Sacramento, California: Reaching Prices Where There is Demand

Is this what a bottom looks like?

This city was among the first in the nation to fall victim to the real estate collapse. Now it seems to be in the earliest stages of a recovery, a hopeful sign for an economy mired in trouble and anxiety.

Investors and first-time buyers, the traditional harbingers of a housing rebound, are out in force here, competing for bargain-price foreclosures. With sales up 45 percent from last year, the vast backlog of inventory has diminished. Even prices, which have plummeted to levels not seen since the beginning of the decade, show evidence of stabilizing.

- “Where Home Prices Crashed Early, Signs of a Rebound”, David Streitfeld, The New York Times, A1, May 5, reporting from Sacramento, CA

Signs are starting to emerge of a bottom in Sacramento area housing. Volume has increased year over year for each of the last 12 months in the eight county Sacramento region.

Tuesday’s front page New York Times article had a monthly sales volume chart for Sacramento County only.

Two thirds of 2,092 existing single family homes that sold in Sacramento County in March were foreclosures.

The inventory of existing homes for sale has fallen by half - from 16,262 to 8,189 - in the past 19 months.

The median price in Sacramento County for all new and existing homes sold in March was $165,000 - up from $160,000 in February. I need to get more pricing information, but if it’s true that prices are starting to stabilize, along with this substantial increase in volume, that is what you’d expect to see at a bottom.

It suggests that we are reaching prices at which there is significant real demand.

With historically low interest rates (the average 30 year mortgage rate is 5.03% according to Bankrate.com) and an $8,000 federal first time home buyer tax credit, I believe this is an excellent time to buy your first home.

Comments

[ubuy2w:]

Greg, Great article, I have been seeing the same sort of trends in many of the hardest hit ares of the country Phoenix ,Las Vegas, Miami etc. Investors and prudent first time homebuyers are snapping up foreclosed entry level homes at discounts of 60 to 70 percent of what they traded for 3 short years ago. The standard advice offered by the sky is falling contingent is forget buying a home they are still highly overvalued and have a lot further to fall. I strongly disagree the combination of very attractive long term mortgages plus extremely depressed pricing makes entry level home ownership a no brainer right now.

May 06 08:45 AM

[aby1366:]

It is possible to see some housing markets still go down. All the better for long term investment, I guess.

May 06 10:01 AM

[Jimmy K:]

you must be kidding... 19 MILLION VACANT HOMES RIGHT NOW... i guess there will be bidding wars, there must be at least 20 million looking to buy right now with 20% in cash...

May 06 10:20 AM

[Timbo:]

Hey, I live in Sacramento. An article in the paper yesterday pointed out that the # of vacant homes in the Sac area rose 40% year over year. Sacramento is #2 in CA for vacant homes. Don't believe all the hype about inventory going down. I see many vacant homes without for sale signs. I guess the owners like it that way. Also, if you run the sales by zip you will see volume at record lows in the nicer areas of town. First the volume drops then price. Oh, rents are down year over year as well so all those investors will have a nice time getting cash flow in a market flooded with rentals. Wake up!

May 06 12:34 PM

[henarl:]

Twice as many sales of existing foreclosed homes at prices 40 to 50% below what it costs to build an equivalent new home does not make a housing recovery. It will not help the homebuilding industry when the inventory of those cheap existing homes runs out and people still can't afford to buy a much more expensive new home. Only new job creation will result in a housing recovery. Either that or the young middle class buyers will have to settle for a much lesser house than the suburban McMansions they have become used to.

May 06 03:38 PM

[Mad Hedge F...:]

It's a low that may be with us for a long time. The real estate tracking firm Zillow.com estimates that 30% of all US homes are now underwater on their mortgages, equivalent to 27 million homes. There is a “shadow inventory” of a further 30 million homeowners who want to sell their houses on the any improvement in prices. Newly tightened lending criteria have permanently knocked another 10 million potential buyers from the market. Some five million of the nation’s 90 million houses are either for sale, in foreclosure, or held in bank inventories. I have a question. With 72 million on the sell side, who is going to power the much heralded rebound in prices? It could be a veeery long wait. I realize there is a lot of double counting here, but you get my meaning. It all bodes for an “L” shaped recovery in the real estate market, which means no recovery. Keep that rental. No principal risk, no property taxes, and just a phone call unclogs the toilet.

May 06 05:41 PM

[joof:]

I don't think anyone would say the market is truely recovering. However clearing the inventory with good sales rates is a necessary event along the path towards a stabilized market.

Much of the foreclosure stuff is in lousy shape or in bad locations . Stories abound where well priced well located houses in good shape ( ie the next level up in quality from the foreclosure market ) get multiple offers, and sell for well in excess of list

Over the mid term the echo boom demographics would create potential demand- if those kids can get and keep jobs

May 06 08:06 PM

[theseanman:]

More Real Estate Bull. I bet a good 40% of potential further inventory is being purposely held off the market by banks and realtors to try and prevent a full-scale pricing collapse.

May 06 08:36 PM