Sacramento Real Estate Views

Could The Sacramento Region Lose 20% More In Home Values?

A. Gary Shilling Is Convinced It Will

This information/prediction has been around a while and largely I had ignored it.  Anything that seems too improbable, too far out there I tend to gloss over thinking “that’s nice but doesn’t seem realistic”.

Case/Schiller has come out and said that over the next 3 to 5 years real estate will lose up to 26% more value.  That would put roughly 50% of homeowners nationwide underwater on their mortgages and could cause a mass exodus from homes and that, in turn, could cause another financial system meltdown.

Or maybe not.

A. Gary Shilling, however, is one of the prognosticators who got the downturn right, predicted the sub prime mess as well as not agreeing with most economists last year when the market appeared to be rebounding. (He was correct there too.)

Massive Oversupply Of Homes

The basis of his contention for another 20% drop in home prices hinges on the fact that, currently, there are roughly 4 million homes available for sale when the new and existing working inventories create roughly 2.5 million homes for sale per year.  This leaves an excess of about 1.5 million homes in addition to the “shadow” inventory of 500,000 additional homes to work through a system that is not built for speed, as it were.

This leaves 2 million in excess homes to be sold on top of the 2.5 million that are the normal working inventory in the industry.  A glut of homes available will then drive prices down until the 2 million additional homes are absorbed.

That could take years in a selling environment where mortgage standards have tightened more so than what is needed, an entire segment of buyers is not motivated to purchase and a recovery of home sales just isn’t happening.

By the way, last I checked, we’re not selling 2.5 million homes this year nor did we last year according to the National Association of Realtors.

So What’s This Mean?

The average home that sells in Rocklin is 4 beds, 2.5 baths, 2400 square feet and is selling for around $317,000 currently. In 2006, that same home averaged a sales price of $533,326.

If home values decline 20% more over the next 2 years to the bottom in 2013, where Mr. Shilling says the bottom of the market will be, that would make this same home worth $254,000 in 2013, a 52% decrease in the average sales price in the 95765 zip code of Rocklin.

Considering the state of our local economy where the two biggest employers, the State of California and the housing industry, are severely depressed right now, it seems fathomable that this could occur especially here.

What’s A. Gary Shilling’s advice?  “Sell your house, second home or investment single family houses yesterday, if you plan to do so any time soon…Excess inventories are likely to push down prices another 20%.”

As a parting comment, Mr. Shilling also says that his prediction “may be optimistic because declines tend to overshoot on the downside just as bubbles do on the upside.”

Not good news.

More Information

To find more information on A. Gary Shilling, Google “Gary Shilling sell your home yesterday” for the complete thesis.  Hunt around and see who is quoting him.  I was very surprised and am now beginning to believe this could happen here in Rocklin and the Sacramento region.

Also Yahoo! video, The Daily Ticker, had Mr. Shilling as a guest.  Google “20% drop in housing to cause recession in 2012 Gary Shilling” and it should come up.  Click here for the link.

If you’re underwater on your mortgage, having trouble making your mortgage payments or need to relocate and sell your home, whether you have equity or not, please contact us.  We specialize in short sales with a professional negotiation staff whose sole function is to negotiate with your lender to get your short sale through.  Best of all, our services cost you nothing as our fees are covered by your lender from the proceeds of the sale of your home.

As always, please consult your financial professionals to confirm with them the current ramifications of selling your home for less than you owe.

To contact me, please call, email, text or simply fill out the form below and we’ll get back to you promptly.

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Your Questions Answered!

“What Percentage Of The Market Is Short Sales?”

As most full time, active Realtors do, I get questions from my clients all the time.  If you’ve been following my blog at all, you know that I look at all aspects of the market to try to accurately assess what direction this “bus’’ is headed.  While seemingly an impossible task, it’s fun!  Not that I’m always right but I enjoy writing about our market.

It’s been said that 2010 is the “Year of the Short Sale”.  I’m willing to bet that’s NO WHERE on any Chinese calendar but it does seem that short sales will be happening in record numbers this year.

Especially considering the government has just come out with a new program, HAFA, that will incentivize banks for working with the homeowner to get them through a short sale rather than foreclose.

This is a good move as it’s clear to everyone the banks have absolutely no interest in a serious loan modification program but short sales save them money in the short run.  Occupied homes are better taken care of than a vacant home.

As of this writing, short sales represent just over 30% of the available homes for sale in the Sacramento, Placer and El Dorado county area.  REO’s, also known as bank owned homes, represents just about 17% of the available homes for sale and regular real estate represents just over 52% of available homes for sale.

Being that such a high percentage of home owners are underwater in our region, and nationally for that matter, it surprised me that there such a high percentage of regular real estate homes available.

Looking for a Realtor to help you with a short sale?  Just fill out the information form below and we’ll get back to you promptly.  Our team handles many short sales every month with success.  We can help you too.

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