Sunday, October 08, 2006

Sacramento Regional Real Estate Trends for October 7, 2006

The seasonal stagnation continued in the four-county Sacramento region, with another 100 listings dropping off the MLS. Total inventory fell to 18,326 in the counties of Sacramento, Yolo, El Dorado, and Placer:

Where have all the buyers gone?

Pending activity fell to another low of 3.5% of market (415 houses):

Keep in mind that although the number of pending sales gives an indication of market activity, it does not equate to months of inventory. Sometimes, a house is sold before it can be listed in the MLS, or the deal falls through and the listing goes back to “active.” Think of it as more of a snapshot of sales activity for that moment in time.

On the flipper front, their positions continued to deteriorate this week. 20% of flippers in both Placer and Sacramento County are now taking a loss outright (asking price vs previous sales price), and an additional 30% are looking for less than a 10% gain over purchase price:

It is now official: if you plan on house flipping in Sacramento or Placer County, you have a 50-50 chance of losing money/breaking even.

The price level inventory story continues to be the steady increase in lower-priced house inventory. In all four counties, there has been a steady increase in the $0-$200K, the $200-$300K, and the $300-$350K levels. All the inventory decreases have happened in the $400K+ ranges.


Anonymous said...

Max, thanks for adding the pending sales total count and the note about not translating it to months of inventory. No matter how you slice it and dice it though, the pipeline continues to bulge. Your site is one of a kind and presents info that is very enlightening and it would be very difficult to find it elsewhere. I always look forward to your posts.

darth toll said...

Thanks for the great site Max. I know some Realtors in the Folsom Lake area and they have lost some listings due to sellers' stubborness and the horribly soft market. Some of these sellers blame the Realtors and refuse to lower substantially. My perception is that sellers in the $400K+ range have a lot of (false?) pride concerning their houses and some of them truly believe that they deserve last year's peak price - and in some cases a little extra. Those that have the cushion may pull their listing and wait for this "temporary" softness to abate and will return in the early Spring. After all, Greenscam just recently said that the worst is over for the housing market (snicker.)

Only time will tell, but I believe those that are taking this route will bitterly regret it as the soft-landing turns to a hard landing and then a crash landing (%50 haircut.) How anyone can think that a historic and monumental once-in-a-lifetime skyrocketing of prices can end in a soft-landing or a permanently high plateau is beyond me. It's as if they're not familiar with bubbles and financial manias, even though they just saw one six years ago and they know how it ends. All allusions to the contrary are becoming more and more laughable as this monstrosity unwinds.

Looking forward to your data and also your interpretation of it.

Anonymous said...

"....historic and monumental once-in-a-lifetime skyrocketing of prices...."

True that - if you're under age 15. This kind of runup happens every 10 years or so.

Real estate is not an investment for those who are impatient. If you treat it like a commodity, it will burn you.

Even Tony Soprano has to use "muscle" to get consistent returns over 25%.

darth toll said...

"True that - if you're under age 15. This kind of runup happens every 10 years or so."

There has never (repeat never) been a run-up anywhere close to this magnitude. Unless of course you are counting the 1920's Florida land debacle and we all know how that ended. :-)

Many areas saw a run-up of 300% in 5 years. I saw this first hand here in El Dorado County where houses that sold in 2000 for 200K were listed in 2003 for 400K and again in 2005 for 800K+ - a tripling of an already high base price. I'm sure you know of similar examples in your area. This is outrageous and obviously dangerously speculative. During that same time, there has been no associated increase in incomes. If you can provide an example of this happening every 10 years or so, I'd love to see it.

The post-WWII housing boom saw nearly a doubling of prices, but this once again was a once-in-a-lifetime boom and unlike today's bubble, was supported on the fundamentals of a post-war economic boom, not lax lending requirements brought about by over-liquification and a global MBS system and derivatives machine gone haywire. The 1970's had a terrific run (not close to the present) but there was runaway inflation throughout the system, including incomes.

"Real estate is not an investment for those who are impatient. If you treat it like a commodity, it will burn you."

Historically, RE has appreciated at exactly the rate of income inflation going back over 120 years and probably much longer but the data doesn't go back that far. There's a simple reason for this - a house's fundamental is it's cash-flow (ie: the rent that it can produce) and if people are earning more income, rents will rise and so will RE fundamental prices.

So let's summarize: 300% appreciation in RE price in 5 years coupled with ZERO income inflation during the same period. Yep, it's a bubble. Unfortunately there is no way to write off this much debt without very bad things happening.

darth toll said...

"Many areas saw a run-up of 300% in 5 years."

Sorry, meant to say %400. My gawd, I scarcely realized it had gotten this out of hand.

Anonymous said...

Thanks for crunching the numbers, Max. All the anecdotal evidence is interesting, and personal impressions and prognostications are another thing, but the numbers tell the real story.

Anonymous said...

"True that - if you're under age 15. This kind of runup happens every 10 years or so."

I used to think that maybe this runup was similar to what happened in the 70s or the late 80s, unitl I saw this:

Shiller's History of National Home Values

Anonymous said...

anon 7:57,

I think Mark Twain’s saying about lies, damn lies, and statistics applies here. Max's blog is a good one and I also appreciate the number crunching, but let's not forget how often the industry groups (NAR, CAR, NAHB, MBAA, etc.) like to cook up new metrics and spin stuff. The re-write on Ca affordability numbers comes to mind. Also, the median price gimmick, along with selectively quoting MOM or YOY stats depending upon what they want the headline to look like. How about the mortgage numbers that went up 5% and they say, "Wow, that's great" without mentioning that is a MOM stat and activity is down 19% YOY.

For these reasons I also like to hear the anectdotal stuff. After all, a financial mania is primarily based upon psychology - trees growing to the sky, etc. And the sentiment on the street ultimately will pop the bubble. The numbers will just feed into a self-reinforcing loop of lower prices, reduced expectations, lower prices, etc.

Come to think of it, this entire bubble economy is one big confidence game.