Buyers Are ‘Calling The Shots’ In Sacramento
The Sacramento Bee has the latest on that housing bubble. “In another sign of a cooling market, existing homes sales in the capital region declined last month to the lowest level in six years. Sales in January fell a combined 29 percent in Sacramento, Placer, El Dorado and Yolo counties compared with the same month a year ago.”
“At the same time, the median sales price, the point where half of the homes sold for more and half for less, dropped for the fifth straight month in Sacramento County to $352,500, a 5.2 percent decline from an August peak of $372,000.”
“The chill also was felt in Placer, El Dorado and Yolo counties, where price appreciation slowed dramatically from the 20-plus percent gains seen over the past few years. ‘Right now, we’re in a downshifting to a normal..time. It’s not unraveling,’ said Sean Snaith, director of the University of the Pacific’s Business Forecasting Center in Stockton. If interest rates jump, inflation flares up or unemployment spikes, ‘then we’re talking a different story,’ he said.”
“‘The buyers definitely have the upper hand right now,’ said (realtor) Pam Petterle. ‘Buyers are coming in now with lower offers.’”
“In recent years, a buying frenzy sparked by low interest rates and bidding wars drove resale prices to record highs. It wasn’t unusual for some homes to sell for more than the asking price. The roles are now reversed. ‘The sellers are no longer calling the shots,’ said John Karevoll.”
“The biggest impact has come in the high-end market, where homes priced over $500,000 are taking much longer to sell and sellers are forced to lower prices or pull houses off the market. ‘These $900,000 to $1 million McMansions really become less affordable,’ said Snaith. ‘We’re observing more softness in the high end.’”
“Along with January’s sales drop, the number of houses listed for sale in the four-county region rose to 9,267, up 8 percent from December. That was more than 2 1/2 times higher than a year ago. nventory of homes for sale had slipped in November and December last year after hitting a peak of 10,801 in October. The inventory last month was the highest for a January since 1995.”
“It continues to grow this month. Through Thursday, the number of homes listed for sale in the region was 9,543. Last month, the capital area recorded 1,678 sales of existing homes, down 30 percent from December. Statewide, homes sales hit a four-year low in January, marking the fourth consecutive monthly decline. Overall, 38,300 new and resale homes were sold, a 27.5 percent drop from December. The median price of a home in California in January was $452,000, down 1.3 percent from the previous month.”
Sacramento is extremely overpriced for sure. One of the problems is with the shortage of homes being built. The cost and time of permits as well as environmental review are raising the price of homes significantly. The local governments are rolling in the doughfrom increased tax revenue. Hopefully prices will come back to reality up there.
In Lincoln, CA (Placer) about 1 mile from me, there’s quite a few new homes for sale. I’ve been wanting to send in a picture of the sky above lincoln; it looks like LAX on a Friday afternoon…except rather than 747s, it’s those hideous red blimps hanging from strings. Sometimes there’s 20 or more of them all within sight. I should actually go count them one of these days. My friend’s parents bought a house in Rocklin in 1999 brand new for $145k. Sold it last april for $500k…are happily renting right now waiting for this whole thing to come crashing down. It’s good to see this story in the Bee, though; I think buyers need to be informed that the market ISN’T what their agent says it is. Madness…
Huh, a shortage of home in Sac? No way, I drive through there all the time and all I see is massive new subdivisions where prime farmland used to be. Many, many homes are for sale in Sac and Centex has been throwing in 150K discounts lately to move out those turkeys. Sac was ground zero for flippers from the bay area ‘investing’ their HELOCs.
bottomfisherman
I beleive a home shortage caused this mess. You might be seeing a lot of subdisions around but it was not nearly enough to keep up w/ demand. Now that homes have gotten so expensive home builders are trying to get rid of inventory because buyers have dried up. I definitely think a shortage of homes helped fuel the bubble up there. I have lived up there for 2o years. You had a lot of demand and not enough homes to go around.
The ‘demand’ you mention was artificial– Many I know from the Bay Area would go there and buy up 5+ homes at a time to flip. Most of them are sitting vacant now.
Who are the end users going to be?
There are a lot of local people who need housing but priced out. True that people from the bay area have invaded the sacramento area. I’m not sure where exactly everyone is coming from but demand was out of control for awhile. I simply gave up and waiting for things turn. The value just isn’t there.
bottomfisher …
I have to agree 100% with you. 2005 production was almost driven entirely by speculative demand. End user? Why some other flipper/speculator, of course!
Record low interest rates gave birth to flippers who became new demand so in that respect, yes, there was a shortage of homes. The low interest rates are the result of hubris from the banking cartel we all know as the Fed.
Any appearance of a “shortage of homes” is purely superficial. Many of the homes in Sacramento were purchased by Bay Area speculators, which created an artificial and short-term demand. It is well-known in Sacramento that Bay Area purchases bid up the sales price of homes. In fact, the dream of every seller was to sell their home to a “Bay Area transplant”. I know because I did exactly that several times!
The demand was artificial, and now that the HELOC-rich Bay Area investors/speculators have pulled out of the Sacramento market, demand and affordibility have sunk to a realistic level.
No shortage of homes (and strip malls) being built in the Rocklin/Lincoln/Roseville area. WOW!
‘Right now, we’re in a downshifting to a normal..time. It’s not unraveling,’ said Sean Snaith
UNRAVELING starts next month….
Yep, we’re downshifting in REVERSE gear.
I’m so confused. Is the housing market a balloon, ship, plane, or car?
For Sale signs are going up all over the place in Chandler AZ. Staying on the market for a L O N G time! I know a few flippers who are getting a little nervous.
could you give us the flippers names and addresses so we can send them so low-ball offers by mail?
the 4 county Sacramento region now hits 11,000 total resale homes. The new sales figure for month of January works out to 1,330 sales. This works out to 8 months of inventory right now.
…just downshifting to norm…
wow, that’s even worse than the 6 months of inventory for Phoenix. Phoenix isn’t doing so bad afterall. haha.
thank God! for a second I thought we were in trouble
There were several sections within the real estate section of az republic today. Mostly new builders touting discounts.
Countrywide is offering some decent yields on cds lately. I believe 12 month cd= 4.9% and 24 month at 5.0%.
I think we’re nearing the end of a stalemate between buyers and sellers, that’s why inventory is building up and prices haven’t moved too much as of yet. At some point (in the near future) someone’s going to flinch and and the whole ‘house of cards’ will come crashing down. An average American household, making average dual income, should be able to afford a median priced house with a 30 year fixed rate loan.
true, but we’re a long way from there. the younger generation of would-be homebuyers will dictate the landscape in the long run. that means a huge drop from today.
Wow, check out the yield curve. Looks pretty inverted with the 30 yr bond yield dropping a little more. If the fed continues to raise short rates, it will just get worse. An inverted yield curve is a pretty good predictor of upcoming recession.
2 yr 4.67
5 yr 4.59
10 yr 4.56
30 yr 4.50
Here is a link to the show a graphic of the cureve. Any comments?
http://money.cnn.com/markets/bondcenter/
Mark
Check out this tool…
http://www.stockcharts.com/charts/YieldCurve.html
Its nice because you can compare things to 1999-2000
Guys, I think that the more normal appreciation of 5% that has been mentioned by almost all the realestate Pumpers is understandable. What they want to say is that 5% appreciaition if you consider all previous years of abnormal growth. This will very well bring the house prices down to the historical appreciation trend line. I guess this will end up in a 40-50% decline from todays prices and realestate pumpers would say that they had said 5% and look at appreciation from 1990 - 2005. A 2500 sq ft house selling for $150K in 1992 should be at $320000 instead of $500K in 2006.
Lets wait it out for 2 years and you will get it for even lesser. People who understand oscillation would know what I mean.
Question for any deep thinkers out there. When bubbles eventually are done deflating, the characteristics are such that nobody wants to “get in at the bottom”.
Most people’s premise is that they will wait for the bubble to burst and then buy, yet we know the characteristics of a bubble’s aftermath are usually so final and brutal that nobody touches anything once things bottom out. So what sort of scenario could cause that?
Although maybe a few had these thoughts, I don’t think we heard the masses saying “I can’t wait until Microsoft reaches 24 until I can buy it again”. So there is something quite different about housing than stocks or other asset bubbles, but I cannot figure it out.
Not to carry on a conversation with myself, but to answer my own question, here are the housing bubble deflation characteristics that could cause people to loose interest in buying:
1. The deflation takes place over a decade. That’s a long time in today’s warp speed society. Such slow and long term trends easily begin to give the appearance of “this will never end”.
2. Something will happen either on the global front, on locally that suggests we will never see significant rises again. The experts and press will be full of facts and figures on why housing will never again see a rise like we did 2001 - 2005, which will discourage repeat investing cycle.
Any other ideas?
It is unprecendented to see this level of speculation for something that is a necessity.
I agree, and several other posters have mentioned go get a hobby and forget about RE.
Check the rent to buy calculation twice a year until it pencils.
If wages remain stable then the drop in home prices will come down until the monthly cost of a 30-yr fixed rate mortgage with 20% down is near what the current rental rates for the equivalent home. However, if a recession sets in due to lay-offs in construction, RE, lending, etc., then wages will drop causing rents to drop too, and the house prices will chase after the rents. It’s happened before twice during my life, but I’ve never seen house prices climb so high. It will unravel, not pop, and it will be painful like the trail of tears.
Houses are not just assets; they can also function as homes. There will always be some people who want to buy their home, even as the number of people who buy houses for investment dwindles.
In my opinion, housing will not reach the point where no one at all wants to buy. In some respects, homes really are not like stocks at all.
Maybe “no one” is too strong.
However, I think the original poster has a strong point. A housing crash could change the general consensus on the rent/buy decision. Instead of “renters are idiots who are throwing their money away,” it will be “renting is often the financially smart thing to do.”
Once that mentality changes, it will be hard to convince people to buy when they see housing prices fall.
A spike in oil prices well above $150 when it becomes common knowledge that OPEC countries have vastly overstated reserves and that from this point forward, the world will have less overall energy available each and every year. Peak oil = peak economic growth = peak income. This will cause severe wobbling of our debt-based financial system, which is dependent on perpetual economic growth (i.e. increased energy usage). Oil at $150 a barrel should provide the conditions you are looking for. Of course, many fewer of us will have jobs at that point, so it may be difficult to “pull the trigger” even if we recognize the buying opportunity.
When the bird-flu becomes a pandemic, who will care about buying a home?
Things are about to get uglier than anyone imagined.
name me one bubble in history that did not end ugly…just one!
The Chicken Bubble
I farted in the tub the other night and that bubble ended up making me giggle.
With a huge population decline…think about the excess of supply.
But I am sure NAR will figure out some way to spin it.
Don’t forget the possibility of a war with Iran (WWIII) and decreasing energy supplies!
Man O’ Man it could get real rough!!! The 1930’s but worse!
If we go to war with Iran, think of the crusades without the chivalry.
If interest rates jump, inflation flares up or unemployment spikes, ‘then we’re talking a different story,’ he said.”
Yes, yes and yes.
The speculators who inflated the Sacramento market are the same group who inflated the Northern Nevada (Reno/Carson City/Tahoe) market. Bay Area $$$. Inventory in Northern Nevada is very high, and there are many empty houses and progressively more “price reduced” ads. The psychology is turning, but slowly.
Markets move in cycles. While no one can consistently predict trends with precision, I do anticipate that we will see a significant decline in housing. It may be a decade before we observe this deflation, but it will no doubt arrive. Expect a time when no one will want to touch real estate with a ten-foot pole.
Many factors could play a role in a decline: large population decrease, recession and unemployment, servicing debt, rising interest rates. Most likely the two latter will spark the drop.
There is tremendous debt that Americans have accumulated, and that debt will be paid back - either by the debtor or the lender. The best case scenario is that the debtor pays it back, which means that he curtails his spending to pay his debts. Fewer and stingier buyers means higher inventories and lower prices.
The worst case is that the lender pays the debt; if this scenario emerges gets ready to see big discounts in the housing market.
Separately or concurrently higher rates could push prices down. There’s been way too much money sloshing around out there due to low interest rates. As rates go up, perhaps because the Asian central banks desist from buying huge quantities of US treasuries, the money supply will contract. Bottom line is this – at some point the situation we’ve observed for the past six years will reverse and houses will begin chasing dollars.