Central Valley Real Estate

Massive inventory decline could spell bottom of market

Because Econ 101 teaches us that lower supply leads to higher prices, the decline in housing inventory signals that we are getting ever-closer to the proverbial "bottom of the market," if we're not there already.

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The Wall Street Journal today reported on a survey it conducted of 28 metropolitan areas across the country, to see where housing is headed. The Sacramento area, whose MLS includes Stanislaus County, had the largest decline in housing supply than any other area in the study, at 32.1% fewer homes listed for sale in June 2008 compared to the year-ago period. And that was just looking at June inventory numbers.

Inventory is in a noticable decline in most parts of Stanislaus County, as confirmed by these figures. Two key questions are: what is causing this trend, and what does it mean for real estate activity going forward?

Inventory has been shrinking in this area for three reasons:

(1) First and foremost, prices have declined to the point where buyers with area incomes can now afford to purchase them, and there is significant interest to purchase homes when you can find a good home in the mid- to upper-$100s.

(2) Increased loan modifications and workout plans have allowed more troubled homeowners to stay in their homes, rather than lose them to foreclosures, which all end up as future bank-owned homes for sale.

(3) The flood of short sale listings has finally begun to decrease. There are several factors that help to explain this trend, but the reality is that the short sale market of 2007 did not result in many successful sales. This means that many homeowners who tried to sell, real estate agents that tried to negotiate them, and homebuyers looking at them, all ended up, in many cases, wasting their time. Unfortunately, the successful close rate of short sales is abysmal, due mostly to slow response times and unreasonable terms by banks who would have to agree to the short sale terms. As a result, many home buyers have chosen to skip over short sale listings. Many real estate agents have been much more choosy about which short sale listings to take on--after all, if it won't sell, then why spend time, money, and effort trying to do it? And many homeowners have decided either to try to do a loan workout and stay in the home or just walk away from it without even trying.

But getting back to the trend of declining inventory: we all know that decreased supply of any asset or commodity results in future price increase. This is one of the basic laws of economics, and it applies in any market, industry, and situation. So if this trend continues, expect to see prices begin to rise from here on out.

Hey, Bargain Hunters! Where Are You?

As the Briefing.com assessment of today's stock market performance explains, "There are volatile markets and then there are volatile markets.  Wednesday's session was the latter variety, which is to say it was truly volatile.  To wit, the swing in the S&P 500 between its low of the day, reached around 12:45 p.m. ET, and its high of the day, reached around 3:50 p.m. ET, was 69 points or 5.4%."

A 5.4% swing in just one day--not for one particular stock, but for the entire S&P 500--is just unimaginable. And yet, it just happened. Today.

Why did it happen? And what's it got to do with local real estate?

Peter Cardillo, chief market economist at Avalon Partners, explained today's stock market performance: "There does come a point and time when the market itself recognizes that it got out of hand, and that is when bargain-hunters can come in."

It's just a matter of time before our local real estate market also realizes that it is out of hand too, "and that is when the [real estate] bargain-hunters can come in."

A few cases in point:  this bank-owned Patterson home at 544 Peregrine Ave was built in 2001, has 5 bedrooms, 3 baths, 3-car garage, 4041 sq. ft, and was asking $250,000 before going into contract about a week ago. That's a $62/sq. ft. asking price! And in case you were wondering, it has a very nice (though dead) landscaped backyard, cherry/maple cabinets and granite counters.

In case you were wondering if you missed the boat, this second bank-owned home is just down the road in Newman at 682 Hagerman Peak Drive that was built in 2005, with 5 bedrooms, 3 baths, 3-car attached garage and 4117 sq. ft. asking $329,000. That's still less than $80/sq. ft., and that's just a starting asking price--it's only been listed for 14 days.

So bargain hunters, you need to wake up and realize this for what it is--complete and utter mayhem. If you agree that the market has gotten out of hand, you can now come in.

California Foreclosure Activity Continues to Increase

There's no sugar-coating it any more--the housing market is in dire straits. As a real estate agent, I really want to be as optimistic as possible. And yet, that's a disservice to those who need to know the reality of what's going on.

In fact, one of my favorite quotes that I have on my desk is from Jack Welch, the legendary CEO of General Electric. He says, "face reality as it is, not as you want it to be." Very relevant advice for current real estate conditions.

So with that in mind, I will no longer be withholding the bad news from the good. I will always be keeping an eye out for editorial bias and spin, but facts are facts and cannot be denied. Enjoy.

California foreclosure activity still rising

Pool of at-risk loans getting larger

Tuesday, January 22, 2008

Inman News

The number of mortgage default notices filed against California homeowners jumped last quarter to its highest level in more than 15 years, a real estate information service reported.

Lending institutions sent homeowners 81,550 default notices during the October-to-December period. That was up by 12.4 percent from 72,571 the previous quarter, and up 114.6 percent from 37,994 for fourth-quarter 2006, according to DataQuick Information Systems.

Last quarter's number of defaults was the highest in DataQuick's statistics, which go back to 1992.

"Foreclosure activity is closely tied to a decline in home values. With today's depreciation, an increasing number of homeowners find themselves owing more on a property than its market value, setting the stage for default if there is mortgage payment shock, a job loss or the owner needs to move," said Marshall Prentice, DataQuick's president.

The median price paid for a California home peaked at $484,000 last March and declined to $402,000 by the end of 2007, although DataQuick said much of that decline was caused by significant shifts in the types of homes that were sold.

Most of the loans that went into default last quarter were originated between August 2005 and October 2006. The median age was 22 months, up from 15 a year earlier, indicating that the pool of at-risk home loans is getting larger.

On primary mortgages statewide, homeowners were a median five months behind on their payments when the lender started the default process. The borrowers owed a median $11,121 on a median $340,000 mortgage.

On lines of credit, homeowners were a median seven months behind on their payments. Borrowers owed a median $3,379 on a median $56,000 credit line. However, the amount of the credit line that was actually in use cannot be determined from public records.

Last quarter's default numbers were a record in 42 of the state's 58 counties. In Los Angeles County it was 63.5 percent of the first-quarter 1996 peak.

Notices of default are recorded at county recorders' offices and mark the first step of the formal foreclosure process.

On a loan-by-loan basis, mortgages were least likely to go into default in San Francisco, Marin, and San Mateo counties. The likelihood was highest in Merced, San Joaquin and Stanislaus counties.

Of the homeowners in default, an estimated 41 percent emerge from the foreclosure process by bringing their payments current, refinancing, or selling the home and paying off what they owe, according to DataQuick. A year ago it was about 71 percent. The increased portion of homes lost to foreclosure reflects the slow real estate market, as well as the number of homes bought during the height of the market with multiple-loan financing, which makes "work-outs" difficult.

Trustee's deeds recorded, or the actual loss of a home to foreclosure, totaled 31,676 during the fourth quarter, the highest since DataQuick began tracking trustee's deeds in 1988. Last quarter's total rose 30.8 percent from 24,209 in the previous quarter, and jumped 421.2 percent from 6,078 in fourth quarter of 2006.

In the last real estate cycle, trustee's deeds peaked at 15,418 in third-quarter 1996. The all-time low was 637 in the second quarter of 2005.

There are 7.9 million houses and condos in the state, DataQuick reported.

Home Sales Limbo Rock: How Low Can You Go?

As the "limbo bar" of sales price continues to go lower, it seems fewer sellers are able to pass beneath it successfully and sell their homes. You've got to be a pretty flexible seller to be able to get under the limbo bar of today's prices.

All kidding aside, "how low can you go" seems to be the theme of the local market these days. For sellers, who are for the most part powerless to stop it, it is definitely NOT a fun game to play. But for buyers who realize it for what it is, this is a great buying opportunity--the likes of which we haven't seen for at least about 15 years and may not see for another 15 years.

It is ironic that buyers often don't see it this way. Rather, the common perception is: "because prices have and are going down,  I therefore don't want to buy." Why not?, I may ask. "Because I think prices will keep going down some more."

In the short term this is probably true. However, as another agent in my office were discussing today, the concern is that it never seems to be enough. It is precisely the same mistake that sellers made near the peak of the market. Rather than being grateful for the quick and massive rise in their home's value, sellers would say, "because prices have and are going up, I therefore won't sell my home. I want to hold onto it as long as I can, because every month it goes up more in value."

Again, in the short term that is true. However, the mistake we all see (now) that many sellers made is that it just wasn't enough. They were just a little too greedy. They postponed their sale longer and longer, thinking the home was going up more and more, and by the time they realized it had already peaked, it was--yep, you guessed it--too late. Then they held onto the peak price expectations, and were unsuccessful. Many of those sellers have still not been able to sell their home.

If you are thinking about buying a home sometime soon, don't make the same mistake that sellers made when the market was near the top. Just as those sellers should have taken the great prices they could get at the time and been happy with it, I hope you realize this opportunity for what it is.

Take the great prices you can get, and be happy with it. Don't do what the majority of buyers will inevitably do, which is to wait until it is clear the market has stabilized and improved and begun to rise in value again before deciding to make an offer. Worse, don't make the additional mistake of thinking you can lowball and ask for closing costs after the market starts to rebound. Then you'll keep getting "no" answers, and by the time you get it you'll be paying a lot more than you would have needed to (just like the sellers who are selling for much less than they would have gotten by not postponing their sale).

Bottom line: if you are buying for the right reasons (a home for your family to live in for at least 5 years or more), then realize this opportunity for what it is--a great opportunity--and find a great house for a great price, buy it, make it yours, and start earning equity as you make payments on your mortgage!

Take the opportunity and run with it!

Modesto Area Real Estate Auctions

From The Modesto Bee comes this article:

Also, see the website that has been created for the property I'll be selling to the highest bidder this coming Saturday, July 21, www.BuyMyHouseAtAuction.com.

Going once... Going twice... Gone

By J.N. Sbranti

Real estate auctions are multiplying in the Northern San Joaquin Valley as anxious homeowners seek new ways to unload their houses quickly.

At least four companies will auction Stanislaus County homes during the next month or so, including more than 60 homes that will go on the block Thursday night.

Some of the auctioneers are big, national companies; others are local real estate agents trying something new.

Modesto homeowners Todd and Penny Rowell certainly are ready for something new. That's why they're auctioning off their 2309 Rosetti Court house Saturday in a process that includes telephone bids.

"Our house has been on the market for a year, and traditional methods have not worked," said Todd Rowell, who moved his family to Spokane, Wash., in 2006. "We have had a signed contract with multiple buyers who later either were unable to get financing or got cold feet about the market. This has been very frustrating."

So the Rowells and their agent, Aaron Lewis of Prudential California Realty, decided to try an auction.

"We are sick of the whole selling process and are ready to move on," said Rowell, noting that he and his wife are ready to "let the market determine the value of our home."

Bidding on their four-bedroom home will start at $178,500, which the Rowells figure is about half what it is really worth.

If buyers don't agree, the Rowells have left themselves an out: They don't have to agree to accept the highest bid.

"The bid is not legally binding on either the buyer or the seller," explained Lewis. He said the Rowells aren't revealing their bottom price, but "the money they are willing to accept is wellbelow the market value."

Having an undisclosed "reserve price" is not unusual.

The 60-plus homes being auctioned beginning at 7 p.m. Thursday at Modesto Centre Plaza by Hudson & Marshall will have no minimum bid, but the property owners don't have to accept any of the bids.

'Absolute auctions' draw crowds

That's not the case with the Turlock property being sold at 11 a.m. Aug. 3 by Pacific Auction Exchange. The land at 16714 Bradbury Road, which includes two homes, will be sold in an "absolute auction" for whatever bidders are willing to pay.

"Absolute auctions attract more people than (reserve bid) auctions," said Casey Stonebarger of ASAP Real Estate Sales in Denair, which is a franchise of Pacific Auction Exchange.

Stonebarger said about 160 people showed up in February for the auction of an Oakdale home, which ultimately sold for $385,000. That price included a 10 percent buyer's premium, which Pacific Auction Exchange collects to cover its costs.

The Hudson & Marshall action will have a 5 percent buyer's premium, which will be added to each high bid.

There won't be any buyer's premium for the Rowell home.

Williams & Williams, which auctions about 1,000 homes a month nationwide, doesn't charge a buyer's premium either. It plans to auction about 15 homes Aug. 23 in five Northern San Joaquin Valley locations.

That includes three Modesto homes, which are on Elmwood Avenue, Mount Vernon Drive and James Street.

In one Williams & Williams auction last month in Modesto, a three-bedroom duplex on South Madison Street sold for $95,000. The company sold a threebedroom home on Cadillac Drive in Modesto for $210,000 in April.

Its founder and chairman, Tommy Williams, said real estate auctions are gaining popularity throughout the country.

"Buyers are beginning to realize it's an easy way to do business," said Williams, noting how transparent auction transactions are. "It feels fair and equit-able and like you're not being taken advantage of."

Williams said sellers accept the high bids at 85 percent to 90 percent of his auctions. That's because sellers realize they're "getting a fair deal dictated by the reality of the marketplace."

There was $16 billion worth of residential real estate sold in 2006 in the United States, according to the National Auctioneers Association. Williams, who is that association's incoming president, has no doubt this year's sales will be significantly higher.

"I think you're seeing the tip of the iceberg," Williams predicted. He said foreclosed houses that have been repossessed by banks, then sold at auctions, are driving much of the increase.

All of the Hudson & Marshall sales Thursday will be bank-owned properties.

Foreclosure auctions not same

So were the 47 homes auctioned June 25 in Modesto by the Real Estate Disposition Corp. The final sale prices for those homes haven't been disclosed by the company.

Such auctions are far different from the foreclosure auctions conducted on the courthouse steps at noon virtually every weekday.

Courthouse auctions are legal proceedings in which foreclosed homes are sold to the highest bidder without guarantees. Courthouse bidders typically have no opportunity to inspect the property or confirm whether it has other outstanding debt, and they can't obtain title insurance.

The vast majority of the homes sold in courthouse auctions go to the lender who was owed the unpaid mortgages. Many times, the bad debt was more than the home's current value.

Those lenders then must resell the repossessed homes, and increasingly they are turning to auctions to do that.

Lender-owned homes sold at auction by private real estate companies typically come with title insurance and provide bidders the chance to do inspections.

1st Tier v. 2nd Tier Communities

In answer to a question I received from a blog subscriber about the differences between certain communities in the Central Valley:

As the market got hotter and hotter, more and more builders began to build in what I call “second-tier” communities. To me, a second-tier community is one where people decide to buy primarily because the homes are less expensive compared to first-tier communities. For example, people began buying in Patterson/Newman primarily because it was significantly less expensive than Tracy. Same goes for the Lathrop area as well. Of course, I am generalizing, but that was the main thrust for much of those second-tier communities. Please understand, I’m not saying they aren’t great places to live and raise a family—I’m just saying that a majority of people tend to prefer the first-tier communities if they could afford it. The trend is even more pronounced when going south into Merced county—people generally were buying homes in those areas because they were less-expensive compared to pricier communities nearby.

For example (when the market was hot), a person commutes to the Bay Area and would like to live in Tracy. Problem is, Tracy is too expensive for them to get the home they want. But then they drive a little further and see much larger homes in Patterson for a much lower price, and they buy them instead. Here’s today’s problem with second-tier communities: now that person looking for a home in Tracy CAN afford it in Tracy. Therefore, there is no reason for that type of buyer to go further out to Patterson in order to afford it. That means that top-tier communities like Tracy will recover better and more quickly than second-tier communities, because now they’ll just buy where they really wanted to, which for many is Tracy in this example. Does that make sense?

The other reason second-tier communities are tougher right now is because new-home builders are encountering that very same problem, which means they’ve had more “standing inventory” (finished homes with no buyers) to get rid of. The more standing inventory there is in a community, the bigger the price dive. By the time builders get finished dumping their inventory homes, a new price floor has been established, and everyone wants to buy their home at those types of prices.

So places like Patterson have taken a big hit (as you have obviously seen). Oakdale is still a top-tier community according to buyer preference, but everyone with an existing home is struggling to compete against all the homebuilder discounts and their standing inventory and large-scale projects that they are continuing to work through out in the Bridle Ridge area. It’s just been, and continues to be, overbuilt in that area.

In general, many areas have given up the gains they’ve had in the last 18-24 months, just like you have seen.

Vacant Homes Are Holding Down Prices, Pushing Down Rents

This is from a The Modesto Bee article on February 16, 2007:

Record numbers of homes are sitting vacant awaiting buyers in the United States. An estimated 2.1 million empty houses were listed for sale during October, November and December.

That's about 62 percent more than usual, according to U.S. Census Bureau statistics.

The glut of vacant houses is readily apparent throughout the Northern San Joaquin Valley, as bank foreclosures and former rental homes flood the for-sale market.

Empty houses cause hardship for owners, who often struggle to pay mortgages and upkeep costs on property they can't sell.

For 10 months, Harold and Donna Suender have tried to sell their empty Salida house. When they put the 2,305-square-foot home on the market in April, they priced it at $515,000.

But the slumping real estate market has forced them to repeatedly lower their price. This week, they dropped it again to $399,996.

"I've never seen anything like this," said Harold Suender, who bought a new home in Riverbank before the market turned. "That (near 20 percent price reduction) is a lot of money, but we have to get it sold. We can't cover two house payments forever."

The Suenders had hoped their Salida house would help fund their retirement. They bought it in 1994, then moved out in 2003. They rented out the four-bedroom house for three years, getting as much $1,650 a month.

But their renter moved out shortly after the home went up for sale. So no money is coming in, and the Suenders are paying for landscape and cleaning services to keep the house in top condition to attract buyers.

"Probably the smartest thing to do is try to rent it again, at least until the market comes back up," Suender said. "But I don't know how the rental market is now."

The answer to that is: Not good.

"The rental market is very soft and very tough right now ... and it's deteriorating," said Paula Leffler-Zagaris, who leads Liberty Property Management.

Zagaris estimated that a home in Salida such as Suender's now would rent for about $1,250 a month. She said that's because so many homes that have lingered on the sales market have started flooding the rental market.

Conversely, since the oversupply of rental property has pushed down rents, many former rental-home owners are trying to sell instead.

Another reason behind the surge in empty homes is the region's rapidly increasing foreclosure rate. Estimates suggest that about half the vacant homes on the market are owned by banks that have repossessed them.

Stanislaus and Merced counties, in fact, have among the highest foreclosure rates in California, according to the January 2007 U.S. Foreclosure Market Report from RealtyTrac.com.

Stanislaus County had 355 homes in mortgage default and facing possible foreclosure in January. That means about one in 425 homes are in the process of being taken over by lenders.

The situation is worse in Merced County, where 189 homes — or one in 362 existing homes — were in default in January.

By comparison, the home default rate was only 1-in-846 statewide and 1-in-886 nationally.

"We're definitely seeing an increase in foreclosure activity," said Chris Porter, a senior consultant with John Burns Real Estate Consulting, which tracks the market nationwide.

Builders lower prices

Porter said foreclosure rates tend to go up when the real estate market slumps because homeowners can't sell fast enough or get the price they need to save their homes from default.

That combination of a slow sales market, weak rental market, soaring foreclosure rate and excess new home construction created the glut of vacant homes for sale, Porter said.

During the last 10 years, the average number of vacant homes for sale nationwide has been 1.3 million, but last quarter it rose to 2.1 million.

"This means that builders may need to slow down construction even further," Porter suggested. He said the other option for builders is to lower prices to more affordable levels.

Many already have done so.

Anne and Jorge Acuna and their three children benefited from just such a price reduction on the new Waterford home they bought last summer.

"We saw a great opportunity and it was a place that we really loved, so we bought it," Anne Acuna said. "We decided to move in first, then put our Modesto house on the market because it was easier for us."

Their vacant Modesto home, currently priced at $379,900, has been for sale since August with little action.

Acuna remains optimistic, and she pointed out that previous real estate investments have gone well for her family.

"I don't think people should sit in a house they're not happy with," Acuna said. Covering the cost of two houses "is not easy, but we're tough people. It's nothing we can't handle."

And there are some advantages to selling a house that's vacant, according to the agent who has the Acuna home listing.

Chaffey said sales transactions on vacant homes often can close faster than those for occupied homes. She said empty homes also are easier for agents to show to clients and for inspectors to do their work.

On the downside, buyers are reluctant to spend as much for empty homes: "The minute they see a vacant house, no matter what the price is, they offer 10 percent less."

Experts Agree: At Least This Year Will Be Better Than Last!

This is an article printed in The Sacramento Bee.

Source: The Sacramento Bee
Publication date: 2007-01-05
By Jim Wasserman, The Sacramento Bee, Calif.

Jan. 5--One prediction seems easy to make as the 2007 real estate season unfolds: It will be difficult to top the sheer intensity and drama of 2006.

Yes, the market remains oversaturated with "For Sale" signs and prices have yet to stabilize. True, some business magazines call the Central Valley an overvalued landscape.

But a chorus of industry officials believes the bottom is near. That's what to watch for in this new year.

Will Sacramento lead the nation out of its residential real estate doldrums? What will prod buyers off the fence? And what will it take to sell your house?

Here, from people in the know in various segments of the industry, is some early speculation about real estate in the Sacramento area, California and the nation in 2007:

Scaling back in the suburbs

Home builders everywhere, and especially in suburban Sacramento, put the brakes on in 2006 and say they will keep their feet on the pedal in 2007.

Watch for housing starts and sales this year to repeat 2006's cooled-down numbers, economists from the California Building Industry Association said Thursday. The good news for builders: It's unlikely to get worse.

"We don't expect any significant decline unless there's some major economic shock, and we don't anticipate that," CBIA chief economist Alan Nevin said in making the trade group's annual January forecast.

Buyers, he said, should watch for lucrative builder incentives to diminish after the first quarter as firms finish selling off excess stock.

Statewide, home builders will revert to 1990s production levels, starting between 155,000 and 170,000 houses, condos and apartments, Nevin said in a conference call with reporters. The 2004 peak was 213,000, while California's all-time high is 322,018 starts in 1963, according to the CBIA.

In the Sacramento region, where the market saw housing starts "nosedive" from annual highs of 18,000 from 2002-2004 to just 10,000 new houses during 2006, Nevin predicts a modest 2007 recovery. He sees 10,000 to 12,000 starts.

Similar predictions come from Folsom-based home builder consultant Greg Paquin. He expects a repeat of 2006, with builders selling about 9,500 new houses this year in El Dorado, Placer, Sacramento, Sutter, Yolo and Yuba counties. He expects 2008 sales to reach 10,000.

Thursday, Nevin acknowledged he didn't see the depth of 2006's downturn when offering predictions a year ago that in hindsight proved overly sunny. New CBIA Chair Wes Kuesder, a Los Angeles-area builder, said the entire industry guessed wrong about 2006.

"What's unusual about this slowdown is the rapid downswing," he said. "It was different than the others, different than the last 30 years. That was a surprise."

"It was like a memo went out" to buyers to just quit, said CBIA President Robert Rivinius.

Nationally, home builders expect the downturn to continue. The National Association of Home Builders sees 1.256 million housing starts in 2007, compared with 1.476 million last year. The slide will continue into 2008, says NAHB, with 1.379 million housing starts.

To buy ... or sell?

The good news for Sacramento-area sellers is that the number of sales of existing homes may rise slightly this year after a long skid during 2006. That would defy the expected declines in the rest of the state and the nation.

Watch for 21,680 sales this year in El Dorado, Placer, Sacramento and Yolo counties, compared with about 21,000 last year, said Mike Lyon, head of Sacramento-based Lyon Real Estate.

The bad news -- at least for sellers -- is there are still thousands of houses for sale. That's good news for buyers, who now hold the upper hand in dealing.

"We still think there's so much product that prices are going to decline in most areas," Lyon told area real estate industry officials at the close of 2006.

How much is anyone's guess. Lyon said up to 10 percent. Roseville-based real estate agent John Brophy predicted 7 percent to 8 percent declines on a Capitol Public Radio real estate forum this week.

Statewide, the California Association of Realtors expects up to a 2 percent decline in prices in 2007. Nationally, chief economist David Berson of mortgage giant Fannie Mae sees the same.

Lyon said prices are unlikely to rise in the capital region until 2008.

Rates may stay below 7 percent

Expect mortgage rates to remain a bright spot in 2007, say lenders and economists. They predict 30-year fixed-rate loans will stay well below 7 percent.

That means a 2007 rebound for fixed-rate mortgages long out of style, said Heather Fern-Luzzi, Roseville branch manager for Arizona-based First Magnus Financial Corp.

"We're seeing a lot more refinancing because of the low rate," she said. "A lot of people are trying to get out of adjustables."

"We expect rates to remain favorable from an historical perspective," said Frank Destra, a senior vice president for Costa Mesa-based lender ditech.com. "For consumers, now is a great time to explore a variety of refinancing options, such as avoiding potential payment shock by refinancing adjustable-rate mortgages into a variety of fixed-rate solutions."

Rates for 30-year fixed loans ended 2006 at 6.18 percent, according to mortgage giant Freddie Mac, after topping out at 6.8 percent last July. Though high compared with 5.29 percent in June 2003, that's well below 8.05 percent in 2002 or 10.13 percent in 1990.From Bottom, Housing Looks Up: Real Estate Officials Predict Brighter 2007 but Still See Slumping Prices, Construction.

Source: The Sacramento Bee
Publication date: 2007-01-05

By Jim Wasserman, The Sacramento Bee, Calif.

Jan. 5--One prediction seems easy to make as the 2007 real estate season unfolds: It will be difficult to top the sheer intensity and drama of 2006.

Yes, the market remains oversaturated with "For Sale" signs and prices have yet to stabilize. True, some business magazines call the Central Valley an overvalued landscape.

But a chorus of industry officials believes the bottom is near. That's what to watch for in this new year.

Will Sacramento lead the nation out of its residential real estate doldrums? What will prod buyers off the fence? And what will it take to sell your house?

Here, from people in the know in various segments of the industry, is some early speculation about real estate in the Sacramento area, California and the nation in 2007:

Scaling back in the suburbs

Home builders everywhere, and especially in suburban Sacramento, put the brakes on in 2006 and say they will keep their feet on the pedal in 2007.

Watch for housing starts and sales this year to repeat 2006's cooled-down numbers, economists from the California Building Industry Association said Thursday. The good news for builders: It's unlikely to get worse.

"We don't expect any significant decline unless there's some major economic shock, and we don't anticipate that," CBIA chief economist Alan Nevin said in making the trade group's annual January forecast.

Buyers, he said, should watch for lucrative builder incentives to diminish after the first quarter as firms finish selling off excess stock.

Statewide, home builders will revert to 1990s production levels, starting between 155,000 and 170,000 houses, condos and apartments, Nevin said in a conference call with reporters. The 2004 peak was 213,000, while California's all-time high is 322,018 starts in 1963, according to the CBIA.

In the Sacramento region, where the market saw housing starts "nosedive" from annual highs of 18,000 from 2002-2004 to just 10,000 new houses during 2006, Nevin predicts a modest 2007 recovery. He sees 10,000 to 12,000 starts.

Similar predictions come from Folsom-based home builder consultant Greg Paquin. He expects a repeat of 2006, with builders selling about 9,500 new houses this year in El Dorado, Placer, Sacramento, Sutter, Yolo and Yuba counties. He expects 2008 sales to reach 10,000.

Thursday, Nevin acknowledged he didn't see the depth of 2006's downturn when offering predictions a year ago that in hindsight proved overly sunny. New CBIA Chair Wes Kuesder, a Los Angeles-area builder, said the entire industry guessed wrong about 2006.

"What's unusual about this slowdown is the rapid downswing," he said. "It was different than the others, different than the last 30 years. That was a surprise."

"It was like a memo went out" to buyers to just quit, said CBIA President Robert Rivinius.

Nationally, home builders expect the downturn to continue. The National Association of Home Builders sees 1.256 million housing starts in 2007, compared with 1.476 million last year. The slide will continue into 2008, says NAHB, with 1.379 million housing starts.

To buy ... or sell?

The good news for Sacramento-area sellers is that the number of sales of existing homes may rise slightly this year after a long skid during 2006. That would defy the expected declines in the rest of the state and the nation.

Watch for 21,680 sales this year in El Dorado, Placer, Sacramento and Yolo counties, compared with about 21,000 last year, said Mike Lyon, head of Sacramento-based Lyon Real Estate.

The bad news -- at least for sellers -- is there are still thousands of houses for sale. That's good news for buyers, who now hold the upper hand in dealing.

"We still think there's so much product that prices are going to decline in most areas," Lyon told area real estate industry officials at the close of 2006.

How much is anyone's guess. Lyon said up to 10 percent. Roseville-based real estate agent John Brophy predicted 7 percent to 8 percent declines on a Capitol Public Radio real estate forum this week.

Statewide, the California Association of Realtors expects up to a 2 percent decline in prices in 2007. Nationally, chief economist David Berson of mortgage giant Fannie Mae sees the same.

Lyon said prices are unlikely to rise in the capital region until 2008.

Rates may stay below 7 percent

Expect mortgage rates to remain a bright spot in 2007, say lenders and economists. They predict 30-year fixed-rate loans will stay well below 7 percent.

That means a 2007 rebound for fixed-rate mortgages long out of style, said Heather Fern-Luzzi, Roseville branch manager for Arizona-based First Magnus Financial Corp.

"We're seeing a lot more refinancing because of the low rate," she said. "A lot of people are trying to get out of adjustables."

"We expect rates to remain favorable from an historical perspective," said Frank Destra, a senior vice president for Costa Mesa-based lender ditech.com. "For consumers, now is a great time to explore a variety of refinancing options, such as avoiding potential payment shock by refinancing adjustable-rate mortgages into a variety of fixed-rate solutions."

Rates for 30-year fixed loans ended 2006 at 6.18 percent, according to mortgage giant Freddie Mac, after topping out at 6.8 percent last July. Though high compared with 5.29 percent in June 2003, that's well below 8.05 percent in 2002 or 10.13 percent in 1990.From Bottom, Housing Looks Up: Real Estate Officials Predict Brighter 2007 but Still See Slumping Prices, Construction.

Source: The Sacramento Bee
Publication date: 2007-01-05

By Jim Wasserman, The Sacramento Bee, Calif.

Jan. 5--One prediction seems easy to make as the 2007 real estate season unfolds: It will be difficult to top the sheer intensity and drama of 2006.

Yes, the market remains oversaturated with "For Sale" signs and prices have yet to stabilize. True, some business magazines call the Central Valley an overvalued landscape.

But a chorus of industry officials believes the bottom is near. That's what to watch for in this new year.

Will Sacramento lead the nation out of its residential real estate doldrums? What will prod buyers off the fence? And what will it take to sell your house?

Here, from people in the know in various segments of the industry, is some early speculation about real estate in the Sacramento area, California and the nation in 2007:

Scaling back in the suburbs

Home builders everywhere, and especially in suburban Sacramento, put the brakes on in 2006 and say they will keep their feet on the pedal in 2007.

Watch for housing starts and sales this year to repeat 2006's cooled-down numbers, economists from the California Building Industry Association said Thursday. The good news for builders: It's unlikely to get worse.

"We don't expect any significant decline unless there's some major economic shock, and we don't anticipate that," CBIA chief economist Alan Nevin said in making the trade group's annual January forecast.

Buyers, he said, should watch for lucrative builder incentives to diminish after the first quarter as firms finish selling off excess stock.

Statewide, home builders will revert to 1990s production levels, starting between 155,000 and 170,000 houses, condos and apartments, Nevin said in a conference call with reporters. The 2004 peak was 213,000, while California's all-time high is 322,018 starts in 1963, according to the CBIA.

In the Sacramento region, where the market saw housing starts "nosedive" from annual highs of 18,000 from 2002-2004 to just 10,000 new houses during 2006, Nevin predicts a modest 2007 recovery. He sees 10,000 to 12,000 starts.

Similar predictions come from Folsom-based home builder consultant Greg Paquin. He expects a repeat of 2006, with builders selling about 9,500 new houses this year in El Dorado, Placer, Sacramento, Sutter, Yolo and Yuba counties. He expects 2008 sales to reach 10,000.

Thursday, Nevin acknowledged he didn't see the depth of 2006's downturn when offering predictions a year ago that in hindsight proved overly sunny. New CBIA Chair Wes Kuesder, a Los Angeles-area builder, said the entire industry guessed wrong about 2006.

"What's unusual about this slowdown is the rapid downswing," he said. "It was different than the others, different than the last 30 years. That was a surprise."

"It was like a memo went out" to buyers to just quit, said CBIA President Robert Rivinius.

Nationally, home builders expect the downturn to continue. The National Association of Home Builders sees 1.256 million housing starts in 2007, compared with 1.476 million last year. The slide will continue into 2008, says NAHB, with 1.379 million housing starts.

To buy ... or sell?

The good news for Sacramento-area sellers is that the number of sales of existing homes may rise slightly this year after a long skid during 2006. That would defy the expected declines in the rest of the state and the nation.

Watch for 21,680 sales this year in El Dorado, Placer, Sacramento and Yolo counties, compared with about 21,000 last year, said Mike Lyon, head of Sacramento-based Lyon Real Estate.

The bad news -- at least for sellers -- is there are still thousands of houses for sale. That's good news for buyers, who now hold the upper hand in dealing.

"We still think there's so much product that prices are going to decline in most areas," Lyon told area real estate industry officials at the close of 2006.

How much is anyone's guess. Lyon said up to 10 percent. Roseville-based real estate agent John Brophy predicted 7 percent to 8 percent declines on a Capitol Public Radio real estate forum this week.

Statewide, the California Association of Realtors expects up to a 2 percent decline in prices in 2007. Nationally, chief economist David Berson of mortgage giant Fannie Mae sees the same.

Lyon said prices are unlikely to rise in the capital region until 2008.

Rates may stay below 7 percent

Expect mortgage rates to remain a bright spot in 2007, say lenders and economists. They predict 30-year fixed-rate loans will stay well below 7 percent.

That means a 2007 rebound for fixed-rate mortgages long out of style, said Heather Fern-Luzzi, Roseville branch manager for Arizona-based First Magnus Financial Corp.

"We're seeing a lot more refinancing because of the low rate," she said. "A lot of people are trying to get out of adjustables."

"We expect rates to remain favorable from an historical perspective," said Frank Destra, a senior vice president for Costa Mesa-based lender ditech.com. "For consumers, now is a great time to explore a variety of refinancing options, such as avoiding potential payment shock by refinancing adjustable-rate mortgages into a variety of fixed-rate solutions."

Rates for 30-year fixed loans ended 2006 at 6.18 percent, according to mortgage giant Freddie Mac, after topping out at 6.8 percent last July. Though high compared with 5.29 percent in June 2003, that's well below 8.05 percent in 2002 or 10.13 percent in 1990.

And Did You Notice Business 2.0 Didn't Mention Stanislaus County?

My last post contained a Business 2.0 article about the Central Valley being a bad place to invest in over the next year, and my rebuttal to their article explaining why that was the case in 2006 but not so in 2007.

I found it interesting that Modesto, and Stanislaus County, was not mentioned in the list of poor performers.

The cities/counties that were mentioned were (from north to south): Sacramento/Sacramento, Stockton/San Joaquin, Merced/Merced, Fresno/Madera & Fresno counties, Bakersfield/Kern & Tulare counties. By the way, Modesto is the county seat for Stanislaus County, which is located smack in the middle of the Central Valley between San Joaquin and Merced counties. Interesting that they would mention every Central Valley county with the exception of Stanislaus. Why? Because Stanislaus county and its communities (Modesto, Turlock, Ceres, Oakdale, Riverbank, Salida, Patterson, etc) have come through this downturn much better than their neighbors.

This is because of a few key factors:

1. Stanislaus County's prices didn't shoot up as dramatically as nearby counties. Because they didn't get as inflated (in relation to local incomes) as nearby counties, the downturn also isn't as dramatic.

2. Stanislaus County is more closely tied to Bay Area real estate and economics trends than other counties. Thanks to the I-580 to I-205 to Hwy 120 route that connects commuters directly from the East Bay straight into the Modesto area, with Patterson even closer along the east side of the valley, Bay Area commuters are more likely to choose a home in Stanislaus County when they leave the Bay. This means that a large price differential between real estate values in the Bay compared to the Modesto area will always make this area attractive to this important feeder market.

3. Real prices in Stanislaus County are affordable compared to San Joaquin - Tracy is a nice community in San Joaquin county and is closer to the Bay than Modesto. However, San Joaquin's prices (including both Tracy and Stockton) are a good $50,000-$70,000 higher than Stanislaus County. When push comes to shove, people like the lower prices.

4. Stanislaus County experienced less overbuilding compared to its neighbors - Sacramento had builders all over the place, from Natomas (north of Sac), to West Sacramento, to Elk Grove (south), to Rancho Cordova (southeast), to Folsom/El Dorado hills (southeast), to Roseville/Rocklin/Lincoln (northeast) all loaded with big builders with huge projects. San Joaquin has had overbuilding in Stockton, and Lathrop in particular. Merced has been one huge speculative market because of UC Merced, and low land prices brought tons of new homes and developments into an economically depressed area that can't sustain it. Fresno and Bakersfield I don't know so much about personally, but I assume the same overbuilding has been a large contributer as well. Stanislaus County does have builders with standing inventory in nearly-completed projects, but it is minor compared to its neighbors.

For all these reasons, look for the Modesto area, and Stanislaus County to have a brighter real estate future compared to it's other Central Valley neighbors.

Why Business 2.0 is WRONG about the Central Valley

I read with disappointment the thinly-researched Business 2.0 article about "Where Not to Buy," in which the California Central Valley is named as one of the top regions to avoid over the next year or so. I will first be posting the Business 2.0 article, and then adding the rebuttal I sent to them. I think you'll find that their rationale is quite thin, and most certainly over simplistic. While the facts themselves aren't untrue, the conclusions they point to reflect the story of 2006, not the story of 2007. Here's their article:

Where Not To Buy (at least for the next year or so)
These... cities have run their course, and home prices are expected to drop over the next year.

California Central Valley
Bakersfield, Fresno, Merced, Sacramento, Stockton

Five of the cities on the Bottom 10 list are from this region, making the long rural stretch of Highway 99 between Sacramento and Bakersfield look like a treacherous real estate ditch. Home prices shot up here by as much as 60 percent during the past two years as big homebuilders, squeezed out of the Bay Area and Los Angeles by lack of space, arrived in search of raw land at bargain prices.

Problem is, the Central Valley's base industry (agriculture) creates the lowest-paying jobs, and chronically high unemployment rates persist throughout the region. "A market where housing has increased by so much so fast when unemployment is that high is unsustainable," says Frank Owens, who sits on the board of Fresno's builders association. "This market is going south."

My Rebuttal, Emailed to the Business 2.0 Editor

I am a real estate agent with Prudential California Realty in Turlock, CA--the heart of the Central Valley. It is hard to generalize for an entire area--the area from Sacramento to Bakersfield is a 4.5 hour drive. While some parts will suffer more than others because of "irrational exuberance" during the last couple of years from speculating investors, most of the area is already at or near its bottom. Your forward-looking story is more a report of 2006, where prices dropped 5-12% depending on the community.

However, now that the cat is out of the bag, so to speak, every buyer has been wanting to pay NOT today's price, but wanting to offer the price they think the home will be worth in six months, or whatever price they think reflects the bottom of the market. Because of the ubiquitous nature of housing information in this downcycle compared to previous downcycles (prior to the internet's explosion of real estate and MLS data being made available to the masses, as it is today), the hit in prices has been very sudden. This market will not continue to bleed throughout 2007 as you have predicted. Rather, similar to the stock market and its efficiency due to easily-accessed information, buyers and sellers have already factored in current sentiment. This means that we are already "dancing at the bottom," as Toll Brothers CEO Robert Toll has recently suggested.

In summary, people have already factored in the rest of the the predicted future decline into today's asking and selling prices, which means we're already at the bottom. Therefore, prices will end up being much more stable that your article would suggest.

I invite you to take a look at my blog http://weworkharder.typepad.com which discusses these issues in greater detail. In particular, take a look at the rebuttal to your article about Stockton, CA being the worst market in 2007, at http://weworkharder.typepad.com/blog/2006/12/will_stockton_c.html