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February 25, 2008
Home Sales Hit 9 Year Low
By MARTIN CRUTSINGER WITH COMMENTS BY JACK LEE
WASHINGTON (AP) - "Sales of existing homes fell to the lowest level in nearly a decade in January while the median price for a home dropped for the fifth straight month.
The National Association of Realtors said Monday that sales of single-family homes and condominiums dropped by 0.4 percent last month to a seasonally adjusted annual rate of 4.89 million units, the slowest sales pace on records going back to 1999.
The median price of a home sold in January slid to $201,100, a drop of 4.6 percent from a year ago. The drop in sales and the fifth consecutive decline in prices underscored the continued pressure facing housing, which is struggling to emerge from its worst slump in a quarter-century.
Sales were weak in all parts of the country except the Midwest, where sales posted an increase of 3.4 percent. Sales dropped by 3.6 percent in the Northeast, 2.1 percent in the West and 0.5 percent in the West."
Jack Lee: Home prices in Chico have been resistant to drop despite the slump in sales. We see square footage prices hovering well above $235 per SF in this area (correction this appears to be now between $203 and $190). I think a more realistic valuation would be somewhere around $185 and that's still pretty high considering local wages have not increase anywhere near what local home prices have. This means that when sellers finally "get it" they will likely be chasing a down market and that will cause a sudden plummet in pricing to catch up with realistic pricing. This price "correction" can't be far off, because home sales have all but halted in the Butte County area as the inventory of "homes for sale" grows and grows.
Typically home price appreciation is about 4% in good times, however the shakey sub-prime mortgages coupled to unprecedented low "teaser" rates for adjustable mortgages caused home prices to rocket up over 25% in one year. This contributed not only to sub-prime buyers rushing to cash in, but speculation in non-owner occupied houses by those looking to turn a quick buck.
People gambled on a continued price climb to build equity and take profits. The housing bubble grew to dangerous proportions. Then reality hit! Now many experts in real estate are forecasting a complete retreat of those price gains that caused so many to rush into buying while savy sellers reaped hefty profits. When the market reversed itself too many were left with houses that were not worth the balance on the mortgage.
Sacramento and Stockton are now being hit with massive foreclosure sales and that is adding to housing glut as new home builders scramble to unload their product before the full weight of the housing implosion is felt. The bottom may be a year or two off, so expect worse to come. Recession fears are exaccerbating this situation.
Posted by Post Scripts at February 25, 2008 08:38 AM
Comments
Hi Jack,
I wanted to post a response to the above statement in your last post-First off, the Chico area has experienced a drop in overall median price since the peak of 2006 by an approximate 8.6%, while the quantity of homes sold last year versus 2006 was down 5.7%.
The price per foot median-as indicated in the active listings today in the Sierra North Valley MLS covering the six areas of Chico-is $203.79.
In relation to your comment about "the inventory of"homes for sale" grows and grows." -just isn't accurate. In the third and fourth quarter of 2006 there were 600 plus listings on the market.
About this time last year that number was at 363 listings-as of today-there are 325 active single family residences.
I have researched this market for the past couple of years and you are more than welcome to view any statistical information on the Chico real estate market at www.chicoblogcentral.com
Thanks!
Tammy Waller
Waller Real Estate
1299 East Ave. Suite B
Chico, CA 95926
Posted by: Tammy Waller at February 25, 2008 04:32 PM
Thank you for the details Tammy.
Actually my first estimate was a SF price of about $210, however I was corrected by a broker who advised me that $235 was still about the average. I didn't qualify what he meant by average. He could have been talking a certain class of homes like the 4bd/2.5ba's, around 2300-2500 sf., because we were discussing those homes. I should have clarified that. I will get in touch with him tomorrow and get that cleared up.
If your research shows $203 per SF for an overall average we can go with that.
My point was, and please feel free to correct me if you think I am wrong, is Chico homes are still priced too high to generate what would be considered a reasonable number of home sales for the past 12 months. Further that inventory is disproportionately high compared to the number that is actually selling.
I'm curious how you feel about my suggested price of $185 sf being in an area that would be more sellable and still realistic?
Also do you disagree that if we continue to show a buildup of homes for sale without much being sold that sooner or later this will generate a rapid decrease in sales price to fit the market?
Do you have any advise for people who might be thinking about walking away from a mortgage where the balance due is more than the house is worth?
Any other thoughts you care to share would be appreciated.
Posted by: Jack at February 25, 2008 09:49 PM
Tammy I have a little update, it looks like the sf price is now down to about $190 for the last 3 weeks. This is getting into an area that should stimulate some buyers.
However, as I see it the housing inventory is still too high in comparison to the sales.
I'm told by several area brokers that a fair number of the 45-50 closed escrows per month over the last few months are bank repo's.
My research shows there are 331 homes on the MLS, which as you know does not track FSBO's and there are 81 homes in escrow which means that quite a few of those will probably not go through given the average of closed escrows per month.
So the market is still pretty rough and I feel we are going to see more downward pricing through most of this year.
If you have a chance to comment, would you be able to tell us how many of those homes for sale on the local market are sitting empty? An empty home usually means a motivated seller, right? That might soon generate some pretty good deals out here. This might peak the interest of some buyers?
Posted by: Jack at February 26, 2008 08:43 PM