Sacramento Real Estate Blog

The other day I got an email from a colleague, Rebekah Schroeder, who has a nice blog about real estate in Truckee that she launched this year.  I went over and checked it out.  Her blog features a lot of market data for Truckee and a lot of the surrounding ski resort communities, but one of the articles that caught my eye was one that was more general in nature, about Jim Weichert calling the bottom in real estate.

Weichert’s article got a lot of airplay, including one astute reader who observed that his prediction of a market turnaround in 2008 was nothing less than boldly going where he’d already gone last year. 

I’m always a bit uncomfortable with market predictions, unlike my alter-ego, Johnstradamus, for whom predicting the exact hour of the market’s turnaround is child’s play.  There are several problems with such predictions.

• Nobody knows when “the market” is going to hit the bottom.
• There is no “the market”.  Weichert’s press release waffles on this somewhat.  “Weichert acknowledges that the recovery will happen at slightly different times and at different rates throughout the country because real estate remains a local business.”  If you’re going to make a substantive claim that the market’s on the rise, you should say which one is on the rise.  Empire Ranch?  Folsom?  Sacramento County?  Otherwise you’re just talking through your hat.  (Which is fine in one respect, I suppose, since it lets you talk through your hat again and again!).
• In Sacramento County at least, there are plenty of buyers out now, though we’re not at the bottom.  I’ve been writing about this for several months.  Sacramento County’s year on year demand has gone up for the past five months in a row.  With about 95% of last July’s volume already sold by now (July 21st), it’s a pretty safe bet that July will make six months in a row — though I think July’s unit volume will be down from June.  There’s already huge competition going on for foreclosures.  It certainly doesn’t strike me that I need to be boldly predicting the bottom to get buyers, since the buyers who are creating the bottom are already there to work with.
• Prices have not yet responded to increased buyer demand, and nobody but Johnstradamus knows just when they will, but I can almost guarantee it will be a surprise.  Currently 68.4% of the homes that have sold in July so far have been bank foreclosures.  69% of current inventory is either a short sale or foreclosure.  In order to continue to move their inventory quickly, I believe that banks will continue to cut their prices.  If the last year was any guide, they’ll be especially aggressive about this in the winter months.  However last year the demand was awful to begin with, so how much this year will be a repeat of last year’s cuts is anyone’s guess.
• Two $64,000 questions are as follows:

• How much will the money supply tighten?  So far this happened later and less than I expected.
• At what point will cash investors start to rush into the foreclosure market?  So far it seems to me that much of the early recovery has been fueled by people who will owner-occupy.

I believe you should no more try to time the bottom (though I’m sure a lot of people will) than you should have bought based on appreciation back in 2004 (though a lot of people did).  More important in either case is your own situation relative to what you’re buying, but then it boils down to sound individual decision-making, and what fun is talking about that?