I wanted to share with you some statistics about the Sacramento housing market that tell an incredible story. Every month a firm called Trendgraphix releases the year-to-date Market Trend Report, which analyzes the median home price in every zip code. The most current numbers are a frozen-in-time snapshot of what which our neighborhood home values this October look like compared to October one year ago.
As predicted, some of the hardest hit areas include the areas that had the most new construction and growth. In Elk Grove, one of the fastest growing cities in the country over the last few years, we've had houses go down in value -26% in the newer 95757 zip code, -20% in the older 95624 zip code, and -17% in 95758. With the glut of foreclosures that are on the market, and expected to increase well into the spring, it looks like 2008 will be another down year in Elk Grove.
In Natomas, another community where we had huge development and amazing appreciation over the last few years, we've seen values go down -21% in 95834 and -29% in 95835.
North Highlands and South Sacramento are a couple of interesting zip codes. The values have dropped -40% in the North's 95660. In South Sacramento the house prices have fallen -24% in 95823, -21% in 95828, and -27% in 95832. Many people bought and sold in these areas the last few years because it was getting too expensive in nearby Elk Grove and Natomas. I fear that these areas are going to be most hard hit by people getting into bad loans that are adjusting and values dropping, equating to skyrocketing foreclosures. However unlike in Elk Grove, I don't see a lot of factors that are going to drive values back up in a couple of years.
So far I haven't told you anything that you don't see in the Sac Bee every day, right? Well here's where the picture gets interesting. While the values have been dropping like it's hot in the newer, outlying areas like Elk Grove and Natomas, North Highlands and South Sacramento, the values have gone down only slightly in the more mature, established neighborhoods. Believe it or not some areas actually gained in value in the midst of all this craziness the past year!
Home values in downtown's 95814 zip code, bolstered by the city's revitalization plan and new bars, restaurants, and waterfront projects opening seemingly daily, has gone up 13% over the last year! Yes, I said gone up 13%!
Midtown, 95816, has only gone down 6% over the last year for the same reason, which is just standard deviation for this market cycle. In East Sacramento, 95819, the values have only dropped 2% over this past year. The entry-level and mid sized homes are more in demand than ever, but the high end of the market has softened a little.
Beautiful Land Park and Curtis Park, 95818 has gone up 3% in value! The Arden area's 95864, home to Arden Oaks and Garden of the Gods, has risen almost 6% over the last year! In the Pocket, a bastion of quiet family communities the values have only hiccupped 2%. The spacious and well-heeled Wildhawk neighborhood, 95829, has only dropped 1%.
Further East we see Folsom's 95630 only dropping 6%, and the city of Rancho Cordova only dropping 8% despite a high foreclosure rate.
All of a sudden the picture looks a little healthier, huh? Again, most of the areas with high depreciation will continue to fall over the next year. The feeding frenzy for homes in the last few years for investors and folks who got in on short term adjustable financing will result in more foreclosures. Elk Grove's long-term prognosis is especially healthy. Once the band aid of foreclosures is torn off in 2008, the homes will start selling like hot cakes again. The bank repo's are already getting multiple offers and gobbled up very quickly, which is a healthy sign. Now is the time to get in those areas because once values hit bottom they are going to bounce back like a pogo stick.
What we have going on is a separation of quality. People are starting to see why new construction and new developments is not always the best long term investment. Be careful about buying "hot product" because it usually doesn't stay hot for long. There is a huge push for people to move into established neighborhoods that are more centrally located and have more mature trees, nice parks, and a real sense of neighborhood pride. These areas are far less volatile in value and enjoy far fewer foreclosures and investors renting their homes out. You may have to sacrifice some square footage and do a little cosmetic fixing to modernize some of these older properties, but you know exactly what you're getting. East Sacramento, Land Park, Curtis Park, the Pocket and the Arden Area have already weathered the storm in this market and I expect to see values level or slightly increase 3-5% in 2008.
Who said the market was bad? I see tremendous opportunities for those folks who purchase a house in today's buyer's market. In most down markets, like in the mid 90's and late 80's in Sacramento, values were low BUT interest rates were exorbitant. What's so unique in this market is that interest rates are near historical lows and houses are still on the sale rack. There are some great 100% financing and first time buyer's programs out there to help you keep the mortgage loan easy and affordable. Have you ever wanted to buy a nice spread in the Pocket, Land Park, or East Sacramento? Are you thinking about buying a house in Elk Grove for $190,000 that used to be $400,000? Now is the time before values gain forward momentum and you miss the party.
Think about it like this: in 1989 the median price in Sacramento was $95,970. Have you ever heard people saying they wished they bought two or three houses a few years back when the market was down? Now, 18 years later that same house would be worth $332,509, which is a 246% increase! So according to historical trends, if you bought that house today, it would be worth $817,972 in 18 years!
The best real life example I can give you of building wealth through real estate is a guy I know named Mark. Mark is just an average, nice guy who happened to buy real estate when the market was down in the 1990's. It was scary and seemed expensive at the time, but Mark bought discounted foreclosures from the bank, fixed them up himself and rented them out. He didn't have a lot of money to start with and every house was a lot of hard work and sacrifice. Today he has twenty properties that are all cash flowing monthly and a few million dollars in equity. While everyone else I know is running around working long weeks and stressed about paying bills, Mark strolls casually into my office, wearing a Hawaiian shirt and always with a smile on his face, and talks about how much fun he's having volunteering at his daughter's school. We're only talking a ten or fifteen year period for Mark to build up $15,000 or more of passive income monthly and enough equity to retire at any time. That's why you buy real estate in a down market and why you buy in the right location - there is no better way to achieve financial freedom!
Call me if you have any questions about purchasing a home, or would just like to find out what homes in your neighborhood are going for these days.
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