What Does The Future Hold For Sacramento Home Prices?
In May of 2006, Fortune Magazine and I predicted home prices were about to fall in Sacramento with the following words:
Real estate, real estate, real estate. Location, location, location. Sacramento, according to this month's Fortune Magazine, is a Dead Zone. One of seven Dead Zones, Fortune is projecting the price of a home in Sacramento will decline this year. Other dead zones are Boston, Las Vegas, Miami, Washington D.C., Phoenix, and San Diego.The latest house price data is in and according to the California Association of Realtors, the median priced home sold in California in August 2008 was $350,140. That’s down a whopping 37.6% since my crystal ball prediction in May of 2006. Sacramento fell even more – with a 42.3% decline, falling to $210,000 from $367,000 (existing single family detached homes).
What's going on in the California real estate market? Affordability is the key issue. The median priced home is $561,000. On average, it takes a $134,000 salary to qualify for the medium priced home. How many people in California make this kind of money? Not many.
My own barometer - Bob Shallit of the Sacramento Bee. For the past six months, Bob's column has been full of real estate stories. This no doubt is a strong signal that the local real estate market is poised for a downturn. How big of a downturn are we looking at? My research shows that in the early-nineties, the Sacramento region endured six years of declining prices. If you bought a house in 1990, prices tumbled and it was not until 2000, ten years later, that the medium price of a home in Sacramento returned to the 1990 levels.
Have Sacramento home prices hit bottom yet? No one knows. But, if history is any predictor of the future, it will take years for the market to recover to the prices of May 2006. Maybe more than ten years. (see my report California Housing Affordability Index Indicates More Decline In Home Prices). Prices have been falling for less than three years. The downward spiral is probably not done.
My advice? Don't chase a falling market! Sit tight and wait out any aggressive buying until prices stablize and begin to recover.
Our friend Jim York is likely not to take my advice. I hear he is buying up foreclosures in Sacramento like there's no tomorrow. Perhaps he has been listening to the sage of Wall Street - Warren Buffett - who's mantra is "be fearful when people are greedy, and be greedy when people are fearful."
The Sacramento Executive