Thursday, February 14, 2008

DataQuick: Sacramento's Median Price Returns to 2003 Levels; Down 26.8% YoY

From the Sacramento Bee:

In the most ominous indicator yet of the capital region's struggling housing market, January saw nearly as many people lose their homes as buy them. January's 1,815 closed escrows in Amador, El Dorado, Nevada, Placer, Sacramento, Yolo and Yuba counties was only 33 more than the 1,782 foreclosures recorded in the same counties that month, according to statistics from La Jolla-based DataQuick Information Systems of La Jolla and Foreclosures.com. of Fair Oaks.
...
Median sales prices for all new and existing homes combined...have returned to June 2003 levels in Sacramento and to December 2003 levels in Placer County, according to DataQuick statistics. Sacramento County's median sales prices for all new and existing homes are down a record 26.8 percent from January 2007, the firm reported. The county's $253,000 median sales price is down now 34.6 percent from an August 2005 high of $387,000.
From Bloomberg:
Home prices fell in the fourth quarter in the majority of U.S. metropolitan areas surveyed by the National Association of Realtors, according to a report [pdf] today...Prices fell in 77 of 150 metropolitan areas, the most since the group began tracking values in 1979.
...
The metropolitan area with the deepest decline was Lansing- East Lansing, Michigan, which had a 19 percent decrease. Prices fell 18.5 percent in the Sacramento, California, region....
The folks at Hardtack have posted a nice overview of asking price trends in Sacramento's submarkets. Check it out here.

From the Stockton Record:

According to Coldwell Banker Grupe-TrendGraphix monthly sales reports, based on Multiple Listing Service data, the median selling price for an existing single-family home in San Joaquin County has plunged by one-third over the past 18 months. The median selling price peaked during the housing boom at $425,000 in July 2006 and has declined steadily to $283,000 last month, a 33.4 percent drop.

38 comments:

mechanico said...

Right now there are people crying because of that headline.

mechanico said...

The thing that is amazing about all of this is the investors have shown back up and they are still able to get financing.

Husmanen said...

"investors have shown back up", more like specuvestors. They will fall too because their non existant business model will crash and burn ... again.

mechanico said...

http://mysite.verizon.net/vodkajim/housingbubble/sacramento.html

If you take these graphs and add trendlines. We are already below inflation adjusted long term home values.

Happy Renter

Mystere said...

How much of the drop in median sales price is due to the sale of a greater proportion of lower end homes a result of the difficulties with obtaining Jumbo loans, rather than due to actual price reductions by sellers?

Gwynster said...

Ok you go first >; )

Bruce H said...

Thanks for the link to the Hardtack charts!

HOUSE2008 said...

difficulties with obtaining Jumbo loans.

No problem obtaining jumbo loans here. Just don't want to pay the price the builders/homeowners are asking. As Warren Buffet said, there is no credit crunch for those with excellent credit, deposit, and/or assets and a little bit of luck. If you get a Monday loan officer your screwed. Wait till Friday & the same officer won't care ;p

mechanico said...

From 1982 to 1984 prices fell off 15%. From 1991-1997 prices fell 30%. This time around prices will fall 50% which has been the argument all along. My question is if you had the opportunity to buy, a nice home on a big lot, for 50% of what the last buyer paid in 06, in a good area, for 20% under current market, would you take it?

RMB said...

Mechanico,

No, no we're not below the long term trendline. Remove all the false data from 2001 onward and run a long term trend line. This will give you an idea of where we have to go. It will end up around 200K which is still another 20% below where we are now. If you think people are screaming now, what are they going to do for the next 2 years as prices stay flat to slowly decline. All of these knife catchers are going to be the next round of BK's and foreclosures in the next 12 to 24 months.

smf said...

"How much of the drop in median sales price is due to the sale of a greater proportion of lower end homes a result of the difficulties with obtaining Jumbo loans, rather than due to actual price reductions by sellers?"

Does it matter? And yes, I have seen higher end homes being listed for less than their 2004 purchase price.

But the low end determines the direction of the high end market. If you can't sell your low end home to move up, you won't move up.

Or in our example, we can carry a mortgage of about $150K more than what we can sell our house for.

Needless to say, months ago I called out the first glimpses of 2003 prices, to now finally becoming the median price. And lately I have seen 2002 prices creeping into inventory.

To state it again: If you recognize that a bubble has occurred, there is only one possible end, and no other. Prices WILL return to their historical mean.

mechanico said...

"It will end up around 200K which is still another 20% below where we are now."

The excel spreadsheet is below the graph on that page. Download it.
Right click on the graph (the lines themselves) and add the trendline.

Refer to the previous question. Would you buy?

Happy Renter

smf said...

"difficulties with obtaining Jumbo loans."

IF, IF you actually have the means to purchase a higher priced home because your income actually supports it, interest rate is not as important because your tax deduction would be that much larger.

Last year, we ended up owing the IRS to the tune of about $400/month. If we had a higher interest rate, obviously we would not have paid into this.

mechanico said...

Alternative- $200,000(2001's median) + 18%(inflation)

The current median should be around
$236,000.

siflsockpuppet said...
This comment has been removed by the author.
SacramentoCrash said...
This comment has been removed by the author.
smf said...

Why should housing prices track inflation?

Should they not track wage growth and population increase?

SacramentoCrash said...

Typo correction:

Prices in higher end McMansion neighborhoods are already back at 2002 - 2003 levels in bubble areas like FloodTomas, Lincoln and Elk Grove.

Income levels don't support the prices.

Too hard to get loans for large properties.

Many don't have enough cash for the large down payment.

SacramentoCrash said...

Real astute statement, Sherlock:

Sales typically rise in February and March, but foreclosures are rising, too, experts say.

"We could see that number continue to go up," said Fred Arnold, president-elect of the California Association of Mortgage Brokers.


Let's give him a gold star for that brilliant observation!

Jacob said...

Homes appreciate based on wages not necessarily inflation. What has the average income increased by since 2000?

And since it was a bubble figure out where we technically should be price wise and take off 20% for overshooting the bottom and another 20% (or more) for all the over building.

Nobody dares speak this except on blogs but there are so many homes that they all could not be sold / rented.

Sales activity is low and half of the sales are going to flippers still.

smf said...

Had a meeting with a civil engineer yesterday.

Civil are the first engineers to get involved in a project. They are a barometer to what is to come.

What was told to us is that residential is essentially disappeared from their radar.

sacramentia said...

"How much of the drop in median sales price is due to the sale of a greater proportion of lower end homes a result of the difficulties with obtaining Jumbo loans, rather than due to actual price reductions by sellers?"

About 0.5%. Originally, I thought this would account for more, and expected the price per square foot to fall significantly less, but after Lander posted these numbers,

* Median: -27.5% YoY
* Average: -28.4% YoY
* Price per square foot: -27%

It looks like the median is doing what a median should and canceling out the extreme cases. It doesn't look like the change in mix is making a significant difference to me.

The Jumbos spread is about 75bps bigger than it used to be, so on a million dollar mortgage (practical limit) that is a $625 increase per month in payment ($312.50 after taxes) or about a 115k(9.2%)reduction in relative purchasing power on a 1.25M home.

This may explain the larger drop in average, but again, it doesn't look like it is making a significant difference in the median statistics. 27% vs. 28.4% is a rounding error to me.

alba said...

First off, interest rate matters to everybody. Those who have jumbo loans likely have better credit historically, and expect lower interest rates. It used to be 25 points above a conventional, and you can be sure those who sought out these loans were NOT subprime borrowers.

I agree houses are LISTED in higher priced areas at similar year price levels as lower priced homes. The difference is they aren't selling, and there aren't as many folks that have overshot their threshold of pain with their mortgage. Alt-a, and prime loan holders haven't been reset yet. The ATM is dried up, the house is under water, and there's nothing they can do. But they can still afford their payments. A proportional amount of homes in the higher stratus will eventually fall into foreclosure, or short sale. The rise in conventional loans to above $700K slows this process down even more.

HOUSE2008 said...

Now why can't people on tv have intelligent discusions like this blog. Excellent reading! I wish there could be a town hall meeting of this nature. Man would it open some peoples mind. Theeeen, maybe not.

smf said...

"Those who have jumbo loans likely have better credit historically, and expect lower interest rates."

Let me see if I can explain this well. My in-laws make over $200K+/yr. They NEED a large tax deduction to avoid paying more taxes. With a much higher house + interest payment, their tax penalty is offset by their interests payments. Hence their $7500/month payment becomes an effective $4000/month payment.

Somewhat similar to our situation. Once you make over a certain amount, you are taxed at a much higher rate, obviously.

Last year, with plenty of deductions, our tax liability (taxes paid April 15) ended up being $400+/month. If we had a higher house payment, whether it be thru HELOC or bigger home, instead of paying the government that money would be used towards our house.

That is something that now becomes part of the equation when we purchase our next home. Since we end up paying overall about $3000/month in taxes, any additional deduction can be used towards a house payment, as opposed to paying the IRS.

So in a way, to us, APR is less important than price. When you truly make sufficient money to actually afford a million $$ home, you don't have an incentive to actually fully pay down your house and not take the interest mortgage deduction.

mechanico said...

"So in a way, to us, APR is less important than price. When you truly make sufficient money to actually afford a million $$ home, you don't have an incentive to actually fully pay down your house and not take the interest mortgage deduction."

Except that leaves you highly leveraged and overexposed to market fluctuations.

Ed said...

This whole "get a bigger mortgage to reduce your taxes" concept is funny!

Assuming you don't fall into AMT, let's run some numbers.

You make $150K as AGI, with a current $20K in deductions. You are paying taxes on $130K. Let's take a bigger loan, for another $10K paid in interest each year. You now have:
Taxes on $120K
Tax rate (Fed): 28%
Out of Pocket of $10K
New tax savings: 2800
Net: -$7,200

Yes, the government subsidized part of your new payment, but it is a deduction, not a credit!

If you need/want/plan to do this for all other reasons, then great! but never, ever let the tax tail wag the dog. You'll get bit!

Jennifer said...

The concept of paying the bank $10 in interest to get $3 back from the government is stupid! Get a smaller house with a 15-year-fixed and pay it off early!

Jacob said...

Yea that tax thing doesn't make sense to me. You pay an extra $1000 a month in interest which goes to the bank not to your principle and lets say you are taxed at 40% so you save $400 on your taxes.

Had you simply paid the $400 in taxes and kept the $600 wouldn't you be better off?

Now if you have enough deductions to get to a lower tax bracket then maybe it looks better. But at $200K shouldnt they be at ATM anyway? After which aren't mortgage interest payments excluded anyway?

anon1137 said...

http://www.sfgate.com/cgi-bin/article.cgi?file=/c/a/2008/02/15/MN8RV2K0E.DTL

"We're going through the painful transition toward pricing that is realistic and we're nowhere near that (yet)," said Christopher Thornberg, an economist and founding partner of real estate research firm Beacon Economics. "Even though your local real estate agent will tell you, it's OK in this neighborhood or it's a wonderful time to buy because interest rates are low, all that's wrong. If you're buying into this market, you're overpaying."

smf said...

Keep the info coming, please, too see if there are other options we have not considered.

But the situation is pretty simple, the house is getting small with 3 kids around.

But let's put the situation this way: the government (we have some AMT) is asking for $400 more a month, after all our deductions. Would we rather pay that to the government or to another house?

Ed said...

Jacob - You said this:

"Now if you have enough deductions to get to a lower tax bracket then maybe it looks better."

This is another tax fallacy. There are no "brackets" that work in this way. A bracket change, either up or down, simply means that the LAST dollar you earned is taxed at a different rate than the other dollars you earned.

Real example again:

(Single, earns $88K, $10K deductions, paying taxes on $78K):
Tax rates:
10% $0-7,825
15% $7,826-31,850
25% $31,851-77,100
28% $77,101-160,850

Those last dollars you earned, above 77,101 were taxed at a rate of 28%. The dollars from 0-7,825 were only taxed at a 10% rate. Earning more money does NOT change the rate you paid on the lower dollar ranges (bracket). So, again, your marginal tax rate (the rate on your last dollar of earning) is 28%, but your effective tax rate, in this example, is:
10% x 7825 +
15% x (31850 - 7825) +
25% x (77100-31850) +
28% x (78,000 - 77100)
= 15,950.75 taxes due
15950 / 78000 is an EFFECTIVE rate (or a blended tax rate, if you will) of 20.4%.

So, paying extra interest of $500 saves you (500 x .28) in taxes.

So, paying extra interest of $1500 saves you (900 x .28) + (600 x .25) in taxes.

The key to remember is MARGINAL tax rate, which means last dollar earned. That's what "brackets" are all about. They bracket around ranges of your income.

-Ed

http://www.enterprisefunds.com/education/tax/brackets.asp

http://www.moneychimp.com/features/tax_brackets.htm

G Spot1 said...

"But at $200K shouldnt they be at ATM anyway? After which aren't mortgage interest payments excluded anyway?"

Pretty much. I agree you can't let the tax tail wag the debt-burden dog.

We made over $200k last year and got hit with the AMT to the tune of losing out on $2500. That's not lost deductions, that's how much more I had to pay in tax. At a 33% tax bracket, that's $7500 that was taxed that should've been deductible, or about $600 a month. Incidentally, that $600 is more or less what I was paying on my $90k interest-only equity line of credit that doubled as a purchase-money 2nd mortgage.

This is all back of the envelope, but you get the picture. There's no reason to be paying another $600 to the bank in order to get a tax deduction. Paying that money should be driven by other considerations - in our case, buying a home in a rapidly rising market with no money down....

mechanico said...

Tax myths

http://finance.yahoo.com/taxes/article/104384/Five-Homeownership-Tax-Myths

Still Waiting said...

How about a tax question of a different sort? We sold our house 6mo ago, and have been patiently renting, watching and waiting to buy in our new town. Is the time limit on re-purchasing a house 18months (to avoid capital gains taxes)? I just started wondering about this, and googling the matter was anything but succinct. Thanks!

G Spot1 said...

still waiting, check out mechanico's link on tax myths. Depending on whether you lived in your home and how long, your gains may be tax free, up to 250k for singles and 500k for couples. No need to roll it over in a new house.

Still Waiting said...

Thanks g_s1 (& mechanico), that tax link cleared it up for me (& means we can forget all together about being taxed - sweet!)

paranoid renter said...

>>>>>>>
When you truly make sufficient money to actually afford a million $$ home, you don't have an incentive to actually fully pay down your house and not take the interest mortgage deduction.
>>>>>>>

That is exactly why the bail outs that the government is offering is actually benefiting people that don't need it. My friends that own expensive homes are now going to refinance and make lower payments.

The people that are actually stuck with houses and no equity have pretty much no place to go. They just walk away leaving the bank holding the keys. And government in turn bails the banks out so that their execs can continue to make their 7 figure bonuses.