Sacramento Real Estate Blog

I’ve been writing a lot here about how demand for homes is up substantially from last year in Sacramento County, especially in the areas where there the large numbers of foreclosures have caused the biggest price declines.  Watching the demand start to pick up is fairly exciting, but as I’ve written, prices have not yet caught up.  Moreover, just looking at demand is not enough to understand where things are heading in the future.  To get a better understanding of when we might expect to see a recovery, we’d need to understand several other important factors:

• Is the supply continuing to grow?  Are more homes being foreclosed on?  Do we see any sign that this part of the equation is turning the corner?
• Granted that the demand for homes — especially foreclosed homes — has increased dramatically.  But has it increased enough to significantly outpace supply?  In other words, it’s no help to say 100 people bought foreclosures if at the same time 200 new foreclosures were listed. 

Because of the way the Metrolist database works, it’s easier to look at homes that have sold than it is to follow all the homes that have listed to see what became of them.  However, it’s possible to get a rough idea.

The table below shows in an approximate way the number of short sales and bank foreclosures that were listed since the beginning of 2007, for Sacramento County only.  I say “in an approximate way” because this data includes only those properties that sold or are still active — those that were withdrawn from the MLS or expired are not represented.

Since we’re in July, the numbers for July are projected.  As you can see, during May and June it looked like we’d turned the corner and had started to see a decline in foreclosures, but the number of foreclosures and short sales picked up again in July.  So the answer to our first question above is that it looks like supply is continuing to increase.  (Having said that, I’m encouraged somewhat by the dip in short sales in July compared to June — short sales are the “leading indicator” here, while foreclosures are the trailing indicator).
 

The answer to our second question appears to be that we’ve already reached a point where demand for foreclosures is outstripping supply.  Looking at a recent snapshot of the period July 9 - July 16th, for example, 314 foreclosures sold through the MLS while 288 more were listed. 

This optimistic figure breaks down somewhat if we include Short Sales, where 223 properties were listed to 33 sold.

Still, there are good reasons to focus on the absorption rate of foreclosures.  First, there are many difficulties with getting short sales approved.  Moreover, sometimes today’s short sale listings are actually tomorrow’s foreclosure listings, and at other times the seller goes on to cure the default, and we have no statistics about that. 

What we need above all for the market to turn around is to see demand for the end result of the process — the REO — to continue to stay strong, while we see the number for short sales go down.  I for one will be keeping my eye on that 716 short sales projected for July, to see what the actual number turns out to be and what it looks like for August and into the future. 

Sacramento’s Natomas area — which consists of the areas 95833, 95844, 95835, 95836, and 95837 — is one area that’s experienced a large number of foreclosures, and where as a result, prices have fallen hard and buyer interest is now very high.  “On paper”, from June of 2007 to June of 2008, prices in the Natomas area fell only slightly more than in Sacramento County as a whole, losing 34.% on a sold price per square foot basis, versus a county-wide 33.4%.  However, as we’ve written about before, county-wide price drops tend to be somewhat inflated because lower priced areas are over-represented.  So when you discuss a smaller area like Natomas, these large double digit price drops are more meaningful than they are over the whole county.

Therefore it’s not surprising that even though the paper difference in price drop is small, the unit volume boost in Natomas has been great even by Sacramento County standards.  Eighty-eight homes sold in Natomas in June of 2007, whereas 203 homes sold in June of 2008, an increase of 130.7%!

The average home sold in Natomas in June for $251,122, down 35.4% from last year’s average of $386,666.   With the bargains to be had, there is some degree of competition taking place.  Buyers paid an average of 99.26% of the list price for their Natomas home in June, and almost half the homes that sold (42.9%), sold for a selling price that was higher than the list price.

Some more statistics for Natomas are below.

Natomas Real Estate Unit Volume Data

Natomas Price Data

Residential Inventory (Based on 12 months of prior sales)

Residential Inventory (Based on 6 months of prior sales)

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?

Sacramento’s Arden / Arcade Creek area consists of the zip codes 95821, 95825, 95841, and 958864.  Although this area has certainly been hit hard by the downturn, Arden / Arcade Creek has fewer foreclosures than the countywide average, and thus has experienced a less dramatic price decline.  As we’ve seen in most areas we’ve studied, the flip side of that fact is that Arden / Arcade has seen a more moderate recovery in unit volume. 

Getting into the specifics, the average home sold in Arden / Arcade Creek for $287,475 in June, down 28.1% from last year’s average of $399,847.  On a sold price per square foot basis, prices fell less sharply (21.3%), and averaging $195.77 in June of 2008.  Bank foreclosures currently make up 22.8% of active inventory, but accounted for 48.6% of all sales in June.  Short sales, which make up 27.3% of inventory, accounted for only 3.8% of June sales.  Non-distressed sales made up 47.6% of sales in June, and comprise 49.9% of inventory.

The twelve month running average for sales in Arden / Arcade Creek is 64 homes per month.  June is usually a heavy sales month.  105 homes sold this month, up 16.7% from last June’s sales.  There are 6.8 months of inventory in Arden / Arcade Creek.

Unit Volume Data

Price Data

Inventory (Based on 12 months of prior sales)

Inventory (Based on 6 months of prior sales)

In May we were able to report — based on inventory at least — that Folsom had entered seller’s market territory, with inventory of only about four months of non-distressed sales, and 3.8 months overall.  This month’s inventory is up somewhat but still healthy, at 5.1 months for non-distressed sales and 4.9 months overall.  Eighty homes sold in Folsom in June, one unit more than during the same time last year.

This June, the average home sold in Folsom for $415,797, 19.6% less than last year’s average of $517,470.  Sold price per square foot fell 16.4% during this time, from $237.09 in June of 2007 to $198.30 in June of 2008. 

Non-distressed sales accounted for 58.8% of all sales in Folsom in June.  Bank owned properties accounted for 28.7% of sales, with short sales bringing up the rear at 12.5%.

Unit Volume Data

Price Data

Inventory (Based on 12 months of prior sales)

Inventory (Based on 6 months of prior sales)

Traditional real estate wisdom (or possibly, “myth”)  has it that condos are the first properties to fall when the market turns down, and the last to rise when the market turns up.  I’m not sure about that, but I thought it would be interesting to take a brief look at how condos are doing compared to single family homes in the recent unit volume recovery we’ve been seeing. 

In case you came in late and haven’t had a chance to yell at me for saying this yet, for the last five months in a row, unit sales have been higher in Sacramento County than the month before and higher than the previous year.  In June, for example, 2022 homes sold county wide, up 86.2% from last year.

Of all the “property subtypes” (as they’re called), single family homes is the one that has experienced the most growth, with unit sales increasing 92.4% in that category from June to June.  By comparison, Year on Year increase for sales of condos has been sluggish, at only 28.91%.  This June 107 condos sold, versus 83 last June.

Another way to say this is that as prices fall, sales of all categories of homes have increased to some extent, except those categories that are so small that it’s impossible to get statistically significant results.  But the big winner in the unit sales recovery of 2007-2008 has been single family homes.

It’s easy to get hate mail in real estate.  Being in the business is often sufficient cause in itself, though perhaps not necessary cause.

Every few days I sit down at my desk and have to get past some anonymous hate mail.  If I write anything positive, I’m bound to get some.  I try not to read it — I can usually tell by glancing at it that it’s hate mail, then delete it.  But the substance gets through.  Your mind is full of hate, and you sent some mail.  I get it.

Irrational Hatred

Like most hate mail, you won’t find much rational thought behind it.  It’s just that lately, people feel they need someone to hate, because home values went up quickly, then went down quickly.  Realtors® are a handy object of hatred in this case.

One of the irrational charges that gets leveled seems to be that we don’t spread enough doom and gloom.  The argument seems to be that people have been terribly hurt by the drop in prices, and that we should therefore talk about the negatives in the market to the exclusion of all else.  The irrationality in this is multi-fold. 

Implicit in my hate mail is the idea that the real estate downturn is precarious enough that we need to exclude part of the data.  My own feeling is that if you’re going to make a case for something, you should publish the data as it is and see if that dog of yours can wag its tail rather than the reverse.

As an example, I publish frequent market updates, including a monthly one for Sacramento County.  As part of this, I generally publish the year-on-year loss in price per square foot.  In Sacramento County, for example, that figure is currently running about 35% for a single year.  I publish those numbers if that’s what the numbers are, and if unit volume goes up dramatically in response (an uncontroversial expectation for most people given the demand curve) I publish that too.  So, for example, for June 2007 to June 2008 for Sac County — given the data in Metrolist as of today –average sold price per square foot is down 35.1%, and unit volume is up 86.1%.

If I stuck to publishing the 35.1% decrease, I could probably cut down slightly on my hate mail, but the 35.1% decrease in value is just as real as the 86.1% increase in volume.

Those who focus on the negative to the exclusion of all else feed the very phenomenon that they’re blaming their opponents for.  Such people frequently advise people to wait until the market recovers to buy, for example.  Of course, if no one bought until the market were “recovered”, there’d be no buyers to cause the recovery.  We would somehow skip ahead to an instantaneous recovery where declining prices did not first lead to increased demand, and then the market would somehow behave in an orderly fashion that was not wracked by turns by greed and fear.

But yet the market does what it’s going to do, and so far it hasn’t seen fit to behave according to any particular agenda.

My High School Friend

I had a friend in high school whose blog I bumped into online here recently.  When I left a comment there to say hello, her first comment back said, “So, what have you been up to [i.e., in the last twenty-plus years]?  Oh, real estate.  I hate Realtors®.”

Now it wasn’t like I poked this gal in the eye with a sharp stick when we were in high school, and if I did, the stick apparently wasn’t much of a big deal to her.  What mattered was that I was a Realtor®, and she hated Realtors®.

“Irrational hatred” is redundant, isn’t it?

This Other Guy

One of my hate mail senders recently submitted a contact form not less than nine or ten times, each time with the same message, that I was wasting his time. 

I absolve myself of that.  Anyone with time to read blogs they don’t like and to send ten emails in a row with the same message have a pretty low bar set when it comes to personal time management, it seems to me.

No Free Lunch

I think if you scratch beneath the surface, people are really mad at Realtors® because they see us as somehow responsible for the fact that their free lunch is gone. 

You remember free lunch:  buy a home you can’t really afford using an Option ARM, because you can afford the minimum payment, counting on the free lunch of the increase in home values to bail you out later.

I’m not sure if more people are mad at us today because they think 1) we aggressively sold the free lunch, or because 2) now that it’s gone we’re still serving lunch anyway to those people who want lunch until the free lunch returns.

Someone recently made the comment that Californians have this tendency to think that God ordained rising home values as their birthright.

You may quote Blood Sweat and Tears or Sir Isaac Newton for “What comes up, must come down”, according to taste.

Where I’d Like To Leave This

One of the teachers I take to be important in my spiritual life once said that “Even if bandits should cut you in half with a two handed saw, if you think of them with a mind of hate, you’re not following my teaching.”  

With that in mind, but realizing that I’m not advanced enough to always respond skillfully, where am I leaving this?  I certainly don’t want to spend a lot of time on my hate mail, either being upset by it or responding to it.  Every so often if it gets bad, I may acknowledge it as I’m doing now, but those of you who are sending it probably shouldn’t hold out too much hope that I’ll begin reading it through word by word without glancing and deleting it, or that I’ll start publishing it or responding in any regular and systematic way.  (And by the way, if it’s for Purva, she probably won’t see it).

My main goal in all of this is not to treat hate mail as an invitation to join in.  I have sympathy for those for whom the real estate market is important enough to invest huge amounts of psychological energy.  I’m tempted sometimes to go there myself, since obviously my income isn’t as good in recent years as it was at the peak.  But praise and blame are ultimately just vicissitudes, and though they may make up the heart of most blogs, I find them to be a bit distracting.

Sacramento’s Rosemont area (95826 and 95827) is an area that’s priced well compared to Sacramento County’s overall average.  The average home in Rosemont sold for $139.48 per square foot in June, down 31.4% from last June’s average of $203.44.  (Sacramento County’s overall average price per square foot is $145.77, down 33.4% from last year).  The average home sold for $197,254 in June in Rosemont, down 30% from last year’s average of $281,760.

Unit volume in Rosemont has increased 37.8% from June of 2007 to June of 2008.  Bank foreclosures made up 62.9% of all sales in Rosemont in June, compared to 24.4% a year ago.

Inventory in Rosemont is currently lower than the greater Sacramento average, with 6.1 months of active inventory based on the sales for the last year.  If you look at the absorption rate for the last six months, however, then our inventory number is even lower, at 5.3 months.

Fair Oaks is a beautiful, established community in Sacramento, commanding higher than average prices.  The foreclosure rate here, though not trivial, is lower than the Sacramento County average.  As a result, though prices have taken less of a dive here than elsewhere in Sacramento County, inventory is somewhat high.

This June, the average home sold in Fair Oaks for $187.93 per square foot, down 18.6% from the average of $230.91 in June of 2006.  The average home that sold in Fair Oaks in June listed for $345,991, and sold for $335,736.  The selling price average was down 19.7% from last year’s $418,091.

Though the county-wide combined average for the sale of short sales and foreclosures was 75% in June, in Fair Oaks that figure was only 57.6% (45.5% REOs and 12.1% Short Sales).

With prices falling less dramatically in Fair Oaks, inventory is somewhat higher than average at 7.4 months.

I generally write my first real estate market update of the month on the fourth, since our MLS, Metrolist, gives us three days to enter any sales results.  So by the fourth the data is usually about as good as it’s going to get.

However, I don’t want to be in the position of writing a market update on Fourth of July.  I may have no life, but I know where to draw the line so that I at least look like I have one!

Unit Volume Continues Strong

Of course there’s the usual bad news about prices and the high foreclosure rate in Sacramento County.  We’ll get to that in a minute.  On the plus side, unit volume continued its rally.  Unit volume was not only a smidgeon higher than May’s (with 1900 units sold reported to date for June, versus 1879 for May).  Year on year, however, unit volume is up 75% from last June’s figure of 1086 units.  So June was the fifth month in a row where unit volume was up compared to both the year before and the month before.

Prices Down Substantially

Two thirds of the homes that sold in Sacramento County in June were bank foreclosures.  With another 8.4% of June’s sales being short sales, distressed sales accounted for 75% of the total sales in June.  Not surprisingly with this many foreclosures on the market, prices have been dropping quickly. Homes lost a third (33.3%) of their sold  price per square foot value from June to June, going from $218.98 in June of 2007 to 146.07 in June of 2008.  The average home sold for $237,900 in June of 2008, down 35.8% from last June’s value of $370,787.

Strong Competition for Better Priced Homes

With foreclosures priced as low as they are, competition for individual properties is fierce.  Most of the successful offers I’ve seen come through lately have been over full price, and the average discount on bank foreclosures is growing more razor thin each time I look at it.  In June the average bank owned property sold for 99.93% of list price, meaning there was less than $150.00 difference between the asking price and the offered price.   (Note, however, that price alone does not include any concessions such as having the seller pay buyer’s closing costs). 

As usual, foreclosures account for the bulk of the sales, with non-distressed sales in second and short sales a poor third.  Making up only 28% of the active listings, foreclosures accounted for 66.6% of sales in June.  In contrast, short sales currently make up 40.3% of the listings, but only accounted for 8.4% of the closed sales in June.  Non distressed sales account for 31.8% of the active listings, and 25% of June sales.

The report below shows foreclosure sales for the past two months for the Greater Sacramento area, broken down by zip code.   To see how things are changing, compare to the June 16th Foreclosure Report.

Sacramento County

Placer County

El Dorado County

Like many established neighborhoods, Sacramento’s Pocket Area is a one that has been less hard hit by foreclosures than other areas in Sacramento County.  As a result, price declines have been moderate in this area, but we’ve yet to see a recovery from last year’s sales numbers in terms of the number of units sold.

This year’s average home in the Pocket area fetched $352,207, down 12.8% from last year’s average of $403,729.  Sold price per square foot fell just slightly more, 14.2%, from $231.39 in May of 2007 to $198.47 in May of 2008.  While short sales and foreclosures comprised 72% of sales overall in Sacramento County, in the pocket area these sales made up only 43% of sales.  Unlike the rest of the county, where unit volume rose more than 70% in May, in the Pocket area unit volume fell by 36% from May to May, with 33 units selling last May compared to only 21 this May.  Nevertheless, active inventory in the Pocket area is currently low at 4.4 months, compared to 8.3 months overall for Sacramento County.

Several months ago the East Sacramento (95819) market was holding its own quite nicely compared to the rest of Sacramento County.  In April and May, however, East Sac started to take a share in some of the depressing news, with prices falling and inventory rising to almost the six month mark.

The average home sold in East Sac in May for $299.79 per square foot, down 16.3% from last year’s average of $358.29.  The average sale price fell less sharply, 6.1%, from $488,908 in May of 2007 to $458,834 in May of 2008.

In both years, total distressed sales (REOs plus short sales) were one sale — less than 10% of the total.

Unit volume is down this year 38.5% in East Sac, from 26 units last May to 16 units in May of 2008.  Inventory has been creeping up, but is still fairly low at only 5.8 months.

Sales picked up somewhat in the Rosemont area of Sacramento in May.  Fifty units sold in this area, up 19% from last year’s unit volume of 42 units.  On a sold price per square foot basis, homes lost 25% of their value from May to May, with the average home fetching $204.55 in May of 2007 versus $153.38 in May of 2008.

This year’s average home sold for $205,083, down 31% from last year’s average of $296,469.  Of the fifty homes that sold in the Rosemont area in May, 21 of them (42%) were non-distressed, 14% were short sales, and 44% were bank foreclosures.

Compared to Sacramento County as a whole, Rosemont experienced less sharp price declines and a lower rate of foreclosures.  Also, Rosemont currently has 6.5 months of inventory, compared to a county-wide average of 8.3 months.

Our Market Data summary for Rosemont (95826, 95827) for May is below:

Unit Volume Data

Price Data

Inventory

The area made up of North Sacramento and Del Paso Heights (95815 and 95838) is an one that has been clobbered hard by the market downturn.  Homes in these areas have lost about a half of their value in a single year, with foreclosures making up almost all the sales.

The flip side of that?  Buyers are seeing bargains, bargains, bargains, pushing unit volume up to more than twice last year’s figure.

This May’s average sold price per square foot of $99.77 in North Sacramento / Del Paso Heights is down 48.9% from last year’s average of $195.40.  The average sale price has fallen 55.9% during this time, from $271,082 in May of 2007 to $119,104 in May of 2008.

Unit volume has cranked up dramatically in May, with 97 units selling this may versus 40 last may, an increase of 142%.  However, this development is too recent to make a serious dent in the inventory.  With only 44 units per month selling over the last year, inventory is currently very high at 13.3 months.

This market update covers the zip codes 95841, 95821, 95864, and 95825.  This area saw much fewer foreclosures than the Sacramento County average, yet still experienced steep price drops.  94 units sold in Arden Arcade in 2008, up 10.6% from last year’s volume of 85 units.  37.2% of this year’s crop were REOs, 6.4% were short sales, and 56.4% were non-distressed — comparing favorably to Sacramento County, where only 28.6% of the properties sold were non-distressed.

The average home sold in Arden / Arcade Creek for $299,109 in May, down 32.3% from last year’s average of $422,108.  Sold price per square foot fell 27.9% over the period, from $246.71 in May of 2007 to $177.90 in May of 2008.

Inventory in Arden/Arcade is slightly better than the county-wide average, at 7.5 months.

Homes in Sacramento’s Northern Land Park / Curtis Park area (95818) enjoyed a fairly high price tag of $311.37 per square foot, down only 5.6% from last year’s average of $329.82. With this year’s buyers also picking off the smaller homes, however, the average sold price drop appeared more dramatic. Last May’s average home in 95818 sold for $547,833, while this May the average was $385,126, a 29.7% drop.

With price per square foot still above $300, this area also enjoys a high rate of non-distressed sales 73.7%. Unit volume this year is down about 10%, from 21 units last May to 19 this May. However, inventory is still low in this area at 3.8 months.

The Natomas area of Sacramento encompasses 95833, 95844, 95835, 95836 and 95837.  This is an area of Sacramento that has seen a dramatic rise in the number of foreclosures over the last year, with correspondingly steep price drops.  As a result, demand is now quite strong in Natomas.

This year the average home sold in Natomas for 272,810, down 29.8% from last year’s average of $388,821.  Sold price per square foot fell 29%, from $201.59 in May of 2007 to $143.08 in May of 2008.  In May of 2007, only 15.4% of the homes sold were either short sales or foreclosures.  By May of 2008, that number had risen to 79%.  As a result, unit volume more than doubled during this period, from 65 units in May of 2007 to 138 units in May of 2008.

Even with all that activity, however, there remain 8.4 months of inventory in Natomas.  Another strong month or two could easily put a dent in that, however.

The tables below have the numbers for May 2007 and May 2008 and the change during this period.

Unit Volume Data

Price Data

Inventory

This is a summary of the real estate market for Downtown Sacramento, 95814 and 95816. 

This is also a good time to make the following three points:

Real estate is local.

Real estate is local.

Real estate is local.

Yes, all over Sacramento County, foreclosures made up more than 60% of the sales this May, up from only 15.8% last May.

In downtown, however, a total of 1 foreclosure sold in May.  That’s one less than last year’s 2 foreclosures, with no short sales either year, so foreclosures are down 50%, downtown.  Eighteen homes sold overall — no short sales, so non-distressed sales made up 94.4% of all sales.

Overall in Sacramento County, prices fell like a rock.

Downtown, from May to May, the average sold price rose 9%, from $472,170 in May of 2007, to $514,753 in May of 2008.  The average sold price per square foot rose 8.5%, from $325.44 in May of 2007 to $353.26 in May of 2008.

As healthy as downtown is, however, in terms of price and the low number of foreclosures, you can’t exactly call the downtown market a seller’s market.  Inventory amounts to 8.1 months, and this year’s unit volume is down 10% over last year’s.  Still, with rising prices and low foreclosures, the makings of a very strong market are there, even if some of the indicators point the other way.

One of Sacramento County’s pricier areas, Fair Oaks, has experienced less price change than other areas in Sacramento County, and — perhaps partly as a result — did not witness a resurgence in buyer demand this year as most areas did.  Homes in Fair Oaks lost “only” 16.9% of their value — as compared to 34.4% county-wide.  Yet unlike Sacramento County as a whole, where sales are up 74.7% from May to May, in Fair Oaks, sales are down in May by 27.5%.  Last May 40 units sold in Fair Oaks, versus only 29 this year.

So we have prices holding up well and weak demand.  Those of you who are avid readers can probably already predict that foreclosures make up a lower proportion of sales in Fair Oaks than elsewhere.  In Fair Oaks, 31% of sales in May were bank foreclosures, 6.9% were short sales, and 62.1% were non-distressed.  This is almost a mirror image opposite of Sacramento County as a whole — where 64.2% of sales are bank foreclosures, 7.2% are short sales, and non-distressed sales make up only 28.6% of all sales.

This year the average home in Fair Oaks sold for $399,362, or $189.64 per square foot.  There are currently 7.3 months of inventory, somewhat less than for Sacramento County as a whole.

In May of 2008, the average home sold in Citrus Heights for $202,869, down 30.3% from May of 2007’s average selling price of $290,931.  Sold price per square foot fell somewhat less sharply, 25.3%, from $204.81 in May of 2007 to $153.01 in May of 2008.

With average prices poised to drop below $200,000 (though remember this is for all residential units — including condos), Citrus Heights has seen a good resurgence in demand from year to year.  This year’s unit sales volume of 92 homes is up 42.6% over last year’s volume of 65 homes.  Although Sacramento County overall posted a higher unit volume increase of 74.7%, Citrus Heights boasts a lower inventory, at 6.2 months versus 8.3 for Sacramento County as a whole.

This year, of 92 units sold, short sales made up only 13%, while non-distressed sales accounted for 28.3%, and bank foreclosures accounted for 58.7% of all sales.  The chart below shows how that compared to last year:

Citrus Heights Residential Real Estate Unit Volume

The chart below shows the total number of homes that sold in approximately the last sixty days.  (I say “approximately” because there’s usually some lag time between the sale and when the sale is entered in the database.) 

For each area, we then break the total number of units down to show the percentages of foreclosures that sold (these are bank foreclosures, or REOs).  Then we show the number of short sales that sold.   Finally, we show the number of non-distressed sales — where the seller was not in foreclosure and had enough money to pay off their loan.

At the risk of once again grinding our favorite ax, note that in almost every case, short sales are the smallest category.  Their failure to close in any significant numbers relative to the offers written on them is why we often refer to them as fake listings.  What’s especially telling is how they compare to the non-distressed category, which typically are priced much higher yet outsell the short sales by a wide margin.

Sacramento County

Placer County

El Dorado County

One of the figures you should pay attention to when you’re buying a selling a home is the inventory for the area you’re interested in.  Inventory simply means how many homes are for sale now, divided by the average number of homes that sell every month.  If 5 homes sell every month, and 50 homes are available, that means there are ten months of inventory.  Inventory numbers over 6 months are considered signs of a “buyer’s market”, while inventory numbers under six months are considered to mean the area is in a seller’s market.  Low inventory means buyer demand is high and prices are probably rising (or in this market, falling more slowly).  High inventory means prices are likely to fall more quickly, and there are not enough buyers to purchase the homes that are on the market.  The higher the inventory, the more aggressively a seller needs to price their home to make it sell.

Another important number you should keep in mind are the total number of homes that sell every month.  If not enough homes sell, the statistics for a given area may not be very significant.  For example, in the table below, Courtland shows 4 months of inventory, but since only .3 homes per month sell, the statistics don’t tell you much.  In contrast, Citrus Heights has 5.6 months of inventory, and the figure is somewhat more reliable since 36.9 homes sell every month.

The report below includes tables for Sacramento County, Placer County, and El Dorado County.

Sacramento County

Placer County

El Dorado County

Here are some market snapshots for the three counties in our service area.  As you can see, Sacramento County was the biggest loser on price, experiencing a 34.3% drop in sold price per square foot from May to May, but posted a correspondingly strong 74.7% increase in unit volume from May to May, with 1,812 units selling this May versus 1,037 last May.  El Dorado County held its value best, but even with that lost almost 20% on a sold price per square foot basis.  Unit volume rose faster there (31.3%) than in Placer County (19.1%), yet this was not enough to bring inventory down substantially.  At 8.1 months, Placer County’s inventory looks like Sacramento’s (8.3), while El Dorado County still has some 12.6 months of inventory to work on.

Sacramento County

Unit Volume

Prices

Inventory

El Dorado County

Unit Volume

Prices

Inventory

Placer County

Unit Volume

Prices

Inventory

Elk Grove (95758) was the area with the most sold units in May of any area in Sacramento, Placer, or El Dorado County.  112 units sold in May, 77 of which (68.4%) were bank foreclosures, while 23.4% of all sales were non-distressed.  Though short sales make up 54.3% of current active inventory, they accounted for only 7.2% of sales in Elk Grove in May.

With an additional 23.5% of active inventory being bank foreclosures, short sales and foreclosures together make up 77.8% of the active inventory.  Not surprisingly, prices in Elk Grove are down.  Overall the prices have fallen about a quarter from last year.  At $263,700, the average home sold in Elk Grove in May for 25.5% less than last May’s average of $354,152.  At $250,000, the median price is down 28.8%, while the sold price per square foot is currently averaging $146.34, down 27.7% from last year’s average of $202.37.

With prices falling and so much REO inventory, many buyers are taking advantage of the bargains.  As a result, unit sales rose 143% from year to year, from 46 in May of 2007 to 112 in May of 2008.  There are currently 6.1 months of inventory, but based on May’s absorption rates the numbers are less than four months.

All Real Estate is local.  Several months ago there was a big debate among some real estate bloggers about whether real estate bloggers should engage in the cultural crime of “localism”, or whether they should do whatever else they would be doing if they weren’t doing that.

I had to laugh, because, as I said:  all real estate is local.  If you doubt me, try buying a house that isn’t where it is.  Let me know how that works out.

You can say “the real estate market” is an oxymoron, or you can say “the real estate market” is an abstraction that often breaks down at the local level. 

Here’s an example.  Overall, area-wide, nation-wide, yes we’re all in a panic, the sky’s falling, oh my goodness, yada yada yada.  That said, for several months in row, East Sacramento was going through a serious seller’s market.  They didn’t get the memo. 

The seller’s market in East Sacramento later stopped.   I haven’t checked out the numbers this month yet, so we’ll find out later — maybe it’s back.

Meantime, owners in Folsom may with some justice declare that the seller’s market has traveled east of Hazel Ave and has landed squarely in 95630.  Yes, prices have come down from last year — albeit to a lesser degree than the averages for any of the counties that surround Folsom on three sides.  Sold price per square foot fell 14.9%, the median price fell 10.6%, and the average sale price — at $437,332 — was down 11.9% from last year’s average of $496,302.

However, inventory is down below the six month figure that traditionally defines the border between a buyer’s market and a seller’s market.  Based on unit volume for May, it’s down to 3.8 months, and even using the absorption rate of the last year, it’s at 5.06 months.  Best of all, the inventory figure for non-distressed homes — you know, those poor people who actually continued to pay their mortgage before they sold — stands at 4 months.

Unit volume is up 17.9% from last May, and the expired to sold ratio is down, from 38.8% (already a low figure) in May of 2007, to 15.2% in May of 2008.  The only fly in all this sweet smelling ointment is the figure for average days on market, which is up to 52 days (compared to 34 days last May).

Purva Brown, Alan Greenspan and Johnstradamus have been predicting a real estate recovery as early as 2009, and I believe that we are beginning to see some very definite signs of that in Sacramento County.  Prices are still falling, but more slowly in the last couple of months.  More importantly, unit volume has been steadily increasing.  (See the right hand side of the chart, below).

When we say “unit volume”, all we mean is the number of homes that have sold.  (Perhaps the term “residential units” is handed down to us from the Coneheads).

Here are some unit volume statistics showing that — in terms of sales volume at least — the nadir of the market may have already happened.  (That is, of course, barring further economic collapse, big interest rate hikes, or an invasion of Elbonians). 

• Unit volume has increased steadily for the past four months in a row, after it began to slowly climb five months earlier from the bottom it had reached in October of 2007.
• In May, unit volume was up 64.2% over last May’s volume.
• Unit volume in in Sacramento County in May was the highest it’s been since October of 2005, just a few months after it hit its peak in June of 2005.

The Rest Of The Story

The upswing in demand that we’re seeing in Sacramento County is a result of falling prices.  At $248,786, this year’s average home sold for 33.9% less than last year’s average of $376,158.  This May’s median home sold for $225,000, down 34.4% from last year’s median of $343,000.  Sold price per square foot fell 33% during this time.

Heavy demand in May has helped sell off some of the inventory.  Inventory presently is at 8.35 months, down from 9.24 months at the end of April.  (Based on May’s absorption rate of 1703 units, it’s even lower, 5.3 months — seller’s market numbers).  In addition, the rising sales figures helped push the expired to sold ratio down, from 74.1% in May of 2007 to 34.8% in May of 2008.

REO’s continue to account for the bulk of sold homes, at 64.1% of sales in May, followed by non-distressed sales, which accounted for 28.8% of sold homes.  Short sales again eeked out a pathetic, Snidely-Whiplash-makes-the-banks-look-good third place, at 7.2% of sales.   (See Are Short Sales Fake Listings for more on that story).

As prices in greater Sacramento (you know, the whole USA) continue to fall, naturally everyone wants to know where the bottom is.

I’ve been saying for some time now that we’ll reach the  bottom of the real estate market on May 20th, 2009 at 10:20 AM.  Actually, I’m not exactly sure.  It might be 10:15 if all goes well.

I am the eyes of Johnstradamus, and all your ways are known to me.

No, but seriously, we’re all curious.  Purva Brown posted a very interesting article to The Sacramento Real Estate Gal recently discussing Alan Greenspan’s recent prediction that the real estate market will begin to rebound in 2009.  (Hey look, Alan agrees with me!)  In discussing the article, Purva made the point that anecdotally we’re seeing some increases in demand.

I would go one step further to say that depending on the area, the pent up demand is not anecdotal at all, it’s quite real and measurable.  The unit volume numbers tell the story.  Elk Grove unit volume is up about 100% in April.  In East Florin, 95828 and 95829, unit volume is up 172% from last year.  Even in Roseville, where the price declines have been less precipitous, volume is up some 40% from April to April.

I believe we’ll continue to see increased demand as time goes on, as long as interest remains reasonably low.  In one respect this is a simple manifestation of the demand curve in action.  As price goes down, demand goes up.  Another way to look at the potential for real estate prices to reach equilibrium was one that Sean O’Toole recently reminded us of in his excellent post Death Spiral?  How to Find the Bottom in Your Market.  Sean’s point is one that I’ve believed for many months, that as more and more properties begin to offer positive cash flow, we’ll reach an equilibrium point.  This will be true even if Option ARMs continue to reset and cause additional foreclosures, and and there’s no shortage of articles on the bear side are predicting that they will.  See for example this article in Slate and this evaluation of the ARM Reset Problem.   Of course as Sean points out, you still have to predict what cap rate is reasonable for a given area to reach equilibrium.  With this in mind, those of you who may want to argue for a different recovery date than Johnstradamus predicts may easily be able to prove it using no more than a keyboard and a slide rule. 

Don’t get your fingers caught.

I admit I was pretty shaken when I first saw the ARM resets and Option ARM recasts lasting into 2011, but one thing that’s different about these resets will be that this “second wave” is not composed primarily of sub-prime borrowers, as I understand it.  So although it’s cause for concern, let’s remember that sub-prime borrowers by definition should have a higher default rate.  I wouldn’t be surprised to see more foreclosures in El Dorado and Placer County relative to Sacramento County as this unfolds, but that’s strictly a hunch.

What’s really encouraging to me is to see such an increase in demand in Sacramento County already, even though the numbers for rentals in areas like 95828 and 95829 still didn’t impress me as all that wonderful.  I suspect that most of these buyers are not investors, but first time buyers who are feeling like a home is now within their grasp.  Beyond that, however, I believe that if we ever get to the point where you can routinely get $200 per month on a single family with reasonable assumptions about expenses and vacancies, we’re going to get to a point where it won’t matter how many foreclosures get dumped on the market — enough investors will scoop them up that prices will reach an equilibrium.

Finishing up this month’s look at local area markets, we turn now to El Dorado Hills.  An upscale community in El Dorado County, El Dorado Hills has suffered from fewer foreclosures than in Sacramento County, yet has nevertheless seen deep price reductions in 2007-2008.  At $194.28, the average sold price per square foot in April was down 21.8% from last April’s value of $248.44.  Similarly the average selling price fell 24.3% over the year, from $757,008 in April of 2007 to $573,114 in April of 2008.  The median price fell only 4.9% during this time, showing that El Dorado Hills buyers in general were purchasing the larger ticket homes.

Inventory in El Dorado Hills remains fairly high at 8.5 months, and the expired to sold ratio has moved from year to year but not by much, coming in at 69.8% for April of 2007 and 51% for April of 2008.  Unit volume has increased though not as dramatically as it has in Sacramento County.  This April 49 units sold, up 14% from last April’s 43 units, and better than the 42 unit 12-month average.

REOs made up 30.6% of sold sales in April, while short sales made up 4.1% — two closed listings.  In active inventory there are 64 short sales doing thei