More Clues Housing Bottom May Be Near in Sacramento

This article from the Sacramento Bee provides more clues that the bottom may be near for the Sacramento region real estate market. My contention has been that the recent sales increases in the Sacramento and Las Vegas regions are indicators of an approaching bottom in the real estate market, especially in the hard hit southwestern states and California.

If you look at the recent national existing home sales report you will find that sales in the West were 4.9% higher last month than in August 2007. The driving force behind the increased sales seem to be first time home buyers and investors buying foreclosed properties at prices approximately 25% below the peak in 2006.

Returning to the Sac Bee article, I found two facts that further my contention that the bottom is near. First, available inventory has been reduced to a 3.9 month supply. This is considered a neutral market, between the less than 3 month supply seller’s market and the over 6 month supply buyer’s market. The inventory has been reduced from 16,262 homes in August 2007 to 11,369 last month.

A year ago, experts were predicting that inventory would reach 25,000 in 2008. So much for experts and their predictions. And remember the month’s supply number is a combination of supply and sales, and the strong year-over-year sales increases are playing a big part. I like this quote best from the article:

Somehow, buyers have trimmed inventory into a neutral market – now leaning toward a sellers’ market – even as foreclosures kept adding to it.

The other item that caught my attention is that August was the first month in about 2.5 years that the median price did not fall. In the 4 months prior to August, increasing home sales had been accompanied by decreasing prices as buyers snapped up homes that banks were more and more willing to unload at any price. I will be eagerly awaiting the September numbers to see if this signals an end of the dumping of truly distressed bank owned properties.

I have been contending for several months that an end to falling real estate prices could set off a buying binge that could rapidly reverse the real estate market. The biggest negative factor is whether foreclosures continue at the same or higher pace. A slowing of the foreclosure rate is definitely needed to help start a housing recovery.

I know many believe that any housing recovery is many months if not years away. I have written several articles about what I believe is the start of the recovery in the Sacramento and Las Vegas markets.

Disclosure: None

Comments

[Sean in CA:]

This article seems a tad overly optimistic at best, and funded by Prudential at worst. It completely forgets that there is another wave of resetting ARM's and subprime packages due to reset in January.

Furthermore, this article suggests that a "reversal" of the market is due. Does that mean prices will shoot back up to pre-bust levels? I find that highly doubtful even if the economy were healthy in other sectors because who is going to fuel this reversal? The people who have foreclosures and short sales on their credit history, or another group of salivating subprime buyers?

Credit is tightening up to the point that homebuying is truly back to where you actually have to put 20% down and have a decent credit rating to even get past the front door of the finance company. That will restrict the pool of available buyers considerably, which will prevent another ridiculous up ride on the home price rollercoaster.

The "bottom" will be the new median home price, according to what the local marketplace and income levels dictate, with modest year to year appreciation.

This will happen in 2011.

Until then, expect many false upward spikes driven by people looking at only one set of data and incorrectly timing the best time to buy.

2008 Sep 28 11:37 AM

[Sean in CA:]

Besides, basing a real estate premise on an article from any of the "Bee" newspapers is pure folly. Don't you know where their largest source of advertising revenue comes from? Real Estate! This ensures that there can be no objectivity in any real estate article printed in a newspaper. You will only see the silver lining, never the grey clouds. On the off chance they MUST report negatively about the market, the story is always attributed to UPI or AP, never the local reporter.

It's a shameful practice, and one that helped contribute to this whole housing mess to begin with, urging people to "buy, buy, buy!!!!"

2008 Sep 28 11:49 AM

[tblakeslee:]

Here is an excellent web site for tracking the Sacramento real estate market that is much more reliable than the Bee:
flippersintrouble.blog.../

2008 Sep 28 11:56 AM

[sickofthehype:]

The next 'wave' of adjustments doesn't mean that 100% of those will default. The $250 billion in subprime is the least of our country's issues. The CDS's based on those, and lever'd are the issues. Might not be prime to buy now, but we're not far off.

2008 Sep 28 02:07 PM

[Timbo:]

I live in Sacramento and you are way off base. I check Trulia for foreclosures in my area. Almost all are not listed for sale at the moment. I walk by and they are vacant, dead grass, litter in the yards but no for sale sign, no realtor key box. I have watched dozens of houses around me go from having a for sale sign to no sign and remain vacant. I check for sales at the addresses and there are none. Do you really think the MLS lists all the houses that are in need of new owners? Wake up. I subscribe to the Bee and they have been running stories about the end of the drop since the drop began. They also recently downsized their paper and cut a few inches off the width. Please consider your sources.

2008 Sep 28 02:09 PM

[Urbane Gori...:]

I'm sorry... I live in the State of California, and apparently you live in the State of Denial.

Since the last time you posted this ridiculous pablum, foreclosures in my neighborhood (off the I-5 and Florin) have dropped again. Similar homes to mine were selling in the $230K range 2 years ago. Last year they were moving in the $150K range. At your last post, foreclosures (listed weekly in the SNR) were running in the $115K range and this week, they're in the high $80K -> $90K range...

The "Bailout" might yield a short-term bump.... But watch out below.. The anvil is still falling... It's OK to delude yourself, but people read this stuff and might actually buy based on your op-ed....

jegan ;-)

2008 Sep 28 03:00 PM

[rond:]

This bailout is only a band-aid for past abuses on wall street. Now main street must deal with rising interest rates and many more layoffs and cutbacks in wages as Inflation is well under way, but this time real estate will only react to more downside bottoming that will last for several more years. Realtors have been calling the bottom every year, since the downturn started, that's their job, more sales. The answer is to learn how to stop this spending binge and begin saving. Think what it would feel like, to have no debts and $50,000 or $100,000 in your credit union paying you interest. It feels good, safe & secure. Yes we will suffer with a spending hangover for a couple years, but it will strenthen both main street and America in the long run. We're a long way from a bottom this time around.

2008 Sep 28 06:48 PM

[neeb??:]

When you get rid of capital gains taxes that penalizes savings and rewards spending like there is no tomorrow then you might get savings up... as for this one a savings rate of 20% each paycheck does wonders for fiscal discipline

2008 Sep 28 07:58 PM

[ArnoldCountry:]

This article is not only optimistic but completely out of touch of what is really going on in the Sacramento region. I handle mortgage based litigation in Elk Grove and my firm and others are reaching out to homeowners with a litany of options related to this crisis. To be direct, the legal machine of law offices across the country is organizing to address the outrageous behavior of real estate agents, lenders, title companies and mortgage companies. The first wave of the attack is Truth In Lending violations for refinance loans. Over half of the loans have Right to Cancel errors based on our sampliing because mobile notaries and title companies did not comply with the law. The rescissions are going to be wide spread.

Where were all those real estate agents in California who were supposed to acting in a fiduciary compacity and advise and protect their clients? Well, many of those consumers are going to be litigating with many of them.

I guess everyone forgot that California put a slow down in foreclosures legislatively. The tidal wave of foreclosures and inventory should begin around the first of the year. I expect that come this winter the last thing you will be talking about is a bottom.

Its about to get way more uglier than we have seen!

2008 Sep 28 11:58 PM

[Tim Plaehn:]

I take my data from broadly published reports that collect their data from the entire market. I understand someone can make different assumptions from walking around their block, but that is a pretty limited sample.

There was a huge amount of fraud concerning the mortgages of those who bought or refinanced during the market peak of 2005 and 2006. I would assume that most of those homes have been walked away from by now and in the hands of banks. The 4000 buyers a month now in Sacramento are getting homes at attractive prices and with decent mortgages. Those buyers will be fine as will those who purchased before 2004 and did not refinance at higher values to withdraw cash.

2008 Sep 29 10:32 AM

[carey_jim:]

The problem with advertising of all forms is that it distorts the underlying market and causes corrections to be worse than they would be without "demand creation" advertising that pushed up prices.

After all, renting has its virtues. Before the housing boom, after World War II, many people who could very easily afford to buy houses preferred renting because it was free the responsibilities of home owning and allowed for easy relocation.

You may simply be looking at the end of the beginning and not the beginning of the end.

2008 Sep 29 11:17 AM

[Urbane Gori...:]

Today's News states the following and there are plenty more articles like this... jegan



Friday, September 12, 2008
Sacramento foreclosure rate was No. 10 in U.S. in August
Sacramento Business Journal

Foreclosure filings continued to rise around the United States and in California during August, with Stockton leading the nation in filing rate and Sacramento at No. 10 out of 230 metro areas studied.

Filings of all types -- default notices, auction sale notices and bank repossessions -- were reported for 303,879 U.S. properties during August, up 12 percent from July and 27 percent from August 2007, according to a report released Friday by Irvine-based RealtyTrac. The report showed one in every 416 U.S. households received a foreclosure filing during the month.

California again was recorded the nation’s second-highest state foreclosure rate, behind only Nevada, which has topped the list for 20 consecutive months.

One in every 130 California households receiving a foreclosure filing in August -- a total of 101,724 filings, up 76 percent from August 2007 and more than 40 percent from July. In Nevada, the rate was one in 91, although the number of households in Nevada is much smaller.

California cities accounted for eight of the top 10 metro foreclosure rates out of the 230 metro areas tracked in the August report. Stockton was No. 1, with one in every 50 households in San Joaquin County receiving a foreclosure filing during the month, followed by Merced, Modesto, Vallejo-Fairfield and Riverside-San Bernardino in the No. 2 to 5 spots. Bakersfield, Salinas-Monterey and Sacramento held the No. 8, 9 and 10 spots.

Sacramento County had 5,971 foreclosure actions of all kinds during the month, including the seizure of 2,288 homes by the lender. That was up 37 percent from July and 13 percent from Aug. 2007. In the four-county Sacramento region, there were 7,726 foreclosure actions, up 16 percent in a year. Yolo County saw foreclosure actions jump 193 percent, from 112 in Aug. 2007 to 328 a year later.

2008 Sep 29 07:12 PM