The median price of a home in Sacramento, Calif. was down 35% during the three months ended May 31 compared to the same period last year, according to the real estate web site Trulia.com. In Riverside, Calif. prices fell 29%, while San Diego prices dropped 26%.
“The most severe declines are happening right now,” said Mark Zandi, chief economist for Moody’s Economy.com. Many of these cities are also among the leaders in foreclosure rates. As more foreclosed properties hit the market, prices are further depressed.
Experts believe that these markets will likely endure total price drops of 50% or more: California’s Central Valley, such as Stockton (-39%), Modesto (-37%) and Bakersfield (-29%).
Outside California, these cities are hard hit Phoenix (-18.8%), Las Vegas (-22%), West Palm Beach, Fla. (-32%) and Cape Coral, Fla. (-35%).
These housing markets may drop even further because people are afraid of overpaying. Local economic condition aren’t helping. Ten of the 11 cities with the highest unemployment rates in the nation are now in central California, with El Centro , at 18.4% in April, leading the way. Other double-digit disaster areas were in Merced (12.3%), Yuba City (11.8%), Modesto (10.7%), Visalia (10.3%), Hanford (10.2%) and Fresno (10%).
Many of these cities are also among the leaders in foreclosure rates. As more foreclosed properties hit the market, prices are further depressed.
According to other experts, the price correction was inevitable as home price gains had simply out-paced income by far too much to be sustained.Historically, the price to income ratio is 1-4 with house prices averaging four times wages. If homes get more expensive, people can’t afford to buy and house prices drop back.
“The housing boom was unprecedented in U.S. history,” said Michael Youngblood, a portfolio analyst with FBR Investment Management, “and the correction will be as well.”
Local price-to-income ratios are still out of whack even after sharp housing price drops. That means house prices still have room to drop.
