Wednesday, November 07, 2007

Fortune Predicts a 26% Decline for Sacramento Home Prices

From Fortune:

The millions of Americans who believed yesterday's happy talk about housing are now paying the price, from couples who stretched to buy second homes, to true believers who drove the Florida condo craze, to executives who can't take that great new job in Charlotte without suffering a huge loss on the house purchased at the bubble's peak in Sacramento. Now that the gilded forecasts have proved spectacularly wrong, homeowners don't know what to think about real estate's future.
...
Over long periods housing, like stocks and bonds, follows a set of economic fundamentals. No matter how far prices get unhinged in a speculative craze - and we've just witnessed a blowout - those basic forces eventually regain their grip...Over time the most reliable guide to home values is rents.
...
So what are rents saying about home values today? To answer that question, Fortune worked with Moody's Economy.com to estimate adjustments needed to get prices and rents back in balance...According to our calculations, prices in most markets will fall by double digits over the next five years.
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[I]n many areas the outlook is far worse. In the major Florida cities, Orlando, Miami, and Tampa, prices need to fall 28% to 34%. It's a similar story in inland California markets such as Sacramento (-26%) and the East Bay (-31%).
...
[T]here is a second group of cities that we'll call the "boom towns." Among them are well-known disaster areas such as Las Vegas and Phoenix, and inland portions of California, notably the East Bay, the Sacramento region, and the Inland Empire, the sprawling suburbs east of Los Angeles, as well as Florida cities like Orlando and Tampa.

The overbuilt zone is characterized by rapid population growth, mile upon mile of new subdivisions and communities, and ample land for expansion. In the past the common wisdom held that despite all the open land, California was practically immune to overbuilding. The idea was that it was far too expensive and time consuming to transform vast swaths of raw acreage into building lots. The lesson of the bubble is that when prices climb high enough, builders - if it's humanly possible - will find a way to flood the market with new homes until the glut proves its own undoing.

It's in the boom towns that the correction will be both fastest and deepest. One reason is that the Southwest and California, along with Florida, posted the steepest rises in price. At the peak almost 40% of the buyers in places such as Sacramento, the East Bay, and Phoenix were either investors or families armed with subprime mortgages.
25 real estate markets poised to fall

Sacramento
5-yr home price forecast: -26.0% [9th largest decline out of 54 markets]
[5-yr rent forecast: 6.1% (8th smallest increase)]
Home price/rent ratio: 28.7
15-yr average: 19.4

From the Folsom Telegraph:
Sharon Wilcox, a licensed real estate agent and co-owner of a franchised Pacific Auction Exchange branch, believes auctions are becoming a more viable and acceptable way of selling property. "The market is in the toilet," she said. "Property values are dropping by the month and they're predicted to drop well into 2008; people looking to sell quickly are going to take a big hit if they have to wait and wait."
From BBC News:
I am a realtor in the Central Valley of California, one of the hardest hit areas in the recent housing crunch. I too own a home, and my husband and I are struggling not just because I am not making any commissions lately, but because everything is going up - food, gas, taxes, you name it.

We refinanced our home in November 2005 to do some much needed improvements. Now our adjustable rate mortgage (ARM) is due to adjust in November. We are not sure what it will adjust to which is very worrying as my income has been greatly affected recently.

This makes it very hard to get back on track anytime soon. Banks used to be happy to talk to us and lend us money. Now we really need help and they don't want to know us. All of this has made our situation impossible. We want to keep our home, and make the payments but if banks are going to turn their backs on us, then they deserve the losses they incur.

I have met families who have lost their credit, their home, their dignity and even their jobs. After that, what's left? Unless people are relieved of their prior credit damages, and are given a reasonable chance to pay back their debts, then they are in serious trouble. I have wished all affected families I have met good luck. I know how they feel. I am one of them too.

45 comments:

Patient Renter said...

I just sent you a link to the Fortune thing at CNN then a minute later this post popped up in my news reader - 2 hours old. I assume you traveled back in time to post it, since my newsreader would never make me wait 2 hours to read something :)

Diggin Deeper said...

"not just because I am not making any commissions lately, but because everything is going up - food, gas, taxes, you name it."

Yup...if the Fed wants to protect the homeowner with lower rates, then the price to pay will be the inflation it stokes....Can't get away from it as it's based on the dollar's fall...which by the way has been devalued 10% in the course of a year, 6% of that over the last month. Raise the rates, stave off inflation, and bury the homeowner and financial institutions with high debt loads...as the Maestro said "It's a conundrum"

It really isn't a conundrum at all...brace yourselves for 70's style inflation with a twist...a big reduction in housing prices up and down the California coast in order to pay for the debts we've racked up during the boom.

HOUSE2008 said...

My partners at work are being affected by all this and of the three two have lost their homes and a third is bracing for a huge ARM reset. I take no joy in their loss as I can only say DAMN they KNEW better....

My only joy is that I may be able to finally afford one as a ittle one is on the way but as my sig says I can wait... I wish the American dream didn't have to end this way for most people....

watchingthebubble said...

Even with a 26% decline, it may not be enough to make people like me stay in Sacramento because everything else is so overpriced -- gas, food, utilities, you name it. It's funny to me how people here just accept it. I've heard people talk about having $3,000+ mortgages for your average suburban tract home. That's just plain crazy, especially if you've lived in other nice parts of the country where a $1,500 - $2,000 mortgage is the norm.

Financially, I'm probably like most of the people who post here. I'm waiting out the real estate market and hunkering down financially. (BTW, who are these people who can afford to buy groceries at Safeway and Bel Air without batting an eye or using any coupons?) The economy is looking pretty rocky going forward.

Fasten your seatbelts. It's going to be a bumpy ride.

Gwynster said...

watching,

It's just Mr Gwynster and I but a once a month trip to costco for 250 and small trips once a week to Nugget for vegies and such is pretty cheap. My DH is a superb cook, we seldom eat out. We rent with a mile or two of work so we bike in. That's how we're getting through this. We are able to save about $1500 mo now (used to be more).

How homeowners in Davis who commute into Sac or heaven-forbid the BA handle the increases is beyond me. I assume it all went on the cards.

SheWrestles said...

G - We just pay less to the IRS.

Watching - I've been amazed by the number of people here who say, "But, it's California...things cost more because it's such a desirable place to live". I counter with "It's SACRAMENTO!" Looking at the median income around here, we should be paying about the same for homes as people in Raleigh, NC and we should be getting as much land as people in Austin, TX.

Now, admittedly, I bought in, because I felt I was getting a solid deal...and didn't realize at the time how difficult the move would be. :(

I overpaid, but my real screw-up was not holding out for a bigger lot.

Surprisingly, though, overpriced homes in my neighborhood in 95648 are still selling. Prices are coming down, but homes that are priced significantly lower than those close by are selling each week. Even though darker days still loom around the corner, I see the sales pace as a positive sign.

The big negative sign, however, is the increasing gap between home prices in Twelve Bridges vs those in Lincoln Crossing. *sigh*

Cmyst said...

I rarely go into Bel Air now. It's mostly WinCo and Costco, but I have to be careful in Costco, because too much of a good thing can get pricey.
Thank God most of my gas is paid for by my employer. And now that summer is over, we haven't really been running the furnace much and I've been doing a great "Dad" impression and keeping lights turned off when people leave rooms.
And with all this diligence, I am still saving much less than I was a year ago -- but at least we moved back into the "saving" column.

Sold in '05 said...

Watching,

I don't think the grass is so much greener everywhere else.

We moved here from the east coast in fall '05 and except for the price of buying a home, we are WAY better off and much happier.

I'm renting a newer 4+ bedroom stucco box in west Roseville for $1700/mo. That's $300 more per month than my mortgage and taxes in VT. BUT... I'm not spending $700-900 per month in heating costs for eight months of the year (current elect + gas avg. is $150/mo), my income is $20k higher for an easier job, and state income and property taxes (which I don't pay here yet but will someday) are significantly lower (VT property tax was 5-8%/$100k). Lower insurance rates, much shorter commutes and far better schools (at least in Roseville) round out the deal.

Food costs are not much different wherever you go, but if you move to Arkansas, you won't have much choice other than Winn-Dixie or Piggly Wiggly and you’ll never get fresh cantaloupe or any fruit other than apples. Gas is more expensive but what's 20 cents a gallon?

I agree that anyone who bought here in the last three or four years is overpaying and certainly could live a better life without the ridiculous house payments, but if that's the only drawback, turn in the keys, rent for a few years and enjoy the fine weather.

Wadin' In said...

SW,

When you say the "gap" between 12 Bridges and Lincoln Crossing, to what are you referring? I see pretty rapid deterioration in both places. And it will be getting worse soon.

RealRant said...

Just like Warren Buffet says, "Look to buy when and where the news is all doom and gloom. That's where the deals are." (I'm paraphrasing). Guess what... these bear market cycles in CA NEVER last more that 3 years. This one started in Aug of '05. We're in year 3 right now. Everyone says they want to buy low and sell high. Well, buy when the predominant media & public sentiment says that everything sucks and, if you know how to find potential deals and negotiate, you'll be buying low. Thanks to the over-hyped negative news, there are a lot of paniced sellers out there with some equity who really need to get out. Time to go shopping! But my investment criteria will keep me out of the boom towns like Lincoln, Elk Grove, Natomas (future lakebed), and the Tweleve Bridges areas. I'll stick to the Arden, Rosemont, Rancho Cordova, Carmichael, Fair Oaks, Folsom and Orangevale areas. It's patently ridiculous to believe that the correction we're in will end up leaving values at pre-1996 levels. There's no stopping the investment capital that would step in long before we got to those levels. In fact, over the last 2 weeks, in 95864, 95825, 95608, the purchase activity is increasing, a fact that will not be reported until the training indicators catch up in December. So, while everyone else is running around wringing their hands about how bad it's going to get, and while they are citing trailing indicators to back up their overly negative assumptions, I'll be postioning myself for the next bull cycle and buying propeties with 20% down that have positive cash-flow right out of the box. See you at the top!

smf said...

Realrant:

Go ahead and do whatever you want to 'invest' in. I highly doubt you have actually done any really RE investment, since the prices would have precluded you from doing so in the last several years.

Now you say that you are prepared to invest in Rancho Cordova, my specific area where I live. I have a one word answer for you:

*guffaw*

You believe that the only issue was pricing, when the actual problem became INVENTORY.

If you have 100 houses for sale (regardless of price), and only 70 people looking for a home, guess what? You're screwed.

The level of inventory in the RC area is insane, not to mention that the school system for this area just plain sucks.

"See you at the top!"

No, no you wont. Till you recognize reality you'll keep making investment mistakes, and you are not seeing reality right now.

I'll see you at my local fast food restaurant soon enough.

SheWrestles said...

Wadin' - Both are in decline, but the slope appears steeper in LC. When I was comparing prices earlier in the year, I noted that it was going to cost about $50,000 or so more to live in TB over LC. Now, though, I'm seeing similar homes priced $80-100,000 less in LC and LC's foreclosure problem is worse.

Wadin' In said...

SW, Thank you. I will have to check out markets in more detail based on your observations. It is an interesting time. When people like RealRant think it is time to buy investment real estate, because we have never had a downturn of more than 3 years, you wonder where he was from 1990-1997!

In 1997 you could buy an 1800 SF house for $135,000 ($75/sf). Using 5% inflation, you should able to see deals at $110/sf in 2007. Or $125/sf in 2010. I think it will happen!

Nothing will cash flow and until it does, investors will not come back to the market. There are too many risks and too many good places to invest today.

RMB said...

Realrant: Whatever... you sound like a Carlton Sheets infomercial. Have you got the latest Trump or Rich Dad book?

FYI...the last downturn in Cali took 6-7 years to hit bottom, don't know where you get 3 from. This time around the run up was 2X, you do the figuring...

Doubt you do any "investing" in real estate other than flipping or you would realize it is going to take a long time for properties to cash flow right out of the gate in Sac. Property's will decline to a 1997 + inflation going forward level. There is no good reason for them not to, especially since what is happening in the credit market. Do some more research to see the numbers.

As far as the Buffet quote. It applies to asshats like you finally capitulating and saying RE is a bad investment and now it's time to invest in Pet Rocks. Then it would be a good time to by.

Diggin Deeper said...

realrant....say what?

"So, while everyone else is running around wringing their hands about how bad it's going to get, and while they are citing trailing indicators to back up their overly negative assumptions, I'll be postioning myself for the next bull cycle and buying propeties with 20% down that have positive cash-flow right out of the box."

I'm as contrarian as they come but "trailing indicators"?. You must mean that fresh news, on a daily basis, immediately becomes a trailing indicator....back up the truck... fill it with turnips...and climb on board.

There hasn't been enough pain, litigation, or gnashing of teeth yet to find a market that's willing to stabilize.

SheWrestles said...

Realrant - Hey, I can see picking up a rental property in a decent market and paying the tax and insurance out-of-pocket, but that is NOT the same as 'positive cash flow'. It's the opposite! It's a risk, but assuming you can afford to lose the $6000/year for the next 5 years in hopes of selling it in 2012 for $120,000 more than you paid this year, it's still a false conclusion to call that 'positive cash flow'.

I like an optimist because it's up to us to keep the market stimulated, but you've got to keep it real, because there's nothing about the current Sacramento housing market that would lead anyone with sense to describe it as 'decent'.

smf said...

There is another problem brewing, and that is the rental business.

Seems that some investors figured two things would help the rental business:

1. Unaffordable housing, then later
2. Foreclosures

So there may even be an excess of rental units.

The topper is that there are also plenty of houses coming into the rental market, since plenty of 'investors' and other sellers are not willing to 'give their house away'.

Gwynster said...

Damn, he's back

I was hoping Real had thrown himself on a sword by now. Oh well, I have time.

ps. don't feed the trolls. Real hasn't anything "real" to say since.... hmm, not sure he ever did.

Professor Shays said...

Hey guys, having someone like Realrant around makes life more interesting. Is he going to convince me (or most of you) that he is right. Of course not. Lacking from his picture is the gray hair associated with experiencing the '79-'84 and '90-'95 downturns and the related flat markets that followed.

I love these "experts" who lack both the experience and education to make a valid point.

Diggin Deeper said...

"Lacking from his picture is the gray hair associated with experiencing the '79-'84 and '90-'95 downturns and the related flat markets that followed."

Amen Prof....

C'mon now, you don't really think that past performance is any indication of future results...(snicker)

I wonder if that Gold River home's still holding its value?

Buying Time said...

In order for comps to fall....we need someone to buy....might as well be RealRant.

I'm just glad its his money and not mine.

Gwynster said...

"blessed are the comp providers"

True but I prefer an intellegent debate instead of a Crameresque scream-a-thon.

Diggin Deeper said...

Speaking of comps...Fannie and Freddie are under the microscope for "inflated" appraisals they accepted during the boom....Sounds like political grandstanding by the NY state DA...it worked for Elliot Spitzer...trouble today is it's working in reverse. What stops the appraisor from coming in with a lower then selling price appraisal?.....hmmmm maybe a lunch or a bottle of vino or?

SacramentoCrash said...

So Elk Grove and Ghettomas are going to drop more. 26% inlcudes mature neighborhoods where there wasn't as much sales hype and bubblifation.

Probably 30 t0 40%? That is going to be b_tt ugly.

realrant:

How long was the downturn of the 1990's? It was longer than three years!

How are you going to find properties with positive cash flow at only 20% down?

Gavin said...

I have lived in Sacramento in the past but am more interested in the Stockton market currently.

I have seen single family homes selling for about 35% less than their peak price (around the second half of 2005) but I think they are still not a good deal.

There are too few homes (mainly REOs) currently priced around that range. I am looking for individual sellers to start matching banks asking prices before seriously considering an investment property.

norcaljeff said...

You gotta luv the complete stupidity of the American Realtor. How many times have we all heard that phrase, "dont't put all your eggs in one basket." But because these people tend to be uneducated and greedy, they not only own one home, they own several. Then, they also have a job tied to RE, and maybe even their spouse. Then on top of that, they own RE stocks. How lame can you get? Oh well, the smart money on the sidelines stockpiling cash will get in on the cheap.

Shew, you just answered many of your own questions, lol, how you didn't talk yourself out of buying is beyond us. Just because your overprices neighbor's homes are selling doesn't really mean anything. Only that they will be hurting a year or two from now. People buying Cisco at $80/share thought it was cheap too. And in terms of value, when 12 Bridges and LC are all built up, appraisals will only look at sq footage only, it wont really matter what side of hwy 65 you're on. It's bad enough on the 12B side that DRH stopped selling homes, is pulling out after they sell the reminaning lots to other builders, er, I mean suckers, and then they're done with Lincoln.

Diggin Deeper said...

I rented a condo in the late 80's from an RE investor/broker with an option to buy when the lease was up. I accepted but when the appraisal came in $10K short, I backed out because the bank wouldn't loan the difference. He tried to stiff me for the deposit which I eventually got back. The condo sold six months later for $40K less than what we agreed to.

Moral of the story...better to take your losses early then hang on and see what happens next.

watchingthebubble said...

Sold,

I agree that the grass isn't always greener elsewhere, but I know for a fact that the grass is indeed greener in Denver, where DH and I lived before returning her for family and work. You get more house for the money, gas is cheaper, food is cheapedr, utilities are cheaper, and, it's a much better city to boot -- real art galleries, a botanic garden and a well designed system of parks, green space and trails, more indie bookstores (that kind of thing matters to me), sports teams of every kind, and free or low cost cultural events (Cherry Creek Arts Festival, free summer jazz concerts near Cherry Creek Mall, etc.). Plus, Denver gets 300 days of sunshine, unlike the fog pit that is Sacramento in the winter (Hey, I can criticize -- I was born and raised here. Hit the road at 18 and thought I'd never be back. Plus, I've lived in Palo Alto, Massachusetts, New Jersey and very briefly in Seattle and Hawaii, so it's not like I'm some country bumpkin.)

I think people on both sides of the country are a bit too dismissive of what they call "flyover country." Many of the cities in "flyover country" have a lot to offer for a lot less cost.

Gwyn and Cymst, I'm with you on the Winco/Costco/coupon tip -- and don't forget the Dollar Tree for buying $1.00 copies of the Sunday Bee to get extra coupons and cheap household supplies! Plus, I'll admit it -- I'm not above fishing coupons out of the recycling bins at Starbucks and La Bou! I, too, have to limit my Costco runs -- you can go broke saving money if you're not careful. Sometimes, it's not about the savings, it's about monthly cashflow, too. But I miss doubling the value of coupons at King Soopers in Denver (which is a Kroger subsidiary) -- are there any stores left that double coupons?

It's funny that many of the least expensive large cities in America -- Minneapolis, St. Louis, Dallas, Houston, -- are in so-called "flyover country." I wonder if per capita wealth in those areas are higher?

If only Sacramento had a vision for what it wants to be other than a place for state workers to sleep . . .

Bakersfield Bubble said...

Realrant- LMFAO!!!!

Actually, glad to see you here - :). Fresh meat - sipping is getting old and tired. You must be getting hungry as a realtor, how is that top ramen tasting?

I would give you my dissertaion on this mess, but it will just fall on deaf ears. Good luck - see you at the bottom...

Dont forget to say "buy now or be priced out forever", "they are not making anymore land", "real estate only goes up", etc.. when you post so we will know you are legit - BAHAHHAHAHAHA

SheWrestles said...

It's bad enough on the 12B side that DRH stopped selling homes, is pulling out after they sell the reminaning lots to other builders, er, I mean suckers, and then they're done with Lincoln.

Crazy coincidence that you should mention this, because as I drove by today, that's *exactly* what I was wondering. I did not know they were selling their lots, but I wondered 'what if' on that very issue. Thanks for confirming that.

Price was only one factor in my decision to buy now vs waiting 'til next year. I could predict that prices would come down, but never could've predicted how difficult and time-consuming this move would be - I thought it would be so 'easy' to do it now vs waiting, but I could not have been more wrong. I've easily lost about $5000 on the moving process and that could climb to twice that by this time next week.

Even more mind-boggling is that DRH recently sold a couple of their models for very near the asking prices.

One of the Parkland homes of the $600,000+ variety just closed, too.

It makes you guys shake your heads, I know, but homes are continuing to sell out here. I haven't done a hard count, but although the inventory appears to be increasing, the number of sales is also on the rise.

I could probably turn around and sell mine right now for just about $10,000 less than I paid. ;)

alba said...

keep saving your milk money real, soon enough you'll be able to buy an investment home with 20% down. Have you heard about the auctions coming up? real bargains!

alba said...

shewr,
The difference between TB and LC might just be related to timing and price. Even in Lincoln, houses don't go down at the same rate, and at the same time. TB has resets and a tad bit older and pricier homes. LC is for the subprime crowd. There's nowhere in Lincoln that won't be affected similarly, it just will happen at diffent points in the cycle.

Diggin Deeper said...

She...now that you're in there's no choice but to accept the decision as a good one. If you live there for 25-30 years then I guess it really doesn't matter. By that time it'll be paid off, kids will be off the payroll, and living should be pretty good.

Cow_tipping said...

And how much are they saying it has fallen so far ???
So they say, x lets say - and a quick trip to flippersintrouble will let you know what the actual number is, say its y, now they say 26% (is that from now or from the peak ???) and you multiply that by y and divide by x - that is the actual number more than likely.
I'm thinking over 75% from the peak - remember we are at the 40% level already as per flippers in trouble and that is asking prices, not sale $$$.
Cool.
Cow_tipping.

Cow_tipping said...
This comment has been removed by the author.
Patient Renter said...

Realrant said:

"Guess what... these bear market cycles in CA NEVER last more that 3 years. "

Bzzt. Wrong.

http://www.1stmillionat33.com/posts/06-09-12/house_his.gif

RealRant said...

Wow! You guys rock!! I'm surprised to have provoked such a large, albeit vitriolic response. Where to begin... SMF - Just to be clear, I'm not advocating running around buying property willy-nilly. And certainly "Flipping", as RMB has implied, in this market is out of the question. By the way RMB.. how did you know I had an ass-shaped hat? What is an "asshat" anyway. I hope you don't mind if I co-opt that monaker for use against the subjects of my own distaste... very funny! ;)
SMF - I know that the inventory in Rancho seems high (as of this writing there are 267 active single-fam home listings on the market. These are selling at 62 per month. So there is 4.3 months worth on the market). I'm willing to bet that these real numbers are not as high as you thought. That's exactly my point. I believe, and I'm sure few here will agree, that the right set of criteria to identify potential deals coupled with a strong negotiating posture, can yeild outstanding deals. The over-hyped (in my humble opinion) negative news adds to the anxiety of already panicing sellers. Those sellers who have to sell AND have sufficient equity can already be reasoned with. In addition, some of the future value loss has already been priced into the market by the impact of all the "Sky is Falling" news. And by the way SMF.. What's wrong with fast food?
Now... for Wadin'in et al... If you look at the data by zip code, you'll see that some areas fared far better than others. The down-turn in 96864 and 95825 started in Late '89 and went flat in mid '93. It actually managed to post a modest median price increase in '94 which was almost immediately negated 'til the beggining of the last run-up. While I agree with your $ per sqft numbers state-wide, Sierra Oaks, Wilhaggin, Arden Park, Sierra Oaks Vista, Mariemont and Arden Oaks will (let me be bold here) ABSOLUTELY NEVER see those numbers. As far as the "1997+ inflation going forward level... what is your inflation multiplier? Is it 2%, more, less? Are you say that the median in CA will touch $175,000 + $35,000 (2% inflation from '97 - '07)? Do you believe that the sub-prime mortgage market will just dry up and blow away? True that there likley won't be any more 100% stated no doc loans for folks with a 520 FICO. And that's as it should be. But as long as there's a market for sub-prime mortgages, they will exist. Higher risk = higher rates.
Hey diggin deeper... you were as nice and civil as they come. I agree that the market isn't yet ready to stabilize. I just don;t think it'll take as long as some do. By trailing indicators, I mean the data that most of the major news outlets cite in their stories about the pace and direction of home prices. It's true... I once rode on a turnip truck but I got bruises on my a$$.
Ok shewrestles... I didn't say that the market was decent. However "decent" depends on your perspective. What's decent for a buyer or a long-term, buy-and-hold investor is decidedly indecent for a seller.
gwynster... not quite sure how to address your comment. You may be mistaking me for someone else since the comment that provoked your response was my first on this blog. I agree that a scream-a-thon is no fun. But I'm not the one screaming. I just got tired of writing to and speaking with people who agreed with me. So I came here. Love the pic! You work out?
professor shays... I'm glad to be able to spice things up for you. And... what can I say... in '79-'83 I was in high school getting bad grades. During '90 - '95 I owned restaurants and several homes, the last of which I sold in 2005 for $200K more that I paid for it 2 years earlier (no upgrades). My current home is conservatively worth $850K in this current market. I bought it in '05 (when the market was monumentally over inflated)for $760K just as it sits today. It was a distressed sale. If you know where to find them, there area deals in any market.
diggin deeper... Who cares what the home in Gold River is worth? I only care about the spread between what it will be worth in 10 years and what I'll pay to buy it and carry it. And your right about some appraisors. The problem is, they live and die by the appraisal orders they get from banks and mortgage brokers. They know that if they become known as "deal killers" the orders from Brokers, who get paid only when the deal closes, will dry up. Of course funding banks were motivated to close the loans too so the pressure to inflate value was coming from all sides.
sacramentocrash... see above for the downturn comment. As for cash-flow... a property in RC (3bed 2bath) just sold for $215K. Back out my commission of $6450 and you have 208550. Put 20% down and your loan amount is $166,840. P.I.T.I=$1485/month at 7% int 30/fixed. Property rents for $1200/month. Depreciation and mort int deduction in my tax bracket evens things out. It's not hard to see how this could be a good deal. Again, I'm buy-and-hold and I have the staying power to weather any dowturn in rents and/or some vacancy. In 10 years, this home will be worth $430K. And because I role like a pimp and spend way too much money if I have access to it, It's sort of like a forced savings account for me as well. So, my initial investment of $50K turns into $215K over 10 years which is $16,500/yr or 33%. Ok...ok.. so I'll have some maintenance and some vacancy so lets just say I'm going to average $200/month to the neg over 10 years. Not going to happen when you factor in rent increases over 10 years but what the hell. So, instead of $16,500/yr I get $14,100/yr. for a 28% return. that doesn't suck and it makes wearing my "asshat" bearable.
norcaljeff... Alright. But the stupid are everywhere. Not just the real estate sales industry. Try banking, mortgage brokerage, building/development, stock brokerage, commodities (anyone want to short gold?). In fact, with the benefit of hindsight, it's easy to make almost anyone look stupid. The new players that pick up the DR Horton dirt may or may not make money. If they don't, the ones who pick it up from them will.
watchingthebubble... I have some clients who are trying to sell in Evergreen CO and they're getting hosed. I'm sure tha cost of living out there makes it easier to take. I was in Beavercreek for a ski vacation last year the beer at the bar was $9/bottle (same as here). I like using the price of beer as an indicator of where the market is likley to go. I say (and you heard it here first) that when nightclub beer dips below $7/bottle it'll mark the beginning of the next bull cycle.
bakersfield bubble... for the record, anyone who believes that any market only goes up is a moreon. And I never said anything as patently ridiculous as "buy now or be priced out forever". More land is made everyday in the mid-atlantic rift. I know you're worried about me and my family's income, but don't worry. We love Top Ramen. Actually, we're buying Maruchan Ramen now. It's a cheaper imitation of Top Ramen, since we can't afford the real thing on the mere pittance I've pulled down YTD.
alba... I don't like the auctions. Properties are going for way too much $$ or not at all. Minimums on many of the homes are not really any kind of deal. Or were you kidding?
cow tipping... huh?

Patient Renter said...

realrant,

I take it you conveniantly didn't notice my post. Your 3 years statement is wrong. Bear markets in housing almost always last MORE than 3 years, including the last one, and the one before that, and the one before that, etc. Look at the graph I provided.

This market will be headed down AT LEAST through 2011, due to ARM resets that are set to occur through that period. Of course, don't take my word for it.

smf said...

"a property in RC (3bed 2bath) just sold for $215K. Back out my commission of $6450 and you have 208550. Put 20% down and your loan amount is $166,840. P.I.T.I=$1485/month at 7% int 30/fixed. Property rents for $1200/month. Depreciation and mort int deduction in my tax bracket evens things out. It's not hard to see how this could be a good deal."

Several assumptions are being made by you that may not pan out. A $215K house in RC is in a crap location that may not rent for $1200/month.

You 'could' use the 20% down and invest it in better places.

There are plenty of other homes below that 215K house that are also 3/2.

You expect house prices to come back up to the level they were in 2005. I bet good money we will never see those (inflation adjusted) prices in our lifetime. I mean, 7 years from the .com burst, and it is still 1/2 the value of its high. But you seriously believe this time is 'different'?

smf said...

"In a mere eight years, developers have constructed 15,000 homes in north Natomas. That means a collection of neighborhoods planned for development over 25 years has materialized in a third of the projected time."

http://www.sacbee.com/110/story/477867.html

Now you see the problem? Price at this stage is besides the point. Houses were being built for people that were not even ready to buy them. Some that are just kids. The demand is filled in this area for decades. And some think the bottom will be here soon...hah!

SheWrestles said...

This whole over-supply issue is the one that has me most concerned. That's something that Rocklin and Roseville are in a better position to absorb than Lincoln. R&R have those very attractive 'mature' neighborhoods that Lincoln lacks.

I'm now looking at staying 8-9 years, so I have to hope my overpriced subdivision will still be 'desirable' then.

SheWrestles said...

ps - Can one of you ask Lander to set up these discussions on a message board? It would be so much easier to read and reply to the various posts. Thanks.

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

realrant....perception will turn when fundamentals change. No doom and gloom here, but no one's wearing rose colored glasses either.

Facts are facts and the market is responding directly to what's presented. These facts are in real time and are streaming in daily for people on this blog to make intelligent choices about real estate decisions they choose to make. In fact if you are watching the credit crunch unfold, all due to slipshod lending that preceded current events, you just might get an education worth a lifetime of selling or investing in real estate.

Risk/reward ratios are against you. I don't care what neighborhoods you're looking at, there's a greater chance that tomorrow's price will be a better then today's, no matter how good a negotiator you might be. Smart people make smart decisions based accumulating enough facts to determine their course of action.

I'm afraid regulars here have basically seen and heard it all from real estate professionals. Quite frankly, very few maintain their presence on this blog for very long. It's not that they're not welcome, more that their market views don't wash, and come immediately under attack.

If yours are any different than what we've heard before...I'm listening.

norcaljeff said...

A realtor who still thinks his home is worth more than what he paid for it just 2 years ago. That pretty much says it all. The dilusion never stops.