Spotlight on Local Real Estate April 2008

April 30, 2008 – In this edition, we’ll look at market statistics for Q1-2008 and compare them to year-ago figures for Q1-2007. We have defined the Western Nevada County market as single family homes west of the Sierra crest, and excluding properties with addresses in Truckee and Auburn.

In our Western Nevada County market, the median sales price for an existing single family home in Q1 2008 was $372,000, a 9.3% decline over the Q1 2007 figure of $410,000. The unit sales figures for the most recent quarter are 117 versus 171 units sold in the year ago period. An interesting pattern emerged in this comparison with year ago figures, relative to sector activity.

The unit sales data was divided into 5 sectors: $0-250K (sector 1), $251-500K (sector 2), $501-750K (sector 3), $750K-1MM (sector 4), $1MM and up (sector 5). There was a substantial shift in the three lower sectors from Q1 2007 to Q1 2008. Sector 1 increased from 6% to 14% of total units, sector 2 increased from 67% to 69% and sector 3 decreased from 20% to 10%. Sectors 4 and 5 were relatively unchanged.

This dramatic shift in sales activity from the mid to the lower price range is largely responsible for the decrease in calculated median prices, rather than a uniform drop in prices across all sectors. As is often the case when a market nears a bottom and buyers recognize opportunity and begin to act, the activity begins in the lower price ranges and moves up from there.

The 9.3% decline in our local median price can be compared to a 12.7% decline (Feb 2007-Feb 2008) quoted in the Case-Shiller Index (CSI) of home prices, based on 20 major metro areas in the US. Some of the more overbuilt markets, such as Las Vegas, Phoenix and Miami, posted declines in excess of 20% in this period.

It must be noted that the CSI is an index used to value the futures market in home prices, and that the creators of this index are the market makers in home price futures. They make money when the futures market moves. There has been regulatory scrutiny and enforcement action in various markets where analysts and traders have had common interests, so the accuracy of the CSI should be viewed with caution. Think of it as the Vegas Line for bookies taking bets on the housing market.

The average rate on a 30-year fixed-rate mortgage rose from last month to 5.80% on April 30 2008, according to BankRate.com, while the 15-year fixed rate was at 5.39%. A year ago the 30-year rate was 6.32%. The current rates, which are at 4 year lows and very near to 30 year lows, should have a stimulative effect on home purchases in the near term. With the recent stabilization of the mortgage market due to aggressive actions by global financial regulators, the supply of funds for new mortgages is expected to increase going forward.

Nevada County does not have the issues of excess inventory of new homes that challenges many local markets in the US, and our total inventory has dropped from over 1000 units a year ago to approximately 714 today, a figure that has been steady for the last few months.

With historically low interest rates, modest inventory, and prices that appear to be at or near a bottom, our local prospects are for  a stable market in 2008 and some unusually good bargains for qualified home buyers. As the wise ones say, buy on the dips!