Tuesday, September 21, 2004

Housing prices hit milestone

The median resale price of a home in Sacramento County reached $300,000 in August.

By Andrew LePage -- Bee Staff Writer

Sacramento Bee
Published 2:15 am PDT Tuesday, September 21, 2004

It took 13 years for Sacramento County's median home price to climb from $100,000 to $200,000 - a milestone reached in August 2002 - but only two more years for it to rocket another $100,000 to a record $300,000 last month.

Such rapid appreciation has been similar across the capital region and California amid one of the longest-running housing booms in U.S. history. The fuel: low mortgage rates that mean monthly house payments don't rise as fast as prices, innovative home financing and, some would argue, growth restrictions that prevent home building from keeping up with demand.

Last month, the capital region and Bay Area resale markets showed virtually no signs of slowing, with prices and sales at or near record levels, according to DataQuick Information Systems, which tracks closed escrows.

In Sacramento County, the 2,752 sales of existing homes were the most for an August, jumping 18 percent over last year. The county's $300,000 median resale price - where half of the homes sold for more and half for less - was up 25 percent from last year.

Which is why Silvia Gutierrez isn't wasting any time looking for a home to buy. As with so many others who've bought their first house this year, she's motivated by the fear of being priced out of the market, because of higher prices or higher mortgage rates, or both.

"I already feel like I missed the boat a long time ago," said Gutierrez, 41, explaining she can't afford to buy a home where she most wants to live, in the Laguna-Elk Grove area. "Friends and family have said, 'You should buy a house,' and I said, 'I can't afford it.' But it's just gotten higher and higher."

Now Gutierrez, who works in accounts receivable for the medical equipment firm Timberlake Corp., hopes to find something for about $280,000 in the Florin area of south Sacramento. Her monthly mortgage payment would be about $1,700, or nearly double the $895 she now pays to rent a house in south Sacramento. A younger brother will help cushion the blow by renting a room.

Many economists and housing experts point to the pervasive "buy now before it's too late" mentality when explaining why home sales have been so strong this year in the absence of job growth here. Sacramento also continues to see a flood of buyers from the Bay Area and beyond, including those who telecommute and supercommute to employers outside the capital region.

Moreover, today's relatively low mortgage rates and a new breed of home loans have opened the door to more first-time buyers. Innovations include zero-down loans, interest-only loans (paying only interest for a period of three to 10 years) and 40-year mortgages.

"All of those things mean lower monthly payments and people willing to pay a higher purchase price," said economist Matthew Newman, director of the California Institute for County Government, based at California State University, Sacramento.

But most experts contend the unusually sharp price appreciation over the past two years can't continue. They say too many people would be priced out or would be overcome by sticker shock, especially if mortgage rates go higher as is widely expected.

There's some evidence of buyers beginning to recoil in Southern California, where most counties saw the number of home sales drop in August compared with a year ago. Only the less-expensive inland markets of Riverside and San Bernardino counties - areas often compared to Sacramento - saw sales continue to climb.

The contrast between the Southern California coast and inland markets was stark: Orange County saw its weakest August sales in eight years, while the Riverside-San Bernardino area saw its strongest.

"I think it may be the beginning of kind of a soft landing, where we get away from the crazy home price appreciation numbers we saw during the first half of this year," said G.U. Krueger, chief economist at Institutional Housing Partners, an Irvine-based real estate investment firm. "If the expectation is, 'I'll buy a home, because tomorrow home prices will be higher,' then that's what a (price) bubble is all about. Home prices would be based on nothing - fluff."

As fast and high as home prices have risen during the past two years, today's mortgage payments have yet to reach the high point of 14 years ago.

Adjusting for inflation and the mortgage rate at the time, the monthly payment on a median-priced home in Sacramento County set a record of $1,577 in July 1990. Last month, the payment on a median-priced home was $1,519, according to a DataQuick analysis.

After peaking in the early 1990s, home prices in the Sacramento region and elsewhere in California fell 20 percent or more in some areas amid huge job losses, especially in aerospace and defense. Prices in Sacramento didn't perk up until 1998. After doubling between 1989 and 2002, the median price has shot up 50 percent.

The price surge is taking a toll on lower-income borrowers, and some are throwing in the towel, says Jennifer Harris, executive director of Sacramento's Home Loan Counseling Center.

"We had a larger push for housing last year, when we were still seeing homes priced between $150,000 to $185,000," Harris said. "Now you're not finding anything under $250,000, even in some of our worst neighborhoods."

She notes that last year a couple buying a $185,000 starter house needed to earn at least $45,000, assuming they used a zero-down loan and didn't put more than one-third of their income toward housing. This year, that couple would have to earn about $65,000 because the home would sell for closer to $250,000.

"You can't afford to live where you want to live, and that's what's frustrating," says first-time buyer Gutierrez.

Related link:

Chart: Capital region home sales