Naughty or Nice? New Home Shoppers Check the List Early in Sacramento

With Thanksgiving behind us and Christmas just around the corner, holiday shopping has officially started.  For housing in the Sacramento region, homebuyers started shopping early and are likely to continue through the New Year.  October 2011 showed a 19.5% year to year increase in volume. The reason?  Home prices are continuing to fall… 

San Diego-based DataQuick reported that the average sale price of homes in the Sacramento four-county region declined 9.5% from a year ago.  Although, the decline is not because of falling home values… It appears as though more buyers are flocking to less expensive homes, which is influencing the downward trend in average home price.

The number of months of new home supply on the market is down to 4.2, and even as little as 2.0 in some stronger markets.

Land Deals:

  • The New Home Company purchased a 128-lot subdivision in the master planned community, The Parkway in Folsom.  All but 44 of the lots were “mostly improved.”  Construction on the new homes within the subdivision is scheduled to begin in March 2012.
  • Most of the distressed finished lot deals have already sold in the Sacramento Region, leaving very few for opportunistic builders and investors.
  • The heavy multi-family activity in the San Francisco Bay Area has not yet moved east to reach Sacramento.   Multi-family builders are currently obtaining $1.00 to $1.20 per square foot revenues, which is not enough to justify construction for new product in the Sacramento region.

Source: Jim Radler, Senior Marketing Consultant, (916) 784-3329 x11

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Are Some East Bay Submarkets Now Overcorrected?

Take this into account… According to Real Facts, the average 3 bed/2 bath apartment in Dublin is currently renting for $2,470 per month.  Compare this to the typical monthly payment based on a $450,000 mortgage at a 4.0% rate; the fully amortized payment is only $2,150 per month. Adding property taxes at 1.1% increases the monthly payment to $2,562. Finally, adding a couple more hundred dollars for homeowners’ association costs and/or insurance brings the total monthly housing cost to approximately $2,760.

While this example of home ownership is a few hundred dollars more than the average Dublin rental, it is also based on pre-tax income. To paint a true picture we need to factor in the tax benefit of ownership. In the case of our example above, the total interest and property tax deduction should be approximately $20,000 per year.  Assuming the potential homebuyer is within the 25% marginal bracket, this deduction is the equivalent of a $5,000 per year tax savings, or approximately $415 per month. Taking this into account the true cost of ownership is only $2,345 per month, which is $125 per month less than the average 3 bed/2 bath rental in Dublin.

While all this may not mean house prices are finished declining or that sales are going to double anytime soon, we can definitely read it as a sign that we have reached a key point in the housing cycle, and that bottom has to be close… if we haven’t already hit it!

Source: Steve Reilly, Marketing Consultant, (925) 368-3128

W. Riverside County: Busier Than You Think

Amid slow overall residential land sales activity in West Riverside County, a number of transactions are still moving forward, and are nearing the finish line.

West Riverside County has experienced few improved lot transactions in 2011, as the submarket hasn’t seen any “turned dirt” since 2009.  A public homebuilder recently closed on approximately 90 “finished” lots in French Valley.  Also, two escrows for “finished” lots are scheduled to close by year’s end:

  • A public homebuilder is buying a ±50-lot project located within the City of Wildomar.
  • A private investor is buying a +100-lot project located in Moreno Valley.

In regards to the apartment/for-rent land market:

  • A ±600-unit site is close to going under contract in Temecula, marking another significantly-sized apartment land escrow in this city in the last six months.
  • Corona still has two large apartment land projects on the market.  It doesn’t appear that buyers are stepping up to the seller’s pricing expectations though.  This may be due to sellers’ knack for overestimating rent appreciation in the coming years.

The Land Advisors’ West Riverside Team put two projects into escrow this month that are in the Menifee area.

Source: Mitch Casillas, Marketing Consultant, (949) 852-8288 x23

The American Dream… Renting in the Central Valley?

As the Central Valley land and homebuilding market continues to slog through foreclosures, short sales, and tepid new home sales, many potential homebuyers are waiting out the current real estate cycle until real signs of economic growth emerge.  

  • According to Affiliated Appraisers, the median sale price of a single family home in Kern County rose 0.8% to $132,000 from September to October this year, but decreased by 2.2% year over year.
  • The number of foreclosures dropped 9.9% from September to October of this year, and is down 36.1% since October 2010.
  • October saw 522 closed homes sales (new and resale) throughout the County, down 11.4% for the month and off 7.1% for the year.
  • Properties owned by lenders account for 40.5% of all sales compared with a national average of 30.1%.

Due to the lack of confidence in the economy and homebuilding market, many would-be homebuyers are now turning to renting instead of buying.  According to RealFacts, many potential buyers with good credit who can afford to purchase a home now are electing to wait on the sidelines, and rent an apartment or townhome for a while instead.

Indicative of demand, average monthly rent in Kern County rose 2.8% in the third quarter 2011. The County had the 16th highest rent of 24 metropolitan statistical areas in California.  Its 98% occupancy rate earned it the State’s No. 4 spot on occupancy.  Over the last 3 quarters, rent for two-bedroom townhomes in Kern County increased by 10.7% compared to the previous three quarters.

Kern County is following a pattern typical of inland communities and other tertiary markets… They tend to be the first to collapse and the last to recover.

Source: Jason Hepp, Senior Marketing Consultant, (661) 702-9080 x14

It’s Always Sunny in Victor Valley

In the Victor Valley submarket, three residential land deals have closed escrow since August of this year.  Two of the deals were distressed, and all three were considered to be undervalued by their purchasers. 

  1. The first sale consisted of 276 single family lots in Victorville that sold to a private investor in late August.  The investor bought the land from a lender in “blue-topped” condition with a recorded final map. 
  2. The second project included 244 unimproved single family lots with an approved tentative tract map.  A private investor bought this Victorville project from a private homebuilder looking to generate cash and divest from some fringe markets.
  3. The third project closed escrow just this week.  A private investor purchased 36 single family lots, four model homes and seven standing inventory homes in Hesperia from a lender.  The buyer intends to finish the homes and sell them to homebuyers at retail prices.  It plans to hold the unfinished lots until the market recovers.

The larger story here is that the buyers of these properties are typical of the groups looking to buy land in the Victor Valley right now.  All are well-capitalized private investors looking for long term (4-10 years) investment opportunities.  These buyers are coming to the table with cash and are taking advantage of the extremely depressed land values in the region.  In many cases, active Victor Valley investors are utilizing overseas investors to get their deals done.

Land Advisors Organization, which has been tracking residential land values in the Victor Valley for about fifteen years, currently sees values at about $42,500 per single family lot in “finished” condition (7,200 sq. ft. lots).  At the market peak in 2006, these same lots were trading for about $130,000 per lot (a 67.3% drop from peak).

Despite the dismal news in land values, recent data shows that many Victor Valley residents are choosing to stay in the area.  In some areas, populations within the submarket are actually increasing.  People are moving into the area to take advantage of the affordable housing and increasing job growth opportunities.

Users of industrial facilities are also taking advantage of the low prices.  In September, United Furniture Industries (UFI) signed a lease for over 505,000 square feet of industrial space from Sterling Capital Investments in the Southern California Logistics Centre (SCLC).  When this new space is occupied, UFI plans to employ 400 local Victor Valley residents over the next 36 to 48 months.

Source: Randy Coe, CCIM, Senior Marketing Consultant, (949) 852-8288 x18

Move-Ups Step Up in Placer County

The Granite Bay / Loomis submarket is known primarily as an affluent re-sale, move-up market with great schools.  During last decade’s housing boom, the Sacramento region experienced unprecedented residential land entitlement.  However, the area has seen a lack of building activity in recent years, and now homebuilders are thinking of new ways to standout to attract buyers.  The Northeast Sacramento submarket has attracted several custom homebuilders looking to differentiate themselves from typical run-of-the-mill production homes, as standard production homes have seen heated competition (and downward price pressure) from the small number of qualified new home buyers looking for entry-level product.

Two builders in particular have found success finding move-up custom and semi-custom buyers in the unpredictable economic environment.  First, Kinetic Investments purchased Sierra De Montserrat in Loomis last year.  Initially, the private builder had no plans to begin construction right away, but it has already sold three of the 62 lots.  The home sites range from four to six acres apiece and are priced from the high $100,000 to $400,000’s.  At the market peak in 2006, “finished” lots in this submarket traded for anywhere from $600,000 to $900,000 per lot.  Now builders and investors can get their hands on the same lots for $100,000 to $300,000.

The Collection at Granite Bay is another community that has experienced notable success selling semi-custom lots.  Land Advisors Organization brokered the transaction in 2010 when The New Home Company purchased the community from Wells Fargo.  Of the 17 total lots, two semi-custom home sites have sold in the last couple weeks, and four more homes are currently under construction now. Pricing for The Collection at Granite Bay starts in the high $500,000’s.

Source: Ryan Long, Senior Marketing Consultant, (916) 784-3329

BINGO! Improvements & Approvals Scootin’ Along in the Coachella Valley

In anticipation of the significant growth economists are projecting for the Coachella Valley in the coming years, several major infrastructure improvements within the Valley are nearing completion. These projects, which include freeway over-passes and major roadway improvements located along Interstate 10, Highway 111 and Cook Street, will finally improve traffic flow and accessibility for local residents and businesses.  The side effect is that it is also improving certain property values as accessibility is improved!

Measure J passed this week in the City of Palm Springs. The controversial measure will increase the City’s sales tax by 1 percentage point to 8.75% next year, which is among the highest in Riverside County.  The tax will be levied through 2037 and will bolster the City’s general fund by $200 million.  The City plans to use the money to improve and “reinvent” the downtown area. 

Global Investments just celebrated the sale of its final standing inventory home at its hillside project in La Quinta, Estates at Point Happy.  Global achieved an average sales price of over $625,000 per home, or an average of $200 per square foot.  With 29 finished view lots remaining, Global Investments is well-positioned for the foreseeable market recovery.

The City of Indio recently approved an 8-acre mixed-use senior project located along the western portion of Highway 111. With a $20 million initial investment, and an ultimate investment of over $100 million occurring over the next five years, this project is slated to generate 150 construction jobs and upwards of 250 total jobs upon completion. This western portion of Highway 111 has become a grand entrance into Indio as City leaders continue to work with developers looking to capitalize on this area’s diverse customer base, great accessibility, high traffic counts, and popular local amenities.

Source: Stone James, Marketing Consultant, (760) 219-7227