Monday, August 07, 2006

Faling home prices

It should not have been a big surprise when earlier this month DataQuick Information Systems reported that the median selling price of a home during the month of June for Sacramento and Placer County dropped below last year’s level. The news was a confirmation for “bubble” theorists who have been predicting the collapse of the housing market for the last two years. Could home values also drop in El Dorado County and if so, when and for how long?

Since July of last year, our region’s real estate market has been experiencing declining sales and longer marketing times to sell a home. The average selling price however, has continued to increase above last year. At some point, declining sales will always reverse an increasing price. It happened in June for Placer and Sacramento County as well as in many parts of the state and it will happen in El Dorado County. However, the price decline will only be temporary and not as severe as most other areas.

The median selling price of a home in Sacramento in June of 2005 was $373,000. Fast-forward a year to June of 2006 and the median had declined a whopping 1.3 percent to $368,000. Placer County’s decline was a little more significant at six percent, from $482,0000 down to $452,000. The median price in El Dorado County during the same time frame actually increased 4 percent to $493,000.

The regional press jubilantly pounced upon the declining numbers with front-page coverage proclaiming this was the “final chapter of big gains for hundreds of thousands of homeowners.” The evening news interviewed a despondent seller who, confronted with the information, bemoaned he would be forced to reduce his asking price below his purchase price just a year earlier. Well, give me a break. Let’s put this all in perspective.

It may be a little premature to proclaim the end of home price appreciation based upon a single month’s price activity. I bet if the cost of gas dropped next month from $3.10 to $2.98, no one would think that the days of high fuel costs are over. June of 2005 happened to be a record median high point for area homes. The “monthly” median selling price dropped the following month (July of 2005) and increased eight months and decreased four during the next twelve months.

Individual buyers and sellers shouldn’t place too much emphasis on the monthly numbers. Lumping together 4,000 regional home sales in order to derive a statistical conclusion as to a specific value on a single property is impossible. Many individual stocks will do well in a “bear market” and some homes continue to appreciate in a “buyer market”. The hesitancy for many buyers is the intimidating number of 14,600 listings in Sacramento, Placer and El Dorado counties. The large number of similar properties in homogeneous neighborhoods is all too confusing. Special homes and neighborhoods will always have a following.

Assuming every home in the region has lost value over June of last year, most homeowners are still in pretty good shape in their equity position. Sacramento has seen 66 straight months of year-over-year, double-digit price increases while Placer County has seen 36 months. The median price for a home in El Dorado County has increased from $240,000 in June of 2001 to over $495,000 last month. June’s median price number reflect that homes are selling 2 to 6 percent below where they were a year ago which is still an 85 percent increase from there median price in 2002.

With a few caveats, El Dorado County will weather any brief real estate downturn in the region better than most locations in the state. We have a unique combination of economic, demographic and housing mix that will insulate us from much of the deflating housing market that our neighboring counties are experiencing.


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