A Case Study of Distress California Housing: Sacramento County.
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The Sacramento Association of Realtors provides excellent data on real estate market trends for Sacramento County. It is unfortunate that we don’t have comprehensive data like this for the state of California housing. Yet this data is helpful because it reflects similar outcomes of other California counties like Riverside or San Bernardino. When we examine the data, what we find is a market dominated by distress sales and lower priced conventional sales:
This is excellent information. The number of closed escrows fell in the last data report but not by much. The big trend is with REO and Short Sale information. Short sales in more mid to upper tier markets in California have been largely absent. But in this data set they make up a good portion of sales. However, the big market mover is the REO subset making up nearly 45 percent of sales. Months of inventory is low at 3.2 months and the median price of sales is $183,000. Last year at this point when prices were already depressed the median price was $194,950.
The mean is at $207,199 so the bulk of home sales are falling within this range and if we look at the mode, this is confirmed with the $200k to $249k range. So what is happening is we have a market that does have brisk sales but only because of lower prices and a glut of REO inventory. If we look at the overall sales count for the year, sales have increased:
Now compare this to last year:
It is a simple equation. Home sales have jumped up 12.2 percent while the median price has fallen 22.2 percent. Cheaper homes move inventory. If we dig into the financing data what we find is indicative of many distressed California markets:
The majority of sales are FHA insured loans and cash buyers. That is, we have a large number of first time home buyers most likely lured by the $8,000 tax credit and many cash investors probably looking to buy cash flow properties.
It is great to have information like this because it really tells us a lot about a housing market. It is unfortunate we don’t have data like this for the state of California.
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James Smith said:
I think before any meaningful recovery in real estate prices can take root, we need to overcome three major obstacles…
“Rebound Obstacle #1: Inventory Glut. Nearly 10% of all homes built this decade are sitting vacant, compared to a historical average of 2.2%. In total, we’re sitting on almost 10 months worth of inventory versus a historical average of four months.Rebound Obstacle #2: Loan Resets. Forget subprime. We’ve already worked through 80% of those resets and written down $1.47 trillion in the process. Now we’re facing a $2.5 trillion mountain of Alt-A loan resets. The first big wave hits mid-2011, with the peak expected to come in early 2013.
Rebound Obstacle #3: Foreclosures. One in four homeowners are now underwater. If we break it out by loan type the picture gets worse – 25% of prime loans, 45% of Alt-A loans, 50% of subprime loans are severely underwater. Add in the 6.5 million Americans out of work since the recession began and it doesn’t take an Einstein to predict where foreclosures are heading.”http://www.housingnewslive.com/articles/reasons-housing-market-going-down.php
October 13th, 2009 at 5:42 am -
repo4sale said:
Good article. I think after 35 years in Real Estate investments with a 1165% gross Average Return over the last 198 escrows, the market has not hit bottom. 2-3 years more to the bottom, then it’s “treading water” for 3-5 years more before we start moving up. The Feds pushed the “bottom of the bell curve” back with all these “incentives”. Calif. has a typical cycle of 8-10 years up and 8-10 years down and anytime the Feds “influenced” this cycle, it’s to the detriment of the consumer & investor. The last up cycle, 1997 to 2007 was very long, with 911 and cheap Greenspan% rates. The down cycle with Tarp & Obama money will be from 2007 to 2017 at the MINIMUM! So the Up cycle will start about 2014-2017. Sad but true. That’s when the bottom is expected based on California Real Estate cycles since the 1950s.
October 13th, 2009 at 3:32 pm