Home Front: Area regains price edge

Not so long ago, Sacramento-area home prices were miracles to behold in the eyes of Bay Area and Los Angeles residents. Oh, the wonders here of a sprawling, three-bedroom home for the same price as a tiny, one-bedroom condo there.

The allure of lower-priced homes drew plenty of transplants to the Sacramento region earlier this decade. But as housing values began soaring, that affordability began disappearing.

Well, look again. Those days are coming back.

The price gap between the capital region and the Bay Area is widening fast. Ditto for Los Angeles.

According to the most recent statistics, the median selling price of a Sacramento County home is now $388,000 below that of Santa Clara County. Just three years ago, that median gap was $225,000, according to a review of November sales data from DataQuick Information Systems.

Likewise, Placer County's median sales price in November was $178,000 less than in Alameda County. The gap three years ago: only $49,000.

Transplants from Los Angles County also may find Sacramento County a growing bargain. The median selling price here in November was $209,000 less than in Los Angeles. Three years ago, that gap was $81,000.

What's going on? Well, it's not rocket science. Prices here have fallen 25 percent since mid-2005 and are still heading down. Prices in the Bay Area and Los Angeles County have held steady until recently – and they're still rising in Santa Clara County. That's the county that sent the most bargain home-hunters to El Dorado, Placer, Sacramento, Sutter, Yolo and Yuba counties between 2001 and 2005 – 41,000 new residents in all, according to a Bee analysis of IRS migration data.

It's not yet clear what this recurring price gap means for the capital's housing market. Many real estate agents say they aren't seeing any rush of would-be buyers from San Jose or Los Angeles.

Henry Ung, an Elk Grove real estate agent who specializes in foreclosed homes, said, "There has been some, but not a lot of (Bay Area) people checking out prices here."

Realtor Paula Swayne, who sells older homes in Land Park and east Sacramento, hasn't yet seen it in neighborhoods near downtown Sacramento, either.

But the capital region's growing affordability could become significant. Between 2001 and 2005, cheaper homes helped attract more than 140,000 residents from five Bay Area counties and Los Angeles County.

That migration abruptly slowed in 2005. The capital region became too expensive for many to justify leaving the Bay Area, say some of the earlier transplants. Many are still reluctant to make a move, said Poppy Stercl, a Rocklin resident who relocated from San Jose in 2003.

"A lot has to do with the job market here not being as stable is it is down there," said Stercl, a residential mortgage consultant. "Even though the houses are cheaper, the job market isn't as stable."

In other words, it may take potential transplants a while longer to see the financial advantages of moving. Many real estate observers believe those outsiders are one factor that could help put a floor under this sagging market. The region's renewed affordability is something to keep an eye on.

An upbeat housing prognosis

Contrary to many gloomy economists, the state's housing market could revive sooner than expected. So says the California Building Industry Association's Alan Nevin, who predicts a "modest turnaround" in statewide home construction. He even foresees a "gradual recovery" for Sacramento in 2008.

Nevin, chief economist for the statewide builders' trade group, expects capital-area home builders to exceed their 2007 production of about 8,000 new homes. How's that possible in this housing climate? Nevin says long-term mortgage rates will go as low as 5.5 percent this year. He also believes the government will "take all steps necessary" to ease the subprime lending crisis.

Finally, he predicts a "major change in the home building mentality" in Sacramento, the Central Valley and Southern California's Inland Empire. Because of shrinking land values, Nevin says builders will offer "substantially smaller homes and sell them for substantially lower prices." In the Sacramento region, that means more prices below $300,000, he says.

His optimistic conclusion: "As a result of these massive shifts in home pricing and reduced interest rates, home sales should increase substantially by the third quarter of 2008," Nevin says.

Down payments are going up

It's going to become tougher in the capital region to qualify for most home loans. Effective Jan. 15, Fannie Mae, the government-sponsored entity that buys mortgages from lenders, wants bigger down payments on loans made in "declining markets" like Sacramento.

It means even if a national lender can get you a loan with no money down, Fannie Mae is now demanding a 5 percent down payment for loans in this market. If your loan requires 10 percent down, Fannie Mae will wants 15 percent from the borrower. Similarly, government-sponsored loan buyer Freddie Mac, is also tightening rules on loans in "declining markets."

The bottom line: Borrowers of loans up to $417,000 will need to bring more money to the table, which could further shrink the pool of qualified buyers.

But it's beneficial for the long haul, says Brent Wilson, a mortgage strategist with Sacramento-based Comstock Mortgage. "I think it's going to provide better long-term stability to our market."

That's a nice way of saying that borrowers under these rules are more likely to make their payments and keep their homes.

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• Call The Bee's Jim Wasserman, (916) 321-1102