Forecast for California 2008 home sales

The California Association of Realtors is estimating that there will be 350,000 unit sales in 2008 which is about equal to the mid 1990 rate before the boom happened. This is off from 625,000 sales in the peak years of 2004 and 2005.

California experienced one of the highest levels of investor sales 18% of the total sales up from a norm of 7%. It also had one of the highest levels of sub prime loan originations in the range of 25% of all sales.

If you take these numbers and calculate the normalized rate you get back to 350,000 to 375,000 ranges.

What this means is that in some markets, especially the Inland Empire, Sacramento and Valley towns the pain will continue for awhile with further price drops.

What about the Truckee area? Our inventory has not gotten out of hand however we are estimating that 2008 will see significantly higher inventory numbers. This is because there are a lot of sellers who did not sell in 2005, 2006 and 2007. They keep waiting for a better market. This has not come and they will all come to the party next year along with the new 2008 sellers. The number of sales should be about the same as 2007. This will equate to an actual absorption of 20% to 30% of the homes that come to market will actually sell in 2008.

To see new building we need additional reductions in lot costs and building costs primarily sub contractor charges. As this develops and builders can then produce homes that are profitable we will then see some building. This may start in the latter half of 2008.

Prices in the Truckee area continue to be very attractive and in the lower ranges, they are below replacement costs. So as per above either prices go up or replacement comes down. This is already being experienced in other areas of the country and builders are producing new inventory below the asking price of existing new homes still lingering on the market.

The market always has a way of reaching equilibrium and it will. Either the price drops are big and swift or smaller and longer with a corresponding longer flat period. In any event we do not anticipate any significant increase in values for quite awhile.