Sacramento Real Estate Blog

Our recent Sacramento Real Estate Year in Review article covered condos as well as other residential types like single family homes and halfplexes.  Today we turn to our attention to condos only, to see how they compare to the general category. 

When I looked at the numbers, the results were surprising given the traditional wisdom that condos are the first to fall in a down market and the last to rise in an up market.

Comparing 2006 to 2007 overall for all of Sacramento County, we find that the average condo sold in 2007 for $236,914, down 6.9% from 2006’s average of $254,370.  2007’s median price for a condo was $218,000, down 7.2% from last year’s median of $235,000.  On a sold price per square foot basis, the average condo’s value fell 10.8% during the same period, from $218.16 in 2006 to $194.51 in 2007.

As we saw for residential units overall, the numbers from December to December were more dramatic than the year to year numbers.  Sacramento County Condo values fell some 18.7% on a sold price per square foot basis from 2006 to 2007.  Though of course that’s a non-trivial drop, it’s somewhat smaller than the sold price per square foot drop of 21.8% from December to December for the residential category generally.

I suspect the traditional wisdom that condos are the big losers in a down market fails to take into effect the slight but real differences in the number of foreclosures on condos.  Among all residential categories, the number of bank owned foreclosures (REOs) sold in December was 47.2% of all sales — for condos that number was 28.1%.  Similarly in active inventory, short sales and REOs make up 55.7% of inventory for all residential units, but 46.4% for condos. 

There are two possible reasons for this.  The more obvious one is that condos are cheaper, so buyers were less overextended and therefore slightly less likely to default.  Another possibility — but I haven’t researched it so I only raise it as a conjecture — is that it’s possible more condos were owner occupied and fewer were purchased as investments. 

Whatever the reason, a slightly lower default rate has helped condos retain their value somewhat better than residential properties generally.

Depending on where you focus your attention, there’s news, there’s good news, and there’s bad news.

We began our look back on Sacramento County real estate in 2007 with a look at the overall “big picture” for the Sacramento County Real Estate Market for the entire year. Later last week, we reported on one area in the county market that’s consistently held it’s value better than others and enjoy’s low inventory and brisk sales, East Sacramento.

This week we turn our attention to an area that may well be the “worst case” in terms of rising inventory and price declines for Sacramento County, Sacramento’s Franklin / Freeport area (95823). I should probably point out before we begin that I have not sampled all the MLS areas, so my sense that Franklin / Freeport may be the worst case comes from the foreclosure numbers. There may be other areas that have fewer foreclosures but more inventory or lower prices, for example.

Franklin’s decline in 2007 has been rapid. Comparing full year numbers first, the average price lost 19.2% of its value from year to year, and dropped 21.1% in terms of sold price per square foot. The median sale price in 2006 was $314,850, in 2007 it fell 20.6% to $250,000. In 2006 one per cent of sales in Franklin were foreclosures. In 2007, that number was 41.6%.

Comparing December of 2007 to December of 2006, we find that by December, the trend of selling more and more foreclosures and deep price drops had continued apace. By the end of 2006 the average sale price was $282,327. A year later the average had fallen 34.9% to $183,914. Another way to say this is that the average home in Franklin lost slightly more than 1/3 of its value in a year. On a sold price per square foot basis, Franklin closed out 2006 at $200.21 per square foot, and had fallen to $126.61 a year later, a decline of 35.8%.

The percentages of short sales and foreclosures available in Franklin / Freeport are staggering. Almost three fourths (73.9%) of inventory in Franklin / Freeport is either a short sale (35.9%) or foreclosure (38.1%). At the same time, if you needed a case study of REOs outselling short sales, Franklin / Freeport is it. Last month no short sales closed, but twenty-five of the twenty-nine closed sales in the area were bank owned properties. That works out to 86.2%, or close to 7/8 of all sales.

The contrast between East Sacramento on the one hand and Franklin / Freeport on the other shows how local real estate markets are. East Sac enjoys less than three months of inventory and a brisk seller’s market where the prices have remained flat while nationwide prices are falling, while Franklin / Freeport currently has almost two years (23.6 months) of inventory, and homes there have lost two thirds of it’s value in a year.

If you’re a buyer or seller, the right question to ask is not “How’s the Market” overall, but “How’s the Market” for your particular area. Is there an area you’re interested in particularly? If so please contact us and we’d be happy to get you specific market data or comparable sales.

Hello, my name is Inigo Montoya.  You killed my father.  Prepare to die.

This is a tale about blaming the real estate market for whatever else is wrong.

This is also a tale about a bit of ugly sheudenfreude on my part.  The other day I was reading Sacramento News and Review, and there was an article in there about the Sacramento Bee’s stock prices.  While the average Sacramento County home owner’s investment lost 20-30% of its value over the last two years (1st chart, below), the average investor in McClatchy Stock (Sac Bee’s parent company), saw the value of their investment fall 75% (second chart, below).

Normally I’d feel bad for the folks over at the Bee — or at least, I might feel neutral.  But I have to admit, coming on the heels of these folks babbling every other day about the “housing crisis” and “mortgage meltdown” for the last two years, I didn’t feel a heck of a lot of sympathy.   If a guy who invests a dollar ends up with 75 cents, and that is a “meltdown”, what word might be appropriate for a guy who invests a dollar and ends up with a quarter?  Catastrophe?  Unmitigated disaster?  How about THE END OF LIFE AS WE KNOW IT!

But wait — The Sacramento Bee has identified the culprit here.  You see, the mortgage meltdown and the END OF LIFE AS WE KNOW IT at McClatchy aren’t unrelated — it’s the housing market’s fault that the Sacramento Bee’s stock is in the toilet!

Explaining the downturn in July, the Sacramento Bee’s Dale Kasler wrote:

“The downturn mainly reflected a significant drop in ad sales, especially at McClatchy’s California and Florida papers. Nearly three-quarters of the drop in ad revenue came from those two states, which are suffering from real estate woes. Real estate advertising was down 32 percent in California and Florida, causing a spillover effect that depressed other ad categories.”

Wow, really?  That’s quite a meltdown indeed, if now we’re causing a “spillover effect” that’s depressing other ad categories.  How does that work, exactly?  I suppose the sales manager at Folsom Lake Ford said to himself, “Well, hmm, the houses aren’t selling that well any more — no point in advertising the new Explorers this week.  Let’s pull the ad.”

Spillover effect.  OK I’ll bite, let’s discuss spillover, shall we?  With houses harder to sell, not easier, you might expect that instead of spending less on real estate advertising, we might end up spending more.  Then again, maybe your former advertisers didn’t like the fact that your constant use of terms like “Meltdown” and “Crisis” is scaring the buyers off day in and day out, while prices are better than they’ve been from a buyer’s point of view in two years and interest is still quite low.

“My name is Inigo Montoya, Sacramento Bee Staff Writer.  My yellow journalism killed my stock prices.  Prepare to watch me blame the housing market — again!”

By the way, if there are any Sac Bee readers out there who are still wondering, JFK was not killed by Adjustable Rate Mortgages resetting.