to feed buyers the same 'ol BS.

Jacob said...

Well normally it is a "good" time to buy so if it is now "Excellent" then sign me up for a lifetime of renting with the added incentive of paying more taxes and never being able to move.

alba said...

You have to keep reminding yourselves that homeowners, prospective homeowners, and even those on the sidelines, are merely at the end of the food chain. Keep watching and salivating with each month's new record lows, but do you have a recession, or depression-safe job? It still takes some sort of mortgage, foe most of us, even for the deal of a lifetime in '08 or '10, or whenever. Securitizing the mortgages to access cash, then leveraging these assets has created what could be the worst liquidity problem for generations. Keep your eyes on Treasury Sect Paulson, and hide your money. This is much more than about homes. And an economist or politician wouldn't really bother with fixing the bottom of the food chain.

faith said...
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faith said...

Hi everyone I am new here!!!
Anyway, I have been religiously reading the blogs for almost 9 months now because I was trying to sell a house. It was an extremely frustrating experience and I am not selling anymore.

Anyway here is an example of a real case scenario of the housing market based on my own house. We purchased in 2005 from a builder in Roseville *sigh*. We are not an investor,we just thought we will live in it forever. Anyway, we bought a house (4200sqft house fully loaded @680k) and put in $40k in the backyard. Since the same builder has been building in the same division since 2001, our same house model was selling for 460k in 2001 (basic/very little upgrade), so that makes my house value to be abt 500k in 2001(low estimation). Now, in the late 2005 and 2006, I saw the same house model sold for 850k (normal lot) to 985k(with pool and better lot). So I don't think we bought at the peak, but we bought at a high.

Looking at these facts(I am 100% honest regarding the data), let's face it, from 500k in 2001(prebubble) and 850k in the peak (2006), my house value does not double but has increased 70%, not like the 100% or 200% like many people says about the Sac housing market. Anyway, judging from how bad the housing market is now, I think our house is worth 650k but might fall to 600k or even lower at bottom. Guys!!! I am trying to say that this is even lower than a modest increase of 4% rate per yr (this is now 2007 and the house should be worth 630k this yr based on 4% increase since 2001)!!! This house is in a good area of Roseville and Roseville is a good booming area!!!

Anyway, I know that I am a victim of speculators and bunches of people who can't afford to buy homes who bought in 2004 to 2006, but we learn a good lesson here. We have to move to Singapore to be closer to family so we rented the house out since we do not want to take a loss. See our loan amt is very little, our rent income alone will cover all property tax and with the rent income we can pay our mortgage off in 10 yrs.(We charge normal market rate for rent and the house has been rented for a 2 yr lease because it is such a deal)

We are financially sound and we can even buy a few of these price range houses in cash. This is the reason why we are holding on to the house. Because we can.

Anyway, I am in a weird mood today so I decide to speak my mind for all the people here who are wishing for the moon and stars relating to this real estate crash.
I am trying to say that the real estate in Roseville is bad enough!!! you can expect more drop but not 50%!!! geez, even if the house rise with inflation it already exceed today prices!!!

I think for those who bought now or soon you will be happy in 10 -15 yrs because just with increase of inflation from the yr 2001, your house will double(I will sell in 10 yrs or later too) Anyway, my house in Spore was bought at a peak in 1997, housing value crash by 50%, but now in 2007, my house value more than double in value than when we bought it (not based on price after crash but double the price that we paid in 1997) and it is sold!!!yeah 1400 sq ft for 1.8 million SGD. Basically, the past 10 yrs of housing slump in Singapore had caused real estate to double in the past 1.5 yrs. Do you guys get it? You can never predict real estate and there will be another run up again here in the US, this is just a normal cycle.

If fact, the house value in Sacramento has been stagnant/in slump for years before the run up in 2001 to 2005. It is unrealistic to expect only little appreciation during these yrs.

I have spoken my mind. I hope this provide a real world perspective of what is going on in Sacramento real estate, Roseville in particular.

Cheers,
Laura

norcaljeff said...

I'm thinking high prices, inability to get a loan and low income to home price ratios as reasons why buyers are on the sidelines. The NAR/CAR will propagate any BS to try and con buyers into the market. Don't buy into it!!!

Anon, do you have the link to that article?

Cow_tipping said...
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Diggin Deeper said...
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Diggin Deeper said...

"The credit crunch is contributing to the notable inventory and negative press is a major factor keeping inexperienced buyers at bay"

Utter BS.....

Actually, it's the inexperienced buyers out there nosing around looking for their first homes. The experienced buyers have either seen this before, or cannot sell their homes to buy up. They sit on the sidelines for good reason. They won't sell and can't buy.

As for the credit crunch, before you wake up, you could have a nightmare or two. There are skeletons that have yet to emerge.

Just for laughs....

"If you have good credit and want a lifetime investment, now is an excellent time to buy."

Actually Tracey, you can have the best credit on paper but most are not foolish enough to waste their good credit today, when they see prices eroding as quickly as they are now. Someday that will change but it might take awhile.

Negative Press?....C'mon Tracy, spin becomes difficult when truth, data, and market decimation get in your way. Just stand aside, put together a survival relief fund for your brokers and realtors, and wait this one out. Or better yet, move some of dead wood out, and let your allweather performers carry you through this mess.

Cow_tipping said...

Laura wrote:

(4200sqft house fully loaded @680k) and put in $40k in the backyard. Since the same builder has been building in the same division since 2001, our same house model was selling for 460k in 2001 (basic/very little upgrade), so that makes my house value to be abt 500k in 2001

That means you are assuming the 2001 price doesn't have a bubble and were based on fundamentals. I will remind you - Remember the dot com days. 99-2001 was when the rents were starting to sky rocket and so were house prices. 2001 was probably when rents started to nose dive while prices went further up. Only way to see if 2001 is non bubble is after the fact. See where the bottom is and then see if 2001 was reasonable. I doubt the 2001 interest rates and easy dot com $$ are ever going to return. Remember, interest rates have been low since 2000 or even earlier. Its just the dodgy lending that came in 04 and later.
And I am not talking from my high horse as being a renter, though I rent now after my recent move, I am in much more of a precarious position than you. I have a house I bought in 2003 I am trying to sell. However its not in any of the mentioned bubble areas, and its 175K for a 2800 sqft house. I can hold on to it if needed or rent it if needed for more than my payments.
Cool.
Cow_tipping.

Diggin Deeper said...

Hmmmm....looks like the economy is beginning to soften up. Jobless claims starting to make their move as layoffs accelerate.
Tracey, as I see it we've got a few problems that you'd better address before you continue your spout...

1. Oil over $80 does not play well with buyers. It will have an effect and take $1000's off the "buy" price proforma.

2. $4 loaf of bread (along with other increases) will begin to take $1000's of dollars off the "buy" price proforma.

3. There's been a $12 Billon increase in credit card debt to now total approx. $2.5 Trillion. The home equity line is tapped out but one way to pay your mortgage is to use plastic. That's one way to belly up.

4. Due to the above, an imminent recession will begin to eliminate jobs which will drive foreclosures and bankruptcies higher and further remove demand from the real estate equation. Again, taking $1000's maybe tens of $1000's off the "buy" price proforma.

So, what compelling reason is there to buy right now?

Gwynster said...

Laura,

Glad you can hold'em cause you are going to need to.

Let me give you some easy to digest data:
http://gwynsters.blogspot.com/2007/08/placer-county-snapshot.html

As you can see, housing prices rose based on crazy fake-money loans. Check the wages. Flat, flat flat flat flat, and more flat.
Now check the migration numbers - people are not moving in in the droves needed to buy up the excess the housing stock.

Lets make this a little more interesting!

Existing Household Units O/O, annual, period ending June 30:
2000 107,302
2006 142,176

Median Household Price, annual, period ending June 30:
2000 231,900
2006 507,900

Population, annual, period ending June 30:
2000 251,343
2006 326,242

So your population grew by 74,899 while adding to the available o/o housing stock by 34,874 with a price increase of 276,000 over 6 years.

Median Family size is 3.04 in 2006 and 3.06 in 2000. At this time I'm not even going to go into what a reduction in MF size combined with increasing outmigration data is an indicator of. You're a smart cookie so I'll leave it up to you.

I'm feeling generous so let's just use 3 to a house as an educated WAG. This gives us the need for 24966 new units so we overbuilt by 9,908, assuming everyone moving in wants to buy and can afford to buy.

I think that about sums it up.

Diggin Deeper said...

Gwyn...

And if those fake loans continue to blow up and wages remain stagnant, "brown lawn" syndrome will spread...hopefully, it won't infest areas that have grown beyond their ability to absorb the ever increasing inventory we see each month.

Giacomo said...

Laura wrote: "Guys!!! I am trying to say that this is even lower than a modest increase of 4% rate per yr (this is now 2007 and the house should be worth 630k this yr based on 4% increase since 2001)!!!"

Laura, glad to hear that you are financially sound and have cash reserves.

But I don't think that you should assume that you are entitled to 4%, 3%, or even be protected from loss in a home purchase. And certainly, by picking a short span of years to examine, you can't except any "average" to play out.

Instead of focusing on your expectations, look instead from the buyers' point of view. How many people in your county can legitimately afford to buy your house? Not many. Find a chart which compares local home prices to local salaries, and you will see the problem.

anon1137 said...

NCJ - References for Christopher Thornberg quotes. I'm not using tiny url's because I think these things display OK if you view the thread in normal display mode (by clicking on the subject title) and not comment mode:

http://www.newwest.net/city/article/economist_chris_thornberg_on_the_real_estate_markets_future/C396/L396/

http://www.latimes.com/business/la-fi-homes17oct17,1,4329911.story

WHY IS THE DQ DATA LATE?

AgentBubble said...

Laura,

So you purchased for $680K and put $40K into your house. Let's assume you put 20% down (I'm sure you did since you're so financially astute). That means you have a first of $544K. I'll also assume you paid the $40K in upgrades in cash as well.

Let's look at some numbers for Roseville by comparing the first 9 months of 2005 versus the first 9 months of 2007.

Avg $/SF:
2005 - $229
2007 - $204

Avg Sq Ft of Home:
2005 - 2680
2007 - 2742

Avg Sales Price
2005 - $610,051
2007 - $556,897

Now, these numbers represent all homes above 2000 sq. ft in Roseville. If we look at homes between 4000 and 4500 sf in Roseville, here's what we get:

Avg $/SF:
2005 - $228
2007 - $192

Avg Sq Ft of Home:
2005 - 4178
2007 - 4184

Avg Sales Price
2005 - $952,500
2007 - $805,665

Those numbers speak for themselves. However, let's assume you decided to rent during those 2 years and see where you'd be financially right now.

Laura Rents

A Craigslist/property mgmt co search shows you can rent a 4000+ sq ft house for about $2750. I'll round up to $3,000. So, over the course of 2 years of renting, you would have spent $72,000 in rent.

Laura Buys

Still assuming you put 20% down, your loan of $544,000 equates into a mortgage payment of about $4200 with taxes and insurance. 2 years of those payments is $100,800. You said your house is worth $650K now, so add in another $30K of opportunity cost.

Bottom line: That's some expensive rent you just paid.

Patient Renter said...

Laura, Thanks for posting your story. Although you may not have observed price increases of 100%+ in your area, they absolutely did occur in many other areas. My in-law's place in EDH, for example, was purchased for 250k just pre-bubble and similar places on their street sold for 650k at the peak. It's with this in mind that many people are looking out for 50% total declines, which I agree is possible.

Cheers.

smf said...

"Although you may not have observed price increases of 100%+ in your area, they absolutely did occur in many other areas."

I bought my first house in '94 for 115K. Sold it in 2003 for $245K. Eventually the same model high price went up to $370K.

As for believing that prices cannot come down so far, the relevant question is 'Why not?'

Financial history has plenty of bubble examples, whether widespread or regional. Each and every single bubble had the prices come down to a 'return to mean'. It essentially means that the prices return to the level at which it would have been, as if the bubble had not occurred. See the NASDAQ charts to see this demonstrated.

You also have the example of the '26 Florida bubble, and if I understand it, prices went so high in areas that (not accounting for inflation) even during the last bubble, the prices that were reached in the 20's were not reached.

So yes, prices can come way down from their highs.

Diggin Deeper said...

AB

I think she put more down than the 20%. By what she's written, it doesn't look like she's got much of a note to deal with on that property.

DD

anon1137 said...

SFGate has the DQ numbers for Sept for the Bay Area (SFRs + condos):

Sales down 40% and prcies up 0.8% yoy.

Slowest Sept for sales since DQ has been tracking it, since 1988.

AgentBubble said...

DD--Ouch then...Imagine the interest she could have received for that large of an investment....Would have covered her rent for the entire two years!

Diggin Deeper said...

Smf...agree with prices returning to the mean in a bubble scenario. One element lacking that will ultimately drive that mean level down even further was alluded to in Gwyn's post. Income and wages would have to had kept pace with at least the rate of inflation (even the bogus lowball numbers we get from the CPI and PPI). I think the data Gwyn gives us shows that real wages can no way support the oversupply and over priced inventory out there, regardless of how desireable some of these areas may be.

Wages, jobs, and migratory growth are essential to this market and so far none have moved in the right direction to warrant what we currently see in home prices.

Diggin Deeper said...
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Diggin Deeper said...

AB...Agreed, poor deployment of investable assets but at least she's not upside down as so many others are. Pretty safe at this point.

viviwanu said...
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smf said...

DD

We don't have figures as to where exactly does the excess inventory lie.

Does it lie more in the higher end homes? Starter homes? Middle homes? Even throughout?

I mean, if in a normal market 10% of the homes sold were the high end homes, but 20% of the 'for sale' homes are high end, it would follow that prices for the higher end homes will need to come down further than normal to remove the excess inventory.

We are essentially gambling that this will be the case, as we are hoping to eventually buy a nice 3000+ sq.ft. home. And we are almost there.

smf said...

"Those bastards had every reason to artificially jack up the housing market and take a big chunk of it for profit."

It is not just the realtors. As I mentioned before, RE is the only industry that I know of that no one has an insterest in having the buyer pay the least amount of money.

This was another reason why the prices went so high.

Diggin Deeper said...

Smf...good observation! If you look at the inventory numbers, they really are skewed all over the map. I get the feeling that the lower end got jacked up the most especially where a mortgage broker could get you into that home regardless if you had a job to support it. Base wages at median income would dictate this.

On the other side of the coin people just assume that those that took out jumbo loans would have no problem affording the payments. Not true, hell no...many of those people bought all they could for as little as they could pay each month. Hence, that market is just as vulnerable with interest only, hybrid payment schedules, etc., as any other. Sure there were fewer loans but there were fewer homes in that picture as well.

I wonder what East Sac, Land Park, etc inventories were two years ago? Were they at the 4.4 months quoted today? I'd bet those inventory levels have doubled over that period and could double again as we head into '08 and that might pressure those fortified zips.

faith said...
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faith said...

(i)I doubt the 2001 interest rates and easy dot com $$ are ever going to return. Remember, interest rates have been low since 2000 or even earlier. Its just the dodgy lending that came in 04 and later(i)

This is true cow tipping, I also noticed that the crazy price increase was really between 2004 to 2006. I bought at Jan 2005 and the builder gave me late 2004 price but I agree it is still way overpriced by 100k (after some calculation) when I bought it. In fact judging from the same exact model house as mine, the price appreciation charged by builder (not resell homes which is crazily dominated by agents thus crazy prices) are extremely modest. We were lining up and have to wait list for 2 months before we get the house then, but stupid people who bought the resell for the same house paid additional 100k to 150k then (so 200 to 250k overpriced). But cowtipping, based on my conversation with many years of homeowners, I still believe that pre 2001 is pre bubble years her in Sacramento, not the bay area though.

Gywnster, I totally agree that Roseville has way too much supply which explain the falling prices. There are so many new homes being built now. But Roseville in a nice area, coming from the bay area(Santa Clara & Cupertino), I still love it here. Once the buildings subside I think this area will still remain as one of the nicest area of Sacramento. Elk Grove, Lincoln, Natomas, Stockon are toast in the future/long run. So with the existing good schools, upcoming University of placer Ranch, Great shoppings (the fountains will be like Santana Row) and reputable employers(HP,NEC, Kaiser, Sutter, etc ), Roseville future is bright after the overbuilding subside off course. As I was renting my house out and selling them 1 month ago, there were many lookie loos that are looking to move to Roseville from out of state as well as from around Sac like El dorado, Antelope, Lincoln, Rancho Cordova.

(i)But I don't think that you should assume that you are entitled to 4%, 3%, or even be protected from loss in a home purchase. And certainly, by picking a short span of years to examine, you can't except any "average" to play out(i)

Hi Giacamo, actually if you look at the chart of HPI provided in this website, and take the earliest data (1975 I think) you will see that from 1975 to 2000, house price increase by more than 4%, it's more like 6% per yr, I really forgot because I did it a long time ago. Reputable data and economist will also argue and agree to the fact that housing value increase, exceed inflation by 1-3% per year but not in the case of Sac, it's more like 6% from 1975 to 2000. I haven't lived that long, borned in 1980 so this data is all I can base my judgement on.

Hi agentbubble, I put way too much downpayment. My house payment is very little which means that I lose out interest rate (CD rate) for the coming yrs before I sell. Our mortgage is 30 yrs fixed @6%. So yeah this is a bad investment now, but I did not buy the house as investment. Spend great times in it with family, get pregnant, raise my baby :P so totally worth it. This does not mean I did not kick myself in the butt for buying sth 100k overpriced back in 2005!!! But 100k lesson is cheap, I am still young and there will be more real estate cycles to experience. I know now to buy low and sell high. Quite a simple knowledge but profound :) Plus if I were to make the same mistake in other country like Spore, the consequence is not 100k but more like 500k or millions even due to the much higher prices there.
My total cashflow from this house, after rent income, tax, loss opportunity for interest is abt negative 8k per yr so yeah bad investment but it is ok. I believe in the law that housing will eventually rise with inflation(1-2% more) and I will be ok in 10-15 yrs, and made quite a sum in fact. No I am not expecting a huge jump like 2004-2006 again, although I don't think it's impossible. We will have to wait and see guys. Either way, I am in a good position.

(i)Laura, Thanks for posting your story. Although you may not have observed price increases of 100%+ in your area, they absolutely did occur in many other areas. My in-law's place in EDH, for example, was purchased for 250k just pre-bubble and similar places on their street sold for 650k at the peak. It's with this in mind that many people are looking out for 50% total declines, which I agree is possible(i)

Patient renter and Smf,

I am not deniying that some buyers are really in trouble because they bought a house that double or triple because they do not do their research. Hmm I also believe that agents do not have the best interest of buyers or sellers, thus also contributing to the craziness. However, this does not happen to all homes though. Therefore if you do your research on past sales prices let say the yr 2000/2001 and add 4% appreciation each yr to 2007 it should be a good buy. But as all human are greedy, I think many of you including me if I were a buyer in this down market, we would want to pay 2002/2003 price in 2008/9/10 right? If you can find one it's great!!!! Don't miss the boat though, just watch the market well and jump in once you find the deal and don't be expecting for more or maybe you will have regrets.

All in all, the world is not based on fairness. We can't really say agents are bad, speculators are bad, creditors are bad. After all, all that everyone is trying to do in this impefect world is to make money and avoid losing money. So just buy low and sell high. I am pretty sure once all of you have jumped in the boat and bought a house and see your house value double, and triple, you will all be happy no??? or will you be mad and complain or when you have to sell you will sell your house only at the inflation appreciation rate even though you can get double or more??

Cheers

Gwynster said...

I was going to do a another huge post but y'all know what to do so here is a little data tidbits from USC

I mention the growth in rental rates mirrors the growth in PCI nicely. It mirrors the growth in home prices not at all.

El Dorado County 2000 - 2006
Median household Income 51,484 - 70,516
Median Home Price, SFR 194,400 - 515,100
Per capita money income 25,560 - 32,122
Persons below poverty 11,079 - XX
Familes below Poverty 2,150 - XX
# of Households 59,013 - 63,235
Persons per household 2.63 - 2.8
Persons per family 3.04 - 3.23
Housing units 71,278 - 81,772
Vacant properties 12,339 - 18,537
Gross Rents 702 - 1,010

BTW ED and Placer show the most growth by far. Yolo and Sac co are dismal and really drop the 4 county numbers down.

Enjoy!
(especially SMF - check those vacancy rates >; )

Gwynster said...

Laura, for housing to get back to appreciating like you hope, we need masive wage inflation. Due to global pressures on US wages, I would not hold my breath.

paranoid renter said...

gwynster,

The dollar could keep falling. That's pretty much what's happening now. If that continues and if inflation continues to go up, then houses might start appreciating slowly again (slower than inflation).

smf said...

"Therefore if you do your research on past sales prices let say the yr 2000/2001 and add 4% appreciation each yr to 2007 it should be a good buy"

The typical qoute given to you for typical RE and stock market appreciation is for a long-term trend. There will be periods within that trend that will provide little to no return.

Within that trend, there could be areas that are going down while others are going up. So just because you have money in RE or housing does not mean that you can expect a return. You have to be proactive.

There were many excellent companies that no longer exist, and there are many areas that have seen depreciation thru this trend lines.

Past returns do not guarantee future returns.

Gwynster, I am happy for myself that prices will come down enough to allow us to purchase a move-up home for our family.

But at the same time I have immediate family who have and will see hundreds of thousands of $$$s in losses due to their RE 'investments'. I get no joy from that.

As for greediness, I try NOT to be, as from personal experience, greed has cost me more money than if I expected a more modest return.

(I bought Polaroid stock once, saw it rise 25%, decided to see if it would go up some more. Polaroid went bankrupt, and I lost money)

Giacomo said...

Laura, once again, if you truly want to be honest with yourself, you cannot pick and choose which year range to examine for appreciation. Data exists for the period before 1975, even if you weren't born yet.

If you are in negative cash flow by renting, you may have a high hurdle to realize any gains over the next decade. Compare your current plan to one in which you accept the loss by selling now for what you can get and invest that money at a secure interest rate.

BTW, 4200 sq ft, that's huge house! Before you rent it out, you might want to check local regulations about renting to unrelated persons, parking issues, etc.

Diggin Deeper said...

"The dollar could keep falling...If that continues and if inflation continues to go up, then houses might start appreciating slowly again (slower than inflation)."

PR...

In theory its supposed work that way...although here's another possibility...

From a big picture viewpoint it's all about the dollar... and its purchasing power or lack thereof!!! Initially, cheaper dollars mean higher inflation and lower real estate affordability. If costs are rising 10% per year home affordability will decline in real dollar terms. With an overabundance of properties, real estate could be pressured further to the downside as people struggle to keep up higher day to day costs. Wages are the wild card. If they then rise equally to meet a cheaper dollar and increased inflation, I'll buy the real estate appreciation thought. If they don't then there's no way people will be able to juggle higher inflationary costs with artificially high real estate prices. Something will have to compensate for the higher non-discretionary costs that all of us will have to absorb.

If wages cannot meet the REAL rate of true inflation, home prices have no where to go but down. Remember, a home purchase is discretionary, inflation (especially commodity type inflation like food and energy et al) are non-discretionary expenses.

anon1137 said...

The DQ numbers for Sac are at least patially reported on Sacbee.com. Sales were down 33% yoy for the region. He doesn't report the yoy change in median price. I suspect that Jim is going to flesh out his report with a bigger story tomorrow or maybe later today.

After reading it, I get the impression he's tying his tongue in knots trying to spin it to the positive. Maybe the SAR is leaning on the Bee?

Like this one:

Sacramento real estate agent Rosanna Garcia attributed the dive to new lender standards that are blocking many would-be buyers . . .

(I think she means unqualified buyers, not would-be buyers.)

All around the state, sales in Sept 2007 are the lowest in 20 years!

faith said...

Hi Gywnster,

If the Fed continue to lower interest rate which they will in Oct 30/31 meeting, the dollar will tumble again and inflation will severe and oil price hit record high. 100 per barrell for oil is not too far on the horizon. So inflation is inevitable. I do think the outlook of the US economy is not very good for the next 1 to 3 yrs. Unless the fed can save Wall Street by injecting more liquidity and lowering interest rate a few times and the impact of housing can be lessened, the US will go into a recession *sigh*. We will see what happen though. In Roseville in particular, housing prices has tumbled 30% (eg. my house that has a run of 70% in 2001 to peak) and many houses bought and sold by speculators have dropped more. We have to wait until all speculative properties/foreclosures are off market which might take a while (2009/10 perhaps). However, while many markets in the US has just cracked the housing bust, Sacramento drop and correction has been much greater.

Anyway, I decided to hold because if I were to sell now, I will be down 100k :( but holding per yr only cost me -8k :) Yes it is still a bad investment but just like my condo in spore, holding it for 10 yrs plus prove to be very profitable. In the case of Roseville, I think it will either take longer to make profit and the upside is lower. Plus no one can predit the future. Housing might be in slump for the next 10 yrs or more then double in 2 yrs. Basically anything can happen. If all of us can predict the market, we will be billionaire already!!!

Many agents say to us just take the loss and invest the money elsewhere??? But where to invest? I am very conservative, most of my assets are in CDs, so CDs rate will be lower as Fed will continue to cut interest rate and Wall Street is way too volatile now. The market is crazy. Losing 100k now, compared to losing 100k in 10 yrs (assuming my house will be worth 700k in 2020, which reflect a very very bad and sad market), I still rather wait because 100k in 10 yrs will only be worth 60k today price or so after inflation? Plus, if housing picks up in 10 yrs or more, I might not lose at all but might gain quite a sum. So the choice for me is clear.

(i)Laura, once again, if you truly want to be honest with yourself, you cannot pick and choose which year range to examine for appreciation. Data exists for the period before 1975, even if you weren't born yet(i)

Yes smf, I agree, anything can happen, plus Chindia economy and have you thought about the possibility of the Euro replacing USD as the world standard currency? US economy, although still dominant won't be as flourishing anymore. But since all I can depend on are data past beginning 1975, I have to base my judgement on those data. If we can predict the future, we will all be billionaires right smf? I also wished that I bought google stock 2 yrs ago, kept my apple stock, bought starbuck stock at IPO and bought lots of houses in 2001 and sell in 2005/6? I think 25 yrs of data is a good reference. Wages go up too and I hope everyone wages go up at least with inflation since 2001??? Also newer houses get bigger and better from the 1990s to early 2006s. Now it's hard to say because builders build houses on smaller lots, and even of lower quality to cut their losses???

I use R&B property management company to take care of the property while I am away. Currently, we have a 2 yrs lease with 5k deposit. We will be visiting the US for vacation once these lease is up and begin looking for good renters again. Sigh* have to do this for another 5 times or more* what trouble!!! but it's ok, we need to visit my parents in law here too and we see it as being on vacation.

I thoroughly enjoy receiving your feedbacks :)

smf said...

"plus Chindia economy and have you thought about the possibility of the Euro replacing USD as the world standard currency?"

As much as I was afraid of the Japanese overtaking us in the 80's.

China and India are almost no concern to me at all. China may be big and powerful, but they would be nothing if the US wasn't there to buy their stuff.

India and the US together would be an excellent relationship, and I look forward to stronger ties between the two.

Europe is an afterthought. They have the same, if not worse, RE problems than we have. It should come to the surface soon.

As to oil, that is a whole different scenario. But I suggest we follow Europe's lead and use more nuclear power.

Diggin Deeper said...
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Diggin Deeper said...

I just read an email that posted a thought that the Chinese could eventually buy gold in lieu of our Treasuries and at some point begin to tie their currency to gold. Would they then have the transparency and financial confidence to take over the dollar's spot as the world's standard currency?....

Really farfetched but any major fiat currency that steps up and backs their paper with gold will have to be reckoned with as a legitimate financial power.

Also, let's remember that the Chinese only need us until their middle class can out consume us. With 4 times the population, they'd only half our middle class median income to achieve this goal. It's not that far off....

Giacomo said...

Laura rejects our reality and substitutes her own.

Okay, I'm done.

Gwynster said...

Adam Savage for the win!

faith said...

(i)Laura rejects our reality and substitutes her own.

Okay, I'm done(i)

Hi Giacamo, I am not rejecting your reality. I am only making a decision that is best for my situation. I can wait forever. In 10 yrs with rent income the house will be paid in full. If housing still suck then, I will just wait longer while receiving rent income and wait until the right time to sell.

I know that most of you must think that every seller/home owners who bought in 2004 to 2006 are in trouble, but not all of them are in trouble. I read somewhere that 97.8% homeowners pay their bills on time???

In my cul de sac (about 12 houses), 1 went on foreclosure in june this year, same model as mine, sold in a week as a Repo for 700k (tons of upgrades, much more than mine, like 100k more), now 2 houses have a for sale sign (not sure if they are in trouble), so that's horrible, but then again the other 10 home owners are solid, eventhough we all bought in 2005. 4 of them are actually building their backyard now and I assume this must not be from home equity right?because it is negative???

I know I will be attacked with the next thing I am about to say. I think now, there are a lot of people who can actually afford to buy but are waiting on the sidelines. Yes there also are many who can't afford but home ownership in CA is quite a luxury in my opinion and plus there are lots of them that are affordable now. But either way, buyers will have the upperhand for the next 1-3 yrs.

I respect educated comments and assessments on the market posted by most of you. But I would like to just share a real story for those who expect to pay 2001 price(prebubble) or even lower in 2008/9/10 just because they can only afford the prices then.(Wages has gone up since 2001 and no funny loans exist until 2004).I think it is way too farfetched unless you are really praying for the US economy to go through depression, in which case almost everybody will suffer??? And will they even have a job to pay for mortgage? Some of the post seems to suggest that they are wishing for this!

Yes, housing should go back to fundamentals, so what is the fundamentals; is it 1%,2%,3%,4% or no appreciation for houses from 2001 to 2007? If it is 3% to 4%, there are many houses like this on the MLS. I agree that if you buy for more than 4% appreciation each yr since 2001(prebubble), I think it is overpriced. I am just offering a very realistic assessment here. Plus since every human is greedy, in the case where we see 2002/2001 or after 50% drop, many of you including me will expect more drop, in conclusion, we will never be satisfied.

I hope that the US economy remain robust and strong and can overcome this housing slump.

mesoholy said...
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Diggin Deeper said...
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Diggin Deeper said...

Well faith, Laura, ..

We can make those numbers sing any way you want. 1,2,3,4% appreciation due to inflation since 2001. Toxic loans, foreclosures, speculation, greed, the fact of the matter remains clear... no one is buying right now for good reasons. Prices were out of control based phantom demand and in many cases phantom buyers that had no intention of adding their phantom families to the Sacramento economy. When the dust settled, there were just too many homes for the buying public to consume. Buyers dug their heals in and said, "No Mas, we'll pay you what we think the home is worth" They don't care about what inflation has done since 2001. They don't care what the land is supposedly worth or what builder had to put out in fees to deliver the property to the new owner. They don't care about all the city infrastructure and costs associated with building a McMansion in a subdivision. They don't care if there's shopping mall down the street, or if the roads are new. All they care about is what price, in today's dollars, they're willing to pay a seller for his home. In West Sac buyers were willing to pay an average of $88K less than bank thought the homes were worth. The bank denied all buyers and now continues to remain the proud owner of 20 properties whose value has just diminished by at least $88K.

There's no reason to think that based on what we're now seeing in the today's market, prices will continue to march down to a level where buyer's can agree they are paying fair value for the property intend to buy. And that most likely includes overbuilt areas like Lincoln, Roseville, EdH, Natomas, Folsom, and any other community that got caught in the madness.

faith said...
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faith said...

Diggin dipper,

I don't disagree with you entirely. I agree that prices will continue to come down until inventory go down and it will take 2-3 yrs. It's just the law of supply and demand, simple economics, prices come down demand go up, cutting supply. So yes, it is possible to see 2001 or lower(at which point all of us should buy coz it's a deal) but let's hope it does not take a depression for it to happen.

(i)All they care about is what price, in today's dollars, they're willing to pay a seller for his home (i)

Based on your theory of people's mentality determining home price according to what buyers think the house is worth is very true. This mentality was what causing the run up in 2004 and 2006 too!!! Buyers think that houses are worth that much, causing the irrational increases. But hey, this rationality is true in both down and up market, making the down and up more severe.


I also still believe that good location will contribute to sustainability and increase of home value in the long run.

Eventually in the long run home prices will go back to fundamentals (the acceptable rate of 3-6%annually) and I stand firm on that. Off course there will be irrational decrease, stagnancy, irrational increase in between, but in the long run (on average)prices will go back to fundamentals.


Anyway, I really really appreciate your feedbacks and I hope my feedback is useful too. My parents and sister are visiting us for 2 weeks (arriving tomorrow morning) so I will be so busy thus won't be able to post (must clean up house tonight). It has been fun you guys!!! I hope everything works out for everyone and I hope everyone here can find their dream home to settle in.

Cheers :)

Giacomo said...
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smf said...

"And that most likely includes overbuilt areas like Lincoln, Roseville, EdH, Natomas, Folsom, and any other community that got caught in the madness."

I don't think there is one community in the US that was left behind in this bubble.

They were ALL overbuilt to an extent.

faith said...

(i)But, we're talking about Diamond Grove Ct, aren't we? Your neighbor was a "Flipper in Trouble?"(i)

Giacamo, Diamond Grove Ct? where is that? Is there such a small number of flipper in trouble in Roseville that you can guess it :P No Giacamo, it is not Diamond Grove Ct.

Ok guys, enough post!!! I need to clean up or my parents will think I am messy and diorganized!!!

Fanchew said...

I do want to thank Laura/faith for her postint her reality of realty. The posts, as well as the feedback, is great reading.

Giacomo said...
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norcaljeff said...

If Laura put that 20% and $40K in savings she'd have nearly $600/month in interest. Not to mention monthly payment, HOAs, Mello Roos, taxes, she'd clear at least 7 to 8 times that for rent, or stock investments, etc.

BTW, the IMF said the Dollar is overvalued at these levels.

hubie2222 said...

Sure seems like a bunch of angry people on this blog. You all must be pissed that you could not afford to buy houses when they were affordable, and you likely never will be able to! You all have way too much time on your hands.

SheWrestles said...

Roseville has the schools, but Lincoln has the hills and the beautiful oaks.

I'm banking on the schools doing what they can to keep up with Rocklin/Roseville.

This is my first home purchase, but I'm buying 'big', because I've already in my 30s and have a family, so this is both my starter and 2nd home in one. *fingers crossed*

Jacob said...

hubie2222:

I think that might be true somewhat, but I think there are more people that would have bought by now if prices just stayed at their normal rate of appreciation.

I know I would have. In 2000-2001 I wasnt ready to buy. In 2004 I was ready but prices were out of my reach and I didnt want an old beatup home for $300k.

I would like to buy now as well but I can wait at least another year to see what happens after the huge resets happen next year.

SheWrestles:

Good luck. I too want to buy more than a starter home, and dont plan on moving up. So I want something nice that I can live in for 30 years. 2500-3000 sq. ft. on a decent size lot like 9000 sq. ft. is what I am looking for in Roseville/Rocklin/Lincoln area.

I could probably just barely afford that now, but another year of saving + price declines and it will look better.

Right now I am just making sure I have the best possible credit (830 now) and no debt (check) and maximize my down payment.

But I really would like to buy right now, so it is hard to wait.