Sacramento, El Dorado, & Placer County Real Estate
Content copyright © 2007-2010. Jay Emerson. All Rights Reserved
Realty Executives
Galster Group
5006 Sunrise Blvd #202
Fair Oaks CA 95628
916-966-8700 office
916-966-8706 fax
DRE Broker #01788488
Galster Group
5006 Sunrise Blvd #202
Fair Oaks CA 95628
916-966-8700 office
916-966-8706 fax
DRE Broker #01788488
No BS Commentary and Market Indicators
We will look back on this time and wish it could have stayed. It is not a free market but it’s better than we’ve had in some time. The media is crying about the drop in sales but that is a National figure. Our local market is not bad but also not free. A free market is one in which a buyer and seller are not forced to make a decision based on factors other than their own. A buyer’s desire for a home and a seller’s desire to sell are the demand and supply forces which SHOULD be the ones that rule. Lately every facet of a real estate transaction has changed with the exception of one: Getting keys to a new home is a happy moment. And if you would love to buy a home, this is truly the best time I can recall. Prices are back on earth, interest rates are unbeatable, sellers are motivated, the selection is great and inspectors need work – who doesn’t?.
So which forces are intruding in the demand-supply equation? HUD wants to have a presence so they are still throwing taxpayer money at quasi-qualified buyers. Appraisers would rather anger everyone than say “I can’t compute the value”. HOAs would rather kill escrows than get a new member for their insolvent associations. Lenders are forced to do strange things because of the unknown rule changes at underwriting. There is a lot of intrusion in this market. This is what I call “corruption”. The free market is corrupted by unnatural forces.
So which forces are intruding in the demand-supply equation? HUD wants to have a presence so they are still throwing taxpayer money at quasi-qualified buyers. Appraisers would rather anger everyone than say “I can’t compute the value”. HOAs would rather kill escrows than get a new member for their insolvent associations. Lenders are forced to do strange things because of the unknown rule changes at underwriting. There is a lot of intrusion in this market. This is what I call “corruption”. The free market is corrupted by unnatural forces.
It remains true that Real Estate is still the most popular asset class to own. It’s the ownership, not selling of real estate that creates wealth. For everyone who says “rent, don’t buy”, there is a landlord who is thankful and a buyer who may never see this opportunity again. Selling and renting were a great play for 2005 through 2009 but now we are skimming across the ground and people are confusing it with the sky that’s not falling.
The major indicators below and the Community data and trends can be used to tell the market story (along with rent information collected quarterly). Use the major indicators for the general story and the zip code indicators to get more granular in your analysis. Any reasonable story about a real estate market has to include more than one item or indicator. My proprietary system tracks 9 key pieces of data that affect or result from the real estate market - only the Interest Rate is not strictly a local item. Each indicator has a history and a momentum. This system is called “No BS Indicators” because figures don’t lie and I don’t twist them into a liar’s story - you build your own story.
My 10th indicator is my favorite because of how it depicts ALL of the monthly median price changes. Called my Swing indicator, it is a summation of all Community price momentum changes. Check it out. Nobody tracks this kind of data at this level FOR FREE!
The major indicators below and the Community data and trends can be used to tell the market story (along with rent information collected quarterly). Use the major indicators for the general story and the zip code indicators to get more granular in your analysis. Any reasonable story about a real estate market has to include more than one item or indicator. My proprietary system tracks 9 key pieces of data that affect or result from the real estate market - only the Interest Rate is not strictly a local item. Each indicator has a history and a momentum. This system is called “No BS Indicators” because figures don’t lie and I don’t twist them into a liar’s story - you build your own story.
My 10th indicator is my favorite because of how it depicts ALL of the monthly median price changes. Called my Swing indicator, it is a summation of all Community price momentum changes. Check it out. Nobody tracks this kind of data at this level FOR FREE!
These charts depict the momentum of changes in the underlying raw data to help forecast direction. These are not a guarantee of future direction but aid in the prediction of cause/affect in the various market forces. No single indicator tells the whole story. Also charted is the raw data itself. For an explanation, call or email Jay Emerson (916-517-9606, Jay@JayEmerson.com). The data is deemed reliable but not guaranteed. Sources include DataQuick, CBIA, Sac MetroList, and other public information.
Indicator #1 - Existing Homes Sold
The momentum of monthly existing home sales in the Sacramento area turned south again. The cycles are still more typical. June volume was relatively high but National statistics are favored by the press because they were negative. It is a little more active but there are a lot of Active Short Contingent listings. Opinion: Look for an August with about the same number of sales. This could be the best time to buy a home for the next 2 years.
Indicator #4 - Notices of Default (NOD)
Sacramento NODs (Notices of Default) showed a slight down-tick this month. A NOD marks the start of a foreclosure action. Banks have been slow to foreclose on many distressed homeowners. Once this process starts, there is a high probability of foreclosure and an REO sale. Auction activity is low which puts the property up for assignment to a Realtor as an REO. Opinion: The number of NODs will increase as will foreclosures and REO listings. State and Federal actions are being taken to increase the amount of forgiveness for defaulting homeowners. This could have an unintended impact on this type of property sale.
Indicator #2 - REOs Sold
The number of bank-owned (REOs) sold is still low relative to the last 2 years but high relative to the rest of history. These are foreclosed properties and generally comprise over 50% of the closed sales. April was the first month since December ‘06 this percentage was less than 40% and that trend continued in May and June with only 35% being REOs. Banks are not foreclosing (see NODs) so they don’t have the product ready for listing. Opinion: Look for REO sales to stay low. But they will keep coming. NODs are a leading indicator to REO sales.
Indicator #5 - New Home Permits
The 2010 tax credit (which is really a “tax offset”) favors newly constructed homes. (I have downtown listings that should qualify – see my 27th Street listings). To sell the standing inventory is the first objective for builders. The incentive is fully funded for the builder half of the incentive. Builders, too, can suffer from foreclosure. Opinion: Population increases, job recoveries, and general aging of homes will require more housing. It only seems we have enough. Pray for the jobs and general recovery.
Indicator #3a - Median Price (SA)
The Sacramento County median price for July merely depicts the seasonal flux of supply and demand. Opinion: This range will continue for the foreseeable future as supply creeps upward and demand goes up a little because school has started. Parents now have some time to shop for a home before the sun starts going down earlier.
Indicator #6 - Mortgage Interest Rate
If you can get a loan in the 4% range, don't miss out. The banks that are lending have changed some rules though. Be prepared for a detailed application and proof of income. Buyers are finding loans at great rates but cash is still king – the more you have, the better your chances. Opinion: Rates will increase over the year although other lending restrictions will corrupt the market making the rate change less important. The cost of funds must rise due to the risks in our Federal paper.
Indicator #3b - Median Price (ED)
The El Dorado County momentum shows a less-pronounced “bottom” and signifies the variation of homes, prices, and supply of comparables. The momentum cannot decide which direction to go. Much of the non-custom side of Serrano is in some stage of distress. I bet the Serrano HOA is feeling the pain. Keep in mind that an HOA can pass this pain on to members. Opinion: This general price will decrease slightly due to the high-end which will experience most of the impact in 2010.
Indicator #7 - Listing Inventory
The Sacramento inventory of homes for sale is still at a reasonable level. This chart is showing both the number of Active listings and those in a status “Active Short Contingent”. This latter status is hopefully a short step from Pending. Buyers and Realtors consider the Contingent listings as unavailable since even a higher offer may never get sent to the seller’s lender. Opinion: Inventory will stay increase and the proportion of Short Sales will decrease as REOs will become a larger percentage of listings.
Indicator #3c - Median Price (PL)
Placer County officials take a little longer to post their median prices so I’m still waiting. In general, Placer has had a slower and smoother decline than El Dorado County but very similar to Sacramento County. Placer County is generally a more resilient region. Opinion: The price here will also decline to the squeeze at the higher end of home prices.
Indicator #8 - Months’ Inventory
This also known as “turn-over” as it equals the number of months required to sell all inventory (at the average Days on Market). The media is yelling “12 months” and that may be true for Gary, Indiana. It is not true for our 3 counties. Opinion: The throughput of inventory will decrease as Short Sales are terminated and become REOs. But then the REOs will go through the process quicker thereby mitigating the impact from foreclosures of Short Sales.
Indicator #3 - Median Price (All)
This chart shows the comparison of the 3 counties. It doesn't include the momentum indicators but it's interesting to see the responsiveness of Sacramento's price changes compared to the other 2 counties.
Indicator #9 - Short Sales Sold
After much waiting, the sellers and buyers of these homes were successful. If you are in this housing market, you have learned to be patient. Banks are not just accompanying buyers. Banks get to hold the strings for the sellers too. Opinion: Short Sales will increase as lenders figure out the process issues and realize they are losing more money if they foreclose. And if there is more mandated forgiveness, it will spur more strategic foreclosures as humans are opportunistic by nature.
Indicator #10 - Momentum Swings
Swing Indicator
31-10-13
This indicator shows the aggregation of momentum “swings” for all zip codes tracked (Communities). The picture can be compared to EKG output. For this last month, 39 zip codes had momentum up-ticks, 7 were unchanged, and 8 had down-ticks. It is seasonal and normal. The sensitivity of the math makes small changes more visible in the Swing chart. Opinion: The up-ticks will retreat to a lower level. This is a cycle that we cannot and should not fight.