Monday, March 31, 2008

Sacramento Regional Real Estate Trends for March 29, 2008

Spring has sprung. There was a 5.2% increase in inventory last week:


Many of the new listings were in the lower price ranges:



You can see by this listings map that the lower priced listings remain geographically concentrated in the so-called "bad areas" of North Highlands, Oak Park, South Sacramento, and Del Paso Heights:


What we have here is a classic bifurcated market, where house prices in less-desirable areas are in free-fall as inventory skyrockets, while house prices in the "good areas" remain high amidst low inventory.

The increase in lower priced listings has once again begun to drag down the overall market price indicators. The median asking price for a house in Sacramento County is now $245,000. The average price is $300K:


Market stress continued to increase last week, with total asking price losses in Sacramento County alone rapidly approaching half a billion dollars:







After rising slightly since the beginning of the year, flipper market share has stabilized, suggesting that banks have begun to increase their market presence. Indeed, the SIT days since last sale (which includes flippers) dropped sharply last week and grew only slightly this week. Sacramento County Sellers In Trouble edged slightly closer to the magic 50% level, with over 5,100 listings, or 49% taking a loss on their sale.


28 comments :

Sippn said...

So how much is 1/2 a billion dollars?

1/2 the cost of the Ronald Regan building in DC when built in the mid '80s (I was visiting)

1/2 the net worth of the home owners in SunCity Roseville, not including the net worth of their homes, as of 1997.

NO doubt it is a lot of money, but perspective...

Your inventory bump was likely people waiting until Easter, would have normally been in already - accounts for Feb/early Mar lull.


Hey Bubble, Max, did you notice my analysis of Antelope (average buyer a few days ago), REOs vs Shorts vs Clean homes for sale vs sold. Bottom line, the short sales are a very large % of the inventory, but hardly a dent in the "sold" category.

Your drop in FBs likely is inventory aging out and/or moving into foreclosure.

Even though short sales are huge, they just sit and give everybody a false sense of the market. Waiting for more foreclosures to look at? Many are already on the market as shorts, waiting for the hammer to fall. SOme will not happen, becoming rentals. I lived in one before (in a sea of 'em) that had gone negative in the 90s - 50% rentals on that street.

Have you seen a place where short sales are a significant portion of the "sold" properties? Wonderin' if I'm wrong.

incessant_din said...

That Sac County SIT stat is mind blowing. 49 percent. Total breakdown of the market.

If I didn't know better, I would think we were near bottom. I was in SoCal for the last bust, in the I.E., and the story gets worse from here.

Pretty crazy to think that we probably have another 2-3 years of declines. And that's assuming that Bernanke doesn't drag it out 10 years like Japan.

I never understood how people can so easily forget the bad times (or the good times). Oh well, I guess I should buy a couple of properties in 2011, because the unwashed masses will be fighting themselves to overpay me for them by 2017.

Sippn said...

More on perspective....
1/2 a bil is 35 hours of war in Iraq. Gwyn - how many pairs of MJs is that?

The reason Sac county has the lions share of sellers in trouble is Elk Grove, Natomas, Rancho Cordova.... most of the rest of Sac county looks like El Do.... these are the Sac Valley's finest ag lands.... growing rentals for all...

Wadin' In said...

Sippn is right again.

Half a billion dollars is only about half the loss Jimmy Cayne (Bear Stean's CEO) took on his company stock last week when he sold out for $61 million, instead of $1 billion!

It couldn't happen to a nicer guy.

Half a billion is only 1/36th of the loss UBS is taking this week on the continued write down of its sub prime portfolio!

Half a billion is only $365/resident in Sacramento County (including every man, woman and child). Oops, there goes the new Ipod for junior. There goes the new couch for momma. There goes the typical down payment for all the 1,000's of FB's....oh wait, that was 2005. You must have 25% down now, to buy a house.

This could get much worse, since Max's number is only the asking price. Actual losses will vary! The phrase "results not typical" comes to mind.

Darth Toll said...

sippin is definitely on to something with the short sale stagnation comment. The main problem, of course, is price. A short sale just can't go low enough until it becomes an outright REO and then it can get low enough to move.

Otherwise the short sellers just can't compete with someone who has owned for a LONG time and has tons of equity and isn't really a distressed seller at all. The long-time owners will have more pride of ownership and it shows in the house. Plus it's much less hassle dealing with a long-time owner than a short seller who is basically getting kicked out at a loss and the bank has all sorts of stipulations.

I'm keeping an eye on a few of the short sellers around me and once they convert to outright REO's I MAY look more seriously at them. Probably won't get the deal done though, cause its still too soon and the banks won't accept my ultra-lowball until real panic and capitulation set in. Unfortunately, we're nowhere near panic or capitulation, therefore we're nowhere near the required washout bottom that will make a true and solid base from which to build on. This means it is more of the same slow grind into hell.

Sippn said...

DT - the shorts I've looked at are priced comparable to REOs but like average buyer is finding out, their lender doesn't know, doesn't really want to cooperate, the 2nd lender is in shock, the seller really doesn't care and is just buying time, etc.

Sippn said...

Looking at Antelope, Jan closings of 52, current inventory of 324 homes.... whats moving?

#1 REOs, #2 non distressed ("clean"), #3 short sales.

Sales: REO-40, clean-9,SS-3
Inv: REO-76,Clean-56,SS-192

Interesting - lets look where the # months inventory is and is SS inventory really available and valid?

#months,REO-2,Clean-6,SS-64


Typically a SS agent will price the home with the REOs, but the lenders aren't playing anymore if you look at this data. And its the short sales that is comprising the bulk ofthe inventory - inventory that really isn't available today. Maybe Fall or 2009. Will this increase the inventory? not really as it is already shown.

Gwynster said...

Not bothering with S/S, like most of the market.

Did a quick tour of the neighborhood I'm looking at and lots of those S/Ss now have NODs filed. They are kinda hard to miss since they all have the telltale notices taped to the front doors. So while those S/S aren't viable inventory now, they will be later and that's all we need to know. Lots of inventory set to cycle back onto the MLS. But you have to give Sippin credit for an almost convincing spin.

Closing are still way down. Homes that went off the market in Jan/Feb started to trickle back on in the last few weeks at lower prices. Homes that actually close are setting some nice lower comps which the banks can't ignore. Makes it easier to negotiate the prices down with them.

The 06/07 flippers are getting hammered (couldn't happen to nicer people IMO).

Hell, even the extreme crap boxes in Davis are now listing under 300k and closing lower. I don't think this is played out by a long shot.

Patient Renter said...

I never understood how people can so easily forget the bad times

The power of the kool-aid.

the banks won't accept my ultra-lowball until real panic and capitulation set in

Yea, I don't think we're close to full capitulation yet, which is one of the market cycles. From my perspective, there's still too much positive water cooler talk about getting into the "buyer's market". Already though, a few of my local water cooler buddies have recently jumped in have been complaining about all the equity they've lost.

we're nowhere near panic or capitulation, therefore we're nowhere near the required washout bottom that will make a true and solid base from which to build on.

Totally agree.

Max said...

And its the short sales that is comprising the bulk ofthe inventory - inventory that really isn't available today.

I wonder how much of this "unavailability" is for real, and how much is perception. My understanding of short sales is a little limited however, so maybe you guys can help me out:

Do you need a bank's permission before you list as a short sale? Don't Realtor membership rules require lender(s) buy-off before a SS listing can be labeled as such?

From what I gather from comments on other boards, when a SS offer comes in, that's the first time the lender has heard of it. Also, second-lien holders are reluctant to sign off since they're in first loss position and don't make anything on the sale anyway.

Why, as a real estate agent, would you go to the trouble of listing a property as a SS if it has no chance of actually selling?

smf said...

As an aside to the coming pain, we are going to put in an offer in Gold River for a higher end home.

While none of these homes are listed as short sales, most of them are already underwater.

And with the price we are offering, it immediately makes it official for plenty of them.

As I stated before, the prices in some of the higher end areas look expensive still, but a quick check reveals the fact that they are already at 2003/2004 prices.

Darth Toll said...

"From my perspective, there's still too much positive water cooler talk about getting into the "buyer's market". Already though, a few of my local water cooler buddies have recently jumped in have been complaining about all the equity they've lost."

Exactly! I've been saying for years that the time to buy RE is when darned near EVERYBODY is convinced that it is a terrible investment and always goes DOWN! The exact opposite of this was in 2005, when everybody was convinced that RE only goes UP - that is the ideal time to SELL, SELL, SELL.

Right now, 2 of the folks in my office are buying REO's and a third is talking about it all of the time. Until this wave of "investors" gets their faces ripped off, we won't see panic or capitulation. All of the peeps need to be convinced that RE sux and it will always suck. All speculation needs to be driven out of the market. This is how true washout-bottoms are formed. We're just not there yet and we may not be for some time.

Somebody that is looking for a primary residence and can easily afford a standard mortgage without breaking the budget may not care so much about RE timing. Having said that, the latest round of Realtor commercials on the radio are touting the old line about RE being the best investment, and you should rely upon this for your nest egg, etc. This is duplicitous at best.

If you really plan on having your house be your piggy bank for retirement, you better care about cycle-timing and getting it at a true fire-sale price. You better care a lot. Prices are STILL way too high.

AgentBubble said...

Do you need a bank's permission before you list as a short sale? Don't Realtor membership rules require lender(s) buy-off before a SS listing can be labeled as such?

No and no. We simply put the following wording in every short sale: "Sale is subject to lender's approval. Any reduction in commission to be split 50/50."

As to why we list them...They can work out, just not very often. I'd say about 25% of the time it will work out...And that might be overly optimistic.

Sippn said...

MAx - no, no, yes, yes, an angle (greed).

Agents need to disclose (when they know - I think) its a short sale, thats why all the new nomenclature.

The seller doesn't need to notify the bank if they have the funds to cover the shortage.

SMF - if you're offering, your agent can easily click to the recorders data on loans on a property in a few seconds.

Gold River still have a nice premium vs homes north of the river (Carmichael and Fair Oaks), that I can't explain much.

AgentBubble said...

Some interesting stats...Since Jan 1, 2008, 2,892 homes have sold in Sac County. Of those, 193 were short sales and 1,733 were REO. 67% of homes sold were REO/Short Sale!!!

Sippn said...

Agent Bubble, what I'm getting at is they shouldn't be lumped together, because a very small % of ss inventory is actually selling.

Its the REOs that are kicking butt!

Gwynster - heree's the other side of the brain approach...

1SS - 1SS + 1 REO = 1 inventory.

If you want, I can work on the East Coast Ivy League MBA version of the model, but you wouldn't have the answer until I've cashed my bonus check!

Max said...

1SS - 1SS + 1 REO = 1 inventory.

To paraphrase a well-know potential First husband, the importance of this equation depends on what your definition of inventory is.

I don't think the fact that SS listings aren't selling takes away from the fact that inventory is at a record high. The fact is, these people are trying to sell, and if they don't the houses become REO and sell for less.

Houses are selling at the margin, and that margin is set by owners with the least constraints, ie the banks.

The only "false sense" is that these houses are a good deal. They're still on the market and they still count as inventory.

smf said...

"Gold River still have a nice premium vs homes north of the river (Carmichael and Fair Oaks), that I can't explain much."

The easier freeway access of GR is a plus.

Understand that if our offer for the GR house goes thru, it will be about $150K below its peak SALE price.

And we still fully expect for it to go down another $100K.

But our circumstances allows this move at the time. And we are talking long term of about 15 years.

Mike said...

I am putting in an another offer on an a house today. The agent tells me the house already has 10+ offers. This all within the house being on the market for only few days. Even if I make a full price offer, my chances are slim.

Sigh...

I can't believe there is this much competition in this market when the home prices (generally speaking) are still waaaay over priced.

Only way I can afford the homes at the current prices is because I have a large down payment (from sale of my previous home), otherwise, most decent homes would be out of my monthly payment range.

So where are these people coming from that are picking up these REOs like hotcakes??? My guess is future F***ed "investors" but they are doing a good job from taking house away from people that are actually wanting to buy and live. From what I see, our wonderful government will bail our these second wave investors as well.

Sippn said...

Thats what you're supposed to do with the proceeds from you previous house.

The 3:1 ratio is for no down first time buyers. A 'move up" home requires down payment typically.

I was reading today that most of the NYC co-ops require either 20-30% down or if its really exclusive... cash. No loans NADA!

What, buy stuff the old fashioned way - with your own money?

Most of the multiple offers are in the price range of homes that will rent close to payments (real investments, not speculative) or a severly discounted higher end home. The market of deals is constantly picked over, so the good stuff goes fast.

Sippn said...

Mike - similar happening in Orange County, CA as follows:


http://lansner.freedomblogging.com/2008/04/02/are-oc-homes-priced-low-to-draw-higher-bids/#comment-58518

Remember, this is a market with 15000 sellers, not 1 seller with 15000 homes. Some will be priced high, some low, some very low.

Mike said...

"Most of the multiple offers are in the price range of homes that will rent close to payments (real investments, not speculative) or a severly discounted higher end home."

I don't think we are close to having homes rent close to house payments (factoring in taxes, HOA, mello roos, insurance, etc) For the homes, I made offers on so far, I would have to put down 100K to make my payment get equivalent to rent (for homes in 300-400K range). And I suspect, most people do not have 100K to put down on a house in Sac. Only reason I am actively looking now is because I have a large down, and I am getting tired of renting (almost 4 years now). I am convinced, prices still have ways to go down.

Max said...

I don't think we are close to having homes rent close to house payments (factoring in taxes, HOA, mello roos, insurance, etc)

It's getting close, depending on where you look. A guy on lander's blog linked to this a couple of weeks ago:

4519 Stuben

This was a seller in trouble:

4519 Stuben
Elk Grove, CA 95758
Asking Price: $199,900
Bedrooms:4 Baths: 2 Sq. feet:1910
Last Listing Date: 2008-03-15
True days on market: 18
# of Times Listed: 1
Previous Sales:
Sold on 2004-09-28 for $335,500
Sold on 2005-07-08 for $435,000

Similar houses are renting in 95758 for around $1200. They're not breaking even, but they're very close.

Sippn said...

Thanks, max. I think these real investors will see rent increases soon enough along with a 10 year appreciation run.

Its the combination they're looking for.

For the investment, it doesn't really have to cover the "P" in the payment for the short term, just the "ITI"

Mike, at the higher end you can almost always rent for less, as these are not typically rental type properties.

Wadin' In said...

A couple of observations for the participants on this excellent thread:

I just bought a SS from Bear Stearns. The offer sat for 5 weeks, while they tried to get a better price. I waited, but refused to increase the price. I had no "urgency" to buy and was not emotionally invested. The property either worked as a rental, or I did not buy it.

24 hours before the Trustee's sale, the BS agent (no pun intended) called and said they would take my deal if I closed tomorrow. I laughed, but said give me 10 business days and I will close it. They agreed and postponed the Trustee's sale, scheduled the next day.

The lesson here is that SSs can be good opportunities, with better odds of completing a deal as they approach "T" day (Trustee sale day). The fact all the real estate agents p!$$ & moan about them means they are the b@stard step child. That is an opportunity for the smart investor.

Sippn is also correct again. You need to look at the "P" in PITI as part of your return. If a property breaks even on cash flow, and you are reducing the principle by $300/mon, that is part of your return. $3,600/year is going toward your mortgage balance. It is not cash in your pocket today, but it is real.

Darth Toll said...

"I think these real investors will see rent increases soon enough along with a 10 year appreciation run."

This probably won't happen anytime soon. The reason I say this is that rents are going down not up, people are losing jobs not adding them, JSP is getting killed by the energy and food crises and can't spend MORE on rent, ongoing global wage arbitrage, and the crushing depression is just kicking in.

These factors will make sure rents go lower from here for quite some time. Of course, if Heli-Ben goes hyperinflation on us and sends everybody checks in the mail (no, this is not the same as the one-time so-called "stimulus package" tax rebate) then all bets are off and you may in fact get the rent increases you are looking for.

Otherwise, forget it.

Deflationary Jane said...

I agree with DT. It's what I see going on here and I'd be tempted to move to take advantage of it except so many of these new rentals are underwater that I'm not sure the Landies can float the losses.

Renters are your most mobile workforce and the ones most likely to feel the effects of pricing pressure. They are the proverbial frog in the cooking pot.

You need wage increases to grow rents. Turn up the heat on rents and they double up _if_ wages are still slowly growing and living conditions are decent. But you get accellerating vacancy rates and a return to lower rents. That's a closed loop if you manage it right.

Remove wage growth and jobs and you have population flight. Increasing rents just exacerbates the the issue.

Darth Toll said...

Deflationary Jane,

Very, very smart statements. I like your comments about closed loops. Your statement should be required reading for anyone thinking that now is a great time to jump into investment properties because they ALMOST pencil-out.

Guys, the cash flow picture is a moving target. You have to look at the BIG picture and the big picture is that JSP is getting crushed and the negative knock-on effects from this bust are just now starting to show up. Translation: JSP will get MORE crushed in the future and have LESS money to pay for rent or anything else.

This environment does not bode well for any would-be landlord.