The Real Deal New York

Sacramento gets the worst of it

Market experiences sharpest drop of any metro area in the U.S.

August 01, 2008
By Candice Reed

These are dark times in Sacramento. According to a National Association of Realtors survey from the first quarter of this year, Sacramento’s housing market lost 29 percent of its value in the past year, the steepest drop of any metropolitan area in the United States.

As bad as that sounds, further price declines are expected. The plummeting prices have shown the resilience of Sacramento, according to brokers who have become adept at detecting silver linings.

“I think the hard days are almost over,” said Bob Bronswick, president and CEO of Coldwell Banker Sacramento/Tahoe. “Right now I think we’ve hit bottom, and we’re looking at a bounce … I think things are starting to look up.”

Unfortunately, that bounce stems from both a positive and negative place. While there has been a small spike in sales in Sacramento since April, those sales are largely the result of banks selling off homes that have been foreclosed, according to figures released in June by industry tracker DataQuick Information Services.

The sales bump may last a while longer as more homes get foreclosed and then sold, but prices, meanwhile, are still declining.

According to the Web site Foreclosures.com, so far this year banks in the Sacramento area have foreclosed on 10,224 homes. At the same time, DataQuick reported that only about 5,448 repossessed homes were sold.

How did it come to this?

“Many of the problems in Sacramento were brought on by overbuilding, because there was land for houses and it was inexpensive,” said Delores Conway, director of the Casden Forecast at the University of Southern California Lusk Center for Real Estate. “The good news is that they’ve stopped building. But more than 40 percent of home loans were financed with subprime loans in 2006 — and many Hispanic and other ethnic groups who couldn’t normally afford to buy found the money.”

Analysts say before any rebound can begin, the Sacramento area needs to work on its so-called REO inventory of real estate owned by banks.

Some brokers welcome the challenge.

“From about 1996 to 2006, the REO market in Sacramento was almost non-existent, and most of those homes were purchased on the steps of the courthouse,” said Carlos Kozlowski, a broker with Coldwell Banker. “In 2006 there was a shift, and foreclosed properties skyrocketed to double-digits. At this point I have about 80 REOs in escrow. Anyone with expertise in selling these types of homes is doing well, and the buyers who can qualify and have a down payment are going to get a great deal.”

Still, for thousands of homeowners in Sacramento, woes in the area’s housing market are going from bad to wretched.

Margaret Ketwig, for example, is typical of many in Sacramento’s middle class. Ketwig, 48, bought her four-bedroom home in 2006 for $590,000. Yet recently she lost her job. She hasn’t been able to afford a payment since January. While Ketwig would like to sell, she acknowledges that she may just have to walk away.

“There are so many homes on my block that are owned by the bank, that I can’t compete with the prices,” she said. “I can’t even come close to making the house payments. I think I’ll be moving in with family and starting from scratch.”

The economic picture in the Sacramento area remains grim: The unemployment rate, which presently sits at about 6.4 percent, is rising — the first time that figure has gone up since 1993.

Given the bad news, it’s no surprise that the number of brokers in the area is shrinking too. The California Association of Realtors reports 15 percent fewer members now than in 2006, when membership peaked at 199,168.

So far only 1,482 people have taken the state’s real estate licensing exam this year. That’s down 93 percent from April 2005, when a record-high 19,795 people took that exam, according to the state Department of Real Estate.

“What we lost in brokerage was made up by the experienced agents having a greater number of sales,” Bronswick said. “This area has lost about 20 percent of their brokers, but those still in the business know what they’re doing. If they survive 2008, we will all be better for it.”

Local market-watchers expect at least another year of declining prices. “Things should start picking up next year,” said Conway. “As long as the national economy doesn’t take a nosedive, by 2010 the housing market should be returning to some sort of normalcy.”

Candice Reed is a California-based business reporter.

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