Sacramento, Heart of Foreclosure Activity, Hits Holiday Slow Down

Existing home sales in the Sacramento region started the traditional winter slowdown in November. Sales for the month were 24% lower than October but 76% higher than in November 2007. Pending sales decreased 10% from October to November. Available inventory is 32% lower than November of 2007.

Foreclosed homes continued to dominate with 70% of the sales. Price per square foot dropped under $100 for homes selling for less than $200,000 in Sacramento county. Sac county is the center of foreclosure activity as indicated by the prices per square foot. Neighboring Placer, El Dorado, Yolo and Nevada counties have much fewer foreclosure sales and the average price per square foot ranges from $156 to $197 in those counties.

As I have written in the past, I believe median sales prices are meaningless as long as sales of bank owned properties are a significant percentage of sales. I believe that the bankers are rapidly lowering the prices they will accept just to move the inventory off the books. This is very damaging for the real estate markets, but who ever heard of a banker doing something that would be a benefit to their community. Here is an anecdotal story from a personal friend in Las Vegas:

Liz found a foreclosure, a stunning 4 bedroom ranch with a Hollywood pool on a 1/2 acre. We saw it when it appeared on the MLS on a Thursday night, looked at it on Friday, and put in our bid (full asking price of $284,900) on Monday. Bank asked for “best and final on Tuesday as there were three other competing bids on Wednesday and we upped the bid by $12,000. The house sold for $354,000 cash - damn.

The bank severely under-priced the house to move and it did in 3 days. Think about how much money these bankers are leaving on the table.

Another interesting Las Vegas tidbit. In November home-builders filed for permits for only 180 new homes! Even in this terrible market the builders have sold almost 10,000 new homes in Las Vegas this year. It is pretty obvious they are stepping off the declining home price ladder. The recent national data on new homes show the same trend.

The bad mix of high levels of foreclosures plus stupid bankers does not bode well for any stabilization of prices (aren’t these the same institutions that made the stupid loans in the first place?) but at some point the combination of low mortgage rates, low prices and declining inventory will turn the housing market.

Disclosure: None

Comments

[emananon:]

I don't know much about how SIPC works, but, assuming it is paying off the madoff investors, I am concerned that public money is being used to insure investors in funds that are not open to the public. how can that be? FDIC insures banks that do business with the public, why should SIPC operate differently? These investors should not get anything from madoff's fraud. If I invested in a private ponzi scheme and lost money where is my protection by the SIPC?

2008 Dec 22 05:57 AM

[Scott Sambucci:]

Looking at the overall Sacramento market, we're (meaning Altos Research - altosresearch.com) definitely seeing inventory levels drop along with prices: tinyurl.com/9x2fpd

This would certainly support Tim viewpoint that foreclosures are clearing the market.

Similar trends in Los Angeles - Inventory levels declining along with price:
tinyurl.com/77vxe5

2008 Dec 22 08:50 AM

[DuffBeer:]

Tim,
Bankers are handling distressed properties differently across the USA.
I can tell you by personal experience of over 23 yrs. Bankers are not your pals in thes transactions. BEWARE as Liz found out. Bankkers lenders who ever they are that are handling these are trying to create excitement, an auction atmosphere . Guess what buyers do in these frenzies OVER pay.
Yes prices are relaxing all over -- supply and demand and maybe the banks are lower them because that bail out never did come or did it !!!
Buyers be very careful out there . Just who is getting the good deal ???
Thanks for your posts Tim-- were you going over those stock tables while in that left seat when you worked for the USAF ???
Merry Christmas and Healthy New Year

Cheers, DuffBeer

2008 Dec 22 11:18 AM

[Did U Think...:]

"The bank severely under-priced the house to move and it did in 3 days. Think about how much money these bankers are leaving on the table."

Two things you have to understand here:
1) Banks are doing this for a reason. They are insolvent right now and if the gov't ever starts enforcing its own rules, many will be out of business. Banks have to feel that a dollar in the hand is worth 2 in the home.

2) Asset prices have a way of falling in a deflationary time. If you think 350k is a good deal for the little home you mentioned then come to Austin TX where that 350k will buy a freaking mansion in a much better neignborhood with all the amenities and an excellent job market. Within 3 years that same house will not be worth $80 per sq ft. The bank is smart to sell its assets at market price instead of holding out and whoeever paid 350k for that house will be underwater within 12 months.

2008 Dec 22 12:13 PM

[jimmy46:]

I believe median sales prices are meaningless """

True, and for another reason,
the houses that are selling now are the cheaper ones,
the expensive houses are sitting unsold.

A more meaningful way to calculate the median would be to
not count the lowest 20% and the highest 20%

Only the middle 60% would determine the median.

2008 Dec 22 02:48 PM

[Urbane Gori...:]

Can't possibly be slowing down... You've been calling a bottom in the Sacto R.E. market for at least 6 months now....

This is not just the normal Xmas slowdown... This is the results of more and more bad news, business closings and layoffs. As I've said before, expect this process to continue..

I expect another round of foreclosures and another 20% leg down in prices. Further, I expect the rental market to drop by 20% as well....

Thanks Dubya! Hope y'alls have an excellent Xmas drinking your 'near beer' in front of the tube!

jegan ;-)

2008 Dec 22 03:35 PM

[ArnoldCountry:]

This comment goes to show you how idiotic the general population can be:

"We saw it when it appeared on the MLS on a Thursday night, looked at it on Friday, and put in our bid (full asking price of $284,900) on Monday. Bank asked for “best and final on Tuesday as there were three other competing bids on Wednesday and we upped the bid by $12,000. The house sold for $354,000 cash"

I see this as engaging in an unfair business practice in violtion of B&P 17200. They are entering into a listing that says if the real estate agent brings a willing buyer on the terms listed, the broker earns a commission. In fact, they are purposely low balling the price and no matter who is the highest bidder, rejecting all offers and soliciting new offers. Dont all of these buyers know they are in control of the market and they are being played with illegal activity??? You cannot offer a price that you have no intent on honoring. It is an unfair business practice, plain and simple. Buyers... if more of you walked from this ridiculous approach to further screwing the public, the practice would stop. Real estate agents who assist lenders in doing so should be ashamed.

2008 Dec 22 04:19 PM

[Urbane Gori...:]

Here you go... Just came across this article in Fortune Magazine..

----------------------...

Fortune Magazine - 10 worst real-estate markets for 2009

5. Sacramento

2008 median house price: $225,140
2009 projected change: -22.2%
2010 projected change: 2.3%

*** AND *** Of the worst 10 projected real estate markets for 2009, only Miami and Washington DC were not in California.... On a positive note, if you can forestall slitting your wrists under the mistletoe, Fortune seems to think there is a very small upside in 2010....

Merry Christmas to all! And to all a goodnight! Thanks Dubya!

jegan

2008 Dec 22 04:24 PM

[Tim Plaehn:]

Single seat all the way, Duff.


On Dec 22 11:18 AM DuffBeer wrote:

> Tim,
> Bankers are handling distressed properties differently across the
> USA.
> I can tell you by personal experience of over 23 yrs. Bankers are
> not your pals in thes transactions. BEWARE as Liz found out. Bankkers
> lenders who ever they are that are handling these are trying to create
> excitement, an auction atmosphere . Guess what buyers do in these
> frenzies OVER pay.
> Yes prices are relaxing all over -- supply and demand and maybe
> the banks are lower them because that bail out never did come or
> did it !!!
> Buyers be very careful out there . Just who is getting the good deal
> ???
> Thanks for your posts Tim-- were you going over those stock tables
> while in that left seat when you worked for the USAF ???
> Merry Christmas and Healthy New Year
>
> Cheers, DuffBeer

2008 Dec 22 07:49 PM

[Tim Plaehn:]

Jegan, I have been stating that the bottom will occur when foreclosures are not a significant percentage of sales and we see an increase in average prices. I have considered the much higher sales volume in 2008 a positive sign but not the indication of a turn around. There is not a bottom until prices bottom.


On Dec 22 03:35 PM jegan ;-) wrote:

> Can't possibly be slowing down... You've been calling a bottom in
> the Sacto R.E. market for at least 6 months now....
>
> This is not just the normal Xmas slowdown... This is the results
> of more and more bad news, business closings and layoffs. As I've
> said before, expect this process to continue..
>
> I expect another round of foreclosures and another 20% leg down in
> prices. Further, I expect the rental market to drop by 20% as well....
>
>
> Thanks Dubya! Hope y'alls have an excellent Xmas drinking your 'near
> beer' in front of the tube!
>
> jegan ;-)

2008 Dec 22 07:54 PM