Thursday, July 31, 2008

A History of Sacramento Home Prices



As I often get readers coming to the blog searching for historical charts of Sacramento home prices, I thought I'd throw this one up. Click on the chart for a better view. The chart shows median home prices in Sacramento County (and West Sacramento) since 1987 and is based on data from the Sacramento Association of Realtors. Also included on the graph are some key indicators such as inventory, affordability, employment, and foreclosures.

25 comments:

Todd said...

Thanks for the great information. Anyone have a guess as to what the median Sacramento home price will be when the market bottoms?

Jacob said...

Nice.

So when affordability hits 70% it could indicate that we are at or near the bottom.

Still have to deal with that excess.

Diggin Deeper said...
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Diggin Deeper said...

Really is a great graph...looks a lot like th Schiller graph of price declines.

70% affordable would probably be close to the $200k level just using nominal wage inflation as a guide. Very possible we'll reach that shortly...taken another way, if you add in a 3.5% historical inflation average since 1987 that median would be around $170K today...At this level it would represent a little over 56% off peak. Average the two and we're looking at $185,000.
We're sitting at basically 44% off peak on median right now. At $185K that would represent just under 53% off peak.

It's pretty clear that investor and first time buyer activity would grow when you strip between 40 and 50% off peak pricing.
As we move lower that activity should increase.

As for the excess, let's not forget there's always excess in boom or bust cycles...that's why bubbles occur in the first place. Yes population could be a problem, but lower prices have a way of addressing it...Eventually, the market brings us back to equilibrium as those excesses get worked off.

My wag is we'll probably see somewhere in the neighborhood of $190K give or take a few percentage points. How long it stays wherever it lands, probably depends on how deep and long our downturn lasts, as long as it remains only a recession.

James said...

$200,000 will be the bottom

Diggin Deeper said...

The only problem that weighs heavy is that inflation, without compensating wage growth, will negatively affect affordability. Kind of a stick and carrot deal. Inflation rises, you get a wage increase only to find that you're not quite making up for the cost creep, and affordability falls.

Back in the early 80's if you were on professional path it wasn't uncommon to see 7-10% wage increases. Today, I'm not so sure that's happening.

Tyrone said...
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Tyrone said...

Diggin,
I don't believe we'll have wage inflation this time around.

Consumer spending declining =
profits declining ≠ (not equal)
I will pay you more

My simplistic way of looking at it.

PeonInChief said...

Prices will have reached bottom when affordability is 56%. That means that the median price is affordable to 56% of the households in Sacramento.

How much "off peak" that is will take into account inflation and job losses, both of which may grow substantially in the immediate future.

sacramentia said...

great graph! thanks.

norcaljeff said...

Anyone have a guess as to what the median Sacramento home price will be when the market bottoms?

Sac Co or Sac metro?

Patient Renter said...

Lander - GREAT stuff!

One thing I noticed about the 90s bust is that the downturn still had a long ways to go once job growth went negative (a typical recessionary indicator), which just recently happened with this downturn.

$200,000 will be the bottom

You could be right, but even after the median settles down there are still certain areas that lagged behind and will fall for a while.

Todd said...

Sacramento

neverborne said...

100 - 250 price range is bottoming out NOW, if you're trying to buy a house in the price range... you'll know what I mean. We may see 5% more tops from now to Q1 '09 and then we'll lay flat for several months and then start a slow struggle up words. The rest of the price ranges may still have 10% to 20% to go. And may not bottom out till late 09'.

The median will continue to fall for a while as the higher value homes slip towards becoming affordable and ALT A foreclosures come into play in the nicer neighborhoods of Sac.

I think people over generalize too often. Every price range will probably find a bottom at a different time. If you're looking to buy in the lower price range, now IS a good time to buy... November/December may be a bit better. And you're not gonna completely "miss the boat" if you wait till next year.

norcaljeff said...

Sac Co - $190K
Placer - $209K

Tyrone said...

If you're looking to buy in the lower price range, now IS a good time to buy...

The economy is continuing to falter. It will further depress house prices, which will make more people walk away, which will make the economy continue to falter, which will...

Diggin Deeper said...

While it's fun to play with the numbers and make predictions, I think Peoninchief's response is right on. Too many variables to find a supporting price....

The oddity of this market is that job losses and inflation should run opposite when regarding RE prices. One pushes down the other up. This market finds both now working in tandem but on completly different fronts. Add in a deflation component to the frothy asset classes (financials, real estate, credit, equities, dollars), and inflation to the everyday hard assets priced in dollars, the consumer/buyer then fights with his wallet from all sides...and affordability suffers.

What appears to be affordable today may be altogether different tomorrow if wages don't rise to offset.

Imho the only effective way to defeat inflation is raise interest rates high enough for long enough to vaccum liquidity (dollars) out of the system. With all the stimulus going on and literally hundreds of $B required to maintain stability, we won't be hearing that "sucking" sound anytime soon.


During the early 80's when posted inflation was running at 10% per year, interest and mortgage rates pushed over 17% to eventually get it under control. The market still found buyers because wages were increasing. A simple rise of 1% in mortgage rates from here moves payments up by just over 14%.

The days of sub 7% mortgages should be about over...Those sitting on fixed mortgages in the 6's will really benefit as long as they're willing to stay put for long while. I believe that's a strong reason why we've seen activity in these markets of late.

James said...

DD, nice post.
I think, however, inflation is not going to get too out of hand.

"the only effective way to defeat inflation is raise interest rates high enough for long enough to vaccum liquidity (dollars) out of the system."

The credit markets are taking care of this already. Liquidity is extremely constrained. Raising rates will further burden the system.

"During the early 80's when posted inflation was running at 10% per year, interest and mortgage rates pushed over 17%"

Different circumstances and policy allowed this to happen. The commodity bubble is bursting before our eyes, this will mute headline and core inflation numbers. Interesting side note, the 80's was also when negative amortization loans really became popular. The idea was during periods of high inflation, your purchasing power would grow each year, thus making the reset payment affordable.

Patient Renter said...
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Patient Renter said...

During the early 80's when posted inflation was running at 10% per year

Don't ever forget, we are at 10% a year if you calculate CPI the same way we did back in the 80s.

James said...

Tale of Two Zip Codes

BusinessWeek.com asked Mountain View (Calif.)-based Altos Research to look at what has happened to listing prices for homes in 20 large U.S. metropolitan areas since the mortgage crisis began last summer. We selected the best and worst performing ZIP codes in each metro area and discovered that, in almost every case, the listing prices in the strongest performing areas had weathered the year much better than those in the weakest performing ZIP codes.

sacramentia said...

I'm with james on the inflation front. The constrained lending environment is the massive sucking sound that will keep it under control.

I wouldn't be shocked to see the Fed lower rates again if oil and other commodity prices fall due to demand destruction caused by a recession.

I think the current price inflation is an overhang of loose money/credit years, but this years combination of consuming high priced commodities and credit destruction is setting the stage for price deflation moving forward.

Diggin Deeper said...

"The commodity bubble is bursting before our eyes, this will mute headline and core inflation numbers."

Could be...but with all the debt piling up, to me it's more of a dollar problem then anything else. Inflation rates in other countries, we depend on for product, are running double digit. We accept their higher prices without much recourse. Our trade imbalances are huge, we don't save as a people, and our foreign debt levels continue to mount to nosebleed levels. Change all that and we get our dollar back.

As you know commodity booms last an average of 15-20 years... about as long as their busts last...it takes a long time to bring these resources to market. That would put us fairly early into this cycle.

James, I hope you're right, but I remain skeptical.

Diggin Deeper said...
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Diggin Deeper said...

sacramentia...good points, but I'm going to stay on this side of the argument until we get enough demand destruction to deflate prices. I think it continues to be a supply problem and that demand destruction cannot out distance diminshing supplies fast enough...We'll see.

PR...nuf said!