Friday, March 20, 2009

DataQuick: Sacramento Median Price Back to 2000 Levels

Another milestone.

From the Sacramento Bee:

Prices keep falling.

February brought the lowest median sales price to Sacramento County's housing market since December 2000 as bank repos drove a decline to $160,000, researcher MDA DataQuick said Thursday. The county down 59 percent from a 2005 high of $387,000.
Statistics by county

Modesto & Stockton metros are now down 66% from peak, while Merced hit -72%.


Jacob said...

The declines are bad enough but the real problem is they are getting worse:

Date | Median | % YOY | % Total
2-1-06 | $386k | N/A | N/A
2-1-07 | $359k | 07% | 07%
2-1-08 | $270k | 25% | 30%
2-1-09 | $160k | 41% | 59%

And if we look at $ lost instead of % it is just as bad.

2-1-06 | N/A
2-1-07 | -$27k
2-1-08 | -$89k
2-1-09 | -$110k

So the knife catchers that bought in 07 and sold / foreclosed in 08 were actually better off than the knife catchers that bought in 08 and are now screwed in 09. Even though the people buying in 08 were getting a much better "deal".

On the bright side, there is only 41% at most more to go till we get to the bottom...

I remember making a few predictions here or there around 06/07 that we could see 75% off and the flames would come pouring in. It made sense to me cause places in Japan easily lost 80% in their recession (which I don't think has ever ended...).

We are back to 2000 levels, sounds like a good time to buy. Except in 2000 there were a lot more jobs and people had a lot more money and less debt (relative to today).

sacramentia said...

Amazing. You would have been better off buying 15 Toyota Camrys than a home in Merced in 2005. The Camrys would be worth about 50%.

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

Back to falling knife thoughts

One of the things that really goes counter to all the doom and gloom is that RE activity in certain price ranges continues to be hot right now. If you're in the market for a home priced below $300K be prepared to make many offers before you finally get acceptance. If you're looking to get in for the FHA minimum, it's even worse.

I know of one property where there were 35 offers in a one week span. My wife's client offered nearly $60,000 over asking and didn't even make the short list. For all I know, this client may have had the high bid, but was thrown out because he wanted to do an FHA with 3.5% down. Cash is king and without a substantial down, you'll waste a lot of time until some bank finally bites.

What's interesting is that new buyers walk into this market thinking they can dictate prices and terms. It doesn't take but a couple of weeks before they begin to understand they're going have to fight it out with others before they'll get an accepted offer.

I don't know if it's investors or first timers...I do know that its fast and furious with alot of disappointment for those that truly want to buy at these levels.

Diggin Deeper said...

At 75% off, peak to trough, the median goes to $96,500, another $63K from here.

Possible?...anything's possible. The real question is, is it probable? No...UNLESS there's been a total collapse in our economy. Job losses, yours and mine, along with a good portion of the US working public, will shut down every RE market in the country...

So the possiblity does exist but there's an awful lot of new money being created and thrown at the problem. With all the reflation that's being employed to ward of deflation, it's just as possible that $96K median priced home will have the same price tag as that Camry.

sacramentia said...

With Bernanke in charge, I think it is just a matter of time before the capital injections are 'significant' enough to create inflation. When I go back and read his 2002 paper that outlines what he would do and is doing now, it seems foolish to bet against those in charge.

The government needs inflation to generate tax revenue. If you make 5% real return on an investment during a year with 5% deflation the government gets 0 taxes. If you make the same 5% when there is 5% inflation, the government gets 3-5% of the gain. How else can Obama pay for the massive spending?

Our next best hope for a bubble is in green energy technologies, but this is not going to happen until the price of oil rises again. Dollar destruction makes this happen. And this bubble could be a good thing. Over investment in clean energy will have benefits for a generation, just like the dot-com bubble.

Wages have to normalize between the US and rest of the world or corporations will continue to outsource. The least painful way to make this happen is to lower the value of the dollar.

I don't believe in conspiracy theories, I just think the powers that be have to decide between a bad choice and a worse choice. Deflation caused the last Depression and mass inflation caused a nasty recession during the Carter years.

Therefore, betting a continual declines in RE due to deflation at this point seems as risky to me as betting on continual appreciation in 2004.

Diggin Deeper said...

Sacramentia...I think that's a fair assessement...

Some believe there cannot be inflation without wage growth. This is a fallacy because dollar devaluation forces employers to maintain some form of value paid for a given day's work. This will tend to move wages up as the dollar moves down. It doesn't have to be net real growth but it does have to keep pace with current dollar valuations. Otherwise, there'd be strikes, mobs in the streets, etc. If that doesn't occur, then we're in much worse shape than any of us realize.

I agree the reflation efforts are not to be bet against. But to bet on the Goldilocks, "this porridge is just right" theory, is probably not a good bet either. Our past monetary efforts have yet to prove that Fed policy can moderate the right outcome. And over correcting is as likely as we saw during the Greenspan days. What it does, though, is probably put a floor under the market. Be it temporary or not...

Garth Farkley said...

I'm bumping this excellent comment by Deflationary Jane from an earlier thread:

Unemployment hit 11.6% in Yolo.

"Before the economy tanked, job fairs drew dropouts or high school graduates, Garcia said. 'Now it's people with degrees - with bachelor's degrees and master's degrees,'...."

"Perry's looking for a solid salary. Many of the jobs at Thursday's fair are commission sales, he continued. You make money when you sell something, and 'no one's buying anything right now. I don't want to depend on people who don't have any money to keep me living,' he said."

I can't see how we stay at the current median price as these employment losses hit. This is why I'm renting another year and hugging my cash reserves.

Friday, March 13, 2009 12:15:00 PM


DJ is right. I'll stick with the advice of William Prescott at Bunker Hill, "Do not fire until you see the whites of their eyes."

William Wallace might have put it simpler at the Battle of Stirling:

Hold! Hold!!! H O L D !!!

Jacob said...

Well we definitely need wage inflation for homes to inflate. Otherwise you have to spend more on food, gas, and everything else and you don't have enough to buy a home, car, TV etc.

Now there is a core sevice / amount of people a business needs to maintain, so those people will get raises, but as we are seeing with the job losses, there are a lot of jobs that can be shed.

There are a couple problems in the way of home prices bottoming as I see it.

1) Buyer sentiment - Prices are going down so I don't want to buy. This will change at some point.

2) Job losses continue to take people out of the market to buy a home or put more foreclosures on the market.

3) There is a huge oversupply of homes. These will eventually be absorbed but it may take several years.

4) Foreclosures - They keep happening which keeps downward pressure on homes and puts more people underwater. This negative feedback loop will break at some point but not yet.

5) Credit - During the boom you could get a loan for 10x fake earnings with just a pulse (or was a pulse even required?). Now, no matter how much bailout money there is, banks are going to loan to people that can pay them back. This takes a lot of people out of the market.

So will we get to 75% off in Sac? I dunno. But we lost 41% YOY from Feb 08 to Feb 09. Lets say next year is better and we lose 25% YOY, and the following 12%, then 7%, then bottom. That gets us to 75% off.

Of course Sac is a big area, so certainly many areas will have medians much higher than $100k.

I for one would be happy is prices bottomed tomorrow and job losses abated. Then I could buy a home worry free. But with job losses at a very high rate each month, and even worse, with that rate still increasing, I think we have a ways to go.

Garth Farkley said...


There is anecdotal evidence of competitive bidding for cheap REOs. But my Spider-sense is tingling and it says the banks are holding back thousands of REOs and near REOs that they can't or won't dump all at once--a mountain of pent up supply. (Although some banks are now trying to package and sell them in bulk lots.) This overhang of supply portends continuing subsidence under the low end of the housing market. The foundation will never stabilize in this state. It will keep cracking.

Eventually the walls come down. Jumbo and option arm foreclosures are just now kicking into gear. The higher end of the market never was immune. It just takes a long time for erosion to do its work.

Garth Farkley said...

Diggin Deeper said...

"The higher end of the market never was immune. It just takes a long time for erosion to do its work."

Couldn't agree more and this is where I think most of the future price deterioration will come from. As those higher end prices come down, inventory sales numbers will pick up, and overall sales dollars will grow. That should have a positive affect on the median price, possibly even to the the point of misleading the market into believing that median prices, overall, have stabilized.

Whether or not there are 1000's of homes still in inventory remains to be seen. As far as I know that's a strong possibility but as far as I know nothing like that has that been confirmed. The reports I've read say something like "maybe as many as" "could be as high as" but we really don't know for sure...

One thing is a fact as of today. Put a half way decent foreclosed home with a $250K price point, underprice it by 20%, and you will get plenty of bids to evaluate. Good deal, bad deal?'s the best deal as of today.

Garth Farkley said...

Banks Sell Some REOs in Bulk below Market Prices

by CalculatedRisk on 3/19/2009 04:55:00 PM

From Zach Fox at the North County Times: HOUSING: Banks selling properties in bulk for cheap

Lenders have become so overwhelmed by the foreclosure crisis that they are starting to unload properties in bulk to investor groups at steep discounts.

* * *

What is going on? I think the lenders are swamped, and this is OPM (other people's money). The money doesn't belong to the people making the decisions, and it is hard for them to accept a short sale, and after foreclosure, it is probably easier for them to just take a check and get the property off their desk. The result is the banks make a series of less than optimal decisions, and they leave money on the table at several points in the process.


My undereducated guess is the banks are bailing REO's like Lucy and Ethel in a chocolate factory because they know what's coming in the pipline. They aggessively "underprice" to make sure there are no clogs. I just don't don't want to be the guy that's drinking what comes out of that pipe.

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

"it is probably easier for them to just take a check and get the property off their desk."

This is total capitulation which usually occurs at or near market bottoms. Banks, encouraged by the govt, are beginning to suspend foreclosures. And why not when the major banks are quasi owned by the govt to begin with? There are powerful influences attempting to gird up the underbelly of our economy. Without success, the whole thing caves in, and Jacob's 75% off really doesn't matter. This is one where if you're right, you're screwed! We'll have squandered $9 Trillon in new debt only to fail.

It's not about what is seen or perceived, but what's going on behind the scenes, that forces the market's hand one way or the other. The money being directed is staggering. Failure to reflate is NOT an option regardless of consequences. Imo we're entering a "controlled" phase of this RE downturn.

The US government can do ANYTHING it deems necessary including buying up every bad mortage in the country and restructuring it to the advantage of the homeowner. That doesn't solve the foreclosure inventory problem, but keep in mind, with New New Deal politics, there's some "hole digging/hole filling" program that will come along and address this problem, too. Even if it means supply destruction.

I'd rather let the market dictate the outcome but that's not going to happen

Jacob said...

Well Japan housing lost over 75% and the world didn't end and the stop market lost 75% in the dot com bust the the world didn't end.

I think if housing crashed really hard here we would still be able to pick up the pieces and build on a stronger foundation.

But I also know crime would increase at least in the short term and good areas could turn bad really quick.

So I am in wait and see mode. When prices start going up again or just level off then I might buy. But definitely will hold off until we do something about the job losses. We can't keep losing over 500k jobs a month and see housing prices stabilize. It just won't happen.

I think we might be better off if the government spend that $8k tax credit and gave it to the buyers at closing, to help with the down payment. Also they should give lenders a credit for selling to an owner occupant. All these sales to investors doesn't help cause the homes will be back on the market at some point...

Jacob said...

We are seeing some capitulation from the banks but also seeing them turn down offers only to sell for much less a few months later. So they are still being too stubborn for their own good.

sacramentia said...

"if housing crashed really hard here"
It did!

wimpyVO2max said...

Bears who think we have another big round of price discounts are betting against a massive capital injection by the government. Toxic assets are being bought up with the government 83% partner and hedge funds 17% partner. This is clearing the books of the big banks; while this is going on, the stimulus plan is putting out thousands of contracts with private industry, which will in turn spark demand for raw materials, finished goods, construction, labor and so on. Dollars are being printed like crazy and inflation will take root as well. The fourth factor in play is the government's direct intervention in the mortgage market to push down mortgage rates.

Put all these massive forces together and I think the price bottom of housing is at hand. We'll bounce around the bottom for awhile and then I'm bullish on home prices. In 5 years I think a Sacramento median of $190k is very possible, but it will be due to inflation and will not be an increase in value in real terms.

Diggin Deeper said...

"Well Japan housing lost over 75% and the world didn't end"

Tough to compare an apples and oranges situation when comparing our market to the Japanese. The world didn't end in Japan for good reasons. They didn't hold the world's reserve currency, had voracious savers in their citizens, had a strong export position / positive balance of trade, and a war chest of US Treasuries as government savings.

Where are the similarities to our economy today?

I agree with WimpVO2max. It's going to be tough to underestimate all the resources that will get poured into this mess before it's over. Washington knows that RE is the lynch pin that puts a floor under the economy, and the leadership shows no signs of stopping until that happens.