Now that agents have seen what a dismal spring it was, they will hopefully turn up the pressure on their sellers to drop prices. Those who need to sell quickly, new home inventory, and foreclosure/bank owned activity should also help accelerate the downward pressure on prices this summer and fall.
Less desirable areas in Sacramento, as well as outlying suburbs will see price drops first (we are already in this phase). Eventually, those looking in nicer areas like Folsom and Midtown, will see they can get much more house for their money elsewhere. This will siphon off demand for those nicer areas, and will eventually lead to softening prices (but not nearly to the extent of the less desirable areas).
I expect prices to drop in the less desirable areas around 30-40%, and around 20-30% in the more desirable areas, for an average of 30% for the Sacramento Metropolitan Area. This is considerably less than the Global Insight study (at 40% overvalued), but I am not inflation adjusting at this point. In sum, I think prices need to get back to 2002 levels with a little upward adjustment for inflation.
Of course the big question mark in all this, especially lately, is the effect interest rates will have. If they go up, obviously the small pool of buyers will get even smaller, which will prompt the market correction to speed up. If interest rates stay relatively flat, I think the correction will take at least another year and a half, if the rest of the economy holds up okay. If not, I think we may over correct, and prices will move south for at least two and a half more years.
Subscribe to:
Post Comments (Atom)
Posts
2 comments:
Right now, CFHA is 6.0%. The people who will get hammered is anyone who can't qualify because of the price cap or affordibility requirements or if they are investors. This is just fine by me.
In the meantime, that 10 yr yield is lovely for us savers.
The problem for many sellers is that they can't drop their price because they have a monster mortgage (or mortgages) on the house. For others, they are extremely reluctant to accept less than their neighbor got in the summer of 2005, and there's little reason to move since the job situation is stable in the area.
I don't think the market will correct by the end of 2008 if other economic conditions remain stable. Without a recession and/or significant rises in long-term rates, I think prices will stay flat or decline very slowly until incomes catch up and inflation erodes home values.
Did everyone see the recent report on income growth in metro areas across the US? The bottom 10 on the list of 100 included about 5 metros in the central valley and socal - I think Stockton was dead last. Sac was about in the middle of the pack; SF/Oakland was in the top 10.
Also, we should see DQ numbers for May on Sacbee's website by this afternoon.
Post a Comment