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Originally Posted by bennywah
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for the people so bent on the real estate crash, it was predicted that the market will stay stable for the next year, and next year see a very small gain.
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Population, economy make housing slump milder than in '91
Insiders point to better employment numbers, pockets of sales strength
Sacramento Business Journal - November 10, 2006by Robert CelaschiCorrespondent
It's not like last time, they insist.
"It" is the downturn in Sacramento's housing market. "Last time" was circa 1991. And "they" are the people who build, sell and analyze Sacramento's housing.
The argument: This time around, the housing market hasn't taken nearly as bad a tumble as it did when the first President Bush was in office. The local economy is in better shape. Would-be buyers are still looking at houses, though in smaller numbers. And builders have gotten better at riding the ups and downs of the market. Thus, the market will take less time dusting itself off and starting another climb.
After a decade of rising prices through 2005, even a flat housing market would have been a radical change. But prices headed downward this year. For existing housing, Lyon Real Estate is predicting an overall decline of 0.4 percent in the average sales price for 2006, and further erosion of 5 percent next year.
Sales volume for existing homes is down too, about 32 percent from 2005. The expected four-county total of 20,866 sales by the end of this year would be the lowest since 1999. New-home sales were down 46 percent in third-quarter 2006 from the same period a year earlier.
Meanwhile, the inventory of houses for sale has been growing. From a recent low of 3,333 in December of 2004, inventory nearly doubled to 6,241 six months later, and more than doubled again to 14,591 by June 2006, according to Lyon.
But how does that compare to 1991? Back then, an inventory of 10,000 to 13,000 houses was the norm, and the area's population was a lot smaller. At the same time, monthly sales totaled only 6 percent to 9 percent of inventory. Over this past year, monthly sales have ranged between 11 percent and 20 percent of inventory.
Recent sales data showed homes sitting on the market for an average of 60 days in most months. That was a dramatic slowdown from the past few years, when the average hovered between 30 and 40 days. But for most of the 1990s the norm was 90 to 120 days on the market.
With the region's population growing every year, one way to gauge inventory is to look at the number of people per available house. Not surprisingly, the region's housing market was hottest at the times and places where that ratio was largest (see chart).
A firmer foundation
Along with the better housing numbers than 15 years ago, Sacramento also has a stronger economy.
In the 1991 downturn the country was in a recession. The biggest difference today is that the region has job growth, said Townley Larzelere, owner of Whitney Research Group in El Dorado Hills
"Jobs generate new household formations, and that generates a need for new housing," he said. "In the history of this country there has never been a situation where job growth and housing have ever gone in different directions."
In the early 1990s the unemployment rate for the Sacramento region never dropped below 6 percent and sometimes rose above 9 percent. As of this past September it stood at 4.4 percent, according to the state Employment Development Department.
And in the early 1990s even people who had jobs were nervous because of the planned closings of Mather Air Force Base and the Sacramento Army Depot, and later of McClellan Air Force Base.
"They didn't all close on day one, but the announcement put the fear into everyone," said Doug Pautsch, Sacramento division president of Centex Homes Corp.
Workers' compensation insurance was another big issue then, and employers were leaving the state to avoid high premiums, noted Mike Lyon, chief executive officer of Lyon Real Estate.
No matter where one puts the blame, there's no denying demand for housing took a nosedive.
"Buyers essentially decided en masse 'we aren't buying anymore.' You had no one showing up at projects to look at product, so it didn't matter what kind of incentives you had," said Greg Paquin, owner of The Gregory Group, a Folsom company that measures real estate trends. "We're seeing a completely different scenario now. We're using a number that suggests traffic is still about 75 percent of what it was at the peak of the market."
Lyon has a different set of numbers but they suggest a similar pattern: A drop of 30 percent in buyers this year, compared to a 50 percent drop in the 1990s.
"The other thing that has happened is that there are a lot more financing options available," said Pautsch. "We can get buyers in on buy-down rates, low rates with little or no down that weren't available in the '90s."
Pushing the product
More than ever, sources say, location is key to finding a buyer without slashing the price.
"What's different in this market is we are having areas that aren't acting like others," said Lyon. Neighborhoods with a stronger hold on prices include Land Park, East Sacramento, Granite Bay, Sierra Oaks and Arden Park.
Paquin said Lincoln is getting hit hard, with prices down maybe 3 percent on the year.
Commuting is more of a factor now than in 1991, when gasoline was cheaper, freeways were less congested and many people worked closer to home. Buyers now are willing to pay more to be near job centers.
"People are saying 'I can't spend three hours away from my family every day,' " Lyon said of some long-distance commuters.
For new construction, the key to success is a combination of location and how long the builder has owned the land.
"Near the end of a fast market there are still people snapping up ground and paying too much money. A builder has to plan on a 30 percent margin so when he has to give up 20 percent at the end, he still makes some money," said Lyon. "A lot of builders who bought land at the peak of the market are in trouble now."
Centex is not among that group, said Pautsch. "At Centex we have doubled our market share since last year. Our year-to-year sales are up," he said. He too cites location as one reason.
"When the market was good, a C location drew as much of a premium as an A location," he said. Now it takes an A location to motivate buyers, plus incentives, plus more hustle on the part of the builder.
"Centex, for as many good things we have done over the years, we haven't had to spend a lot of money advertising," he said. Now the company is touting its product, and in some creative ways. At the WestPark development in Roseville, Centex joined forces with Lennar Corp. and Pulte Homes to sponsor a day of free seminars last month to help potential buyers.
"We'll help you learn the tricks to selling your current house so you can move into your new dream house," said the marketing materials. The builders brought in experts in staging, lighting, sound systems, home appraisals and resale techniques.
Builders have learned a few other tricks since 1991.
"One is that they don't start building a house until they are under contract," said Ana Helman, spokeswoman for the North State Building Industry Association, based in Roseville. "They have lots, but they don't invest more into the property until they have someone who is serious about buying it."
When builders do open a new phase in a development, they tend to build only six or eight model homes to get things started, rather than 10 or 12, added Paquin.
Rebounding
There's one category of player today that wasn't a factor in the 1991 downturn: the speculator. It was the flood of housing put on the market by speculator-investors that pushed down prices this year, said Larzelere of Whitney Research Group.
But Pautsch insisted that the speculators are largely gone, and prospective buyers are merely waiting to see when the market will bottom out. That shouldn't take as long as it did last time, sources agreed.
The housing downturn of the early '90s lasted until the start of the dot-com boom.
"We're not going to take seven or eight years this time," said Lyon. He's figuring it will take about two years to work off excess inventory. In some segments of the market it's already starting.
"Most of the $750,000-plus inventory is still gaining, but you get under $400,000 and the inventory is starting to decline," he said.
Paquin predicts 2007 will look a lot like this year, with sales volume increasing in 2008 and prices finally rising again in 2009. Larzelere is even more optimistic. He expects the market to stabilize in the second quarter of 2007, roughly 18 months from when the market started to cool.
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