All That Drama For 1%?

From the Sacramento Bee:

Since 1976, the Sacramento housing market has experienced three distinct booms and busts. Each was longer and more dramatic than the one preceding it, according to a Bee review of data from the Federal Housing Finance Agency.

In the first boom, from 1976 to 1981, inflation-adjusted Sacramento home prices shot up by 37 percent, more than twice the national average, before falling by 15 percent, about the same as the rest of the nation.  In the boom that lasted from 1984 to 1990, home prices rose by 48 percent, after adjusting for inflation, while rising 12 percent nationwide. During the next seven years, Sacramento prices fell by 29 percent, compared to a 5 percent fall nationally.

The most recent boom ran from 1997 to 2006. It was the longest and the most extreme.  Spurred by easy credit and subprime lending, Sacramento home prices soared 135 percent after being adjusted for inflation, compared to a 50 percent increase nationwide. So far during the bust, home prices here have fallen 53 percent. The average drop across the United States has been about 25 percent.

The net result of all the ups and downs: Sacramento home prices grew by just 33 percent during the past 35 years, after adjusting for inflation, for a relatively mundane growth rate of about 1 percent each year.

"A New Fire Under the Sacramento Housing Market"

From the Sacramento Bee:

Sacramento-area home prices declined at nearly triple the national average during the past year, according to a new Loan Performance Home Price Index from First American CoreLogic. The property research firm said September home prices in El Dorado, Placer, Sacramento and Yolo counties fell 28 percent from the same month in 2007.

From the Sacramento Business Journal:

[Per CAR] the median price of an existing home in Sacramento fell 34.8 percent to $195,000, with the city of Sacramento seeing a 45.1 percent drop to $150,000. Elsewhere in the region, the median price of a home in El Dorado County was $387,000, down 3.7 percent; in Placer County it was $320,000, down 20 percent; while in Yolo County, it was $279,000, down 22.5 percent.

From the Seatle PI:

The biggest annual metro-area drops were in Merced, Stockton and Modesto, Calif., down 42.3 percent, 41.4 percent and 36.7 percent, respectively, according to the Federal Housing Finance Agency index.

According to FHFA (formerly OFHEO), Sacramento metro home prices dropped 22.5%, another record decline.

From the Sacramento Bee:

The federal government's newest bailout package has lit a new fire under the Sacramento housing market. The government's move, announced Tuesday, brought mortgage rates down nearly a full percentage point. It brought some new buyers out of the woodwork..."Where Friday is going to be black Friday for retail people, it'll be a day for people to start looking for houses," said Alan Wagner of Re/Max Gold, president of the Sacramento Association of Realtors. "We're seeing hits on the Internet sites going up."

From the SF Chronicle:

Jon Haveman, with Beacon Economics in San Rafael, said the variations [in unemployment rates] have to do with housing. The regions with the biggest price inflation are suffering the worst due to a falloff in construction and the psychological impact that foreclosures and falling home prices have on consumer spending. "This all began with the housing bubble, and it was in places like the Central Valley, the Inland Empire and the East Bay where prices got most out of whack," he said.

From Kiplinger (via Yahoo) (hat tip Jeff):

The market hit hardest by the housing bubble is the Central Valley in California, where aggressive development and price hiking has yielded more homes than jobs. Now many homeowners owe more than their house is worth and are being forced into default.

Still, it's not all doom and gloom for the California housing market. The drop in home values has created an affordable market for first-time home buyers. And, on average, monthly sales have almost tripled from last year. Although the Valley has seen the worst of the crash, it may well be one of the first areas to recover.

From Housing Wire:

In the Merced, California area...average home prices have declined 43 percent over the past 12 months, and are projected to fall another 22 percent by the middle of 2009,...data provider [Fiserv] said.

From the Sacramento Bee:

In December, REDC will put up for auction 1,288 Northern California homes during a five-day marathon. Leonard Green, a Sacramento real estate broker who works the multiday events, said most bidders are investors, and "a lot of them follow us from town to town."
...
"What these really are are bank marketing events," said Sean O'Toole, owner of ForeclosureRadar, a foreclosure tracking firm in Contra Costa County. "The idea is to create excitement and hype around these properties to deliver a better price to the bank than they would get with a traditional sale through a Realtor."

"Fear Is In The Air"

From the Associated Press via Forbes:

U.S. home prices fell 4.8 percent in the second quarter compared with a year ago, easily a new record low, according to a government report.
...
Prices in the weakest markets, he said, have receded to late-2005 levels, plummeting by more than 30 percent in two cities: Merced and Stockton, Calif.

According to the government, Sacramento home prices dropped 17.7% over the last year. That compares to a decline of 14.6% during the entire 1990s housing bust.

From Home Front:

I called Kathryn Boyce of Hanley Wood Market Intelligence, who said [Beezer]...has moved to smaller space on Roseville Parkway. With so many fewer staffers in this greatly-cooled market they didn't need the big building anymore. The office is being run now out of Southern California, she said.

From the SF Chronicle (hat tip Anon1137):

Ken Rosen, chairman of the Fisher Center for Real Estate and Urban Economics at UC Berkeley, had a more bearish take on Monday's numbers. "It doesn't reflect a recovering housing market; it reflects a broken housing market," he said. "It's a reflection of the fact that foreclosed homes are being liquidated at very low prices."
...
Rosen believes that investors, not actual intended occupants, are buying up many if not most of the distressed properties in the hardest hit areas. That will do little to stabilize the markets in those areas, especially if prices fall further and foreclosures continue to climb, he said.

From the LA Times:

State and federal officials are unable to say how many Section 8 renters have been affected by the wave of foreclosures sweeping the country, but local housing authorities say the number is significant -- and growing. Sacramento County had fewer than a dozen people seeking new Section 8 homes in June because of foreclosures. In July, the number was 100.

From the Sacramento Bee:

Not to be too dramatic about it, but fear is in the air. You don't have to lose your home to understand the woes of the housing market. You don't have to get laid off to see the effects of downsizing on your neighbors and friends. In a country busy doing the fear dance, it can be hard not to wallow in worries yourself. So maybe smart folks stay home, conserve gasoline and make do with leftovers and hand-me-downs. They take care of their families and pinch pennies.

In short, they channel our Depression-era forebears – who, it must be noted, are not shopping at the Roseville Hospice Thrift Store in the numbers they used to, either. "A lot of our customer base are people who don't need anything, but they like to come and browse," says Watson. "A lot of them are Depression generation. They've stopped coming in because they don't yet see an end in sight to our economic problems."

OFHEO: Another Record Drop for Sacramento Home Prices

From Bloomberg:

U.S. home prices had their biggest fourth quarter decline since 1991, according to a report [pdf] by the Office of Federal Housing Enterprise Oversight released today.
...
California, with a decline of 6.6 percent, led all states, Ofheo said. It was followed by Nevada (5.9 percent), Florida (4.7 percent) and Michigan (4.3 percent). All 20 areas with the greatest price declines in 2007 were in those four states, according to Ofheo. The top three were in California: Merced (19 percent), Modesto (15.5 percent), and Stockton (15.3 percent), Ofheo said.

The Sacramento region came in at #12 with a record 11.0 percent year-over-year drop, the first double-digit decline in the index's history. With that, every price index now shows double-digit depreciation.

From the Sacramento Business Journal:

Sacramento-area's median home price fell 28.3 percent in January from a year ago, as a flood of homes enter the market. The four-county region's median home price -- meaning half the homes sold for more, the other half for less -- dropped to $258,230....

From the Sacramento Bee:

Sacramento County has sued embattled home builder Reynen & Bardis for failing to replace 500 mature oaks it cut down to make way for houses in Rancho Murieta. The county's lawsuit, filed Friday, adds to the legal and financial troubles facing Reynen & Bardis, which just a few years ago was aggressively buying land in the Central Valley but is now struggling to survive. The local company has stopped building houses and laid off half its employees.

From the Sacramento Bee:

The slowed demand for building materials can be seen in the U.S. consumption of dimension stone – the term for granite, marble, slate and other stone used in construction. Consumption rose 26 percent in 2004 from 2003, but just 5 percent in 2007 from 2006, according to the U.S. Geological Survey. Consequently, manufacturers and suppliers are competing fiercely for the remaining business and driving down prices, according to Cleveland-based market analysts, The Freedonia Group Inc.

The cost of prefabricated granite has dropped considerably from the building boom highs of four years ago – as much as 50 percent or more, said Cheryl Tarido, a sales associate at Medimer Marble & Granite, a Sacramento company that provides granite and limestone for general contractors and commercial and residential clients.

From CBS13:

In a new twist on the housing crisis, homeowners are being sued by landscapers and contractors after the property builders go bankrupt. If features like fountains and concrete foundations have not been paid for, the contractors are increasingly going after the homeowners for the balance.

The Petree family paid $450,000 for their Dunmore home right before the builder went bankrupt. "Within 24 hours of closing escrow, we had four liens on our property," Kathleen Petree said. "Within 30 days, we had 17, and last I checked, we have 28 liens on our property."

From the Central Valley Business Times:

California and Florida metro areas accounted for eight of the top 10 metro foreclosure rates in January...The Stockton metro area in the Central Valley documented the second highest metro foreclosure rate. Other California metro areas in the top 10 were Riverside-San Bernardino at No. 3, Modesto at No. 4, Merced at No. 5, Vallejo-Fairfield at No. 7 and Bakersfield at No. 9.

From the New York Times:

Seattle, which has nowhere near the kind of foreclosure problem other cities have, began a modest program last month offering loans of up to $5,000 to help a few dozen homeowners avoid losing their homes...[N]o sooner had Mayor Greg Nickels announced the program than opposition surfaced...Mark Ellerbrook, who manages Seattle’s homeownership program, said that, aside from residents hoping to apply, few people were enthusiastic about the program. He said he understood that reaction, given the local housing market. “People struggle to buy homes in this city, for sure,” Mr. Ellerbrook said. “And then you have what looks, on the face of it, like the city giving money to people who made bad decisions.”
...
In California, the notion of a government loan program seems remote to some state leaders, given how big such a fund would have to be and that California’s budget deficit is larger than most state budgets. State Senator Michael Machado, a Democrat who is chairman of the Senate Committee on Banking, Finance and Insurance, is from Stockton, where the foreclosure rate increased 271 percent in 2007. “If they got into a situation that got bad for them, they need to live through that and they shouldn’t expect government to bail them out,” he said, summarizing what he says is a commonly held view. “And when you’re dealing with a $14.5 billion deficit like we are here in California, it’s difficult to do that anyway.”

From Reuters:

Years of double-digit price gains put homes out of the reach of many consumers, and a correction is necessary...[Robert] Shiller said it can't be all or nothing, and that there has been a big misperception that houses will constantly appreciate. "Some times people will try to imagine that we can have both high home prices and affordable housing. But I can tell you that doesn't add up," he said. "You either have high home prices or lower home prices and lower home prices are what we want, and people shouldn't be afraid of that," said Shiller. "Most of us care about our children and grandchildren, and these people have to buy houses so why would we want high home prices. We want economic growth, we don't want high home prices."

From KCRA:

Sacramento Home Price Plunge Largest in 30 Years

Home prices in the Sacramento region fell by the largest amount on record, according to a report [pdf] released today by the Office of Federal Housing Enterprise Oversight. Sacramento's House Price Index (HPI) dropped 8.41% in the third quarter, the largest year-over-year decline since 1977, the year the government started tracking home appreciation for the Sacramento real estate market.

Top 5 year-over-year price declines since 1977:

2007 Q3: -8.41%
1983 Q3: -7.80%
1994 Q4: -6.67%
1995 Q1: -6.45%
1994 Q3: -6.24%

In the third quarter, the Sacramento real estate market ranked tenth weakest in the nation (out of 287 markets). Nearby Central Valley cities dominated the bottom 10 list, with Modesto at #8, Stockton at #5, Yuba City at #4, and Merced at #1.

Since peaking in 2005, Sacramento's HPI has dropped 10.1% [csv]. Prices have continued to fall at a more rapid pace than the housing bust of the 1990s. At this stage in the 90s bust, Sacramento's HPI had declined 5.3%.

From the Sacramento Business Journal:

In Greater Sacramento, home sales fell 30 percent compared the the previous year, but were up 9 percent from September. The median price of a single-family detached home in Sacramento in October was $309,260, 15 percent less than October 2006 and 5 percent less than in September 2007...according to a report from the California Association of Realtors.

From Bloomberg:

Inland California cities had six of the top 10 foreclosure rates among U.S. metro areas, RealtyTrac said. Merced in the state's Central Valley had the highest, with one filing for every 82 households, almost seven times the national average. Stockton and Modesto ranked second and third, respectively, and Riverside-San Bernardino and Vallejo-Fairfield were sixth and seventh. Sacramento ranked ninth.

From the Sacramento Bee:

By canceling a major office project in Sacramento this week, state officials sent the region a chilling holiday message: Don't look to us to bail out the economy.

Until lately, state government has been one of the bright spots in a community humbled by the housing slump. Since October 2006, the state has accounted for nearly half of Sacramento's job growth. The 400,000-square-foot CalSTRS headquarters being built in West Sacramento is one of the area's biggest construction projects.

But on Monday the Department of General Services scrubbed a proposed $520 million headquarters building for the Resources Agency. The project, approximately three times as large as the CalSTRS tower, was to be built somewhere within three miles of the Capitol and would have been one of the largest state office projects ever. The decision brought home the severity of the state's budget mess – itself a product of the worsening real estate downturn – and raised the possibility of further problems for Sacramento, home to nearly one-fourth of the state's workers.
...
Now the state appears to be lowering its profile in Sacramento real estate. Having requested bids from developers for the Resources building in August, the state announced Monday it couldn't proceed with "a project of this magnitude during this period of financial uncertainty."

Peer Pressure Not to Buy?

From the Sacramento Business Journal:

Rather than drop prices to entice buyers in less time, John Leonard slashed prices on 22 new homes he built in West Sacramento to sell them in a day -- he hopes in less than an hour. Leonard is owner of Leonard Development Co. Inc. of Sacramento, and he's hired a public auction company to sell homes in his River's Side at Washington Square project quickly.

He's not being forced to sell. The project is still current with its loans. But people simply are not buying them. "There isn't permission for people to buy a house. People's peers, parents and family won't let them feel good about buying. Everyone says, 'Wait a little longer and the prices will come down,' " Leonard said. "The carry cost on the project is not insignificant. We decided on the auction to expedite the sales."
...
Hundreds of people have toured the homes, but no one is willing to pull the trigger and buy one. Leonard chose to go the auction route to force the issue. "I wanted to take an aggressive approach to make people come out of the woodwork," he said.

From the Modesto Bee:

Sellers are eager to make deals, and buyers are in control, but there's nary a real estate sign in sight.

Welcome to the new and used vehicle market, where many Northern San Joaquin Valley dealers are experiencing the same slowdown seen in housing. What happens in auto sales often follows housing markets, dealers said. And that's especially true now, they said, because fewer people can refinance their home loans and use the money to buy a car or truck. "That was driving the market," said David Hillier, who owns Hillier Ford in Escalon.
...
When housing prices were soaring, many homeowners took equity out of their homes, by refinancing or getting a second mortgage. They often would use the money, which is tax deductible, for vehicles and other big-ticket items.
...
Edmunds.com spokesman Chintan Talati said consumers are taking a break on buying vehicles, just as they're stepping back on buying houses. "Housing is such a large part of everything," said Talati, adding that vehicle sales have slumped the most in places where housing has slumped the most -- such as California.
...
[Jorge] Elizalde [owner of El Tio Auto Sales] said he's also noticed that -- perhaps because so many housing loans have failed -- banks are hesitant to give car loans. So he's financing more loans himself.

Also from the Modesto Bee:

Home sellers are not automatically turning up their noses at offers that come in far below their asking price these days as prices stagnate and the inventory of homes for sale remains elevated. Realtors and other experts in the Northern San Joaquin Valley said they're seeing more offers these days that come in well below the asking price. Sometimes, sellers are accepting them.
...
There's a real risk the offer will insult the seller to the point that they'll refuse to counter, Realtors say, and the seller easily could make the assumption that the buyer isn't committed to making a deal..."When you're making the offer, if you justify that offer with outside data, then it's much less likely to be perceived as being an insult or (the buyer) not as serious," he [Jon Boyd, president of the National Association of Exclusive Buyer Agents] added.
...
Buyers even may write a letter to the sellers to make their point, as they did when the market was hot and they aimed to stand out from the crowd, [Dick] Gaylord [president-elect of the National Association of Realtors] said. That way, they can detail what they like about the house but express their fear of future dropping values.
...
But sellers shouldn't take a low bid as the equivalent of a slap in the face, said Chad Costa, a Modesto Realtor. "The first reaction is to say, 'how insulting,' and I say that it's just how the market is right now," said Costa, with Re-Max Executive.
...
Stan Lynam, who recently retired as a Realtor after 22 years, including 10 in Modesto, said sellers who receive several low bids may opt to pull their house off the market. He said a client recently reduced the asking price by as much as 15 percent, and still got few nibbles. So the client decided to wait it out.
...
Valley realty experts...acknowledged that what's a low offer now could be right in line six months from now if prices keep falling.

From the Sacramento Bee:

Never mind that many people will be on a final summer road trip or making eggs and bacon at mountain campgrounds this weekend. Real estate agents will be holding open houses over Labor Day weekend, even if foot traffic is less than a regular weekend. Over the three-day Memorial Day weekend in May, agents hoped high gas prices might keep people closer to home and cruising open houses. With gas prices lower now, agents like Mona Gergen, a specialist in Sacramento's Pocket neighborhoods, just hope it's not awfully hot Sunday for traditional 2-4 p.m. showings.
...
What's definitely not hot this summer is home prices here (especially if you're selling a house). The nation's gold standard for measuring rising and falling prices lists five Central Valley metro areas and Reno among 10 regions with the most depreciation. The report for April, May and June was released Thursday by the Office of Federal Housing Enterprise Oversight. It measures sales prices of the same houses over time. Once-booming El Dorado, Placer, Sacramento and Yolo counties ranked ninth nationally with a 6 percent decline in home prices from the same time in 2006. Bigger decreases were seen in Yuba and Sutter counties, Modesto, Stockton and Merced, which led the country with an 8.65 percent decline.

Government Ranks Sacramento Real Estate Market as 9th Weakest

The Sacramento real estate market is the ninth weakest real estate market in the nation, according to a report [pdf] released today by the Office of Federal Housing Enterprise Oversight (OFHEO). Click the image to enlarge.

The government's House Price Index (HPI) for Sacramento declined 6.1% in the second quarter of 2007. The 6.1% drop was the fifth steepest year-over-year decline since 1977, the year OFHEO started tracking home appreciation for the Sacramento real estate market.

1983 Q3: -7.42%
1994 Q4: -6.71%
1995 Q1: -6.47%
1994 Q3: -6.25%
2007 Q2: -6.07%

Since peaking in 2005, Sacramento's HPI has dropped 7.0%. Prices have continued to fall at a more rapid pace than the housing bust of the 1990s. At this stage of the '90s bust, Sacramento's HPI had declined 3.9%.

90s Housing Bust v. Now

UPDATE 1: 'Piece of Cake' Housing Downturn Exceeds 90s 'Depression'
UPDATE 2: 12-Month Price Drop Exceeds Entire 1990s Decline

"We survived the market change of the early '90s, a real depression, so this current one is a piece of cake."

-Tracey Saizan, President of the Sacramento Association of Realtors, Sacramento Business Journal, December 15, 2006

[T]his sagging market isn't much like the 1990s version. Some analysts say the reasons help explain why the present downturn may be shorter and less severe.

-Sacramento Bee, June 20, 2006

Is the current down cycle a "piece of cake" that will be shorter and less severe than the 1990s housing bust? The New York Times recently published a graph showing nationwide home prices falling more rapidly this time around.



How is the Sacramento real estate market faring? Recently, this blog reported that the Sacramento housing market suffered the second largest price drop in the nation, according to the government's House Price Index (HPI). Sacramento's HPI fell 4.4% in the first quarter. Since peaking in the last quarter of 2005, the price index has declined about 4.6%.

The following graphs compare Sacramento's current housing bust with the 1990s bust (peak to bottom). HPI tracks the value of single-family homes and is not adjusted for inflation. The first two graphs show the change in the index relative to their peaks. Click on each graph to enlarge.

Sacramento's previous housing bust took over five years (1991-1996) to reach bottom and over nine years to recover its peak (1991-2000). That housing bust came after an almost eight-year boom in which Sacramento's price index increased by 93%. By contrast, the housing boom which preceded the current bust lasted over nine years with the index rising 195%.

This is a close-up of the first five quarters of each housing bust.



The next two graphs show the year-over-year change in Sacramento's price index.

Sacramento Housing Market: One Away from Dead Last

From Market Watch:

In the OFHEO index [pdf], prices fell in seven states from the fourth quarter to the first, including California, Nevada and Florida, three states that saw the largest price gains in 2004 through 2006...The cities with the biggest [yearly] price declines were Punta Gorda, Fla.; Sacramento, Calif.; and Modesto, Calif.

Click here to compare with other Sacramento price indexes.

Sacramento Housing Market: 9th Biggest Loser

The Sacramento region was the ninth weakest housing market in the country during the fourth quarter of 2006, according to a report [pdf] released today by the Office of Federal Housing Enterprise Oversight (OFHEO). The Sacramento housing market ranked 274 out of 282 markets for price appreciation, according to the government's House Price Index (HPI). For the first time since 1997, Sacramento's HPI declined on a yearly basis, falling 2.41%. (HPI typically lags other price indicators.) That decline pushed Sacramento onto HPI's "Bottom 20" list for the first time during the current housing cycle. Historical graphs of Sacramento's HPI are available here.

So with Sacramento's HPI having peaked one year ago, how does the current housing bust compare with the one experienced by Sacramento during the 1990s? According to OFHEO historical data [xls], home prices declined 2.34% in the first year of the 90's housing bust. So in review:

• 1990's: -2.34% after 1 year
• 2000's: -2.41% after 1 year

Home Price Analysis for Sacramento

TheBubbleBuster.com has updated their Sacramento home price analysis with Quarter 3 data.

Sacramento Housing Market Price Appreciation: 242 Out of 275

Last week, we again had confirmation that the Sacramento housing market is one of the weakest real estate markets in the country. In their House Price Index (HPI) report [pdf], the Office of Federal Housing Enterprise Oversight (OFHEO) ranked the Sacramento housing market 242 out of 275 for the rate of house price appreciation (1.37%). Just one year ago, the Sacramento real estate market ranked 41st in the country (out of 265), with a yearly appreciation rate of 19.42%. At this rate, Sacramento may soon land on OFHEO's bottom 20 list, joining the ailing markets of the rust belt.

On a quarterly basis, Sacramento's HPI declined for the third straight quarter, falling 0.89% from the second quarter. Next quarter, this lagging indicator should finally register a year-over-year price decline. Here's a look at Sacramento's HPI since 1977.

More HPI Graphs at Paper Money