Friday, January 18, 2008

'2008 Is Going To Be A Year To Remember'

From the Sacramento Bee:

Statistics released Thursday showed that median sales prices declined 20 percent during the year in Sacramento County for new and existing homes combined. Property researcher DataQuick Information Systems Inc. declared it the steepest fall for a large urban county in California.
"What you're starting to see right now with the foreclosure inventory swelling is the banks are getting aggressive," said Lincoln-based real estate agent Mike Toste. "They're the ones wheeling. If all their competition is bank-owned and they drop prices 30 to 40 percent, then they've got to do the same thing. If they can't sell within 60 to 90 days, they're getting extremely hungry. I think 2008 is going to be a year to remember."
[T]he prospects for another tough year have some of 2007's buyers already re-examining their decisions. John Reed moved to Sacramento last year from Portland when he became a computer programmer for the state. He bought a new home in West Sacramento last July. "I have a lot of second thoughts now," Reed said. "I knew the prices were dropping a little, but I didn't expect them to go down so much. They've probably gone down 10 percent in six months."
DataQuick home sales and price trends by zip
DataQuick home sales and price trends by county

From CBS 13:
From October to December of 2006, the median selling price of a home in north highlands was $264,000. In that same quarter of 2007, 63 homes were sold here, and the average price was $153,000. That's a 42.5% decline in home values according to data quick information systems.
But, for the Mahans, and the thousands of families like them across the valley, there is hope on the real estate horizon. Suzanne O'Keefe, a Sacramento State professor, says, "All the information I've seen has pointed to hopefully a turnaround by the end of 2008."
From the Sacramento Bee:
The customary real estate experts have had their say about the state of the Sacramento-area housing market for 2008. In last week's column their consensus called for a rough first half of this year, a more stable second half and some sense of a turnaround and recovery in early 2009. But we asked, too, for your take on the market. The responses seemed a little more pessimistic than the authorities we quoted.
Dave W. Walker, general building contractor in Citrus Heights: I disagree with all their expert guesses. I have been in the construction field for over 38 years, and this is the worst I have ever seen the housing industry...My personal feeling is that a big problem is only starting.
Diana Sanger, partner with RBI Builder Solutions in Loomis: What I think: The Sacramento market will not turn around until mid-2010.
Steve Topper of Sacramento, a former banker who writes an online newsletter about marketing and advertising: We are a long way from the bottom. I believe the best guess for the duration of this correction is that it will take as long to deflate the bubble as it took to inflate it. So, assuming the bubble started inflating in 2002 and peaked at the end of 2006, it will take five years to reach equilibrium, which puts it at the end of 2011.
From News10:
Many small business owners admit their profits are on a downward slide due to current economic conditions..."I believe everyone across the board is down," [restaurant owner Carl] Steagall said. "With the housing market kind of settling down quite a bit, disposable income and the entertainment dollars have decreased pretty drastically."
Even before Christmas, News10 started working on a series of stories about an impending recession. It was clear people were already feeling the pinch of reduced wages, layoffs, and rising gas and food prices.

Still, just mentioning the "R" word gives most economists the jitters. They've been reluctant to name this economic climate as a recession because a significant part of a recession is the public's frame of mind and how it can affect consumer spending. But, UC Davis economist Brad Barber says there's no ignoring the fact that "the indicators of recession are growing stronger, not weaker."
Video: Local Businesses Feel Economic Punch
Video: Has the U.S. Hit a Recession?
Video: Sagging Housing Market Compounds Troubles for Natomas

From the Sacramento Business Journal:
Greater Sacramento lost a net 300 jobs in December and saw annual job growth fall to a puny 0.3 percent as the jobless rate increased in both California and the capital region, the state Employment Development Department reported Friday.
From the Sacramento Bee:
Sacramento's unemployment rose three-tenths of a point to 5.9 percent, the Employment Development Department said Friday. It was the highest unemployment Sacramento has seen since March 2004.
From Central Valley Business Times:
The confidence California workers have in their economic future is at a record low, according to a survey done for Spherion Inc. (NYSE: SFN). Its California Employee Confidence Index dropped 2.5 points to 50.3 in December, the lowest level seen in the history of the survey.
From the Sacramento Bee:
Yuba County voters, do Gary Gallelli a favor on Feb. 5: Vote against his housing development. Never mind that the developer has fought for a decade to build the Yuba Highlands – 5,100 suburban-style homes in the oak-shrouded foothills near Beale Air Force Base. And disregard the thousands of dollars he's poured into newspaper and television ads touting the controversial project as an economic savior.
Gallelli doesn't want to build it anymore. At least not as proposed on the ballot. "If we win in February, we'll have to spend money on something we no longer believe in," the Rocklin developer said in an interview Thursday. "So, yes, we're asking people to vote 'no.' "

Gallelli's emerging campaign against his own campaign is testament to a housing market slump that is hitting the Sacramento area harder than just about anywhere. Gallelli said he'd been pushing so hard for the Highlands, on the ballot as Measure N, that he failed to recognize how sour the market had turned. "You never step back to think of the consequences of what you're doing or ask if this still is a good project," Gallelli said. "I guess you could say we were in the heat of battle."
Weekend reading/viewing:


Gwynster said...

Don't forget the Economist
"Baby boom and bust"

The housing market has a new problem: ageing Americans

Buying Time said...

Gwyn - The WSJ link Lander posted is the article I was referring to on the baby boom effect.

I see this happening already, my mom who is the first of the boomers....retires this February. She and her boyfriend both sold their separate homes in 2006 and are renting a much nicer home noew.

Jacob said...

Suzanne O'Keefe, a Sacramento State professor, says, "All the information I've seen has pointed to hopefully a turnaround by the end of 2008."

What data would that be? Not the massive layoffs, rising gas and food costs, mounting foreclosures.

mbc said...

The boomer sellers will have an effect on California because some will be looking to retire someplace with a lower cost of living, but this trend is really going to hammer the upper midwest, where many areas are outright shrinking in population.

At the moment, things are tough in California, but at some point there will be a recovery because people want to be there. If I'm in Michigan or Ohio or Indiana I see nothing but decay and decline indefinitely.

Diggin Deeper said...

"The boomer sellers will have an effect on California because some will be looking to retire someplace with a lower cost of living"

High state income tax is one big reason that California will lose many Boomers to other states. Texas, Florida, Nevada, and other states without a state income tax are much better positioned to accept the rising Boomer population. When you're on a fixed income that additional 8-10%in your pocket every month makes a big difference.

Diggin Deeper said...
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AgentBubble said...

dd--can you give me the street name for that listing? I couldn't find it in MLS based on price and sf. Thanks.

Diggin Deeper said...

AB...I don't know what I was thinking. We looked at a few homes and this one was the best "value" for the money.The home is at 2981 Lemitar built in 1984 listed at $209,000, with 2111 sq ft.

Can you tell what the last sales price was?

Diggin Deeper said...

Revised with corrections....

In south Natomas we looked at at SFR, 2111 sq ft, 4 br/3 bath, built in 1984. It's bank owned with a price of $209,000. No telling what the bank would take with a lower priced offer. I don't know what the original sales price was, but at $99 per sq ft it's pretty easy to see that this one has been discounted by at least 50% off its high maybe even closer to 60%.

Not having looked in many months my contrarian thoughts are beginning to stir. When the problem is talked about by everyone you know, when the front page of the Bee runs an article every day, and when every form of media keeps pounding out how bad it is, I'm perking up and taking notice.

Prices will fall just so far. There are some deals out there that appear to be an over reaction to real market pricing. Desperate deals that show seller capitulation has finally happened.

I'd appreciate comments on a simple question.

At what price per sq.ft. must a home sell for, when the actual cost to build (in today's dollars) that home is higher than the price offered?

Jacob said...

What is costs to build a home is irrelevant since the home is already built. the market doesnt care what land costs or what a builder would have to pay to build the home.

What matters are what people can afford and what they pereieve as a good value for their money.

We are over built by so much that even at "fair" prices there will still be homes that wont be able to sell.

So just figure out what is a good deal for you, what you want to pay for the amount of land and home size you want and if you find that in your target neighborhoods then go for it.

We will overshoot the bottom but its not like things will bounce back overnight, we will be at the bottom for years.

Sippn said...

Wonder what Hansen/McLain would say now that the stock market dropped about 200 points (15%+ since 1/2007)

waiting_for_the_fall said...

Don't buy anything in Natomas, unless you plan on paying alot for flood insurance.

alba said...

jmcmvbcI'd say the market will be dropping much more in the next week. Then folks have to start wondering if the banks really took all of the write-offs they needed to. If it looks gloomy for another round of write-offs, then the market will keep tanking. In this case, more so than any other, the market is the barometer for things to come in the price of homes. The normal economic variables/metrics for housing are now out of play. The one factor that DD is tied into, endless fear, will be key for those feeling their contrarian values kicking in. For me, it will be further instability (are they done yet?) in the financials, and waiting to see housing in unaffected areas show real signs of distress: Saratoga, N. Scottsdale. I sold a house in N. Scottsdale in 2005, that is still worth more than I sold it for. And a buddy has me watching Saratoga for him. Its been only UP in those 2 areas. Both have economics factors that hold up to normal housing pressures.

Distressed owners/investors have not yet been flushed out yet...much more activity on foreclosures to come.

The housing market will likely flatline for years, but there will be a short window of endless fear that will drive panic selling....and frenzied buying.

The other key factor is not being hit by the looming recession. There aren't too many recession-proof jobs out there, now that it appears gov'ment workers are likely targets as well.

aggiealum said...

What's a good indicator for the "right price" for you all? I'm thinking 20% down, 30yr fixed mortgage should yield monthly payments for no more than you could rent. Also, that the city's median income matches that of the city's median house price. Any other ones? Granted, yes, housing prices are coming back down to earth, but at point can one say that it has touched down, based on numbers alone?

sacramentia said...

20% 30yr fix for even rent is a good metric for me with loan amortization being the buffer.

For you primary residence use the down market to buy in a great neighborhood while the selection is good.

When the market overshoots, which it most likely will, pick up a rental and wait for things to revert to the mean.

I wouldn't touch the places with the best deals. meadowview, elk grove, natomas, and others have too much risk of neighborhoods turning for the worse.

dd - I'd take $75/ per foot, then add 1/3 the amount a builder charges for options, and then deduct 1-1.5% per year for the age of the home depending on how well maintained it is.

AgentBubble said...

Diggin Deeper said...

Can you tell what the last sales price was?

2981 Lemitar:

Sold 11/23/99 for $155K
Sold 3/3/04 for $325K


Wonder what Hansen/McLain would say now that the stock market dropped about 200 points (15%+ since 1/2007)

Actually, it's about a 15% drop from the peak last summer. And if I remember correctly, Sippin, in a post you previously wrote about 6 months ago, you insinuated that the stock market going down meant all the investor money was flowing back into real estate. Another bust of a predicition. You need to find a real day job because all of your predictions are wrong.

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

Thanks AB...Not near as bad a drop as I thought. Not a home I'd live in but one that might make the rental numbers look right soon.

There are deals emerging that will be hard for "buyers" to pass up. Sellers are finally tipping over as we knew they would. Price revisions are ramping down on a daily basis and investors (not speculators) are starting to cull through the pile of inventory that's out there. A good rental along wiht depreciation works with the right numbers in place. Appreciation is nothing more than frosting to those who's time horizon spans more than a few months.

What it tells me is that we are getting closer to a bottom where future risk/reward ratios begin to approach zero. We're not there yet but I believe we're not too far off. It's much easier to recover from a 10-15% equity loss after a home has already experienced a 35-40% drop in price. Buyers will begin to pencil in (sharp RE agents will do it for them) numbers factoring in smaller and smaller equity losses from this point forward. It doesn't mean we don't grind along the bottom for many years, as I believe we will. I've maintained that prices will overshoot the bottom for a short period of time falling into an investor sweet spot. I think we're getting close.

If someone could convinces me that I could buy a home and my downside risk was negative 10% from here, I'd listen to the offer especially if I had a long time horizon for ownership.

Remember it was greed that put this market over the top. It will be greed that takes it to the very bottom.

Sippn said...

Stop - you inferred, I did not. I just asked where the money would go.

Its coming out of the mortgage secondary market, out of the stock market. Is it going overseas? Maybe as China stopped funding Wall Street.

THere is a ton of money out there looking for return - desperately looking.

aggiealum said...

Thanks for the input sacramentia. We're actually looking for our first home and in the Spring Lake area of Woodland. I'm still debating over whether or not Woodland can "improve" as more people leave Davis to live in North north Davis. Schools aren't great in Woodland, but most of how students do come from their parents anyways. Right now Spring Lake homes probably couldn't be rented, but I think comp homes that are rented in Woodland are approaching that metric we agreed on.