Friday, April 11, 2008

Greg Paquin on New Home Prices: Another 3-5% Till Bottom

From the Sacramento Business Journal:

New-home prices fell for the eighth consecutive quarter to the lowest level since 2003....The Sacramento area's median new-home price declined to $359,000 during the first quarter, a 7.5 percent drop compared to $388,000 in fourth-quarter 2007 -- and $107,000 less than the peak two years ago.
First-quarter home sales are about half the number for the same period a year ago, and 1,820 fewer than second-quarter 2006, according to The Gregory Group. "If we're not at the bottom, we're pretty darn close," said Greg Paquin, principal of The Gregory Group.
Industry consultant Mike Winn...said the current conditions feel like the bottom of the market. "People are latching onto any indicator they can," said Winn, board chairman of the North State Building Industry Association.
From the Sacramento Bee:
The first of several reports on first-quarter home sales is in, showing the number of new homes sold in the eight-county Sacramento region has fallen to the lowest level since possibly the early 1990s. But amid the dreary statistics there appears to be the suggestion of a market in the beginning stages of stabilizing. Greg Paquin...says the 1,304 new homes sold in January, February and March were almost equal with those sold during the previous quarter...That's not much on which to build a case for recovery. But Paquin and other analysts...say that while the numbers remain discouraging, they can see what looks like a market bottom forming before year's end.
Gregory Group statistics showed prices are still falling for new homes. The average $404,144 first-quarter price was off 5.3 percent from the previous quarter and down 13.1 percent from the same time last year. The silver lining: Paquin believes prices probably have just another 3 percent to 5 percent to fall.
Doug Pautsch, Sacramento division president of Dallas-based Centex Homes, maintains that buyers believe the market has bottomed and is bouncing back.
DataQuick's LePage said banks have sold only about 40 percent of the homes they foreclosed on in the region during the second half of 2007. The thousands more slated for sale will put a downward pressure on prices.
Q1 2008 New Home Sales Chart

For some of Paquin's previous predictions see here.

From the Sacramento Bee:
Folsom-based Elliott Homes Inc. appears well-poised for the long haul after paying $10 million this week for 400 acres of GenCorp Inc.'s unused real estate off Highway 50 in Rancho Cordova. That comes to $25,000 an acre, a lot less than the $100,000-an acre figures some builders were paying for land during the housing boom.
From the Sun Post:
Facing a nasty drop in home sales and prices, one builder has turned to the Internet to find buyers for its new subdivision. San Ramon-based Pacific Mountain Partners has listed 18 new homes in its Lathrop subdivision on an online auction Web site, Freedom Realty Exchange, which allows people to place electronic bids on the homes over a month-long auction period. Though it’s not the first time someone sold a home on the Web, the auction is likely the first time a developer in California has used the technique to get people to move into a subdivision.
From the Sacramento Business Journal:
Department-store chain Gottschalks Inc. reported same-store sales plummeted 15.4 percent in March compared to a year ago, as the retailer -- like many others -- battled a difficult economy, largely because of the hard-hit housing market and higher gas prices.
A report from the Center of Economic and Policy Research compares the ownership and rental costs in 20 major U.S. metropolitan areas, including Sacramento (hat tip Seattle Bubble). Read the report here.


subprimetax said...

America needs to change the United States Tax Code to eliminate incentives and subsidies for investors who purchase and hold single family homes in the United States.

My main point:

Do not give investors a better deal under the tax code than taxpayers who want to own and live in their own single family homes. Better yet, do not give investors any tax deductions for single family home investments. We do not need to encourage speculative investment in the single family housing market through tax breaks.

The Tax Code has had a very large part in the current housing bubble. This fact has not received much coverage in the popular media. I believe that our federal leadership must take aggressive action to correct this situation. Why should wealthy investors be encouraged to use single family homes as rental investments, with tax breaks that are subsidized by Taxpayers who want to buy a house but can’t afford it?

Current situation:
Investors are presently encouraged through the United States Tax Code to purchase single family homes. Investors are willing to pay more than a homeowner that lives in his own house. This makes economic sense under the present United States Tax Code.
This drives up the price of single family houses for obvious reasons – due to federal tax subsidies, an investor pays less each month for a single family house than a Taxpayer who occupies his or her own house due to tax deductions.

Why will investors pay more than a Taxpayer who occupies his or her own single family house? Because investors can deduct expenses related to owing a home that they rent out as “rental property”. Thus, through the United States Tax Code, investors in single family houses are subsidized by all other Taxpayers, including renters. How ironic that in the United States of America, the low income Taxpayer who rents a house subsidizes the wealthy investor who owns the very house that the low income Taxpayer would like to own. This doesn’t seem like a fair way to run our great country.

Investors can deduct virtually all expenses related to purchasing, maintaining and renting a single family house.

Does America want to end up with all single family homes owned by a group of wealthy investors who are subsidized by low income Taxpayers? How about foreign governments purchasing single family houses in America as investments? Here in the Sacramento area there is news coverage of Chinese government officials touring new housing developments, with the implication that a foreign government might end up renting single family homes in America to American Taxpayers. Further, these foreign governments would be receiving tax subsidies from American Taxpayers under the present United States Tax Code. Can this be fair? Is that what Americans want?

My proposal:
Drive investors out of the single family home market.

Change the United States Tax Code as follows. For single family homes purchased in future periods, no deductions should be permitted for investors. This means, no depreciation expense deductions, no repair expense deductions, no deduction for business expenses such as insurance, utilities, etc.
This would put investors on an even footing with American families that want to own and occupy their own single family homes.

Further proposals: There should be no tax deductions given to investors in single family homes for any expenses. This means no deductions for interest expense and real estate taxes. Any gain from the sale of a single family home by an investor should be treated as ordinary income, subject to social security tax. Any loss on the sale of a single family home by an investor should be non-deductible.

Advantages: Investors would no longer bid up the price of single family homes to speculative levels. Millions of American Taxpayers who have been bid out of the single family home housing market by speculative investors would be able to live the American dream – owing their own home. Single family home neighborhoods would no longer be filled with transient renters who have no financial stake in the quality of life in their area. This would serve to stabilize our neighborhoods and protect American families.

Other: Investors should still be able to receive favorable tax benefits for investments in apartment complexes and multiple family dwellings. Investors could still receive tax breaks for investments in stocks, bonds, and any other commodity except single family houses.

To emphasize my main point, investors should not receive a single dime of Taxpayer subsidy to own single family houses as rental property.

I realize that this might not be a popular political position, but America needs someone to do the right thing. In the long run, all Americans will benefit from getting investors out of the single family home market. If more Americans own their own homes, everybody wins.

The present American housing crisis might have been prevented, or at least minimized, if speculators had not been encouraged by the United States Tax Code to buy and rent out single family homes.

Single family homes are the backbone of America. Get investors out of the single family home market.

Perfect Storm said...

Anybody out there who believes Greg Paquin complete and utter bullshxx, I have a bridge I want to sell you.

$25,000 an acre for Rancho Cordova land dang and just a few weeks ago it was $32,000 and acre, anybody who bought land there in the past few years is screwed.

Were right on track for 50% decline by 2009.

Sippn said...

PS - & the $100k permit...

WOW, prices are DOWN to $471K in Elk Grove for new? Ouch!

Subprime - you are out there buddy!

Distinguish between investor and speculator. The speculators using easy money targeted for easy homeownership trashed this market.

Investors provide housing for all those people who can't provide for themselves - mostly because they can't manage money and themselves - (I'm not talking about all you renters writing in)

Take a trip over to North Sac a block north of Grant High. Investors and the SHRA continue to rebuild and rehab and fix homes for some of the responsible you defend.

I'd like to deduct my health insurance (self employed) ....I digress.

Jacob said...

I am so glad we are finally at the bottom. Just another 5% to go. I think I heard that several times before over the last year. Seems we are always just within 5%, but then that dang market just plummets some more...

Sales are at the lowest levels in decades but now that sales seem to have found a bottom I guess the market is done correcting right?

I mean forget about inventory still rising.

We'll see what happens now that the spring bounce is over.

bubblemachine said...

Doug Pautsch, Sacramento division president of Dallas-based Centex Homes, maintains that buyers believe the market has bottomed and is bouncing back.

Now, why would buyers believe a silly thing like that? Could it be because all the real estate shills continue to tell us that now is the time to buy, that prices can't go much lower?

Anyone who buys now will see most of their down payment equity evaporate within a year as prices continue to fall. The poor suckers don't realize that they are just throwing away thousands of dollars.

Diggin Deeper said...

They keep calling a bottom but who's listening anymore? How simple can it be? We find a bottom when prices stop going down, grind in a range for an extended period of time, and begin to rise again with the rate of inflation...

Could we be within 5-6 percent?It's possible when one considers how far down we've come (using median prices for convenience only)...Just as bottom calling has proved to be an impossible game, predictions on how low prices will drop from here are equally impossible to predict.

I believe we are much closer to a bottom than we were 18 months ago...that's pretty safe.

Anyone want to go out on a limb and predict what the percentage off the median high will be?...
I've heard as high as 75%...

The only one on this blog who's come out and boldly predicted price declines is Perfect far so good...

Patient Renter said...

after paying $10 million this week for 400 acres of GenCorp Inc.'s unused real estate off Highway 50 in Rancho Cordova.

Very interesting. I presume this is the same "DANGER: TOXIC WASTE. DO NOT ENTER!" land that GenCorp has long held off on disposing off for obvious reasons?

Deflationary Jane said...


I'm there with you. I am so tired of the investors. What makes it liveable is watching them loose their shirts >; )

I looked at a 4/2 today for 330K.
MLS #: 80035396
Check out the purchase date. It's a S/S now. You can go right down the street and buy a 2150 sqft KB monster for 10 to 20% less.

So my question now is did they have an iterest only from 92 (doubtful) or was it refied to death with the bank about to pick up the tab.

The best part is if you have MLS access and see what the recent sales there look like. It's been REO after REO since last summer.