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Foreclosures and the future

The SacBee reported on Friday that homeowners are losing their homes at an alarming rate compared to total sales.

The SacBee reported on Friday that homeowners are losing their homes at an alarming rate compared to total sales. In the Jim Wasserman article, http://www.sacbee.com/142/story/378452.html>“Foreclosures gain on sales,” it was pointed out reported, “For roughly every two homes sold in August in the capital region, one house went into foreclosure.” During the month of August while sales slowed foreclosure activity increased. There were 1,367 foreclosures in the seven county area around Sacramento (Amador, El Dorado, Nevada, Placer, Sacramento, Sutter, Yolo, Yuba).

Looking a bit closer to home, the real estate markets in Sacramento, Placer and El Dorado counties are continuing to struggle with sales and falling prices. Compared to August 2006 sales of existing home were down 32.9 percent in Sacramento County, 7.2 percent in Placer County and 12.2 percent in El Dorado County. The median price of sold home in Sacramento declined 13.9 percent to $310,000. This was down $10,000 from July 2007. In Placer County the drop from last August was, $30,500 (-6.6 percent) to $429,500. Compared to last month the decline was $7,500. Finally, in El Dorado, we saw a decline in the median price from last year of 10.5 percent to $428,750.

In addition to the normally high level of inventory that we generally experience this time of year the number are being buoyed by the large number of distressed homeowners who are trying to avoid a foreclosure by trying to sell at almost any price. At this time there is no “light at the end of the tunnel” for sellers. The increased credit requirements to get a mortgage has removed a number of potential buyers, builders continue to offer almost insane new home incentives and slow sales in other parts of the country are reducing the number of relocations.

It is very easy to start thinking there is no end to the woes in our local Sacramento real estate market. We have gone from one of the hottest markets in the county to one of the weakest. Clearly, the demand caused by investors and the increased number of buyers due to new loan products, drove prices up beyond what the average household could afford. There is no way to sustain price appreciation when fewer and fewer households could afford to buy a home. Looking at the California market, I believe there are some strengths in our local market we should not overlook. First, the Sacramento area is a great place to live, work and raise a family. Our economy and employment remain strong with a positive outlook for the future and maybe most important is that our affordability index is better than many other parts of the country. I recently met a waitress who told us that she and her husband have recently moved here from Southern California. She noted that the prices are high here but they have a much higher probability of buying here. As some of the baby boomers retire in the bay area they will look for less expensive places to live and I think we provide a good alternative.