CA "Central Valley" prices down as low as 50%

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CA "Central Valley" prices down as low as 50%

Account Closed
Member since 2008 · 2k+ posts · 0 votes

[size=18]CA prices down a WHOPPING 40%-50% [/size]

Many analysts suggest another 15% drop in values in the next year!!

This is pretty typical in the areas most hard hit in CA. I myself had a few homes in the "Central Valley" that doubled in value in a short period of time (3 years) and we sold in late 05. THANK GOD!

I will try to go back and link to this site that shows hundreds of these figures.

Here is an example:

Sacramento- High end Area- Custom Home

Total Loss: $407,600 Percent Loss: 40.7%
Asking Price: $594,900
Bedrooms:6 Baths: 4 Sq. feet:5600

Listing History:
Down 45.9% from $1,100,000 On 2006-09-16
Down 12.4% from $679,000 On 2007-06-23

Days on market: 518
# of Times Listed: 3

Previous Sales:
Sold on 2006-04-28 for $1,002,500
____________________________________

Total Loss: $341,Percent Loss: 49.4%
Asking Price: $350,000
Bedrooms:4 Baths: 3 Sq. feet:3052

Listing History:
Down 32.7% from $520,000 On 2007-09-15
Down 29.9% from $499,000 On 2007-12-08
Up 16.7% from $300,000 On 2008-01-12

Days on market: 154
# of Times Listed: 2

Previous Sales:
Sold on 2005-11-29 for $691,500

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  • Account Closed
    Real Estate Investor · London · Member since 2008 · 3k+ posts · 74 votes
    18y

    James,

    I do not put much stock in the headlines about X% fall predicted. Markets are local and the headlines tend to be statewide or similar.

    There are deals out there. RE investors should see the headlines as a con that will influence the sellers and scare the dumb money out of the market. A red flag to a bull to start hunting down good deals.

    Just be prepared to hold rather than expect rising values to bail out over priced deals.

    0Reply
  • Account Closed
    Real Estate Investor · London · Member since 2008 · 3k+ posts · 74 votes
    18y

    James,

    The properties have value. Just not values that work for people these day.

    If the homes can be lived in, if people can get to jobs (local or at a distance) then there will be people who will want to live there.

    We will find a bottom. Prices in the Central Valley are just that. Prices for homes in the Central Valley. If the price drop was talking about one area then so be it.

    0Reply
  • Toby Munk
    Residential Real Estate Broker · Aspen, CO · Member since 2008 · 155 posts · 4 votes
    18y

    It would be helpful to understand what the rental market is in that area. Can anybody enlighten us as to rental rates for homes. That is probably the best indicator for where values might end up in the future.

    Thanks guys.

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  • Toby Munk
    Residential Real Estate Broker · Aspen, CO · Member since 2008 · 155 posts · 4 votes
    18y
    Originally posted by "**********":
    1000 sq- 800 mo
    2000 sq- 1400 mo
    3000 sq- 1800 If you could find a renter who could afford that in the central valley.

    So at 6% that would translate to:
    $160k for 1000 sqft
    $280k for 2000 sqft
    $360k for 3000 sqft

    Break even on all 100% financing at 6%. What are actual prices to buy these? That way we can predict where the floor might be.

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  • Toby Munk
    Residential Real Estate Broker · Aspen, CO · Member since 2008 · 155 posts · 4 votes
    18y
    Originally posted by "**********":
    I am seeing 120Sq avg for REO and short sales on 100-1800sq

    Let me see if I understand you correctly. At $100/sqft a 1000 sqft home would cost you $100k (not rocket science, I know)

    It would rent for $800/month. That is 12*$800 = $9,600/year That is a 9.5% ROI. With mortgage rates in the 6% range.

    Now the question is, is there rental demand? Sounds like if one can rent the prices look OK where they are. If there is NO rental demand then all the financial calcs are for nothing.

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  • Jon Holdman
    Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
    18y

    Well getting $800/month for rent on a property that sells for $100K is going to lose money after expenses. That's not an ROI of 9.5%. ROI would be the return after expenses, not based on gross income. Use whatever percentage you like for expenses, but your "earnings" are going to be quite a bit less than 9.5%. "Capitalization rate" would typically be the relevant calculation, which is NOI/price. For most cash flow investors, $800/month on a $100K investment is a very poor investment. Anywhere prices are trending downwards, like CA, this would be a money loser, both on a short term and long term basis.

    Jon

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  • Timothy W.
    Attorney · Raleigh, NC · Member since 2008 · 4k+ posts · 1k+ votes
    18y

    Don't worry Wheatie. I'm sure the super cheap CA taxes will counteract the negative cash flow. :wink:

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  • Toby Munk
    Residential Real Estate Broker · Aspen, CO · Member since 2008 · 155 posts · 4 votes
    18y

    Yes, the good old taxes. Colorado has very low taxes. In Aspen you can expect to pay about $10k for a $10m property.

    I am not familiar with the California tax landscape.

    What returns do you consider worth while. Obviously changes depending on market outlook. Must be higher in a down market than in an up market?

    Trying to learn and understand from you guys, so don't take my above calculations wrong.

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  • Jon Holdman
    Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
    18y

    Toby, so one rule of thumb is to assume expenses are 50% of rent. So, take rent, less 50% for expenses, less your P&I payment, and the end result needs to meet your criteria for return. That really assumes a strictly cash flow perspective.

    If you think prices will fall, and you do intend to sell at some point, you might pay even less.

    If you think prices are going up, then you might pay more. However, since we've been in this bubble, expectations for appreciation have become out of line with the long term reality. I think any area that has seen a significant increase in prices, and has not yet seen a regression to the long term trend (inflation), is very likely to see continued price reductions.

    However, areas that have been already seen large price reductions may start seeing some appreciation again. Especially if inflation starts kicking up, as appears to be the case. IMHO, we are already seeing significant inflation increases (see yesterday's news on the producer price index.) Historically, real estate has been a good investment during times of high inflation.

    Jon

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  • Account Closed
    Real Estate Investor · London · Member since 2008 · 3k+ posts · 74 votes
    18y

    Toby,

    There is a prevailing attitude that long term buy and hold investors need to focus on the cash flow. Appreciation is assumed to be zero. 2% rule of thumb being the test case.

    If people are in development or other aspects of the business the numbers are different and different variables drive the return.

    If people are 'breaking even' on a monthly basis (common strategy in high priced markets) they are seen as being speculators as they do need positive appreciation before there is a return on the investment. While many have speculated for years or decades it is not a sure thing and seen as less than really investing by many on BP.

    I tend to advocate that people need to understand what works in the local market and why it works. Different strategies for different markets. Cash flow, appreciation, ability to force equity through refurbishment, better deal making (short sales, wholesale and other things that are not really buy and hold) can all be used if that is what the market will support and you really know you can ride out corrections.

    So, when seeking advice as to what people do understand it comes with a bias which can be very much a reflection of the market they operate in. Some BP investors are very used to being in a market where the population peaked 10 or 20 years ago so appreciation is very much diminished compared to states where the demographics are more positive.

    Tangent for a second: When on Liffe who were you trading for?

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  • Account Closed
    Real Estate Investor · London · Member since 2008 · 3k+ posts · 74 votes
    18y

    James,

    Back on topic...

    What does this mean?

    All residential prices?

    Only the prices but not the values?

    Or are some down 100% while others are down 0% so the average is 50%?

    Or it is there are some communities that are down 50% while the CA as a state (not the city of CA) is down nothing like the headline?

    I find that some people use headlines that grab you but lack substance.

    I am very sure there are specific houses that can be found to match the numbers. The problem is no one house represents the full state of CA. For CA to be down that much says something pretty dramatic that the data does not seem to back up.

    Comments?

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  • Account Closed
    Real Estate Investor · London · Member since 2008 · 3k+ posts · 74 votes
    18y

    James,

    Lets flip this around a bit.

    When folks in London talk about house prices they sometimes say the following.

    If prices were to fall by X% that means we will be back to April of 2006.

    If house prices in certain areas are down by 40% (or some other number) any idea when prices were back at that level as an average for the same community?

    Then people in the UK will look at wages. What were wages at the time and what are wages now.

    The logic is people can afford a certain amount monthly. If prices are down and wages are the same then a person should be able to buy more house assuming no change in interest rates.

    In markets where there are no buyers (DOM comment) it does not help much. It will later when people with real incomes figure out they can live in a nice house for less than it used to cost or still does cost in some other community.

    If people are still working the prices will find a level where it makes sense to buy rather than be a renter.

    0Reply
  • Steve Funder
    Northern, CA · Member since 2008 · 21 posts · 2 votes
    18y

    These Sacramento properties are not indicative of ordinary properties in the greater Sacramento area. Sacramento had strong appreciation in the boom, thus, had speculative buying and overbuilding. These circumstances lend themselves to substantial declines. The prices on the countrywide link showed everything from $169 sq/ft- $424 sq/ft at peak values. During the peak, values were $225 sq/ft, now they’re about $175 sq/ft. This represents an average decline of 22%.
    Many of these examples were new homes in huge developments (we’re talking 25,000 homes) out in the suburbs (like Elk Grove and Rancho Cordova). I didn’t see any in these examples that I would call a “high end area.” Several of the example properties were in places which may be investigated for environmental reasons like next to an Air Force Base or in flood plains, which, to me, demonstrates that their inflated values during the boom had to be driven by investors who were unfamiliar with the market.
    Inventory and average days on the market in Sacramento are two conditions that seem to be stabilizing. I wouldn’t buy and hold most deals in this market, but I have properties in Sacramento, and I’m not throwing myself on the railroad tracks either.
    Fresno has one of the highest poverty rates in the country, and the construction of a new college in Merced in 2005 sparked real estate construction and investment in a lightly populated area. When the headlines talk about the gloom and doom in the central valley in California, I think they primarily refer to areas like Stockton, Merced, Fresno, and Modesto.
    I felt compelled to clarify the extent of problems, particularly in Sacramento, mostly because some of these posts seem to be glorifying headlines which have a train wreck mentality. I just don’t think it’s that bad.

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  • Dave Kennedy
    Real Estate Investor · Georgetown, MA · Member since 2008 · 250 posts · 6 votes
    18y

    As bad as the decline seems in some of these areas homes are STILL overpriced.

    I was on Zillow the other day looking at a chart of the average home price in a town (name escapes me) in the OC.

    In excel I plugged the numbers in to get the delta for each year and wanted to compare it to the national growth average(6%).

    I've actually assumed an 8% market growth in this senario, seeing as though Cali would grow more then average. Just not at 20-40% like it was in past years.

    Of course we all waffle on how accurate Zillows numbers are, but lets just go with it.

    Actual Numbers
    2001 - 300k up 16%
    2002 - 350K up 17%
    2003 - 422k up 20%
    2004 - 510k up 21%
    2006 - 715 k (peak) up 20%
    2007 - 680 k down 5%
    2008 - 634k down 7%

    Normal 8% growth
    2001 - 300k
    2002 - 324k
    2003 - 350k
    2004 - 377k
    2005 - 408k
    2006 - 440k
    2007 - 476k
    2008 - 514k

    So a house that is priced at 634K should really be valued at 514k if you go with the "natural inflation" of market prices.

    It still looks like much of that market(SOCAL) is 20-30% overvalued. It's only going to compound over time but I see house prices falling at least that just to get back to normal or expected levels.

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  • Account Closed
    OR · Member since 2008 · 1k+ posts · 845 votes
    18y

    As far as I am concerned, you can keep the entire town of Modesto, and I'll throw in Merced, too.

    Wake me up when prices in San Diego County are 50% off on properties within 5-10 miles of the coast, any where from San Diego to Del Mar.

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  • G. NA
    Member since 2008 · 13 posts · 0 votes
    18y
    Originally posted by "PNW":
    As far as I am concerned, you can keep the entire town of Modesto, and I'll throw in Merced, too.

    Wake me up when prices in San Diego County are 50% off on properties within 5-10 miles of the coast, any where from San Diego to Del Mar.

    It is true. The inland areas of CA (Central Valley, Inland Empire, etc.) are more susceptible to RE meltdown as opposed to the coastal areas.

    0Reply
  • Larry Blenn
    Residential Real Estate Agent · Riverbank, CA · Member since 2008 · 1 post · 0 votes
    18y

    I'm a Realtor in the Central Valley for a large real estate company, The past 4 weeks in Modesto, Manteca, Stockton areas sales numbers have doubled. I called on a property today that had 15 offers. Manteca and Lathrop areas are getting snatched up because of their easy access to the East Bay Area.

    Despite this short flurry of activity, I'm not convinced it's real. The Modesto Bee had an article the other day saying another 3,100 homes were about to come onto the market. That would certainly eat up any progress we've made in the past 4 weeks.

    I agree that the coastal areas will always be far better investments but for the central valley - Tracy,Lathrop, Manteca area are good investments for East bay residents looking to move up by adding a short commute.

    Oh and;
    4 weeks ago - I was working with 2 good clients
    Today - I have 16 good clients and I didn't do anything different.

    Peeps are coming out!

    LB

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