Wednesday, April 08, 2009

The Bay Area will save us...or not

I'd be remiss if I didn't post links to the following set of articles. As the Sacramento housing market descended into the abyss, the Sacramento Bee floated (or pushed depending on your point of view) a series of bullish arguments about the local real estate market. Bullish theories included:

  • Rents are about to skyrocket
  • Sacramento's strong economy will blunt the effects of the housing downturn
  • The housing downturn won't be as severe/long as the 1990s housing bust
  • Renewed Bay Area migration will save us as Sacramento homes are now so cheap in comparison
  • High-end/"core areas" are recession proof
The paper has conceded that the first three theories haven't actually worked out as planned (to say the least). Now it looks like they have capitulated on the "Bay Area will save use" theory:
In area conversations about real estate it's often an act of faith that a widening gap between Sacramento and Bay Area home prices might soon spark a new migration east to buy houses cheap and put an end to free-falling prices here.

Nice theory. But wrong. The once-widening gap that seemed to promise help has already closed. While 17 months ago the median sales price in Santa Clara County was $388,000 higher than in Sacramento County, it's now $248,000 higher, says researcher MDA DataQuick. Prices have tumbled in both counties to narrow the original gap.

It means we won't be seeing thousands of Bay Area residents coming anytime soon to prop up Sacramento's housing market or, by extension, its stores, office buildings and economy.
When they capitulate on the last theory (high-end immunity), we should be much closer to bottom.

More from the Stockton Record:
If you're a homeowner hoping for an equity-swelling Boom II, fed by Bay Area residents swarming back over the Altamont Pass again to start snapping up cheaper Valley home prices, forget about it - at least anytime soon. Home sellers and builders report that few Bay Area buyers are out shopping for homes in San Joaquin County, even with prices having been cut by almost 44 percent year-to-year to a median of $155,000 in February. Existing homes in Contra Costa County are moving at a median sales price of not much more than $200,000, for example, after prices shrank by 52.2 percent year to year in the foreclosure-hammered residential downturn.

"I don't see Bay Area buyers coming back yet, because the prices there are so affordable and the interest rates are so good," said Jerry Abbott, president and co-owner of Grupe Real Estate in Stockton...When a "normal" market returns, Bay Area prices will regain its typically much higher, pricier ground, and Central Valley prices will look much more attractive again, they said. "It will come back but not anytime soon," Abbott said.

21 comments:

KTM 300 said...

Oh yes, the people from the bay area are coming. And they forgot about all of the reasons that burned them and everyone else who did the two hour commute. In the next two months, gas will be marching toward $3.00 per gallon again, pick your reason, Hugo, Amenijad, Bin Laden, Somali pitates, whatever, but the price of gas will go up again. Anyone intested in a $600.00 per month gasoline bill?

paranoid renter said...

I don't think this is about commuters. This is about your average service industry worker (where perhaps both husband and wife were working to pay the mortgage) and them selling the house and using the equity to buy something in Sacramento. Then one of them quits and they start having kids.

The commute thing doesn't scale. The traffic gets worse as the number of commuters grows making it more and more painful.

I'm still on Zip Realty getting property updates, but I haven't yet seen anything worth pouncing on. Prices in the Bay Area are falling too but everything on the market seems to be a short sale/foreclosure, just as with Sac. Looks like I may never own a home...I'm becoming more and more disenchanted with the prospect of owning.

Deflationary Jane said...
This comment has been removed by the author.
Deflationary Jane said...

Did folks see the thread on CR about falling rental rates and rising vacancy rates all over the country?
http://tinyurl.com/c86rs

So apparently people from the BA aren't going to be coming this way live or invest. And ones who did are now really starting to feel the pain.

norcaljeff said...

I used to completely agree with bullet #4 but that was on my assumption the bay area would lose value first and people would see refuge in Sacto. But we got hit and they didn't so their assumption was #5, that the high end, or popular locations, wouldn't suffer. We all know how that's turning out.

paranoid renter said...

Tech has not yet been hit by massive layoff. Wait a couple of quarters and the Bay Area is going to be a mess. There are many households where both partners need a good paying tech job just to make ends meet (600k+ mortgage plus 2 kids in private school).

Jacob said...

@PR

I feel the same way. In 06 I expected to be able to buy in 08, but the price declines dragged.

Now the economy is getting worse than my highly pessimistic expectations...

I am giving up on 09. As long as we are getting 500k+ job losses each month, I am in full hunker down mode.

@DJ

That must be a mistake. Rents never go down. Or was that home prices? I get confused... The only thing we can depend on not going down are taxes I guess...

Apple is buying buildings in the Bay, but I don't know of any other companies that are expanding. Yahoo turned down that Microsoft bid which was a really bad move for them, how long until they close their campuses there or cutback further?

And as the companies leave, those high paying jobs will not be replaced and likely never return.

smf said...

"Did folks see the thread on CR about falling rental rates and rising vacancy"

::raises hand::

Am I surprised? No.

Why are so many still looking at this debacle w/o taking into account the excesses it engendered?

You can buy a cheap 'investment' home. But the price paid is pointless if you can't get someone to rent it. And with falling rents, the calculations go out of whack.

Plus, the BA was loosing population since the tech crash. Can someone explain to me how you can get higher housing prices with declining population?

The sad fact is that governments are so stupid that instead of attempting to create value by bringing in jobs, they just poach from other places or find other ways of obtaining additional revenue.

Diggin Deeper said...

I'm hearing that Chinese busloads are the next big foreclosure tour up and coming. We're going to get our money back from them one way or the other. Might as well sell them real estate, rather then default on our debt to them

Giacomo said...

Every time I'm tempted to self-pity because I'm renter with no "permanent" home, I just look at my landlord(s)-- so upside-down and deeply in debt that they've balked at a lease renewal because they're not sure they'll be able to keep the property.

Inconvenient for me (I may have to move), tragic for them (losing one or both houses, bankruptcy?)

My business is off somewhat, but at least we're debt-free and have money in bank. Like Jacob, we're hunkered down and watching the world through the periscope.

ash said...

I bought 2 rental condos in the sacramento, Rosemont area (watt ave/ hwy 50) last year.

I paid $66k for 1 and $45k for the other
both sold in 05 for $200k

The place still appraises for $170k and I am being taxed to death. I asked the county when they would reassess the property and they keep saying soon. - its been 1.5 years and I am being taxed on the assessed value of 200k

anyone know how to get these taxes to a fair level?

with high taxes, association fees and one rental that has be vacant for 4 months I am starting to bleed even though I bought the properties 100% with cash.

Any info gladly appreciated

sacramentia said...

Has it really been 1.5 yrs? Tax years run Jul 1 to Jun 30 based on the value Jan 1st. So if you purchased a place last year (08), the first decrease in you property tax bill will show up on the bill due 12/10/09, based on the value Jan 1st, 2009.

However, your value will reset to purchase price and you should receive a refund for the overpayment once the new tax rolls are processed, which will be middle of this year.

I'm in the same boat, the county of Sac owes me a few thousand right now. I liked it much better when prices were rising and I got the interest free loan until the supplemental arrived.

Diggin Deeper said...

The median price has held steady at $165K for the last 3 months in Sac county areas. The price per sq ft though has fallen over the same period from $116 to $113. What it says to me is that sales of higher priced homes are beginning to prop up the area median, as prices fall faster than those that have taken the big hits already.

I won't be surprised if the median rises over the next few months if this trend continues. It doesn't mean we're at the bottom but it is encouraging to see at least 3 months at the same price levels.

luca said...

I do think sacramento is a smelly crime ridden crappy city, but I do believe that the bay area will come to its rescue again. Being within 100 miles of one of the most expensive metro areas has to count for something. Right now is probably the best buying opportunity that will happen in our lifetimes. If u get a foreclosure for far under replacement cost now you will thank yourself in 10-15 years and have a ton of equity to boot.

luca said...

Inh opinion I think folsom, edh, rocklin, roseville, and the nice parts of sac still have a good amount of price declines on the way. As for the.

I have to agree with diggin deeper this time though that a good amount of price stability is forming.

I do believe the banks are causing the stability by not letting to many foreclosures on the mls at a time.

I think we are just about at the point of price stagnation for the next 3 years while the distressed housing inventory is absorbed.

Bay area investors will eventually be back and overbid sacremento real estate just like they have in many boom cycle.

Look on craigslist and you will see many of the investors that are leasing their properties have a bay area - area code.

paranoid renter said...

luca,

I think we need to wait for CRE and credit cards to implode, and for unemployment to level off, before we start calling a bottom. Roseville/Rocklin will be hit pretty hard in the next year. It's a fairly affluent community, but when the economy stays shot for a few years, even those with big savings will start rethinking how they spend...not to mention those that run out of their savings. I am talking of the people that moved from the Bay Area in the late/mid nineties and have tons of cash in the bank as a result of selling an expensive home in the Bay Area and buying in Sacramento when the prices were lower.

patient renter said...

Right now is probably the best buying opportunity that will happen in our lifetimes.

If your lifetime doesn't recall what it was like without a bubble, sure, but absent a bubble prices in many areas right now are still underwhelming.

Diggin Deeper said...

Spec buying is going to continue as long as prices remain below replacement value. I think I read we're now up to 30% of the total sales volume (on 60% foreclosures) is investor money. As horrible as the speculator may seem to some, they're necessary to prevent a market from total collapse. It doesn't really matter if they lose money downline, they're taking the losses for those who're upside down with no intention of selling in this market. And if those losses don't materialize, the bottom has been found.

If the equity markets continue to rally, many will view this as an "all clear" signal to redeploy assets across many different investment classes. A burned out Sac RE market will get it's share.

If this is deja vu 1932 or the 1970's, all will be in for a rude awakening in the not too distant future, as any head fakes in these markets will be met by prices that then continue to deteriorate to lower lows. It'll be just another way to squeeze money out of those who avoided any damage on the first leg down. If the speculator wants to play, the risks are there.

This may be a good time to buy for some, especially first timers with have long horizons but what's the rush? Prices are going to remain low, imho, for years to come. Even though jobs are a lagging indicator, the "all clear" signal for me will be evident when "real" job creation (not government stimulated jobs) begins to outpace job losses.

Today's secenario places some in a perfect buying opportunity when rates and RE prices are evaluated together. One without the other doesn't make homeownership a given but rates at these price levels are pushing up demand.

norcaljeff said...

I thought property taxes were reduced to the percentage based cost of the property? Why would they make you pay the legacy property values based tax? That's a joke!

Cow_tipping said...

Oh yea ... The bay area will gain its pricier ground ... really ... really ... why is there any real industry there that can support this theory ...
And how nice that they are promptly going to drive up sacramento prices up ... isn't that conjecture #2 in that one short sentence ... try this on for size ... its 1 hour to stockton from Pleasanton and 90 mins to sac on a good day. Gas could cost over 5 bills soon and sacramento isn't going to go up anytime soon else that much pain will not be worth it. I would guess there has to be a 30% difference just to make it worthwhile. Even so, modesto, stockton, merced, angels camp, patterson, mountain house etc etc etc all will rise before Sacramento does.
Cool.
Cow_tipping.

sacramentia said...

"I thought property taxes were reduced to the percentage based cost of the property? Why would they make you pay the legacy property values based tax? That's a joke!"

You are correct, eventually you pay the right amount but for the first year or so you pay the old amount. It ends up being an interest free loan to the county.