Wednesday, January 16, 2008

'Piece of Cake' Housing Downturn Exceeds 90s 'Depression'

They said it wouldn't happen, but it just did.

The decline in Sacramento home prices has surpassed the total decline of the 1990s housing bust. According to the Sacramento Association of Realtors, the December median home price fell to $280,000, a drop of 28.7% from its August 2005 peak of $392,750. That compares to a 24.1% drop between July 1990 and December 1996.



Much of the collapse in Sacramento home prices has occurred over the last year, with the median price plunging 21.1% since last December. It is the first time during this housing bust (and quite possibly the first time in Sacramento's modern history), that the median sale price for existing single family homes decreased by more than 20% year-over-year.

30 comments:

Lander said...

Some excerpts from The Bee's June 2006 "No Panic" article:

[T]his sagging market isn't much like the 1990s version. Some analysts say the reasons help explain why the present downturn may be shorter and less severe.

The differences between that market and this one? "We are having job growth. We are having population growth. We're still having in-migration from the Bay Area," said John Schleimer, a Roseville-based consultant for the home-building industry.
...
[E]conomists like Wassmer and consultants like Schleimer say they doubt Sacramento will see a 1990s-level slowdown. Even as a new report by Global Insight and National City Corp. suggests the market remains 53 percent overvalued, their counterpoint is the region's strong economic fundamentals.

"We have two, if not four, slow quarters ahead, then we'll start to see some improvements in the market," Schleimer said.


It looks like that is strike 2 for John Schleimer. Sacramento Business Journal, October 8, 1990:

The Iraqi situation is discouraging some buyers, agreed John Schleimer, a local analyst of the single-family home market. But he predicted that the Sacramento market will readjust more quickly than other markets. "Sacramento is not in a housing recession, it's just that external factors are impacting it. If we didn't have strong population and job growth, then I'd think differently," he said.

Make that strike 3. San Diego Union Tribune, August 20, 2006:

A real estate consultant, John Schliemer of Market Perspectives in nearby Roseville, expects The Towers and Aura Condos to sell enough units to be able to complete their projects, even though the Sacramento market is cooling. Schliemer said The Towers project, "of all those I have reviewed, has the elements to make it successful."

Cmyst said...

Who pays these clowns?

Lander said...

One more from the SF Chron, January 15, 2006:

"We're expecting a soft landing," said prognosticator John Schleimer, president of Sacramento's Market Perspectives. "There's not going to be the blood bath we saw in the early 1990s."

paranoid renter said...

My guess is the drop is even worse than is being reported because of all of the incentives that were available over the last year - paid up mello roose, paid up hoa, pay mortgage for the first year, ...

RMB said...

Where's Julie and John L. to put their spin on this. From what I can see the decrease is accelerating, not leveling out or bottoming. Wow I think one of these two may not be in business by this time next year if this trend continues.

Diggin Deeper said...

That graph looks pretty similar to the 90's for the first 20 months then it accelerates straight down since June of last year showing that sellers are finally capitulating. I think we all knew that once prices began to break down they'd build the momentum we're beginning to see.

Schleimer really couldn't say anything different as he was part of a consortium of "experts" that were blinded by the the euphoria this market created... believing that expansion and population growth was oustripping housing supply. There couldn't have been a worse miscalculation as infrastructure and services were created for mass of people that just weren't there. Thanks SMF for pointing that out so early in the game.

This morning national new housing starts down over 14% in December. Permits down over 8%.

If builders didn't build another home in this area for 3 years, I doubt it would make much difference. Too many other negatives are pressing in to take away a demand that's fairly non-existent to begin with. A looming recession will dampen that demand even further.

Housing prices can only drop so far before they meet doable incomes for buyers at most pricing points. If economic conditions deteriorate, incomes levels could take a hit and push prices lower for another leg down.

Looks like there's still some popcorn in the bowl.

Buying Time said...

Gotta love this quote on the same story (frp, NPR (KXJZ)) to explain why sales are so low for December....

"There are many real estate agents that actually take a lot of the winter time off so I think that has a lot to do with it."

Uh....no.

Diggin Deeper said...

I'll bet the regional banks are finally contributing to the rapid price declines we're seeing. Loan reserves are running about 7-10 times loss and it's getting more difficult to fund those accounts as price declines mount within their home and loan inventories. What we're seeing at the big financials is similar if not worse for smaller banks and regional institutions. Their pockets are not as deep or as diversified as the majors. They can't offset losses by pulling funds from global accounts that are still growing. While banks can choose to hold these depreciating assets on their books for an extended period of time (like the Japanese did), they walk a fine line...wait too long, as prices prices keep falling, accept more delinquencies from failing loans, and the reserve requirements escalate beyond their ability to fund them. For the banks, the addage "cash is king" has never been more relevent than it is today.

Bakersfield Bubble said...

Lander - you rock!!!

anon1137 said...

Awesome post, Lander. Nice graph! Schleimer should attach your post to the back of his resume the next time he's looking for a job.

Not only is the magnitude of the downturn much greater now compared to the 90s, but houses cost much more with respect to inflation. Then: 10% loss on a $200K house = $20K. Today: 20% loss on a $400K house = $80K.

Gwynster said...

I'm not sure what happened but in the last few days, I've seen a slight uptick in FITS and SITS in Davis. Couple that with Bernanke's testimony and watching for the four horsemen >; )

Sippn said...

Just to defend Schleimer's 24 month old forecast - I don't know an expert who saw the shell game being played by lenders and wall street, that the PHeD was really not watching the store, that they really don't know what their doing, that the system would further collapse in August 2007 - hes a real estate guy, even the banking guys didn't know, just today Bernake is admiting as much....

siflsockpuppet said...

Great link to the SAR data. Median prices are still higher in non-adjusted dollars than they were in May '02 when I bought my last house in Elk Grove, yet a slightly smaller house around the corner (2530sf vs. 2825sf) is selling for the exact same price I paid for mine - $315,000. That works out to $125/sf, which would translate to a price of $351,730 for my old house. Granted, it's a fixer, but so was mine when I bought it. I think some areas are still sinking FAST.

Gwynster said...
This comment has been removed by the author.
Gwynster said...

Bugger! try this instead
http://tinyurl.com/23tql2

Cmyst said...

So, given the visual of Lander's excellent graph, does anyone think that the theory that increased information to prospective buyers via the Net is accelerating the speed of the decline in prices? What impact do you believe this will have? I'm leaning now towards it being more likely that late 2009 to early 2010 being a reasonable time to shop. However, I'm with PR: when the fundamentals are in alignment, that will signal me more than anything. This is encouraging news on price capitulation, but we have a long way to go -- GREAT graphic.

roger said...

Information works both ways. The internet probably helped accelerate the housing bubble, and induced more people to panic / see real estate as a way to get rich quick. It would be interesting to compare the speed / size of the run up and decline in the 90's to the speed / size of the wind down now. It's pretty clear that the speed and size of this bubble was unprecedented, so conversely the speed and size of the wind down should also be an epic catastrophe.

Patient Renter said...

Lander: great comparitive analysis. You could teach all of these chumps a thing or two about good journalism, and basic housing economics.

Patient Renter said...

"does anyone think that the theory that increased information to prospective buyers via the Net is accelerating the speed of the decline in prices?"

Maybe, but it can't necessarily make the bottom come any faster when there are other factors that effect prices which run on different clocks and don't care about the internet, such as scheduled ARM resets.

BTW: That red line on the graph is doing some cliff diving, jeez.

Patient Renter said...

Sippn said:

"Just to defend Schleimer's 24 month old forecast - I don't know an expert who saw the shell game being played by lenders and wall street"

There certainly were some, Dean Baker and R. Shiller my favorites. You can dig through the CEPR website and read papers that Dean Baker wrote predicting most of this several years back.

"hes a real estate guy, even the banking guys didn't know, just today Bernake is admiting as much...."

Maybe this is why real estate guys shouldn't open their mouths regarding matters which they obviously have no understanding of.

sacramentia said...

speaking of the 90's, driving back from the Bay Area yesterday I saw a billboard that said "Beazer Homes from 199,900" in Sacramento. Made me chuckle.

Jacob said...

wow, what else can you say.

And even with the prices in free fall they are still over priced.

And we will be getting tons of layoffs all year.

siflsockpuppet said...

Article about Sacramento appraiser blacklisted in 2006 for refusing to lie on appraisals:

WaMu accused of appraisal fraud

siflsockpuppet said...

Err, blacklisted in >>2007<<. Makes it even worse that WaMu demanded she say the Sacramento market was "stable" instead of "declining".

My bad

Diggin Deeper said...

"Federal decisions to shut Mather Air Force Base, McClellan Air Force Base and the Sacramento Army Depot between 1988 and 1995 cost the area 5,079 military jobs and 13,000 civilian jobs, according to accounts at the time.

Statewide, 30 military bases closed, costing the state $9.6 billion in annual revenue and causing thousands of people to leave California."

It's all about recession (or possible recession) and how this period compares to the 90's.

We're already being advised that state's deficit is approximately $14 Billion. That's really not too concerning when you factor in inflation growth since the 90's. At 3.5% inflation that $9.6 Billion shortfall in the 90's would be approx. $16.6 Billion deficit today. What's disturbing is that we've added an additional estimated 8 million people to the population since that time (not to mention illegals). A recession with 25-30% more people to serve might force today's shortfall to balloon much higher if we are in, or do fall into a nationwide recession.

We've already seen just how wrong people have been to compare the two eras. I sense the state's in deeper trouble then we know today.

The Feds have assured us that we are just slowing down and that they can fix the problem before they declare we're in a zero or negative growth economy...hmmmm what to believe?

smf said...

"does anyone think that the theory that increased information to prospective buyers via the Net is accelerating the speed of the decline in prices?"

It certainly helps to see trends. Some of us news freaks love to keep track of stuff like this.

"And we will be getting tons of layoffs all year."

There were plenty of illegals filling up these jobs. Some are aleady forced to go back due to lack of work. That's why so few layoffs seem to have occurred in the construction industry.

"Just to defend Schleimer's 24 month old forecast - I don't know an expert who saw the shell game being played by lenders and wall street"

Then they had blinders on. I originally thought it was only happening in California. But with the internet, it was easy to realize that it was worldwide.

At the same time, it doesn't take an expert to realize that when a commodity such as housing has such a large price rise, the consequences can and will be dire. It was less excused because we went right from a perfect bubble example (dot.com) to housing.

You can compare both bubbles and easily see the similarities.

Diggin Deeper said...

"There were plenty of illegals filling up these jobs. Some are aleady forced to go back due to lack of work. That's why so few layoffs seem to have occurred in the construction industry."

Which puts even more pressure on "legal" residents to find jobs in a declining market.

Gwynster said...

Did anyone see the piece in the Bee on hospital costs in Sacramento being 1/3 higher then other location in CA?

Jacob said...

The world’s largest banks have written down more than $100 billion in mortgage-related assets since the subprime mortgage crisis began, a number some predict to double as the meltdown continues to unfold, according to The Times.

We're starting to get to some big numbers now.

Diggin Deeper said...

"Did anyone see the piece in the Bee on hospital costs in Sacramento being 1/3 higher then other location in CA?"

Doesn't surprise me as health insurance costs (and food costs) are higher here than almost anywhere in the state. Our premiums are running close to $1600 per month.