Saturday, February 23, 2008

Sacramento Housing Affordability Increases...to 2004 Levels

The good news (from a buyer perspective): Homes are becoming more affordable as prices plummet. From the the Sacramento Bee:

There's a flip side to the Sacramento-area housing downturn that has would-be buyers cheering: Sacramento is getting more affordable. Falling sales prices between last summer and the end of 2007 triggered a nice jump in affordability in El Dorado, Placer, Sacramento and Yolo counties, according to an index compiled this week by the National Association of Home Builders and Wells Fargo & Co. 27.2 percent of homes sold in October, November and December were affordable to households earning the region's median income of $67,200.
The bad news? Affordability is only back to 2004 levels:
The new eligible buyer percentage for Sacramento was the best since 27.4 percent in the first quarter of 2004...[I]t doesn't take much to remember better days from 10 years ago. In the first quarter of 1998, 70 percent of area homes were affordable for people earning at least the median income, according to the home builders and Wells Fargo.
The last time affordability was this low (aside from 2004) was in 1991, at the front-end of the 1990s housing bust. Between 1993 and 2000, the index remained above 50%.

Here's a look at the index since 1995. You can download the data here.




From the Sacramento Bee:
Dozens of Rancho Murieta homeowners have been left with cracked walls and listing foundations after local builder Reynen & Bardis said it can no longer afford to fix their defective houses. Thirty-six residents have hired a law firm and begun filing lawsuits against the company, already reeling from the real estate downturn.
...
Francis Furtado, president of Reynen & Bardis' home building division, said the firm doesn't intend to abandon the Rancho Murieta residents. For the moment, it can't afford further repairs. "We are in a very tough market," he said. "There's no profit in home building. There's no profit in land development. Our income shut off. We had to hunker down. Our intention is to go back in, but right now the finances aren't there."
...
Since the bottom fell out of the land market, the firm has faced mounting pressure from creditors. It has shut down home building and recently furloughed 89 of its 180 employees.
...
The firm's problems have left Lynn and his neighbors with more than cracking walls. Their gated neighborhood is now filled with vacant and rental homes owned by Reynen & Bardis, which is now trying to unload them "as is" at bargain prices...Residents say the flood of cheap houses makes it harder for anyone else to sell, should they decide to get out.
From the Lincoln News Messenger (hat tip HBB):
The effects of a deepening national housing slump are hitting close to home. Even Gladding, McBean, one of Placer County’s oldest businesses and a Lincoln institution since 1875, is feeling the market’s pinch. “I’ve been here since 1991, and this is the most significant downturn in our market I’ve seen in that time,” said Bill Padavona, general manager and vice president of Gladding, McBean.

Padavona said the clay company has seen a 60 percent to 70 percent decline in products tied to home construction, such as sewer pipes and roof tiles. Though Gladding, McBean provides products throughout the West Coast, the market is especially bad in Northern California, where “the market has slowed to a near standstill,” Padavona said. Since the downturn began, the company has laid off 100 of its 235 employees.
...
That’s bad news as well for another Lincoln company, lumber supplier Sierra Pacific Industries. "It’s had a dramatic downward impact on lumber prices," said Mark Pawlicki, a spokesman for the Redding-based business. "Prices today go back to about 1992, the last time we had a housing recession."

25 comments:

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

I think it's clear that we're teetering on the edge of more declines if the affordibility is
still so low. That and the fact
that Nor Cal Jeff stated:

More businesses in Rosevile shut down since Jan 1 of this year:
Great Clips
Border's Books
Quizno's
Maui Tacos
Armadillo Willy's
Cin City

I would of thought most of these
would of easily made it through
a downturn. I guess nothing is
immune.

Tyrone said...

I would of thought most of these
would of easily made it through
a downturn. I guess nothing is
immune.


The reality about how much the economy was driven by housing and house equity is coming to light. I think consumer spending is going to tank in the coming months. Stock market should follow.

Diggin Deeper said...

Kind of a double edged sword...Affordability is becoming more attractive as real estate prices deteriorate, and less attractive as costs escalate. Recession or govt slowdown will take its toll on both. As unpopular as this might sound, I think affordability will lose out due to higher credit costs, and inflationary pressures.

The Sacramento area must have every franchise known to man, and in come cases an overabundant supply bordering on market saturation. An overbuilt infrastructure set up to handle a misguided population growth projection, really puts commercial real estate at risk. They're still building strip malls that will, imo, have a real tough time filling the vacancies. My wife's been suggesting we look into commericial RE as an investment. I continue to resist as it's one area that hasn't really taken the hit it likely will.

Diggin Deeper said...

Existing home sales hit 9-year low

http://news.yahoo.com/s/ap/20080225/ap_on_bi_ge/economy_8

"WASHINGTON - Sales of existing homes fell to the lowest level in nearly a decade in January while the median price for a home dropped for the fifth straight month.

The National Association of Realtors said Monday that sales of single-family homes and condominiums dropped by four-tenths of one percent last month to a seasonally adjusted annual rate of 4.89 million units. That was the slowest sales pace on record going back to 1999.

The median price of a home sold in January slid to $201,100, a drop of 4.6 percent from a year ago. It was the fifth straight monthly price decline and underscored the continued pressure facing housing, which is struggling to emerge from its worst slump in a quarter-century."

Homes just keep getting more affordable all across the country...

Cmyst said...

diggin, as much as it pains me, I am beginning to think you're probably correct.
But keeping housing prices elevated would not have saved the economy, either. This whole mess is all about greed and the belief that the economy could be on a continuous growth pattern by artificially inflating bubbles (which pretty much allowed the wealthiest class to suck all the money out of the lower classes).
With the credit crunch, the pendulum has swung back and unless housing prices drop what seems a very unlikely amount, people are not going to have the required down payment -- even if they have the income. Add a higher interest rate onto that, and the housing market may not recover for many more years than any of us even predict.

Patient Renter said...

When housing becomes cheap, even if credit is still expensive we can always, as they say, refi. :)

Having to refinance because your debt is too great is a bad situation to be in. Wanting to refinance because your credit is expensive isn't as bad.

Diggin Deeper said...

Cmyst...We need this to happen now. I'm fear that if we don't allow this purging to occur, under the present situation, lifestyles as we know them, will be altered significantly. And this might affect everyone regardless of status.

We're attempting to transfer theses bubbles from one era to the next expecting some yet unborn generation to shoulder the load. An analogy I just read, states the market has put a gun on the table, and is not prone to allow the card players, to play anything but the hand that's been dealt.

PR...I guess that's making the assumption that prices will fall as rates increase? That's conventional wisdom but I'm not so sure. I could be wrond, but I can't remember when both deflation and inflation have squared off and are both railing against the economy at the same time.

Jacob said...

Prices have nowhere to go but down. Forget about the homes being over priced, just look at how over built we are. Supply and Demant will find equillibrium, and will drag everyone kicking and screaming all the way down.

We are in a downturn that was not caused by anything except the bubble itself. There weren't any massive job losses to trigger this as happened in previous busts.

Our economy is completely dependant on consumption. And everyone is broke and will consume less. We are already seeing many business closing stores, which means more job losses, which takes even more money out of the economy.

And still the majority of sales right now are going to speculators.

Diggin Deeper said...

"And still the majority of sales right now are going to speculators."

Maybe you don't, but I differentiate between speculators (short term high impact investments)and investors making longer term calls. The late entry speculators are desperately trying to sell to investors...and there are plenty of them out there right now snapping up the bargains they see.

watchingthebubble said...

Funny, I had a salesperson at one of the developments in Madeira in Elk Grove tell me that prices of new homes won't drop any further because "there's no way we can sell them for less than what they cost to build them."

I thought to myself, "Oh yes you can. Wait and see."

Jacob said...

I define speculators as gamblers, they make money only if the asset increases in value.

For true investors that buy at a price that allows them to make money from renting, then great. That's what you should do.

New homes can be sold for any price. Sure builder won't build a home now if they can't sell if for a profit, but the ones that are already sitting there will get sold one way or another.

smf said...

The late entry speculators are desperately trying to sell to investors...and there are plenty of them out there right now snapping up the bargains they see.

I would partly disagree.

While there are already houses that could pencil out as actual investments, if the investors cannot rent it out the majority of the time, the house will become a loss.

There are also plenty of areas where I would never consider buying investments right now, such as EG, N. Natomas, W. Sac, etc.

There is way too many rentals as houses for sale.

Remember that many rental units were built as well, for those people that were 'priced-out' of the market.

At the same time, I know people who would consider investing, and they are still expecting house prices to 'recover' soon.

I would call the majority of investors as partial speculators as well, since they are expecting that soon their investments will be worth more money.

HOUSE2008 said...

"there's no way we can sell them for less than what they cost to build them."

Well, now I'm not so sure. A friend & I went out to see the Shea homes projest in West Sac/Southport area and who would of thunk it, their pulling up the stakes & leaving. They've sold all the model homes which usually are the lst to be sold, with a TON of empty lots still available. Many with utilities, phone lines ect still sticking out of them not unlike the Dunmores Monterey village.

I'd like to hear anyone elses take on this. With lunber SOO much cheaper now thatn in 2005 I wonder if they'll ever be back to build on those lots later or will they sell tham off. Hmmm.

Gwynster said...

Why buy new when the West Sac area has REOs galore? I just saw a Bridgeway lakes home go reo for $199. This same model was being peddled to yours truely for $290k last year. It looked tempting but that whole cluster is turning into rentals so it's going to trend down for a while.

smf said...

It looked tempting but that whole cluster is turning into rentals so it's going to trend down for a while...

...and scratching that area out of your list?

Isn't that another problem with newer areas. Why buy in a location where you have no clue how it will end up? Regardless of the price.

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

smf... Is there any way to quantify just how many more homes than people we have in this area? Right now we're speculating but don't really have much data to back it up. We all seem to be taking this theory at face value.

While people are tending to believe that home prices will fall to WalMart levels, given higher cost pressures on other fronts, I'm not so sure.

Even during the Japanese deep freeze recession that started in 1991 to 2004, real estate prices fell over 60% off their highs. The Nikkei Dow dropped from 38,000to sub 13,000. This basically happened in a low inflation-low interest rate environment over that entire period.

We're not in the same environment.

A widespread 50% decline off the high, is a number that I'm looking for. There are too many other factors that will set the price floor higher before they'll drop much further than that.

Be careful about the prices you hope to see in this area. If they go too low, we'll have settled into a depression and we'll have to dust off the old WPA programs just to keep our people fed. Then we'll be bulldozing for a cause and turning the excess land back into a cashcrop.

Bursting a bubble is one thing, crashing the entire economy is something quite different.

mbc said...

"Be careful about the prices you hope to see in this area. If they go too low, we'll have settled into a depression and we'll have to dust off the old WPA programs just to keep our people fed. Bursting a bubble is one thing, crashing the entire economy is something quite different."

That's what I've been saying for a while now. Some on these blogs think we can somehow roll back to 1998 prices in a vacuum, as if a drop that severe somehow wouldn't affect them because they weren't "stupid enough to pay those ridiculous prices."

smf said...

"Bursting a bubble is one thing, crashing the entire economy is something quite different."

What we wish for and what will actually happen may be two different things. Once the bubble was created, a crash and pain (to an undetermined amount) was inevitable. Whether some of us wish for a depression or not is beside the point, the economy will do what it has to do to correct itself.

I wish I had the time and the statistics available to give all the answers. But with all the fraud that occurred, correct figures are hard to come by.

All the info I give is purely first hand accounting, and it doesn't look good.

Japan does provide a good example. And this is a country where land is at a premium. And they also have declining population, which I have stated to be a problem before. Less people = ;ess housing demand.

But the problem has many facets. We can talk all we can about sales, when a good chunk of people played the refi game w/o getting into the buying/selling market.

Do remember, I do work in the construction industry, and the first signs of real trouble are in the horizon. Met the other day with some engineers that are telling me that 40-50% of their work has vanished.

Diggin Deeper said...

smf...ever been to Japan? Ever see what crowded really looks like? Talk about a sea of bodies...A declining population on a confined island like that is a blessing!!! And it hardly affects housing demand.

You postulated the body count theory...how about coming up with some facts and figures to back it up.. just so we can be certain that the thought is correct and not based on speculation?

alba said...

The regional builders cannot afford to lose money on all of their existing homes, but need cash flow to keep the lights on. Regardless, the macroeconomic factors will continue to drive prices lower. For the large public builders, like in most other industries, growth by acquisition should occur. Bottom line losses can be offset by topline growth, marketshare, even with negative cash flow. I would have expected far more contraction of the housing market. Maybe it won't happen. Maybe the regional builders will just dry up. I'm still convinced the macroeconomic affects will outweigh any housing industry factors...driving us all to focus on more important factors. Listen to the lies of Paulson. Hide your money. Be patient.

smf said...

"how about coming up with some facts and figures to back it up.."

Fair enough, though I am still trying to figure out the methodology and numbers to use.

RMB said...

I think gwynster pulled some of the house vs population data together awhile back. She also included out migration. IIRC the data did back up the conclusion that we are waaayyyy overbuilt on homes per capita.

Gwynster?

HOUSE2008 said...

Why buy new when the West Sac area has REOs galore?

Very true. Drove around & I "almost" can pick & choose which ones to buy. But like somethig in the oven...This whole real estate mess has got a long way to go. Nice homes out there though. NOT a great neighboorhood to drive through getting there but I like the Southport area. And yes I'll be buying a raft:)

On the news I just heard them say that homes prices have to come down even more. Nothing that bloggers on this site didn't know but interesting that there getting real about it.