Saturday, January 19, 2008

Sacramento Land Values Implode

From the Sacramento Bee:

The sheer drop in values the past two years – more than 25 percent for houses and a stunning 80 percent for raw land, according to one estimate – has put the region on national and international investors' radar screens...In the Sacramento suburbs, lots worth $100,000 apiece during the boom would fetch barely $20,000 today,...Jim Radler of Park Place Partners Inc., a Roseville land broker...said. In some parts of greater Sacramento and the Valley, lot prices have reverted to farmland values.

"We are a market that has gotten some notoriety for how quickly and badly we've been hit," said Pete Nixon, a senior vice president and land-sales specialist in the Roseville office of commercial broker CB Richard Ellis. "So this is a market that people are going to look at."
But there probably won't be a flood of quick deals. Many landowners, reeling from the sticker shock of collapsed prices, are leery of taking big losses. And potential purchasers see Sacramento as a fixer-upper – a long-term rehabilitation project that will take several years to pay off.
From the Sacramento Bee:
The swoon in the housing market appears to be a boon for renters in the Sacramento region. Average rent for 75,786 apartments surveyed in El Dorado, Placer, Sacramento and Yolo counties – $962 in October, November and December – rose just 1.2 percent during 2007, reported RealFacts, a Novato-based apartment industry tracker. That's one of the lowest increases among large apartment complexes in California.
Experts say the capital region remains oversupplied with new homes and conventional apartment complexes. More people also are renting out homes as they're unable to find buyers during a housing slump.
From the Sacramento Bee:
Brace yourself. Sacramento's rocky financial picture is getting worse and cuts in services are now "inevitable," city budget officials said Friday. Each city department is now analyzing how services would be impacted if they cut their bottom line by 10 percent and by 20 percent, said Russ Fehr, the city's finance director.
Nearly three-quarters of the city's expenditures are labor. The budget report says, "the primary strategy has been, and will be, a reduction in staffing levels."...If the city were to solve its budget shortfall solely with layoffs, it would have to eliminate 500 to 600 jobs,...Russ Fehr, the city's finance director...said.
From the Sacramento Bee:
"How bad is this housing slump going to get?" said Howard Roth, chief economist at the California Department of Finance. "It's already worse than I expected."
At 5.9 percent, Sacramento's unemployment has risen 1.4 percentage points in the past year, with real estate-related industries taking the worst of it. Some 9,600 construction jobs have disappeared from a year ago, a drop of 13.8 percent. The financial sector has lost 3,600 jobs, or 5.5 percent.
From the Stockton Record:
Unemployment in San Joaquin County rose sharply to 9.7 percent in December, leaping from an estimated 7.4 percent rate the year before and the county's highest jobless figure in nearly four years, state officials reported Friday. The unemployment rate, based on a household survey, also rose nearly a full percentage point from 8.8 percent in November. Looking at figures from a separate survey of employer payrolls, a labor market analyst said San Joaquin had lost 1,400 jobs in construction and another 1,000 positions in real estate-related financial activities over the past year.
From the Appeal Democrat:
Builders and developers took out half as many building permits in 2007 than the year before in the rapidly growing areas of Yuba City and Yuba County, indicating that the area's building boom is over. "The real estate boom we had in 2003, 2004, 2005 was unprecedented," said Darin Gale, legislative advocate for the North State Building Industry Association. "We're now below normal. Definitely, that real estate boom is over."



That's interesting about the articles on rent prices. They must be hurting. I used to see someone on the corner in Roseville maybe once a weekend or so advertising for apartment rentals. Today I saw 6 different people out spinning signs.

Gwynster said...

For rentals? wow

SacramentoCrash said...

Must be a lot of people moving out of the area bypassing the apartment market.

Patient Renter said...

That sucks about unemployment and all the layoffs yet to come - but this is what you get when you have a bubble. To everyone who loved the bubble, I hope it was worth it.

Sippn said...

What, me worry?

PeonInChief said...

What's interesting about Sacramento's rental market is that management is highly professionalized (a large percentage of units are managed by corporations and professional management companies), and professional management generally holds rents up. It may be that the professional management is also forcing people who have suffered foreclosure out of the area, as professional managers are much more likely to check credit scores and the like, refusing tenants who have credit problems.

Cmyst said...

I've seen spinners at the large apartment complex on Data Drive in Rancho, across from the CHW corporate offices. Plus, they're always running specials.

One of the houses I track has now dropped below 300K, and is 75K less in asking price than it started out 3 months ago. 4163 Scranton Cir. 95608
MLS # 70105900.
And these two houses I'm tracking are interesting because they are nearly identical in style and square footage, lot size, and in same neighborhood. First is a repo, second isn't. Asking price is 64K less for repo.
4959 Hemlock St., 95841 MLS 80000536
3981 Tufts St., 95841 MLS 70119139
Plus, there was a very similar model that recently probably sold, a repo, with asking price even less: $219K.
Several houses in Fair Oaks and Carmichael have now started appearing in the "Under 300K" search that I do. Two years ago, that was unheard of. Even for severe fixers, 2 bed/1 bath. These houses are all 3 bed/2 bath with lots over 6000 sq.ft. and several have been updated.

Sippn said...

Yes, land values absorb most of the increases and decreases in housing values.

Some large land holders will disquise the losses by taking on "partners" and promising them large slices of the future pie. . . another way of discounting the current value.

To get to 2003 housing prices (for example), land has to drop below 2003 prices to compensate for increased permits and fees over the past few years.

KTM 300 said...

And… With all of this talk about investors circling like vulchers for good deal, when will that happen? I live in East Sacramento and right now the rent multipliers are all in the twenties. How many investors are going to come in and buy SFRs where they are upside down at least $1000.00 per month? Even with current price declines, nothing will cash flow.

Gwynster said...

Frankly, i see it as a marketing ploy. When Lenner slashed prices 60% on their new inventory to investors, they established a new ceiling and that's the price point those folks are waiting for. Maybe PS was right, 75% bubble prices.

Jennifer said...

I heard a rumor that some of the more stable banks are going to hold their foreclosures and rent them out using professional management companies while waiting out the market. Has anyone else heard of this? Sounds far-fetched to me.

Sippn said...

ktm - Dude - its not east sac they're talking about - there is still 3-4 hospitals there feeding the market, it will likely still appreciate.

That's the difference between quality real estate and commodity real estate.

smf said...

"That's the difference between quality real estate and commodity real estate."

No, if they all went up, they all will come down. In the end, East Sac. will be one of the most expensive areas still, just not as expensive as it is right now.

Sippn said...

Maybe, but watch.

Most of the out of town speculators concentrated on purchasing new tract homes. THe income and market that supported those are gone.

The income and market in East Sac didn't really change (I don't live there).