Monday, May 05, 2008

Sacramento Incomes Dropped as Home Prices Bubbled

From the Sacramento Bee (hat tip DJ):

Even as housing prices doubled and the construction industry flourished, most Sacramento County residents saw their incomes effectively drop during the housing boom, according to new state tax figures. Adjusting for inflation, the median income of Sacramento County families who filed joint tax returns fell about 1 percent from 2002 to 2006, a showing worse than 51 of the state's 58 counties, according to California Franchise Tax Board figures released this week.
Several economists said the apparent good times created by the boom masked problems in local sectors not related to housing. And many local residents were fooled into feeling flush by the abundant cash coming in from home equity loans – the same, nonrecurring funds that would later turn into high-interest debt.
From the Sacramento Bee:
Worn down, feeling deflated as a bad tire? Consider a "staycation," a stay-put vacation where you absorb the budget-minded, healing powers of home sweet home...What could be more budget-minded than spending nights in your palatial home master suite and skipping the airfare, too?
[E]njoy the amenities of Sacramento "resort" backyards. During the recent boom years, homeowners used their equity for massive home-improvement projects – indoors and outdoors. In the Sacramento region with its warm climate, many backyards have been designed into mini-resorts with palapas and Tiki torches, palms and cycads, fire pits and pools that appear more Maui than Citrus Heights.
From Investment News:
The opportunity presented by the housing crisis can be a double-edged sword. Not only are homebuyers sitting on the sidelines, but many homeowners, especially speculative in-vestors, are opting to rent their homes rather than sell them. This means a glut of rental homes are being dumped into the market that will compete with apartment rentals.
At the same time, unemployment is rising, which also could dampen demand for apartments and the ability of landlords to raise rents, [David] Harris [an analyst with Lehman Brothers Holdings Inc.] said. Americans who lose their jobs or are worried about job security may opt to rent a smaller apartment or take in a roommate to avoid paying higher rent, he said. "Most tenants will find a way to avoid paying an increase in rent," Mr. Harris said. He sees this playing out in the second half of the year.

[Craig Leupold, president of Green Street Advisors Inc., a buy-side REIT research firm] agrees. "That sort of offsets the benefit of the weak single-family housing market," he said. Mr. Leupold expects to see job losses in the construction and financial industries, and competition from single-family home rentals will likely affect apartment rentals the most in such markets as Florida, Phoenix, Las Vegas, Sacramento, Calif. and central California.
From the Sacramento Business Journal:
When Elk Grove approved its most recent major new-home development three years ago, builders couldn't move fast enough to put houses there.

Times have changed. The city is expected to approve its first new residential project since 2005, a 200-acre proposal for almost 1,200 houses by Santa Clara-based Citation Homes...But like many other approved developments across Greater Sacramento that have been mothballed, construction won't start until there's been a recovery in the housing market.
When Elk Grove was booming six years ago, builders sold more than 2,600 new homes in one year within the city. Last year, there were 233 new-home sales, according to The Gregory Group in Folsom. The city said as of last week there are 1,029 bank-owned properties in Elk Grove.
From the Sacramento Business Journal:
California's residential construction industry is approaching uncharted waters as a housing slump, tight liability insurance coverage and new laws for handling construction defect litigation all collide. The collision makes an already challenging business environment fraught with even more danger. Some attorneys, especially those representing subcontractors, say they fear for their clients' future. "This is going to be a big problem," said Blane Smith, an insurance-coverage attorney.
Tami Boeck, a Sacramento defense attorney who handles construction defect litigation at Bullivant Houser Bailey PC, worries about her contractor clients and fears what she calls a "perfect storm." She thinks some contractors, if sued, could burn through their limited insurance coverage and go belly up.


Wadin' In said...

If inflation adjusted incomes declined 1% from 2002 to 2006, that means inflation adjusted housing prices should have declined from 2002 thru 2006.

Hmmm, that means the typical house, which sold for $225,000 in 2002, and $450,000 in 2006, needs to get back to $225,000.

And with all the pressure building, it will revert below the mean by 10% or so. That 1800 SF 3 Bd, 2 Ba will need to get to $200,000 to be affordable. Adjust that forward by 7 years to 2009, using 3% inflation and here is the reality: $246,000. $136/SF. sure is a good thing we are going to have raging inflation for a while, so home prices go up. Oh, wait, we already tried home price inflation. Until we have wage inflation, home prices will be stuck. Hmmm.....wages seem to be stuck with the globalization of the world workers making $15/day.

This could be a disaster. Home prices may be stuck for 20 years. I don't think that could ever happen....Oh wait, didn't that happen in Japan?

So many questions, so many houses, so much time.....

smf said...

"This could be a disaster."

Could? It already is...

"Home prices may be stuck for 20 years. I don't think that could ever happen....Oh wait, didn't that happen in Japan?"


...they declined for 14 years or so.

And Japan is the first country that has to deal with actual and proven population decline.

We'll see what happens then.

Patient Renter said...

This real income decrease really is astounding when taking into consideration the way people have been spending money the last few years. Yet another thing that cannot bode will for the future.

paranoid renter said...

That 1800 SF 3 Bd, 2 Ba will need to get to $200,000 to be affordable. Adjust that forward by 7 years to 2009, using 3% inflation and here is the reality: $246,000. $136/SF.

If you buy a foreclosed home, you can get close to that already in many areas.

The good stuff is still expensive though. Everyone with deep pockets is waiting for the big bailout from Helicopter Ben.