Bargain-hunters drive housing market
By Jeff Hudson | Enterprise staff writer | February 18, 2009 08:30
What’s the trend in residential real estate? That depends on where you look.
First, consider the Sacramento region as a whole. The median home price in most neighborhoods tumbled steeply during 2008 - in some locations by 30 percent, or more.
At the same time, the volume of home sales over the Sacramento region picked up dramatically, as first-time home buyers, investors and bargain hunters began scooping up foreclosure bargains in significant numbers. Industry experts say more than 70 percent of the homes being sold in the Sacramento region in the last few months are foreclosures, which are moving at rock-bottom prices. Prices in some parts of Sacramento County have come down so far that you can buy a house for less than you might pay for a luxury car.
‘On Feb. 1, there were 122 single-family homes for sale in Sacramento County priced under $50,000,’ said Doug Arnold, owner of Coldwell Banker Doug Arnold Real Estate. ‘They’re in places like Rio Linda and North Highlands. … With the prices down, and interest rates low, the number of sales in Sacramento just about doubled’ in late 2008, as compared to the preceding year. This same trend was evident over Yolo County as a whole.
‘During the second half of 2007, there were 566 Yolo County homes sold. During the second half of 2009, there were 1,097 homes sold - it almost doubled,’ Arnold said. ‘Of course, most of those homes were in West Sacramento and Woodland - which is where the prices have come down the most.’
Now narrow the focus on Davis, where the figures tell a somewhat different tale. Contrary to the regional trend, ‘the number of Davis homes sold is still slowing down,’ said Herb Cross, vice president of Lyon Real Estate, and manager of Lyon’s offices in Davis, Woodland and West Sacramento. ‘Year over year, since 2005, we’ve seen the number of Davis homes sold slowing down’ for several years in a row.
And while Davis prices have declined, they are generally holding steadier than in most parts of the region. Overall, Davis home prices dipped an average of about 6 percent when 2008 is compared with 2007 - even as much larger declines were seen in many other communities. The median home price in Davis continues to hover in the low $500s - while the median price in many other nearby ZIP codes is in the $200s, and in the case of a few ZIP codes, the $100s.
‘Davis doesn’t have the REO properties that the other communities have,’ Cross said, referring ‘real estate-owned’ properties that have been taken back after a foreclosure. Such homes have driven prices down in West Sacramento and Woodland. ‘Davis doesn’t have that’ to nearly the same degree, Cross said. ‘It’s a supply-and-demand thing.’
Arnold said that while the pace of sales in Davis continues to slow, some buyers ‘are picking Davis because they like the fact that there’s not a lot of homes for sale, not a lot of new homes, no big subdivisions.’
A low inventory of homes for sale in Davis also contributes to the comparative price stability. ‘There’s less than a three-month supply on the market, maybe 110 houses for sale’ at a given time - sometimes less, Arnold said. By contrast, Woodland and West Sacramento have a four- to five-month supply of homes for sale.
Arnold added that when you compare the cost of condos, there’s also a big contrast over the region.
‘The No. 1 unit of a McKeon condo (in northeast Davis) in Davis lists for around $280,000,’ Arnold said. ‘But in the Hillsdale/Madison area of Interstate 80 in Sacramento, I saw one of those units listed for $28,000.’
‘Location, location, location,’ Arnold mused.
Wait? Or move?
Naturally, the economy plays a big role in the decisions made by many buyers and sellers.
‘Mortgage interest rates are pretty good,’ Cross noted. But with home prices still moving downward, many potential buyers are waiting. And many potential sellers are ‘reluctant to put their properties on the market’ until prices start coming back, he added. ‘So we have reluctance on both sides,’ even though interest rates remain favorable, and prices are down.
Some first-time buyers also were waiting to see if there would be a $15,000 incentive in the federal stimulus bill. (As it turned out, that provision was taken out of the bill.)
It’s also difficult to put together financing for properties in the $1 million range. On Feb. 3, DataQuick, a firm that monitors real estate data nationally, reported ‘a bone-dry mortgage market for prestige home financing, as well as a decline in the value of many homes,’ contributing to 42.65 percent decline in the sale of California homes priced over $1 million, comparing 2008 (24,426 homes) against 2007 (42,506 homes).
‘It’s more difficult to get the larger loans. The lenders are much more cautious,’ Cross agreed.
But that doesn’t mean there aren’t any high end homes selling.
‘We recently sold the most expensive home ever in Davis, $2.7 million, in El Macero,’ Arnold said. ‘And we already have a $1 million home in Lake Alhambra Estates that’s pending. Some of them are moving.’
‘Both of those upper-end homes sold for all cash,’ he added.
Arnold said he’s seeing cash deals in other market segments as well. ‘Probably about 10 percent of sales are all cash, which always surprises people,’ he said, adding philosophically, ‘There’s always a group of buyers that have money.’
Cross likewise said he sees ‘a significant number of cash buyers,’ and they’re active in different price segments, high and low.
Kim Eichorn, an agent in Lyon’s Davis office, said she’s seeing interest from families with kids living in nearby communities, who are ’surprised that Davis prices are down to where they are.’ Eichorn said that for these families, the decision to move is ‘kid-driven. They want to get into the Davis schools.’
‘I recommend they get their house in Sacramento (or wherever) sold, and get intermediate housing. I’ve worked with three families like that,’ she said.
Eichorn has also worked with some ‘move-up’ buyers, who are taking their equity from a smaller Davis home, which has declined somewhat in value, and moving that equity into a larger Davis home, which has seen a proportionally larger price drop.
The local market can be highly variable, and some homes can take a long time to sell. Eichorn recently sold a Central Davis home that had been on the market for nine months. The seller dropped the original asking price from $649,000 to less than $529,000.
‘Well-located homes in nice condition continue to sell close to the asking price,’ she said. ‘It’s homes that are challenged - with a bad location, or in poor condition or REO -that’s where you see the drastic price reduction.’
Trends for 2009?
One thing’s for sure - there are very few housing starts anywhere in the Sacramento region, because new homes can’t compete with low-priced foreclosures.
‘Right now, you can’t build new homes for what they’ll sell for. So new construction is almost nonexistent,’ Cross said.
The layoffs being announced at many companies, the talk of pay cuts for teachers and the mandatory furloughs of many state workers undoubtedly will play into some families’ financial calculations.
Many potential buyers continue to play a waiting game, hoping to time the ‘bottom of the market’ - the point at which prices level off, and then begin to rise.
Cross and Arnold said they expect to see some homes that were listed for sale last summer, and then taken off the market in the fall, coming back on the market as sellers test the waters in the new year.
‘There are a lot of people waiting on the sidelines,’ Arnold said. ‘People aren’t in any hurry. But there are people coming to the open houses on the weekend, window shopping. And some of them are pretty serious buyers. They’re just waiting to see what the fallout is from everything.’
Cross said that ‘for the overall trend in prices in Davis, I think we might see a slight decline looking into the year 2009.’
Arnold is more optimistic. ‘I actually think that things are going to get better. I think we’re very close to the bottom. Obama’s getting his act together. And I think the second half of 2009 is going to be good. Interest rates are going to be low, and things are going to start to move again.’