Friday, March 14, 2008

The Mighty Misleading Median

Initially, purchasing activity slowed, yet median prices kept rising. This enigma was oft attributed to the fact that only higher end homes were selling, raising the median. Now the roles are reversed and it appears that lower end homes are the primary drivers behind the sales numbers these days. With this reversal, the median home price has tumbled over the last year

This phenomenon makes home pricing look much more aggressive than it really has been because the distribution at the higher end has not changed much. The lower 50% of the market seems to be getting the hint, and that is where the sales have occurred (see stats provided by Agent Bubble below).

So while the median sales price has supposedly dropped 30% or so in Sacramento over the last year, I'm not sure its reflective of the entire market.

12/1/06 - 2/28/07
By Sales Price
0-100K - 21
100K-199K - 258
200K-299K - 856
300K-399K - 1417
400K-499K - 749
500K-599K - 376
600K-699K - 201
700K+ - 276

12/1/07 - 2/28/08
By Sales Price
0-100K - 106 (+405%)
100K-199K - 731 (+183%)
200K-299K - 1237 (+45%)
300K-399K - 958 (-32%)
400K-499K - 398 (-47%)
500K-599K - 187 (-50%)
600K-699K - 97 (-52%)
700K+ - 127 (-54%)

This trend was reinforced by my research yesterday. I checked out pendings in El Dorado Hills, since the bank is going to prepare comps for our short sale. The number of pending sales over 600k is anemic compared to the lower end.

19 comments:

Sippn said...

Funny I was thinking on the same topic this morning...

Some people assume that all price ranges will drop the same % - so not true. Same with areas.

Most of the wild price escalation was in the heavy tract building areas.... Tract homes with million dollar price tags in Anatolia, Wilton, West Sac (same model in Lincoln for over $2 mil)that now barely get interest at $599K. Why - out of town speculators were heavily active in the new tracts - signt unseen.

The underlying problem is you could buy something with higher quality on a view lot in Folsom or El Dorado Hills for the same amount.

Which one lost the highest % of value? Not all were treated the same.

With the loss of momentum, many of the tracts had to discount heavily to get it sparked again, otherwize the luster is off.

sacramentia said...

I agree, the median decline of 30% is also the median percent decline based on different homes and neighborhoods.

Some are 50%+ off while others are in the 10% range. A couple examples....

By my data the $1M+ custom market in EDH rose about 90% from 98 to the peak, which was much less gain in percentage terms than the median. Now, it is falling much less than the median.

The case-shiller index shows this same trend in the bay area, the top quartile of homes appreciated less in % terms than the rest of the market.

I haven't run numbers on high end east sac, but I would guess it went up less in % terms than the median.

Paul said...

Ditto in Cameron Park. Although +$1 million dollar homes make up over 10% of the listings, as of last week, there were only four pending sales over $500k (which is also the approximate median list price).

Looking_in_EDH said...

I think the higher end has some declines still to come. What you are seeing in the distribution is the paucity of buyers available at the higher end.

With the lending institutions tightening on credit, there are not too many "eligible" buyers left in EDH. You just have to go through the Serrano Country Club to come to the realization that it is going to take several YEARS before the inventory gets to balance.

I have a real time economic experience with the home I am renting. In 2006, this home was listed for $995,000 -- and it would have cleared at around $900,000. But greed got the better ...

Now, it will be lucky to clear the market at $650K. The "owner" of this house is letting it go into defaulft after having extracted well over $300K in a refinance last year. This situation is not unusual in EDH.

My rediction is that the banks will be distress selling in spades later this year -- then you'll see a substantial reduction to the medians in the higher end.

Mystere said...

"You just have to go through the Serrano Country Club to come to the realization that it is going to take several YEARS before the inventory gets to balance."

What constitutes "balance" in your view?

Are you even aware of how many Serrano custom homes are for sale or is your view based only on your 'drive-by'?

There currently are 39 Serrano custom homes for sale, of which 3 are pending. This is down from the mid 40s last Fall. Aside from completion of earlier starts and build-to-suits, there is no new construction occurring. It's hardly an inventory circumstance that will take YEARS to balance, whatever that means.

alba said...

the higher end of the market hasn't been as hard of the lower end...yet. The unraveling of loans has naturally started at the bottom, and is working its way up the food chain. From the other front, many who buy custom homes don't necessarily put their entire savings into the home. Their investments, unless they're all in cash and gold, have just started to become exposed. We have not seen the rapid growth in inventory and downturn in the higher priced homes yet. Paulson will let you know when he can't cover the bets any longer.

Sippn said...

AND above $1 mil, they typically have a higher % down payment into the homes also, so equity often remains.

39 homesites is smaller than a typical lot release in Serrano.

smf said...

"There currently are 39 Serrano custom homes for sale, of which 3 are pending. This is down from the mid 40s last Fall."

And where the homes that disappeared homes that were sold, or temporarily out of the market?

I have seen plenty of homes come and go, and still not sell. Some are close to their 3rd anniversary.

And yes, I have a relative building a spec. mansion in Serrano. I doubt he'll come out even.

"the higher end of the market hasn't been as hard of the lower end...yet."

Give it time, the pain has just started. Looking for and close to buying in GR. Same model runs the gamut from (listed at) $575K to $979K. While it 'seems' as if the prices are holding, a good amount of them are already underwater! We thought they were being stubborn. The house we are looking at is already $100K in the hole.

One of the houses that sold recently sold for their 2003 price, in Gold River. And it is in one of the good areas.

Yeah...the upper end won't be affected my a$$...

Buying Time said...

"There currently are 39 Serrano custom homes for sale, of which 3 are pending....It's hardly an inventory circumstance that will take YEARS to balance, whatever that means."

Hate to break it to you, but that's 13 months inventory assuming all of them close in this month...and thats a BIG if. Last I checked, 13 months is over a year.

Mystere said...

First, what you just said makes no sense. If they all close this month, then...they're all closed and there's no inventory...

Second, hate to break it to -you-, but last I checked the common meaning of "several YEARS" is just that and in any event more than 13 months.

Smf, anyone building a spec mansion in this environment, whether in Serrano or anywhere else, is unlikely to come out even.

Y'all are such rabid muppets. Nobody is saying that the upper end market hasn't been and won't be affected. What's been challenged is the assertion, based on -nothing- empirically to back it up, that it will be several YEARS before Serrano custom inventory is back in balance.

Good luck in GR. It's a very nice area.

Buying Time said...

Sorry, I should have been more clear...if the 3 pending sale actually close escrow this month...then that makes for 13 months inventory.

I was merely trying to use the data you provided to make the point that the market is not balanced. I wasn't sure if you realized how long it would take to actually sell 40 or so custom homes in EDH at the current rate.

In terms of rabid muppets...(that was adorable, and will have to use that on my kids...thanks). I really don't mind if you disagree...in fact its helpful for me to see the other side, and Sippn could probably use the help.

smf said...

"that it will be several YEARS before Serrano custom inventory is back in balance."

He bought the land back in 2004, and the house is not on the MLS, yet. Many are essentially forced to build in Serrano once they buy the land. And it wasn't till 2006 that signs of pain were starting to show up.

In essence, there are many more houses under construction in Serrano than current inventory shows.

At the same time, other higher end areas (95864, 95628, 95608) hold plenty of spec. inventory as well.

Just take a good look at the # of spec. mansions for sale in Granite Bay. The vast majority of them being built after 2003.

And in a related item, the last model type that sold in GR, the same model we are looking at, sold at its 2003 price.

So, a good chunk of this inventory is already upside down, whether these sellers know it or not.

Mystere said...

BT, there's no disagreement...because we're talking apples and oranges.

The issue isn't how long it would take to exhaust all existing inventory. It's what it would take to bring it back into 'balance.' As I initially asked above, what is "balance" in that poster's view?

I'm aware of how long it has taken, historically, to sell Serrano custom homes. Are you? The rate actually is less than an average of 3 per month over the last couple of years. According to my info, in 2006, 22 were sold. In 2007, it was 21 (not including build to suits). I'm also informed that a 'normal' inventory level would be approximately 25.

Right now, there are 38 for sale and 2 pending (the closing of 1 of the pendings was reported this weekend).

Going with your example of the pendings closing, that makes it 36vs. a normalized i.e. balanced inventory of 25. Going forward, there's no telling what rate of absorption will apply, and, given that over half of the existing inventory is priced at $1,675,000 and above, it could be awhile since higher priced homes generally always take longer to sell than lower priced ones. But I highly doubt that constitutes a circumstance that will take "YEARS" to bring back into balance, especially if sellers decide to price aggressively.

SMF, the fact that your spec purchaser bought the lot back in 2004, and yet here in 2008 the house is still not on the mls, appears to belie your assertion of lot owners being 'forced' to build. That said, I'm aware that timing parameters apply to certain aspects of construction there e.g. you have only so much time to put in landscaping once the house is built, etc. The homes I see that currently are under construction in there are build to suits, as well as remnants of prior spec starts. I don't see new spec starts being commenced. In any event, I question whether any purchaser who previously bought a lot in there is going to himself/herself to be forced to throw money away by building a spec home just to satisfy the HOA.

smf said...

"But I highly doubt that constitutes a circumstance that will take "YEARS" to bring back into balance, especially if sellers decide to price aggressively."

The question then becomes if those who qualified to purchase before the crunch be able or willing to purchase now?

If banks are now requiring much more proof that a buyer can actually pay that mortgage, how many of those sales would be eliminated?

Since Serrano is such a new development, real historical figures would be hard to find.

And with other mansions available much closer to the city for about the same price, what other incentives can be given to move these homes?

And funny enough, the uncle who is building this house is probably one that can easily afford the payment.

But in his own words, he would never live in a place like Serrano.

Mystere said...

The question is broader than that. As to excess inventory, it's (i) how many buyers emerge that are ready, willing and able to buy, (ii) how willing are sellers to negotiate on their asking prices, and (iii) how much additional inventory will come on the market.

At par, we're talking about the absorption of 13 homes. I'm sure that among the population of prospective buyers of high end properties in the greater Sacramento area, as well as among the potential bay area (not to mention other) transplants, there are 13 parties that can qualify.

Serrano is relatively 'new' in the sense that it isn't decades old, but keep in mind that at this point custom homes have been sold there for 12+ years.

Other mansions may be available closer to the city (where exactly are you thinking of, by the way?), but for some people being near the city isn't all that and a bag of chips. After all, those in Serrano moved there for a reason. It's a very unique, spacious, and well conceived high-end community with terrific amenities.

I feel bad for your uncle. Not only did he choose a poor time to build a spec home, but he also apparently chose to build it in a place that wasn't to his liking. But then, he did choose to invest in building it there. So, even if he didn't care for it, he surely was convinced that someone else would..

smf said...

"I'm sure that among the population of prospective buyers of high end properties in the greater Sacramento area, as well as among the potential bay area (not to mention other) transplants, there are 13 parties that can qualify."

I have yet to meet wealthy Bay Area buyers who willingly move to Sacramento. The BA transplants were mostly those who could not afford housing there, i.e. not the wealthy.

I don't know where you got your 13 number from, but at last count there are 19 houses for sale in Gresham and Greenview drive.

And again, the price us move up buyers can pay for our future house is directly related to what we sell our current home for.

"Other mansions may be available closer to the city (where exactly are you thinking of, by the way?)"

East Sac., Landpark, Arden-Arcade, Granite Bay, etc. Plenty of inventory there.

"It's a very unique..."

It is 'special', right?

"So, even if he didn't care for it, he surely was convinced that someone else would"

And so were plenty others. But the silliness is that he, quite the demographics for the mansion he is building, would never chose to live there. I would think that logic dictates that you expand your pool of buyers by building in a place you would also choose to live.

Mystere said...

"I have yet to meet wealthy Bay Area buyers who willingly move to Sacramento."

First, you really need to get out more. Second, if they didn't do so 'willingly,' then are you suggesting that someone held a gun to their head and forced them to move to Sacramento? Regardless of why such transplants occur, the reality is that they do occur and they will continue to occur, since there always will be a differential between values in the bay area and the greater Sacramento area.

"I don't know where you got your 13number from, but at last count there are 19 houses for sale in Gresham and Greenview drive"

Reread my post above. It's clear that you didn't understand it. And, at last count, there are 20 houses for sale on Gresham and Greenview (for the unitiated, Greenview and Gresham are the two largest streets, with Greenview being the main street that meanders throughout the custom area), and 18 elsewhere.

And yes, the area is very unique, and special...as is the Fab 40s area, as is Land Park, etc. All of these areas are high end and unique, but they are not fungible. A buyer who desires a 1940s era, flatland home in an urban setting is not the same as a buyer who desires newer design, construction, and amenities in a suburban home among rolling foothills. You assume that a 'mansion' closer (by the way, Granite Bay isn't closer) to the city is more desirable. It's apples and oranges, and there are far more variables than mere proximity to downtown. Many I know wouldn't live near downtown if you subsidized them for doing so. Others feel the same way about living away from downtown. Different strokes for different folks.

As for your uncle's spec, I believe that logic dictates that you would build in an area that you believe to be desirable generally, regardless of whether it is to you personally. I presume that's what he was doing when he chose to build in Serrano, so your comment of '*he* would never live in a place like Serrano' really is neither here nor there.

smf said...

Myst:

I am not denying that there will be more BA transplants, or people who are willing to buy mansions in Serrano.

But having both sets of parents being the ones who CAN afford these homes, I can tell you that THEY will never willingly move there.

And the issue is still there. You have more houses that were built than people that exist to buy them, period.

One of the idiocies that occurred during the bubble is that builders, in their attempt to maximize profit, built much bigger than most people wanted or needed.

We can now qualify to buy a large home, but size does matter in other maintenance costs, and we would not go past 3500 sq.ft.

Mystere said...

Smf,

There isn't much in your last post about which we're in disagreement.

There will be BA transplants, and there otherwise will be people willing to buy. Yes.

There currently is excess inventory. Yes.

In the bubble, builders built bigger than most people needed. Yes. It wasn't bigger than most people wanted, however, as the homes sold. There's also always a segment of prospective buyers, particularly at the high end of the income/wealth scale, whose demand isn't as elastic, even in bad times. Of course, in general during the bust era, demand patterns change and people surely are more cognizant of needs, as opposed to wants.

With respect to your parents/uncle, their particular personal preferences are exactly that...theirs. I'm aware of a family that bought a 6800 sq ft. home, since they like having all of their relatives visit and stay with them for an extended time over holidays, etc. These kind of one-off anecdotes really don't have any meaning, either way, in the grand scheme of things.