Sacramento Real Estate Blog

As I was going over the numbers for Sacramento’s Duplex market the other day, I noticed something that I’ve found true in many of the updates I’ve written for many of the different mini-markets around Sacramento. It’s a statistical fact that seems a bit odd when you first notice it. The fact is, despite rising inventory, longer days on market, rising expired listings — all signs of moving toward or in fact being well within a buyer’s market — the ratio of sale price to list price hasn’t shown any sort of catastrophic drop.

This difference in the numbers is sometimes called the “swing”. In a hot seller’s market, you see sale prices over list price, as buyers compete on multiple homes. Sale prices might work out on average to be 102% or more of list price.

Yet in the current market, numbers don’t drop to something like 90% or less as you might expect, even though other statistics like days on market and expireds change in a big way. Instead, you might see numbers like 98.5% of list or 99.2% of list — still within a point or two of selling price, and not the huge “10% off” that you might hope for as a buyer.

I think I understand this seemingly “unusual result”. At least, I have a theory that fits in pretty well with my strong belief that there are bargains and turkeys in any market. The reason the sale price to list price ratio doesn’t change dramatically is that there’s still strong competition for certain homes in this market — if the homes are perceived as a bargain by the buyer. I’ve still had homes in this market sold “out from under” buyers I was working with who were interested in them after only being listed a short time. Presumably others who add to the longer days on market sell fairly quickly after the price reduction that makes them seem a bargain, and then go quickly at close to list.

Remember, this thing we call “the real estate market” and talk about is nothing less than a statistical abstraction based on averages of many homes. The term buyer’s market and seller’s market refer simply to the place you have to be at on the price side to succeed or fail.

Duplex sales in Sacramento County in January, 2006 were off almost 50% from January of 2005. Last January 67 units were sold county wide through the multiple listing service, while this year the number had shrunk to 34. The expired to listings ratio has gone up considerably as well, from six percent (four total expired listings) last January to 102.9% (35 expired listings — one more than sold) this January. Inventory is fairly high at about 9.4 months.

On the positive side, appreciation has been good, with the median sale price increasing 19.9% from last January’s $390,000, to a median sale price this January of $467,500. The average sale price was $474,604, or 99.6% of the average list price of $476,298.

Sacramento County’s condo market in January put in a very weak showing compared to a year ago. Unit volume was down 46%, from 115 units sold last January to 62 units sold this January. Average days on market are up 78%, from 32 days on average in January 2005 to 57 in January 2006.

Perhaps the most telling number is that the expired to sold ratio has topped 100%. With 62 listings sold and 67 expired, the ratio for January was 108.1%, as opposed to a trivial 7.8% a year ago.

The median sale price increased some 13.9% during this time, but on a cost per square foot basis, appreciation from January to January was only 3.5%. This January, the average condo sold in Sacramento County sold for $256,006, or 98.3% of the average list price of $260,354. The median sale price was $244,975.

As in most areas, residential sales in Citrus Heights in January were down slightly from last year. Perhaps because of the large number of good starter homes in this area, however, inventory is not quite as high as we’ve seen elsewhere.

68 homes sold in January, down 28% from last January’s 94. The average sale prcie was $325,159, or 98.7% of the average list price of $329,517. The median sale price was $331,500.

Surprisingly, appreciation on a cost per square foot basis was somewhat lower than expected, at 6.5%. (My gut feel is that appreciation is usually lower on the higher priced homes, but in this instance it looks like I’m off).

The expired to sold ratio has increased dramatically over the year, as we’ve seen in other areas. Last January it was 6.4%, and this January it was 82.4%. There are 4.93 months of homes in inventory.

El Dorado County’s real estate sales in January have cooled off from last year’s sales at this time. Not counting residential income and other non-residential sales, 120 homes sold in January, down 35% from last January’s figure of 185. Average days on market were up slightly, from 64 to 71. Last year, the ratio of expireds in January to solds was 18.4%. This January, that number stands at 84.2%.

The average home sold in El Dorado County listed for $591,647, and sold for 96.7% of list at $571,874. The median sale price was $488,000. On a cost per square foot basis, homes appreciated 10.9% from January to January.

Currently in El Dorado County there are nine months of inventory.

In the stock market, there’s an age old debate between folks who believe in buying a good value stock and holding it for the long term (as exemplified by Berkshire Hathaway’s Warren Buffet), and those who believe they can somehow predict the peaks and valleys of the market to take advantage of the opportunities of correct “market timing”.

Obviously if the market timers are right — that they can correctly predict peaks and valleys — there’s huge money to be made. The problem, of course, is that they can’t.

(No doubt somewhere, somehow, a day trader is reading this and disgruntling even as we speak).

In real estate, we often find buyers and sellers doing a similar sort of mental arithmetic in an effort to decide whether to act or wait.

Right now we find buyers who are waiting for the prices to come down a little more, and sellers are hoping that the market will pick up more (i.e., that the buyers will stop waiting).

One of the things I always tell home buyers about waiting is that (unfortunately), the best way for prices to go down is for interest to go up. Of course, until I ran my recent handy spreadsheet, I was advising buyers of this based on reading and the like. The numbers for Sacramento for the last year show how prices and interest move roughly in tandem (in the opposite direction, of course).

Here are the charts of average sold home prices in Sacramento and average 30-year fixed mortgage rates for the last 12 months:

Prices reached their high point in August, just two months after interest had reached a low. As interest climbed in October and November, prices were falling. A buyer who might have waited from Septemeber to December and who could have financed 100% with a 30 year fixed loan would have found that they saved $6,633 on average on the home, but that (again on average), they ended up paying $18,738 more over the life of the loan because of the higher interest rate. To be sure, this example is a bit contrived, and doesn’t account for taxes and insurance, but it does point up a particular problem of market timing when it comes to real estate: the best way for prices to come down is for interest to go up, so you may not end up better off in the long run.

Sales of home in the beautiful El Dorado County community of Pollock Pines were down significantly in January, compared to a year ago. This January, eight residential units sold through the MLS, a mere 50% of last year’s total of sixteen units. Meantime, the expired to sold ratio increased ten-fold, from 12.5% in January of 2005 to 125% in January of 2006. Average days on market have doubled, from 36 days last January to 72 days this January. Inventory is currently 12.4 months.

The average sale price in January in Pollock Pines was $348,313, or 97.8% of the average list of $356,088. The median sale price was $341,750. At $232 per square foot, on average, the cost per square foot appreciated some 11.2% from last year.

Today I played catch-up on my Roseville site. I was more than a month behind on market updates, so I’ve posted updates for December, 2005 and January, 2006.

We have a post due out soon showing the declining market prices for Sacramento County since August, and how they relate to interest rates. I haven’t done the graph for Roseville, but I suspect it would be similar.

January’s residential sales in Sacramento County overall were down significantly from January a year ago. 951 residential units sold in January of 2006, versus 1,446 in January of 2005, a 34.2% reduction. Meantime, the expired to sold ratio has grown from 10.1% to 93.1% during that period, and average days on market have grown from 32 days to 49 days.

The average home that sold in January in Sacramento County listed for $400,460 and sold for $393,818, or 98.3% of list price. The median sale price was $357,500, up 9.5% from a year ago, while the average cost per square foot appreciated 9.9% from January to January.

Currently, there is just over seven months of inventory available county-wide.

Robert Celaschi of the Sacramento Business Journal was good enough to call me recently and interview me for his Fix and Flip article.

So if you read the article and click through to page 4, you’ll see I’m now enjoying some of my fifteen minutes of fame.

I think Robert captured what to me is the most important aspect of real estate investing, that seasoned investors don’t necessarily care what the market is doing, because there’s money to be made either way. One investor interviewed preferred the hot seller’s market, and one a buyer’s market, for working the exact same strategy.

We’ve updated our listing pages for Condos, Duplexes, and New Homes. Enjoy!

Remember, too, that you can always sign up for email updates or use our search pages to get more up to date listings while waiting for these updates.

I’ve updated the listings on the Granite Bay Real Estate Subdivisions page of our Granite Bay site.

We’ll do the condos and duplexes too here shortly.