PMI Report: Sacramento Real Estate Prices to Fall for Next Two Years

The PMI Mortgage Insurance Company has published its Summer 2007 Economic Real Estate Trends. For Sacramento area home owners, the news is not good.

While PMI’s previous model was tuned for the rapid appreciation of the first half of the decade, the revised model gives more weight to current price trends, area volatility, and the increased use of unfriendly variable interest rate products. While the inputs have been updated, the output is the same:

“…a risk index that predicts the likelihood that home prices in a given metropolitan statistical area will be lower in two years.”

How does Sacramento stack up? How about 9^th among the top 50 MSA’s in the nation, and a 56% probability of lower prices in 2009.

WHAT’S A SELLER TO DO?

First, understand the competition. You are up against professionals. Increasingly, your competition is comprised of home builders with big advertising budgets and banks desperately trying to sell homes they never intended to own. Neither share your emotional attachment to the homes they’re selling. You are at a clear disadvantage.

Second, hire an experienced agent who’s been through this type of market. This is no time to be politically correct by hiring an inexperienced friend or family member. And don’t let yourself fall for the agent who tries to buy the listing by promising an inflated value. That’s a rookie mistake, and you’ll pay for it later.

Last, price it to sell or take it off the market. If you have to sell, then be the best priced home in the neighborhood. Those homes are still selling, sometimes with multiple offers. If values fall further, you’ll keep more of your equity biting the bullet and unloading now. If you don’t have to sell, don’t. Get that house off the market and hang on for the next few years. The market will come back.

SHOULD I BUY NOW OR WAIT FOR THE BOTTOM?

The only way to see the bottom clearly is in the rear view mirror. When that happens, there will be fewer homes to choose from, multiple offers, rapidly rising prices, and maybe even higher interest rates. Worth the wait? You decide. But if you can find the perfect home in the right neighborhood and negotiate with a motivated seller undistracted by other potential buyers, why would you wait?

A steal in a crappy neighborhood isn’t a steal, it’s temporary housing. And you can easily throw away your hard-earned profit later moving to the home you wished you had bought in the first place.

The PMI report sums it up perfectly:

What is clear is that now more than ever, it’s important to look at homeownership as a long-term investment. A study we did in 2006 found that homeowners who owned their homes for 10 years or longer almost always saw a positive return on their investment. Homeowners who owned for five or seven years also usually saw a positive return, but were more likely to see losses.

What’s also clear is that homeownership is not a get-rich-quick scheme.

Amen.