Here’s a Short Version of This Article

At least part of the dramatic drop in price that we reported for Sacramento County for first quarter of 2008 is a result of the fact that the cheaper homes are selling better, not the fact that individual homes have fallen as much as the overall average.

Here’s the Long Version

The nice thing about being an surly old bastard is that at some point you begin to care a lot less what people think of you, unless it’s someone with a gun pointed at you, or someone who might make you dinner. 

And so it is that I know that there’ll be those in the Chicken Little Subculture who’ll see this article as an attempt to minimize the bad news coming out of Sacramento County, and I am blissfully indifferent.

Let me be clear:  the real drops in value that we’ve seen in Sacramento County, Placer County, and El Dorado County have been fairly substantial.  Ask anyone who bought a home in 2005 and is selling one in 2008 — that’s not a great position to be in.  Of course, if you bought in 1996 and are selling in 2008, you’re probably kicking yourself for not moving in 2005, but other than that you’re sitting pretty.

So accuse me of minimizing the drops if you want, but I want to re-examine the numbers that came out in my last Sacramento County real estate market update in light of this other update that I did for Placer County.

The Problem With Averages

There’s always a problem when you aggregate data about a population.  On the one hand, you can’t analyze statistical data at all without more than one data point.  But the fact that the average man in America is 5′ 10″ tall (or whatever the average is this year) doesn’t mean that YOU are 5’10″ tall.  This much is obvious.

One of the interesting things I found out in looking at the Placer County numbers was that part of the reason for the roughly 30% price drop in the county was that the places where prices had fallen the most were selling more, so the higher priced homes were underrepresented.  In Lincoln, for example, home prices fell by 35%, and made up a bigger percentage of the total sales Placer County in 2008 than in 2007.  Meantime, Granite Bay, where prices fell only 9.2%, made up 8.8% of the total sales in Placer County in 2007 but only 4.1% of the total in 2008.

Looking at some of the areas we’ve considered in Sacramento County, the same sort of thing appears to be happening.  In Elk Grove, sold price per square foot fell 32.3% from year to year;  volume went up in Elk Grove by 19.8%.  In Folsom, in contrast, sold price per square foot fell more moderately (11.7%); unit volume went down in Folsom by 38.1%.

So what we’re seeing in Sacramento County is the same sort of thing I talked about in Placer County.  Prices have fallen dramatically, but only part of that drama comes from actual drops in the value of individual houses, and the rest is made up of the fact that the homes that have fallen more dramatically are selling better than those where the value has held on better.

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