Home Prices Have Stopped Falling - Statistics Are Skewed

This excerpt from a response to the Sacramento Bee real estate blog gives me doubts concerning the “accuracy” of the median price data of the current crop of existing home sales. If you are a regular reader here you know I have been tracking the Sacramento area real estate market for several months. If not, use my real estate category for background. The Sacramento market has been surging in home sales for the last 4 months with year-over-year and month-over-month gains for each of those months. The sales gains have been on the back of bank owned properties, making up to close to 70% of the existing home sales. During this same time frame the median sales price has continued lower at 4% to 5% per month and now sits about 30% lower than a year earlier. The opinion stated below leads me to believe the “real” price decrease is much less than the published data.

“I am purchasing bank repos, adding up to $20,000 in repairs and selling the homes for a 10-20% gain in just a few months.

With all the bank repos on the market it is lowering the “average” sales price. If you have a nice home with all new appliances, granite countertops and new carpet,paint, interior doors, garage door, updated windows, central heat and ac then it will sell 40% above a similar bank owned property. People need to realize the bank owned properties are rarely livable and need much work, you cant compare that to your own home. I have data to prove it.

Mike Roth

Realtor, General Contractor

El Dorado Hills

My reasoning on true values goes something like this: Repo sales have gone from almost nothing to 2/3 of the market. If the value of a cared for home is 40% higher than a comparable bank sale then most of the median price decrease (.40 x .66 = 25%) is due to the increasing numbers of foreclosures being sold. Add the fact that there is almost no activity in the jumbo mortgage price range to pull the median up and I believe that an owner occupied home with everything current and cared for is probably worth the same amount it was a year ago.

If my rough analysis is correct, home prices have bottomed and there is definitely money to be made in purchasing and rehabbing foreclosures. Existing homeowners should sit tight and wait for the bank owned property to work its way through the system. The further good news this week that year over year sales increased in both Southern California and the San Francisco Bay area in July for the first time since 2005 give further evidence that the California real estate market is at or near the bottom. Another plus (unless you are a home-builder) is that California home-builders will build the lowest number of new homes in 2008 and 2009 in 50 years, further moving the supply/demand equation in the favor of ownership. SF link here.

Sacramento Bee — Home Front real estate blog.

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