How Much is Your Home Worth?


Did you buy a home, any home, in the Sacramento region in 2003? Good for you. Did you buy in 2002 or 2000? Even better. Depending on the deal you made, you bought an E Ticket on the biggest equity boom ride homeowners around here have ever had. If you’ve owned the same house since the mid-’90s or earlier, listening to your neighbors talk about what they sold their places for probably made you feel downright flush.

Since the late 1990s, Sacramento real estate has been on a roll-a huge roll. Imagine, just five years ago in 2001, according to figures from the Sacramento Association of Realtors, the median price of a single-family home in the county was about $175,000. By August 2005, that number had more than doubled to $392,750. And as the median flirted with $400,000 in Sacramento County, the average price for a resale home in the four-county region-El Dorado, Placer, Sacramento and Yolo-took that and raised it: According to data from Trendgraphix, Inc., a local market research firm affiliated with Lyon Real Estate, the average home price hit $456,000 in July 2005 and peaked at $469,000 in August. It was enough to make sellers giddy and buyers scramble.

“It was frantic,” says Dunnigan real estate agent Charlene Singley about the past five years. “That whole time was just frantic, but it was a good market because a lot of people who were in-or who could get in-could do some wealth-building. Some people were able to turn their houses every two years and make money they would not have been able to do otherwise.” Singley, a member of the board of directors of both the Sacramento and California associations of Realtors, says our homes and neighborhoods started looking really good to out-of-area buyers.

“We had a lot of investors from the Bay Area back in the early part of the rise of the market, when our houses were still $200,000 or $300,000 in good areas.”

“There was a lot of money to be made for those who had a system in place,” says Jim Pfost, a real estate agent with Lyon Real Estate, referring to the “buying frenzy” from 2002 to early 2005.


But those sizzling sales numbers started to soften. By September 2005, according to the Sacramento Association of Realtors, new escrows for single-family resales were down 15.5 percent for the year to date, compared to 2004. Inventory was about 9 percent higher than the same period a year earlier. “I think it was about the second week of August when everything changed,” Pfost says, noting that the market usually dips at the end of the summer. “Everyone who has children wants to be in place for the fall. That’s also when interest rates started going up, and there’s a direct correlation between rates and home prices. When interest rates go up, more buyers fall out of the market, so there’s a lag. It takes quite a while for some people to decide to sell, and as they think about it, if prices continue to rise, it results in a glut of homes coming onto the market for the first time.”

So, was that the bubble?
“I don’t mind when people use the word bubble,'” says Singley, “but do I think we are in one now? No, I don’t. And there are a lot of reasons why I think we are not. When the California Association of Realtors’ chief economist, Leslie Appleton-Young, came to Sacramento in November, she gave us information about the market beginning at the national level, and then the state, and then about our own backyard, and she was very definite about the fact that we are not in a bubble. I had heard the term, but it’s getting a little old. A soft landing is what [Appleton-Young] told us we would have, and I agree with her 100 percent.”

Singley says that to find decreasing home prices, you’d have to look back to the early 1980s and the mid-’90s. “We had a huge drop-off in prices for reasons that don’t exist now. We had horrible interest rates in the 1980s-I can remember 14 percent,” she says. Singley also points to the job losses that resulted from base closures in the mid-’90s. “We don’t have either of those conditions right now, and I don’t think we are going to see them again.”


As real estate broker Gary Little and his son, Chris, drive around Sacramento, they like to point out properties to each other and say, “Hey, remember, when we used to own that?” Gary Little, who went into the business with his father when he was just 15, figures that over the years, his investment company has bought and sold hundreds of homes and commercial buildings. He’s looking forward to 2006. “The market goes up and levels off and then comes back again,” he says. “It always bounces back. I think ’06 is going to be as good a year as we’ve ever had. It doesn’t look like they’re going to do anything with interest rates, which keeps the market going good, and you’ve got people moving up and other people who are downsizing. And then there are people who are renting homes and looking at the taxes they pay and want to buy a house so they can get those income-tax write-offs. I think a lot of people will be getting out of rentals and buying houses” in 2006.

Little does acknowledge that inventory is growing. “Six months ago, the sign hadn’t gotten comfortable in the ground before you got your first offer,” he says. “Things are taking a little longer now because there’s more for buyers to choose from.”


That Sacramento is a city of neighborhoods is something Martin Pierucci knows well. “For the most part, we are very localized,” he says. “Prices can and do vary from street to street. Take Fourth Avenue, for example. If you’re on the west side of Riverside (Boulevard), you have a certain value that is significantly lower than if you are a block to the east. And you can absolutely be standing on the front step of a $400,000 two-bedroom and throw a baseball and hit a $600,000 two-bedroom. If you don’t know that as an agent or a seller, you’re going to price your property incorrectly. To know the value of your house, you really have to know that.”


Because interest rates can have a dramatic effect on mortgage payments, housing experts use them as harbingers of sales activity. Sara W. Peterson, a real estate broker, appraiser and mortgage broker based in Roseville, is about to retire and head off to a new life sailing up and down the East Coast with her husband. When asked what she thinks interest rates will do this year, she gives a straightforward answer: “I have no idea. I really don’t,” she says frankly. “We won’t really be able to tell anything until [Federal Reserve Board chairman Alan] Greenspan leaves office and we can see what the new guy [Ben Bernanke] does. Until then, I think all bets are off. So, with the war, the deficit, inflation . . . the crystal ball still says go back to bed.”

Harry Duncan, president of Vitek Mortgage Group, based in Sacramento, agrees it’s hard to make a call about long-term rates, but he’s not afraid to say he doesn’t see them moving up much this year. In fact, he says they might even come down a little bit during the second half of ’06. “I think [activity] will pick up in the spring, and that we are looking at a soft landing,” he says, adding that in his view, soaring house prices have been more of a drag on the market than interest rates. “Right now,” he says, “I really don’t think interest rates are having that much of an impact on the slowdown in the housing market. I believe it’s really an issue of affordability.” (It might be interesting, for example, to figure out if you could afford to buy a home on your street if you didn’t have all that equity built up.)

Buyers who haven’t been getting much of a break in the past few years may indeed be out looking for bargains this spring. Depending on the price range, they could be in for a disappointment. Homes won’t be appreciating at 20 to 25 percent a year as they have for the past three years, but prices aren’t likely to plummet, either. In fact, when Mike Lyon, CEO of Lyon Real Estate, looks to the horizon, he sees respectable appreciation levels. “The crazy stuff is done,” he says. “That’s over. But under $500,000, you’ll still get a nice appreciation-better than the stock market.” Lyon agrees it’s healthy for the market to slow down a bit.

“It’s wonderful,” he says. “As long as we have positive job growth in the Sacramento region, which compared to the Bay Area is pretty good, we are the game in Northern California. When you have job creation, you’ve got positive pressure on housing.” Using numbers generated by Trendgraphix, which uses state and federal indices, Lyon says in 2006 many homes priced under $600,000 will continue to appreciate.

Above that number, things start to change.
“The problem with above $600,000 is our income levels don’t support that,” Lyon says. “People are using equity to buy, and as rates go up, the equity isn’t growing as quickly. So when you get into the upper end in some areas, especially in the foothills, I think those are subject to zero appreciation, and potentially negative as you get near or above $1 million. Between $600,000 and $1 million, it’s questionable whether we will see appreciation [in 2006]. Over $1 million, I think there’s a possibility of depreciation if we see interest rates get up to 7 percent.”

That said, his analyses show that the value of Sacramento County resale homes will appreciate by 12 percent in 2006 and will have an average sale price between $422,000 and $473,000. In Yolo County, they’ll appreciate by 11 percent, and the average sales price will be between $520,000 and $582,000. And in Placer and El Dorado counties, the average sales price will be between $565,000 and $622,000 and the appreciation rate will be about 10 percent.

So for the first time in years, buyers may be able to enjoy the luxury of looking around. “I get to have a second cup of coffee in the morning,” says Pierucci. “It’s been a godsend for me, because it allows my buyers to actually spend a little time looking at property. There’s a lot more to show them. There is a benefit when you take people around to three or four homes, all of which would fit their requirements, and it’s just a matter of which one is the best value for what they want.”


Should you consider the money you put into your home an investment?
Although you often hear that your home is the biggest investment you’ll ever make, by no means do financial experts agree on this issue. “This was a hot topic this past quarter,” says Bryan Chew, a Certified Financial Planner and instructor in UC Davis Extension’s Certified Financial Planning program. (By way of disclosure, Chew adds that he is president of Bryan Chew & Associates/Linsco Private Ledger, which offers securities through Linsco Private Ledger, a member of the National Association of Securities Dealers and the Securities Investor Protection Corporation.)

“One reason you might want to look at your home as an investment-and the only reason in my opinion-is if you are thinking of downsizing later on, and you think that your house will appreciate in value,” he says. “That’s the only way. . . . If you’re planning to live in your house for the rest of your life, you need a place to live, and you can’t really tap into that asset when you retire, unless you are thinking about a reverse mortgage, which is a whole different subject.”

To see how the value of a home can drop, Chew says just go back to the 1988Ã’89 real estate market. “I remember people camping out for subdivisions in Elk Grove,” he says. “In 1991, we bought our first home, and it was worth $200,000. In 1995, when we got our property tax bill, it was worth $150,000. We lost 25 percent or $50,000 on paper. If we had tried to sell, we could have lost that. People think real estate is only going to go up because in the last five years it has doubled in value, but real estate does have a history of going up and down.”

Gary Little, a Sacramento native, real estate broker and investor, has been in the business since he starting helping his dad when he was 15. From his perspective, if you want to make money, real estate is the way to go. “It’s always bounced back,” he says. “It’s probably the best single investment most people will ever make. It’s the place where you live. It’s your home and you love it. Most people buy one or two houses in their lifetime. I personally haven’t found that stocks are good for me. I mean, I bought Nordstrom when it was going up, and as soon as I bought it, it went down.”


There are mounds of statistics, studies and reports showing how real estate compares to the stock market as an investment (and vice versa).

Most of the comparisons directed at those of us who are not professional financial types include a statement something like: You never have to fix the roof on your stock portfolio, but you can’t raise a family in it either. Here are some other opinions:


  • Over the past 25 years, the Standard & Poor’s 500 Index has trounced real estate as an investment.
  • U.S. home prices have increased 247 percent since 1980. Which looks good, until you consider the S&P 500 index has increased about 1,000 percent.
  • If you need cash in a hurry, the liquidity of a stock-market investment is a profound advantage.

From Donald Trump’s PBS interview, 2002

“Well, real estate is always good, as far as I’m concerned. You know, my company now, and I did have a pretty rough patch along with just about everybody else, but my company now is much bigger, much stronger.

And, you know, I just-I love real estate. It’s tangible, it’s solid, it’s beautiful. It’s artistic, from my standpoint, and I just love real estate. But it just seems to me to be a very good time also to invest in stocks.”

From the National Association of Realtors

  • Typical first-time homebuyers make median down payments of 3 percent, while repeat buyers put 22 percent down – that’s thanks to the equity they’ve built in their previous homes.
  • According to Harvard University’s Joint Center for Housing Studies, there is a dramatic increase in the rate of return on housing the longer it is held.For instance, after three years, a homeowner who has an annual home appreciation rate of 5 percent and made a cash down payment of 10 percent will generally receive a 94 percent return on that cash. After five years, she can expect a rate of return on the down payment to increase to 225 percent; after 10 years, the rate jumps to 623 percent.