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07 Jan

Sacramento County Real Estate – 2007 Year In Review

Posted January 7th, 2008 | View Comments

Well, those of you who are active fans of blogs of all kinds will no doubt find this 2007 Year in Review piece to be about a week late, since by now we’ve already had the “Gazillion Great Blogging Tips of 2007″, “101 Ways to Snip Your Schnauzer”, and gosh knows what other tremendous trips down memory lane.

As for me, I’ve been waiting for the December results to get posted to the MLS so I could have a good idea about what December looked like before beginning to take a look at the numbers.

In 2006, we began to see some price declines from the year before. Interestingly, because the rise in prices was so dramatic for the first half of 2005, and the drop in prices were fairly modest early on, by 2006 homes in Sacramento County had only lost 1% of their median value from 2005, and had actually gained 1.4% in average selling price. Though Land Park, East Sac, and Midtown are exceptions to the rule, the overall trend in Sacramento County in 2007 has been a year of steady decline in prices, and there was no offsetting increase in value in 2006.

In 2006, the average home in Sacramento County sold for $395,238, or $238.10 per square foot. In 2007, the average home sold for $357,851, or $211.12 per square foot. Thus the average price fell by 9.5%, and since this year’s crop was slightly larger on average, the average sold price per square foot drop came in for the whole year at 11.7%. The median price fell 9.3% from 2006 to 2007. In 2006, the median selling price of a home in Sacramento County was $395,238, and that number fell to $357,851 in 2007.

The Year of the Foreclosure

Toward the end of the year, as more and more homes went into foreclosure and there were fewer buyers taking advantage of falling prices, the pace of the decline accelerated as inventory rose. Currently, for example, there are approximately 10.41 months of inventory, whereas by year’s end in 2006 there were only 7.4 months.

Overall for 2006-2007, the number of sold foreclosures rose from less than 1% of all sales for all of 2006 to 20.9% of all sales for all of 2007. That number was significantly higher by the end of the year however, with 47.2% of all sales in December of 2007 versus 2.8% in December of 2008 being REO sales. Short sales continued to sell somewhat poorly, and even in December of 2007 only 4.6% of closed transactions were short sales. Nevertheless, the presence of these short sales in inventory should not be underestimated as a factor in bringing overall prices down. Currently some 55.7% of all active inventory is either a short sale (29.2%) or a bank owned property (26.5%).

As a result, price declines were more dramatic later in the year. For example, the overall year-wide sold price per square foot dropped 11.7%. But if we compare December to December we come up with a more grim 21.8% drop, from $223.84 in December of 2006 to $175.03 on average in December of 2007.

So Where Are We Now?

On the supply side of the equation, I believe we still have a way to go before we’re out of the woods. We have reached a point where short sales and foreclosures account for just over half of all active inventory in Sacramento County, as well as half of all sales.

On the demand side, it appears that for the short term at least we have turned a bit of a corner. I was pretty discouraged in September when we hit a low unit volume of only 709 units county-wide, but since then we’ve been slowly but steadily increasing month by month — which is especially encouraging given the fact that on a strictly seasonal basis, you’d expect December to be worse. 866 units sold in December. This is still not great by last year’s standards, but it suggests that some buyers are finally starting to take advantage of the low prices and still-high inventory.

If this upward trend in demand continues, we could hit equilibrium on prices sooner than expected.

As I mentioned recently, the biggest surprise of all is that interest rates have stayed as low as it has through all of this. Whether we continue to see that as gas prices rise and a new administration is elected in 2008 remains to be seen.

  • http://exurbannation.blogspot.com Robert Coté

    ‘some buyers are finally starting to take advantage of the low prices and still-low inventory.’

    Minor typo, should read:

    some buyers are finally starting to take advantage of the low prices and still-high inventory.

  • http://www.sacramento-home.com/real-estate-agents/ John Lockwood

    Thanks, I fixed it.

  • jp

    John,
    This is a topic that came up at other sites:
    - Foreclosures that go back to the lender are recorded as sales.

    If this is true, Oct-Nov-Dec sales could be down much further than you think. It would also have the effect of increasing perceived “sales price”, artificially inflating the already depressed median price. Might be worth mentioning either way. I was surprised when I read this, thinking it couldn’t possibly be true.

  • http://www.sacramento-home.com/real-estate-agents/ John Lockwood

    JP -

    I think your first instinct that this is incorrect sounds right to me.

    I’m not sure what that other site was talking about — perhaps some accounting issue on the lender side — but as far as MLS data is concerned, a short sale that ends up bank owned would typically be reported as either “Withdrawn / cancelled” or “Expired”, then probably be relisted as an REO listing as an “Active” listing.

    I would expect the numbers for sales in MLS to pretty accurately relfect what’s really sold through MLS. I just got done a review of the properties Elite Properties sold in 2007 for example, and the data was quite good (including the number of sales we correctly got credit for — which was why I was checking on it).

    Thanks for the comment.

  • http://exurbannation.blogspot.com Robert Coté

    DQnews in Feb republished their “sales” methodology. Indeed their sales are County recordings of title transfers and thus do include REOs and deed in lieu transfers. It thus also includes estate and trust stuff. I am not sufficiently knowledgable to say if this influnces the MLS dataset. It does most definitely change the numbers in the newspapers that use DQ.

  • http://www.sacramento-home.com/real-estate-agents/ John Lockwood

    Robert,

    Thanks for the clarification. Yes, that would definitely be a problem with the DataQuick data.

    MLS sales would be independent of that. When a sale is reported in the MLS, it’s because the sale has been recorded with the county, of course, but it’s reported in the MLS directly by the listing broker changing the status of the listing — it’s not fed by the county recorder data as Dataquick’s is.

    It sounds like Dataquick definitely has some limitations in recording all deed transfers as sales. I wonder if this also picks up things like quitclam and interspousal transfers.

    To give them their due, one area where DataQuick surpasses MLS data would be in the fact that it includes those homes that aren’t sold through the MLS — for sale by owner homes and some (not all) new home sales.

  • http://exurbannation.blogspot.com Robert Coté

    Exactly. It is important to understand that not all data is equal even when different reports use the same words. How many MLS “withdrawn” listings are ultimately sold outside the system as REOs or already REOs that are being transfered? Not a lot but the careful student will consider their impact in slow months with low volume. Heck, I wouldn’t be surprised to find that there are “lazy” agents who don’t report REO sales to the MLS because they get so little in the deal. Why bother? I’m of the opinion that we should look at this like a skating competition; throw out the high and low scores and average the remainder.

  • http://www.sacramento-home.com/real-estate-agents/ John Lockwood

    I absolutely agree with you that all data is not equal, and it’s good to be sensitive to what the limitations are. Even using the same MLS database, Purva and I routinely write divergent market updates because she typically bases her articles on single family homes, whereas I use all residential (which includes condos, halfplexes etc).

    On the issue of what the gray areas in the data show, I prefer to report the MLS data as is, and I’m agnostic on the data I don’t have. Sure, one can speculate on the number of REOs sold outside the system. But you could just as well speculate on how non-MLS new home sales and FSBOs are causing the ratios to overrepresent the number of distressed sales.

    It seems to me that even for those who like the sky best when it’s shown to be falling, as I’ve shown above, distressed sales are already above 50% for both active inventory and December sales (in Sacramento County — Placer and El Dorado are doing better). Countrywide is trading at less than $5.00 a share or less today on rumors of bankruptcy. There’s enough real trouble to report on without making more up.

    I do disagree strongly on one point — I would be very surprised if agents and brokers didn’t report their sales. Agents and their brokers like to see their production reported — it’s the basis for achievement awards at company and board levels, for example. Sales get reported just fine on mobile homes and land, where the numbers are lower than on REOs. Changing the status to justly give yourself credit for a transaction is a heck of a lot easier than the 152 other hoops we have to jump through to get one to close in the first place.

    Sure, MLS data isn’t perfect. But speaking as someone who’s spent time using it and the county tax roll data, it ain’t half bad.

    I do appreciate you chiming in to make me aware of the DataQuick issues. I’ve often thought of subscribing to some of their data just to be a more well rounded pundit, but the MLS is something I have to pay for anyway, so that’s why I tend to stick with that data.

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