April, 2008
Affordability Is Returning to the Sacramento Real Estate Market!
April 15th, 2008 categories: Market Commentary
Today, I received from one of our self proclaimed “bean counters” some awesome information that demostrates what we’ve been trying to portray for the last 6 months: The market is beginning to bottom out and the price reductions this market has endured for the last 3 years is coming to a close.
The balance between housing prices in our market and affordability is predicated on the ideal ratio of average selling price to the median income of the region. In 2002, the average sales price was 3.5 times the median income in the region. 3.5 times the median income is a healthy income to average sales price ratio. So, if you make $100,000 per year, the comfortable home price for your purchase is roughly $350,000.
The information for 2005 reflected just how out of whack our area was and why this price correction was imminent.
During 2005, at the height of the market, the average sales price was 7.9 times the median income of the region!
With the healthy ratio being 3.5 times the median income, our current market condition now makes total sense.
Currently, we are at about 4.4 times the median income for the area. We’re not out of the woods yet but there is light at the end of the tunnel.
Greg Paquin founder of the Gregory Group, one of the few local pundits who has been more right than wrong in the current downturn, when asked about what the bottom of the market looked like for a recent SacBee article said “I think it looks like where we are. I think you’re going to see slow sales, but more consistent sales.”
He added “My sense is we’re going through the worst of it now, and that’s reflected in the prices we’re seeing. … My impression is the second half of the year is going to be starting to dig our way out of it or moving forward.”
He went on to say “I think with pricing (still falling) and sales holding constant there is a sense we are pretty darn near the bottom. I think we’re within 3 to 5 percent of that point with net pricing.”
Within 3 to 5 percent? Now that is light at the end of the tunnel!
Light at the end of the tunnel? Darkest before the dawn? Whatever….let’s get it over with and move on!
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