Ms. McLaughlin:

I thought I would leave a small note as I have been observing the Chico real estate market over the last couple of months and came across your page this evening.  I can honestly say that I don't agree with your optimism.  My wife and I just moved to Chico from Arizona and decided to rent for the next couple of years as we think that the local market is due for a correction.  Although I don't have access to continually updated statistics, as you might have, I can use other more general methods to predict the future of the housing market.  However, this doesn't make me completely handicapped as I am looking for where the market will be, not where it has been.  There are three main reasons why I feel the Chico market is over valued and will decline over the next couple of years.

First, the cost of rent is significantly cheaper than ownership.  To me, this is a clear sign of an over valued market.  Why would my wife and I purchase a $350,000 home when we can rent in the same area for $1,200 per month?  Our kids go to the same school and we enjoy the same amenities as the owners at a fraction of the cost.  As for an investor, this scenario makes even less sense as they can not begin to cover their costs with such low rental income.

Second, the median income can't afford the median home.  How can a market sustain itself under such circumstances.  I realize that there are discrepancies in statistics and what the true median income is for the area, but my conclusions are not solely based on statistics.  The fact is that I make well over the median income and I don't even come close to touching the median home, or any decent home for that matter.  Historically, Chico has been a little high, compared to other towns in the region like Redding and Yuba City, but never as much as it is right now.  I would have to say that at my income level, I should be able to afford the median home, with a $50,000 down payment, on a 30-year fixed.

Third, I think the financial industry meltdown is just starting to be felt nationally.  For reasons to lengthy for this response, I feel that interest rates will rise in the future and lending standards will tighten.  This puts even more pressure on a real estate market that already has people "pricing their homes right" already.  Not really a good way to get rid of three times the normal inventory.  I am not an economic expert, but I have been told that an increase in supply and a decrease in demand puts downward pressure on prices.

I am not really sure why prices have been a little more persistent here than other areas.  My guess is that it has something to do with the expectations of the buyers and sellers in the area and the fact that there has not been a panic yet.  The foreclosure rate in the area might also be a factor as well and tie to buyer and seller expectations.  One thing is for certain, I am not buying into the "scarcity of land" thing.  I don't think that land is any more scarce than it was 8 years ago, when prices made economic sense.

Given the factors above, I think that the Chico real estate market is due for a correction, along with most of the metropolitan areas in the Western United States.  When I hear optimistic suggestions dripping with current market statistics, I use the above reasoning to bring myself back to reality.  As for Chico, I see no drastic difference in the market variables from 2000 to 2008 that would suggest the market was undervalued then, but I do see reason in it being over valued now.  I think I will sit this one out.

I realize you are busy and I appreciate it if you managed to read this entire letter.

Respectfully Yours,

Glen Summers (azsurveyor@gmail.com)

Hi Glen,

Thanks for your comment. This post is now antiquated information. House prices have come down considerably since my original post.

As an update, house prices seem to be stabilizing now. We took quite a dip over the last year. Prices may continue to fall but as for right now (July 2008) they appear to be holding steady. No one can say for sure what the future holds but it sure is interesting watching it, don't you think?

Julie,

You wrote in response to Glen Summers: "Thanks for your comment. This post [your post] is now antiquated information. House prices have come down considerably since my original post." They certainly have, even in the non-gang-bang parts of Metro Chico!

I moved out of Chico ten years ago and received a fair price for my home in the area east of Bruce Road---the so-called "Estates."  But, I keep an eye on the community. Here's something to chew on:

Since 1989, the median income in Chico has roughly doubled, but the median house price is now STILL four times what it was in '89--even given the fall in prices we have seen this year.

Question: Now that every responsible mortgage broker in town is going to ask for 20% down, an employment check, and a financial worthiness audit, WHERE will the new buyers come from? Hint: Look at the declining enrollment stats for Chico Unified.

Bottom line: Either incomes will have to double or house prices will need to fall by another 50%, to get back to the 100-year average in the USA, based on the Kiplinger Studies and work done at UCLA.

When  it comes to buying houses in Chico, under these conditions, there is no need to hurry!

BBoucharde, in the Heartland (out of "Kaulifornia")

PS: Want to serve the community? Help bring in hundreds of low-income affordable Section-8 and HUD D-4 apartments with reasonable rents. That is your socio-economic growth sector in Chico.