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Trends in Investment Real Estate in the Greater Sacramento Area

The State of investment real estate in the four county region of the Greater Sacramento Area
including Sacramento, Placer, Yolo, and El Dorado Counties; the statistics and trends affecting
single family homes, duplexes, triplexes, and fourplexes.

Second Quarter 2010


Second Quarter, 2010

Prepared by:

Serving Real Estate Investors in the Sacramento area since 2000.


BLOG and additional STATISTICS on the web at:

www.WrightRealEstate.US

916.726.8308 Info@WrightRealEstate.US

Prepared By: Joel Wright


Document Version: Final
th
Last Updated On: September 6 2010

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This work is licensed under the Creative Commons Attribution-ShareAlike 3.0 Unported
License. To view a copy of this license, visit http://creativecommons.org/licenses/by-sa/3.0/
or send a letter to Creative Commons, 171 Second Street, Suite 300, San Francisco,
California, 94105, USA.

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Table of Contents

Table of Contents ............................................................................................................ 4

Overview: ....................................................................................................................... 5

New Homes:.................................................................................................................... 6

Foreclosure Numbers ...................................................................................................... 7

REO (Foreclosures): ........................................................................................................ 8

Banking: .......................................................................................................................... 9

Commercial Real Estate: ............................................................................................... 10

Single Family Residence: .............................................................................................. 11

Multi-Unit Investments (Duplex, Triplex, Fourplex): .................................................... 12

Zipcode Price Change Report: ....................................................................................... 14

Resources and Methodology.......................................................................................... 32

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Overview:
The Winds of Change: Through an ever widening sea of economic
troubles can be seen the lighthouse that offers guidance to the weary
traveler and a change of fortunes for those who follow its call. Yes,
the difficulties are pervasive, but without them we would not have
possibly the most unique investing market & buying opportunity
of our lifetime. Never before have we seen so much trouble
storming on every side, and never before has the potential for returns
been so rich. Interest rates are at all time lows, inventory
abounds, prices are down 50%+, and buyers are hesitant! What
more can be desired than to buy at the bottom of the market and ride
the real estate wave of the century!

5,119 SFR (Single Family


Residences) sold during the
second quarter of 2010 (Q2-
10) with an average price
of $211,795. That is up
7.3% from the second
quarter 2009 (Q2-09) -
$197,367- and 6% from the
first quarter 2010 (Q1-10)
which had an average price
of $199,677. The averages
home took 58 days to sell
though 34% sold the first 14
days on the market (17.7%
in the first 7 days and 17%
more the second 7 days).

The median price in Sacramento County in June 2010 was


$194,000, a drop of almost $198,750 (50.6%) from the high in
August 2005. This is, however, higher than March 2009 where the
median price hit a low of $167,000. During the same time the US has
experienced much less of a decline with only a 25% drop in median
prices since the high in late 2005 to $183,700. Many economic
prognosticators predict further price declines before the end of the
year as the job market continues to lose jobs and unemployment
remains at 9.5% nationwide, and 12+% in Sacramento locally.

One thing had a very dramatic affect on the real estate market in
Q2-10: it was the Federal Tax Credit that ended in April 30, 2010.
Not only did it cause price increases (6.6% rise from March to June

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2010) but most of the properties that sold up to June 30 fell under
that tax incentive program. It is expected to have the opposite effect
on the market in Q3-10 as demand decreases and inventories
rise.

Inventory is on the rise. The number of properties for sale on the


market at the end of Q2-2010 is 7,131; an 11.9% increase from 3
months previous (6,373). Homes for sale by equity seller rose
25.5%, and REO numbers grew 27.9% during the second quarter.
This occurred for several reason: demand is decreasing due to end of
the tax credit, school starting, continued unemployment, tough
economic conditions, general hesitancy regarding the government’s
next move, heightened lending underwriting and restrictions, and
increase in the number of foreclosures by banks and REO sales.

New Homes:

Following the end of the federal tax


credit in April estimates of new homes
sales for 2010 plummeted for the
year more than 30% in May (estimating
300,000 units sold across the nation)
only to rise in June 10% to 330,000.
That is still an 80% drop below the
1,470,000 homes sold at the high in
2006. Obviously we will not know the
actual number sold until 2011.

With 30,000 new homes selling in June


(97,000 in Q2-10) and 213,000 homes
currently in inventory there is 7.1
months of housing stock. These are
some of the lowest numbers for new
U.S. homes sales since 1970. Currently the average price for a new
home is $242,900 and the median price is $213,400.

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Foreclosure Numbers
1.65 million homes across the U.S. received some sort of
foreclosure filing in the first ½ of 2010. That is a 5% drop from the
last ½ of 2009, and an 8% increase from the first ½ of 2009. It
appears banks are getting more aggressive in taking properties back.

Looking back to
2008 and 2009 it
appears there was
a concerted effort
on the part of
banks to hold off
foreclosure filings
and trustee sales
in an effort to
stem the freefall of
prices. By
limiting
inventory they
reduced the
number of
distresses properties on the market and by reducing supply met the
demand that existed. Prices seem to have stabilized in 2009 and
banks appear to be more willing now to foreclose and liquidate
inventory.

In June 313,841 US properties experienced foreclosure filings. This


counts more than 16 months of filings over 300,000 and it will not
likely be the last month to do so. In California alone 340,740 homes
received some foreclosure filing during the first half of 2010. Add this
to the nearly 7,000,000+ mortgages across the U.S. that are 30 days
or more delinquent, and the fact that Fannie Mae and Freddie Mac
ended the first quarter 2010 owning some 164,000 houses.

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REO (Foreclosures):
All of 2009 saw a reduction in foreclosure activity for Sacramento
County, and the numbers still have not come up significantly. In June
1,524 NODs (Notice of Default) were filed in Sacramento County,
down 43.4% from June 2009. 1,888 NOTs (Notice of Trustee sales)
were filed in June – more than 12% higher than June 2009.
Foreclosures, however, fell 38.2% to 722 in June from a year before.
The average number of days it takes for a property to be foreclosed on
in Sacramento County is 235 days (June 2010).

On July 27, 2010 there were 6,652 properties owned by banks in


Sacramento County. 450 of which are bank branch offices. Listed on
Metrolist MLS there were 1,675 active on the market and 1,152
pending sales, leaving 3,375 properties owned by banks that are not
on the market. This is known as shadow inventory. It would take
approximately 5.3 months at the current sales pace to liquidate these
properties. This is significantly less than the national estimate of 3
years foreclosure inventory.

Around the nation some 269,952 homes were foreclosed on in Q2-10:


a 38% increase from April to June 2009. At that pace the number of
foreclosures could break 1,000,000 before year end. Nevada,
Arizona & Florida have the highest % of foreclosure rates for the
number of households, while California received the highest total # of
foreclosure filings (340,740 from January to June).

Additionally, 75% (154) of the 206 U.S. metropolitan areas with

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200,000 or more population posted increases in foreclosure


activity from 1 year ago. However, 19 of the 20 most hard hit areas
decreased in foreclosure filings in the first ½ of this year compared to
the last ½ of 2009. It appears that the most hard hit areas are
improving (if it can be called that) while the rest of the nation may
not yet have hit the bottom. If this is correct it could mean that the
nation as a whole is not yet prepped for recovery and will probably
continue to decline.

Sacramento, although down nearly 7% in number of foreclosure


filings when compared to 2009, still ranks 13th across the nation by
having 3.19% of properties with a foreclosure filing, or 1 in every 31
homes - Realtytrac -www.realtytrac.com.

Banking:
Between 2006 and 2007 Fannie Mae and Freddie Mac bought 227
Billion (227,000,000,000) in bonds backed by subprime loans and
Alt A mortgages. Q1-10 they required lenders to buy back 3.2
Billion, and it seems they are preparing for as much as 30 billion to
be sold back to the banks that originated the loans. This adversely
affects housing markets in an interesting way: originating banks begin
hedging their risk from potential buy backs by tightening underwriting
requirements. This exacerbates the problem by making it more
difficult for borrowers to get loans, which further reduces demand,
raises inventory, and puts downward pressure on sale prices.
Additionally the amount of return non-performing mortgage owners
receive on their investments is reduced and the companies and
individuals who purchased these investments lose substantial sums at
sale. The result is a perpetuating downward spiral.

From January to the end of July 2010 more than 100 banks have
failed, and 700+ more are designated as “problem” banks by the
FDIC. 300 banks are expected to fail before the crisis has ended.
This will overburden the FDIC with debt, which could lead to another
“unlimited taxpayer bailout”.

Bank of America, Citigroup, Wells Fargo, & Chase reported profits of


13.5 Billion dollars for Q1-2010, which seems to indicate that the

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large financial bailout pulled the largest banking institutions away from
the brink of dissolution. Part of this profit, however, can be accounted
to smoke and mirrors accounting practices that provide the perception
of stability. Unfortunately, the foreclosure environment appears to be
getting worse nationwide.

The Bailout appears to have allowed the banking industry to go from 3


Billion in reserves to over 1 Trillion (1,000,000,000,0000) in a short
amount of time. Ironically, some of that money was for the express
purpose of perpetuating lending on homes across the country.
Unfortunately, this has not benefited the average consumer as lending
guidelines continue to make it more difficult to get a loan. In standard
utilitarian fashion large banks, still concerned with their own survival,
have managed to pass their troubles along to their customers. Thus
the very processes that help the banks stay afloat also prolong and
deepen the recession for the average consumer.

Commercial Real Estate:


Restructuring of commercial loans in Q1-2010 was 23.9 Billion (three
time higher than Q1-2009) and nearly 45% of those loans were
delinquent 30 days or more. It actually seems logical that
commercial banks continue with “extend and pretend” tactics. It is a
great idea for banks to adjust their guidelines to match the needs of
their most troubled clients which allows the bank to maximize their
return on invested capital.

Commercial loans are typically local, where the parties involved can
get close and personal. Decision makers and owners can talk on the
phone, and if you default it is funds deposited by people in your
community that is at stake. Ultimately, it seems better solutions are
being reached that meet both the struggling owner and the bank, and
losses are mitigated in a more effective way.

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Single Family Residence:


5,120 detached SFR homes sold in Q2-10. A pro-forma analysis of
these homes found 24.6% could provide positive cash flow when
rented. (See “Methodology” at the end of the report.) The average
price of these cash flow properties is $101,866. The average age
of these positively cash flowing properties is 1964. The averaged
number of days on the market is 58, with an average size of 1,186
square feet, costing on average $88 per square foot. That is
substantially cheaper than you can build.

REO inventory rose 27% from the end Most foreclosures occur in
of the Q1 to the end of Q2. Despite this
the number of sales and sold price of REO the most affordable
stayed almost exactly identical from March neighborhoods. 40% of
to June. Compared with June 2009, sold foreclosure filings occur in
price rose 7% to $177,083 and the
the 25% most affordable
number of REO sales dropped 31% from
931 (June 2009) to 639 (June 2010). neighborhoods across the
country.
Short Sales sold for an average of
$208,105; 13% higher than Q1-10, but only 3% higher than Q2-09.
The real shift is the rise in the number of Short Sales sold. June saw
478 short sales close: a 20% rise from March (397) and a 74%
increase from one year ago (274).

Condo: The average sales price for the 400 condos sold during Q2-10
is $118,189. REOs account for 43% of these sales, with an average
sales price of $82,785. Short Sales accounted for 20% of sales, and
averaged $106,081. Equity sales averaged $179,832. Pro-Forma
analysis of Q2-10 sold condos estimates that 39.3% could provide
positive cash flow if rented.

Half-Plexes: Pro-Forma analysis of half-plex sales shows that 57.7%


could cash flow when rented for market rents. 104 properties sold
with an average price of $120,732. REOs accounted for 56 of these
104 sales and averaged $104,534. Short Sales, accounted for 23% of
total sales and averaged $115,073 purchase price. Equity sales
account for the other 23% of sales and averaged $164,189.

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Multi-Unit Investments (Duplex, Triplex, Fourplex):


Of the 190 properties sold in the first quarter, 47% were REOs, 30%
equity sales, and 23% were short sales. Of these sales 78% are
Duplexes, 6% Triplexes, and 16% Four-plexes. Our pro-forma
analysis estimates that 82.6% of these 2-4 unit properties could
produce positive monthly cash flow when rented at market rents.

DUPLEX:
During the Q2-10 the average duplex sales price is $176,563, or
$88,282 per unit. That is a 14% increase in the average price
from Q2-09 ($154,715), but a 12.5% drop from the $201,876 average
price Q2-08.

Pro-Forma evaluation of second quarter sales estimate that 78.4% of


sold Duplexes have positive cash flow if rented at market rents.
(See “Methodology” on last page.) Equity Sales account for 33% of
all sold during Q2-10. REOs account for 44% of sales, and Short
Sales represent 23% of sales.

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TRI-PLEXES:
The second quarter 2010 saw 11 triplexes sold, just like the first
quarter, but the average sale price dropped 17.3% from the
$242,000 in Q1-10 to $200,127 in Q2-10. Because of the location of
many of the triplexes there is large variation in price dependant upon
the area, and the condition of the property. Pro-forma analysis shows
that 81.8% of those sold projected positive cash flow.

4-PLEXES:
Four-plexes, on the other hand, are far more common and 30 sold in
quarter 2 of 2010. The average sale price dropped 14.6% from
$215,117 in Q1-10 to $183,706 in Q2-10. REOs account for 47% of
Q2 sales, with an average sale price of $164,962. The average
marketing time dropped this quarter to 55 days from 67 days in Q1.

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Zipcode Data:

$ from 1 mo Qtr 1 Yr $ from 1 mo Qtr 1 Yr


Zip % Zip %
peak    peak   
95605 ($175,000) -58% -26% -8% 21% 95819 ($62,500) -14% 8% 1% -2%

95608 ($208,550) -46% 1% -16% -6% 95820 ($195,900) -66% 4% 5% 25%

95610 ($180,500) -48% 2% -3% -3% 95821 ($170,000) -49% -8% 13% -21%

95621 ($187,500) -54% -3% -7% -3% 95822 ($185,000) -59% 4% 3% 31%

95624 ($196,450) -44% 8% 7% 10% 95823 ($204,250) -62% -8% -3% 5%

95626 ($187,500) -61% -29% -5% 26% 95824 ($178,400) -66% -6% -6% 19%

95628 ($251,000) -51% -21% -3% 0% 95825 ($40,500) -11% 55% 54% 41%

95630 ($177,500) -32% 3% -4% -2% 95826 ($181,075) -50% 2% 4% 0%

95632 ($234,000) -59% -8% -9% -6% 95827 ($175,500) -52% -3% 0% 1%

95655 ($184,500) -48% 2% -3% 0% 95828 ($200,000) -57% 0% 9% 10%

95660 ($179,000) -60% 8% 8% 9% 95829 ($195,000) -46% 9% 6% 20%

95662 ($160,300) -43% 5% 5% -16% 95831 ($172,500) -36% -5% -6% 6%

95670 ($252,500) -61% -14% -8% -19% 95832 ($159,487) -53% 11% 17% -13%

95673 ($240,500) -65% -8% -11% -12% 95833 ($10,000) -56% 6% 4% 3%

95683 ($306,000) -49% -3% 11% 10% 95834 ($195,755) -46% -1% 18% 8%

95691 ($182,500) -41% 9% 2% 10% 95835 ($255,000) -53% 4% -6% 4%

95693 ($511,701) -56% 30% 5% 8% 95838 ($202,500) -65% -11% 12% 7%

95758 ($302,000) -59% -2% 0% 0% 95841 ($202,500) -58% -9% -13% -3%

95815 ($174,000) -66% 18% 19% 37% 95842 ($190,750) -57% 9% 1% 7%

95816 $9,000 2% 13% 13% 9% 95843 ($211,400) -53% -6% -3% 3%

95817 ($145,000) -53% 32% 42% 27% 95864 ($134,500) -26% 9% 33% 11%

95818 ($80,500) -17% 10% 5% 4%

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Zipcode vs. Regional Trends

This next section contains information on the status and change over time of individual zip codes in
Sacramento County.

The Graph shows the median price of zip codes within Sacramento County. The charting begins in
February 1997 up to the present (July 2010). Each zip code is compared to the Sacramento Counties
median price for the same period of time, and geographically neighboring zip codes are also shown on the
same graph. All values are median prices for the zip codes identified. Each graph is a graphical
representation of the rise and fall of the sales price within each zip code and Sacramento county, and they
provide perspective on the volatility of the residential real estate market. The graphing of similar areas
allows for comparison between zip codes, which provides a degree of perspective on the zip code and the
market as a whole. The prices graphically rendered are every month since February.

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Resources and Methodology


ABREVIATIONS
CAR = California Association of Realtors
HAFA = Home Affordable Foreclosure Alternative
HAMP = Home Affordable Mortgage Program
MLS = Multiple Listing Service
NAR = National Association of Realtors
NOD = Notice of Default
NOT = Notice of Trustee Sale
REO = Real Estate Owned by a bank, or foreclosure
SAR = Sacramento Association of Realtors
WRE = Wright Real Estate

METHODOLOGY
All properties of a given type were downloaded from the MLS and
separated by Seller Type and analyzed to achieve the highest degree
of accuracy. The following assumptions and estimates were used in
the calculation:
· Appreciation = No appreciation has been included in our estimates,
though it will certainly occur.
· Cash Down Payment = 25% of purchase price
· Closing Costs = 4%
· Initial Repairs = repairs at purchase have not been factored into the
equations as they vary dramatically.
· Insurance = .4% annually (divided by 12 for monthly estimates)
· Interest Rate = 7% amortized over 30 years
· Maintenance = 10% of gross rents
· Property Management = 10% of gross rents
· Rents = projected based on our internal findings for each zip code
and adjusted based on the number of bedrooms (SFR) or number of
units. Therefore, estimated rents for Duplexes, Triplexes, and
Four-Plexes vary by property type and zip code, and SFR rents vary
by number of bedrooms also adjusted for zip code.
· Taxes = 1.2% of the purchase price annually. Although this number
varies the amount is not significant.
· Vacancy = 5% of gross rents

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ADDITIONAL RESOURCES
MetrolistMLS.com - to search for properties. www.metrolistmls.com
NorthState Building Industry Association (BIA) www.northstatebia.org
Rental Housing Association (RHA) www.rha.org
Sacramento Association of Realtors (SAR) www.sacrealtor.org

Serving Real Estate Investors in the Sacramento area since 2000.


Check out our BLOG and additional STATISTICS on the web at:

www.WrightRealEstate.US

For FREE Information and Consulting Services contact us:

Office: 916.726.8308 Info@WrightRealEstate.US

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