Download pdf - Sacramento Area Real Estate Market Report: Wright Report Q3 & Q4 for 2011

7/31/2019 Sacramento Area Real Estate Market Report: Wright Report Q3 & Q4 for 2011

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July - December, 2011

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Trends in Investment Real Estate in the Greater Sacramento Area

Including Statistics and Trends affecting Residential Investment in Single Family Residences,

Duplexes, Triplexes, and Fourplexes in Sacramento, Placer, Yolo, and El Dorado Counties.

June to December, 2011

TTHHEEWWRRIIGGHHTTRREEPPOORRTT


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The Wright Report

Prepared by:

Prepared By: Joel Wright

Document Version: Final

Last Updated On: March, 2012


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This work is licensed under the Creative Commons Attribution-ShareAlike 3.0 Unported

License. To view a copy of this license, visit http://creativecommons.org/licenses/by-sa/3.0/

or send a letter to Creative Commons, 171 Second Street, Suite 300, San Francisco,

California, 94105, USA.


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TABLE OF CONTENTS

TABLE OF CONTENTS ....................................................................................................................... 4

EXECUTIVE SUMMARY:.................................................................................................................... 5

THE EXPERTS WEIGH IN: .................................................................................................................. 6

Sacramento Appraiser: Ryan Lundquist ............................................................................. 6

Real Estate Attorney: Stephen Beede ................................................................................ 8

MARKET UPDATE: ............................................................................................................................ 9

THE ECONOMY: ............................................................................................................................. 14

BANKING: ....................................................................................................................................... 15

DISTRESSED PROPERTIES: .............................................................................................................. 16

SACRAMENTO STATISTICS: ............................................................................................................ 18

STATISTICS TO WATCH: ................................................................................................................. 20

ZIP CODE STATISTICS December 2011: ....................................................................................... 20

Changes in price sold by zip code .................................................................................................. 21

HISTORICAL PRICES BY ZIPCODE: ................................................................................................... 22

SACRAMENTO MARKET CHANGE: ................................................................................................. 43

RESOURCES AND METHODOLOGY: ............................................................................................... 44


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EXECUTIVE SUMMARY:

Sacramento County median price is $161,000 in December 2011, a59% drop from the high in August 2005 which puts the region back to

2001 levels for median home price. Home prices nationally fell 4% in

Q4-11 putting them back at 2002 levels. Some analysts expect the

national home price to continue falling through Q3-2012.

Californias median home price in December 2011 was $246,000, down

3.1% from the $254,000 in December 2010. Californias high was

$484,000 in 2007 and it hit bottom in April 2009 at $221,000.

Unemployment and underemployment remain high, a myriad of

government institutional relating to housing are still in trouble (FDIC,

HUD, Fannie & Freddie). There is no secondary mortgage market to

speak of outside of Fannie & Freddie and banks are still struggling to

right their own ships, as we saw with Bank of America during the

Summer of 2011. Small banks are still being taken over by the FDIC

and we can expect to see REO & short sale inventories for sale for

years to come.

The up side, there are many signs of a positive recovery: increasednumber of home sales, historically low interest rates, reduced

inventory, unemployment is starting to decrease, the number of

foreclosure filings is reduced, and the CA and U.S. economies are on

the mend.

The question remain whether these positive factors can break their

way through the negative aspects of the market to promote healing

and recovery. The outlook is positive but the data remains insufficient

to show that the turnaround in the housing market has occurred.

It is possible that the bottom is where we are now. So while the

housing market seems poised to turn upwards, longer term projections

point to a several year and rocky return to normal.


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THE EXPERTS WEIGH IN:

Sacramento Appraiser: Ryan Lundquist

Market Update: Inventory, Foreclosures & Unemployment Rates

The market has been extremely competitive over the past few months as inventory has

declined all over Sacramento. This has created an environment of multiple offers, offers

above asking, advantage for investors paying all cash to get offers accepted and even

sometimes overpayment from cash buyers.

In the midst of so much competition in the market right now, its important to keep

focused on the big picture to pay attention to foreclosures and unemployment rates. Most

counties in the Sacramento Region have a combined percentage of distressed sales (bank-owned and short sales) between 60-70%, so despite encouraging news we hear on the

national real estate scene in particular, its important to understand our market still has

much room to grow for a full recovery. Moreover, the looming question of a shadow

inventory is an important consideration if banks indeed have been holding back

introducing properties on the market.

Unemployment rates have been slowly declining over the past 18 months, which is an important

indicator for our economy. While unemployment figures are still high at 10.9% in Sacramento

County as of December 2011, rates are down from their peak at 13.2% in July 2010.


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Overall it seems the market has shown some necessary signs toward recovery and nearing

bottom, but only time will tell how the tide will turn in 2012.

Ryan Lundquist is a Certified Real Estate Appraiser in the Greater Sacramento

Area who also specializes in reducing property taxes. Contact him at (916) 595-

3735 or check him out at www.SacramentoAppraisalBlog.com.


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Real Estate Attorney: Stephen Beede

(Excerpt from his blog Real Estate Outlook for 2012 at www.stevebeede.com)

When will Recovery Start? At the beginning of 2011, we thoughtthat wed work our way through the residential default backlog by thistime. That certainly was not the case. Based in part of economicstress in Europe, the U.S., and here in California, the unemploymentrate remains around 9% nationally and almost 12% inCalifornia. Unless people gain stability in their paychecks, they cannotqualify for the loans needed to buy all the shadow inventory offoreclosed homes which is holding back lender capacity to make newloans. Similarly, loans to new, job-creating businesses have been hardto get. Although recovery will vary by location, both FNMA and the

Center for Responsible Lending agree that were about halfwaythrough a 10 year process look to 2016 for price increases to startin. The most visible evidence of this will come in 2012-13 as all of theinterest-only loans made in 2007-08 start to re-set as fully amortizedloans, possibly with dramatic interest rate bumps as well. Less visiblebut potentially even more serious will be the likely increase incommercial foreclosures as shopping center and office building ownersrun out of capacity to wait out the recession. With those foreclosures,a great many small and large employers may get put out of business.

What Should You Do Now? 10 years from now, people will say

why didnt I buy in 2012. Interest rates are at an all-timelow; home prices are at or near the floor; and rents are not fallingwith the prices. There is a reason why investors are buying propertiesin bulk and grabbing whatever they can at foreclosure auctions.According to the Economist Magazine that recently surveyed realproperty values worldwide, U.S. property is 8% under-valued for therent it generates and 22% under-valued relative to income. Dont besurprised if foreign money starts buying up more and more propertyhere if they can get their money out of their own country.

Steve Beede is a practicing real estate attorney in Sacramento. His law firm, BPELaw Group, started in 1994 and specializes in Real Property Law and Business

Law. Steve can be reached by e-mail at [email protected] or check out the

company website at www.bpelaw.com.


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MARKET UPDATE:

According to CAR (California Association of Realtors) the median home

price in December 2011 was $285,920 for the state. That median

price is down 3.9% from December 2010. In Sacramento County the

median price was $161,000 in December, down 10% from the

$179,000 median price in December 2010. The average sold price for

Sacramento County for December 2011 was $186,329, down 7.4%

from the year before.

COUNTY Average Sold Price%

Change

Dec-10 Dec-11Sacramento $201,187 $186,329 -7.4%

Placer $316,275 $298,550 -5.6%

El Dorado $325,822 $306,305 -6.0%

Yolo $264,137 $268,652 1.7%

Sacramento began its price drop in 2005, anticipating the national

downturn by one year, and the CA shift by one and a half years,

Spring 2007.

In total it represents a 59% decline in the median price for homes

across Sacramento County since the high in August 2005. This makes


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the 33% decline across the United States appear tame by comparison.

The high in the U.S. reached $221,900 in Q2-2006,.

http://money.cnn.com/2012/02/28/real_estate/home_prices/index.htm

In California 47.3% of sales in January were distressed sales (short

sales or REO). In Sacramento County that was 63%. Across the State

short sales make up an average of 20% of sales. In Sacramento

County it is 29.4% and Placer it is 35%. REOs (foreclosed bank owned

sales) made up 34% of sales in CA and 43.6% in Sacramento County.

Due to the nature of distressed sales they tend to drag the market

down. The difference in price becomes obvious when compared (as

seen in the chart below).

COUNTY Average Sold Price by Seller Type (Dec. 2011)

Total ConventionalShortSale REO

Sacramento $186,329 $223,053 $188,969 $144,141

Placer $298,550 $341,600 $263,711 $251,205

El Dorado $306,305 $353,511 $348,190 $187,530

Yolo $268,652 $373,858 $234,503 $185,676


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Historically, prices varied

dramatically by seller

type, and the gradual

price decline forconventional sales and

short sales validates that

we have been

experiencing a continual

decline since 2005.

Inventory has dropped

22.3% during 2011 to

1.89 million homes

across the United States. In Sacramento County inventory of homesavailable for sale dropped 40.3% from 5,148 to 3,073 units from

January 1, 2011 to January 1, 2012.

The number of months of Inventory of unsold homes in California is

4.1 months in December 2011. In Sacramento County it was 2.1

months of inventory.

COUNTY

Homes for Sale(excludes contingent

short sales)

Months of

InventoryDec-10 Dec-11 Dec-11

Sacramento 5440 3518 2.1

Placer 1650 1055 2.5

El Dorado 949 818 3.6

Yolo 518 378 2.6

Despite the drop in available properties many buyers are wary of

overpaying and although there may be multiple offers on a property it

is not uncommon for the winning offer to be at or below listing price.In fact, all homes sold in December sold for an average of 5.5% below

the original asking price.


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Affordability, on the other hand, is out of sight with the average

affordability index in Q4-2011 for California being 55% (meaning that

55% of workers can afford the median priced home within the state).

In Sacramento County affordability is even higher at 74% (19 pointshigher than the state).

To the contrary Marin and San Francisco Counties lead the state for

least affordable with 29% and 26% respectively. In December 2011 in

the U.S. it is more affordable to buy a home than at any time in the

past 20 years.

Mortgage rates are also at all time lows, ending the year at 3.96%.

In Sacramento County the number of sales rose 8% over 2010 to end

the year at 18,816 sales closed. Condos also experienced a 12% rise

in number of sales to end the year at 1,620 units sold. The price also

rose 7% ending 2011 with a $85,629 median price.

New construction, however, is down to an all time recorded low. This

is mostly due to the oversupply of cheap properties hitting the market(REOs and short sales) that makes new construction very tough to

build and compete effectively. Some of this is due to County and City

permits and fees for new construction not being reduced with the

down turn in the economy. So while the cost of materials, fees, and


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planning, have remained the same since 2006 the cost of skilled labor

has dropped as a factor of supply and demand. Still it has not

declined the 30+% nationally (or nearly 60% locally) that the resale

market has dropped; so builders will have to wait for the market tocome back before they can return to building.

http://economistsoutlook.blogs.realtor.org/2011/09/15/lowest-housing-starts-since-

world-war-ii/

New construction is expected to improve as the economy gets better.

In fact the housing sector is actually expected to contribute to the GDP

in 2012.

Commercial real estate still struggles with the economic climate.

Billions in CMBS (Commercial Mortgage Backed Securities) are

delinquent and vacancy remains high in everything except multifamily

which is catching the overflow from home owners losing their homes

through short sale and foreclosure.


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THE ECONOMY:

Economic data is beginning to improve revealing the light at the end of

the tunnel for the great recession. The Case-Shiller index report at

the beginning of 2012 reversed its earlier impressions of a further

25% decline to a more moderate 5-10%. It appears that the housing

sector is beginning to stabilize; which is good news by all standards.

Price declines are beginning to slow, the number of sales is increasing,

the numbers of REOs is decreasing, and unemployment is on the

decline (under 9% to start 2012).

The most commonly accepted fundamentals that promote a strong

housing market have been present for the last couple of years (lowinterest rates, ample supply, and low prices), though we have not seen

the predicted resurgence probably because of the difficulty in obtaining

credit and the economic uncertainty discouraged job creation. The

problem seems analogous to what one broker called the pig in the

python; it is in the right place but will take a while to get through.

For example in 2010 there were 1 million homes that went to banks

through the foreclosure process. In 2011 that was down to 804,000

homes. That accounts for almost two million previous home owners

who now cannot buy for at least one more year. With this in mind the

dramatic decrease in the percent of home ownership (66%) across the

nation makes a lot of sense.

In January 2012 the unemployment rate in CA was down to 11.2%

and it Sacramento it was 10.9%. Across the US unemployment ended

2011 at 8.5% and that is projected to decrease further in 2012.

US economic growth is projected to be 2.3% for 2012, up from 1.6%

in 2011.

It will take time to recover jobs, which will lead to secure paychecks

then to discretionary income: and it will take time to mentally realign

from this recession from scarcity to prosperity.


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BANKING:

Beginning in February 2012 Bank of America will no longer sell

mortgages to Fannie Mae on the secondary market. This is due to

Fannie and Freddie forcing Bank of America to buy back billions of

dollars in loans they say BofA originated with improper underwriting

standards.

Q4-2011 Bank of America ended the quarter with a 2 billion net gain.

That is a long stride from the 1.2 billion loss in Q4-2010. Numbers

also show a 7,000 decline in employees at the bank. Total net gain for

the bank was 1.4 billion after a very difficult year. Here are the

numbers for the four largest U.S. banks.

BANKNet Profit

Q4 - 2011 2011 Year

Bank ofAmerica

2 billion 1.4 billion

Wells Fargo 4.1 billion 15.9 billion

Citibank 1.2 billion 11.3 billion

Chase 3.7 billion 19 billion

Loan buybacks (read Fannie and Freddie passing the buck for non

performing mortgages) also hit Citibank to the tune of $200 million in

Q4-2011.

You might think that the financial industry would be having trouble

staying afloat due to losses from the downturned stock market,

foreclosures, and short sales but it appears they are doing okay, and

some have even come back to hit all time high quarterly earning

records.


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http://economistsoutlook.blogs.realtor.org/2011/09/28/financial-industry-corporate-

profits/

Fannie Mae and Freddie Mac, on the other hand, are not faring so well

as their loses run annually in the billions. In Q4-2011 Fannie Mae lost

2.4 billion dollars added to the 5.1 billion loss in Q3-2011; for a total

of 16.9 billion loss for 2011. That is up from the 14 billion loss in

2010.

DISTRESSED PROPERTIES:

Across the nation the situation with distressed properties is improving

but a long way from over. While delinquencies have declined in 2011

overall foreclosures are expected to rise in 2012 as a backlash from

the robosigning scandal. In fact, attorney generals from 49 states are

pursuing the largest banks in the nation over improper foreclosure

processes.


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Across the U.S. 1.2 million notices were sent out from January to June

of 2011; or 1 in 111 households. It is estimated that 11,000,000

mortgages are underwater, and that there are 7.5 million borrowers

behind on their payments.

http://mortgage.ocregister.com/2011/09/29/shadow-inventory-of-distressed-homes-shrinks-

in-july/48273/

(Courtesy of CoreLogic: Dark blue represents bank-owned shadow

inventory; light blue represents homes facing foreclosure; red

represents homes 90 days or more delinquent.)

Overall 7.5% of loans are delinquent in the U.S. today: 4.4% are in

foreclosure. REOs are selling for 34% less than conventional sales

across the US in Q3, 2011 and in Sacramento that number is 35% in

December 2011.

There is still a very small inventory of REO properties in Sacramento

County and they are selling as fast as they come on the market. The


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average days on market for REOs in Sacramento County in December

2011 was 42 days.

Currently CA has the third highest foreclosure rate in the nation after

AZ and NV, with 1 in 31 homes going through the foreclosure process.

In Sacramento the number of NOD (notices of default) filings fell21.5% and NOT (notice of trustee sale) filings fell 7.4% fromDecember 2010 to December 2011. The number of days toforeclosure in Sacramento dropped to 209 days and the number ofdays it took for the banks to sell increased to 241 days on average.

Pre-foreclosure (NOD - Notice Of Default) inventory is also down15.5% to 5,359 from 6,340 in December 2010 to December 2011.

NOT (Notice of Trustee Sale) inventory is down 37.25% for the sameperiod to 4,011 units, and the number of bank owned inventory(REOs) is down 22.7% to 4,817 units.

SACRAMENTO STATISTICS:

Sacramento County started January 1, 2012 with 5,156 listings on the

market. That is down 24% from the June 2011 and 24.2% from the

January 1, 2011. If contingent short sales are excluded from the

numbers there were 3,073 homes available for sale Jan. 1, 2012.

REO (foreclosure) inventory is down 26% since June 2011 and Active

Short Sales are down 27% over the same time. Conventional sales

are down 32% from the end of Q2-2011.

Pending sales, however, are down 17.4% from June to 2,113 homes.

Pending foreclosures properties are down 31.4% and pending short

sales are up 26.4% from the end of Q2-2011. Pending conventional

sales are down 28.4% to 697 from 973 pending homes.

Sales numbers for SFR (Single Family Residence) for December 2011

were 1,675 sold units in Sacramento County. Foreclosures accounted


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for 11.6% of properties on the market in December, yet they

accounted for 34% of all sales. Short sales (including contingent short

sales) accounted for 62% of all Active inventory, but only 29% of

sales. Conventional sales accounted for the rest (26%) of Activeinventory and 37% of homes sold through the month.

SELLER TYPE% of SALES Dec-10 Jun-11 Dec-11

Total Sold 1518 100.0% 1729 100.0% 1675 100.0%

REO Sold 662 43.6 727 42% 567 33.9%

Conventional

Sold 509 33.5 612 35.4% 616 36.8%Short SaleSold 347 22.9 390 22.6% 492 29.4%

AVERAGESOLD PRICE bySELLER TYPE Dec-10 Jun-11 Dec-11

Total Sold 1518 $201,187 1729 $187,476 1675 $186,329

REO Sold 662 $166,277 727 $148,361 567 $144,141

ConventionalSold 509 $244,975 612 $235,580 616 $223,053

Short SaleSold 347 $203,555 390 $184,906 492 $188,969

Despite the drop in average price Short Sales maintain an even

vantage point between the higher selling Conventional sales and the

distressed lower prices of REOs. REOs sold for, on average, $78,912

less than their conventional counterparts or 35.4% less. These

numbers do not take into account that many of the nicest areas of

Sacramento are populated by owners who have owned and lived in the


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ZIP CODE STATISTICS December 2011:

Changes in price sold by zip code

Zip

Code

Median

Sold Price

from

Peak

1 Mo

Qtr

1 Yr

Zip

Code

Median

Sold

Price

from

Peak

1 M

Qtr

1 Yr

95605 $75,000 -75.2% -44% -38% -36% 95816 $280,350 -31% -26% -3% -8%

95608 $192,500 -57.2% 1% -20% -15% 95817 $105,000 -62% 60% 35% -40%

95610 $155,000 -58.6% -8% -3% -6% 95818 $325,500 -30% 36% 4% -1%

95621 $169,000 -57.1% 0% 9% -1% 95819 $320,000 -28% 3% 1% 4%

95624 $227,000 -51.6% 9% 11% -10% 95820 $81,000 -73% 0% 1% 5%

95626 $182,250 -61% -45% 8% -11% 95821 $162,000 -54% 20% 5% -26%

95628 $280,458 -55.1% 1% 5% -10% 95822 $96,500 -69% 1% 4% -23%

95630 $328,500 -45.7% -3% -6% -6% 95823 $100,500 -70% -4% -4% -13%

95632 $168,000 -64.5% -8% -7% -19% 95824 $70,000 -74% 1% -3% -15%

95638 $345,000 -61.9% N/A 16% N/A 95825 $139,000 -61% 11% 39% -19%

95655 $175,000 -52.6% 1% -27% -14% 95826 $158,500 -57% 6% 18% -3%

95660 $113,000 -71.7% 0% 16% 1% 95827 $132,000 -61% 0% -7% -16%

95662 $202,500 -49.5% 8% 5% -8% 95828 $129,000 -63% -2% 8% -6%

95670 $188,750 -65.1% -8% 5% -6% 95829 $185,000 -56% -2% -3% -8%

95673 $157,250 -74.2% -22% -26% -29% 95831 $225,000 -54% -6% 8% -19%

95683 $285,000 -47.7% 14% 14% 9% 95832 $77,000 -75% 12% -25% -23%

95691 $240,000 -51.7% 13% 5% -4% 95833 $128,500 -66% -11% -14% -17%

95693 $424,500 -60.2% -10% 10% -21% 95834 $145,000 -66% -11% -22% -19%

95742 $260,000 N/A 6% 13% 12% 95835 $220,000 -55% 7% 21% 3%

95757 $254,000 N/A 0% -8% -5% 95838 $82,400 -73% -3% 13% -11%

95758 $202,700 -66.8% -3% -10% -11% 95841 $112,000 -68% -27% -10% -28%

95814 No Sales -47.8% -41% -73% N/A 95842 $122,500 -63% 3% 2% 11%

95815 $63,000 -77% -13% 22% -7% 95843 $157,000 -61% 1% -5% -7%

95864 $189,750 -63% -45% -24% -23%


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HISTORICAL PRICES BY ZIPCODE:


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PLACER COUNTY


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SACRAMENTO COUNTY


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YOLO COUNTY


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SACRAMENTO MARKET CHANGE:


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RESOURCES AND METHODOLOGY:

ABREVIATIONS

CAR = California Association of Realtors

HAFA = Home Affordable Foreclosure Alternative

HAMP = Home Affordable Mortgage Program

MLS = Multiple Listing Service

NAR = National Association of Realtors

NOD = Notice of Default

NOT = Notice of Trustee Sale

REO = Real Estate Owned by a bank, or foreclosure

SAR = Sacramento Association of Realtors

WRE = Wright Real Estate

METHODOLOGY

All properties of a given type were downloaded from the MLS and analyzed to

achieve the highest degree of accuracy. The following assumptions and

estimates were used in the calculation:

Appreciation = No appreciation has been included in our estimates, though

it will certainly occur.

Cash Down Payment = 25% of purchase price

Closing Costs = 4%

Initial Repairs = repairs at purchase have not been factored into the

equations at $10,000. These actually vary dramatically by property.

Insurance = .4% annually (divided by 12 for monthly estimates)


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Interest Rate = 5% amortized over 30 years

Maintenance = 10% of gross rents

Property Management = 10% of gross rents

Rents = projected based on our internal findings for each zip code and the

average rents/square foot averaged. These are adjusted based on the

number of bedrooms (SFR) or number of units. Therefore estimated rents

for Duplexes, Triplexes, and Four-Plexes vary by property type and zip

code while SFR rents vary by number of bedrooms and by zip code.

Taxes = 1.2% of the purchase price annually. Although this number varies

the amount is not significant.

Vacancy = 5% of gross rents

ADDITIONAL RESOURCES

MetrolistMLS.com - to search for properties. www.metrolistmls.com

NorthState Building Industry Association (BIA) www.northstatebia.org

Rental Housing Association (RHA) www.rha.org

Sacramento Association of Realtors (SAR) www.sacrealtor.org


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Wright Report

Serving Real Estate Investors since 2000.

Check out our BLOG and additional STATISTICS on the web at:

www.WrightRealEstate.US

For FREE Information and Consulting Services contact us:

Office: 916.726.8308 [email protected]