Many people have moved to towns like Elk Grove, CA because of the extreme increase in housing and living costs in places like the San Francisco Bay Area. They were able to sell their modest houses there for hundreds of thousands if not millions, buy a new house in Elk Grove for a fraction of that and have a very nice nest-egg sitting in the bank.
Builders quickly threw up subdivisions, new schools were built, streets were laid and housing prices shot upward. The U. S. Census showed the median value for a house in Elk Grove of $151,400 in 2000 but $477,700 in 2006. Elk Grove charges an $80,000 entitlement and permitting fee to build a new house in order to pay for all of the infrastructure required for these new subdivisions.
Some people were buying houses, not intending to live in them, but because prices were increasing so rapidly. Others were buying more house than they could afford because they hoped to use their increase in home equity to cover any shortfall. They had never seen a time when housing prices didn’t move upwards.
But then the sub-prime crisis and overbuilding hit and prices started to fall and in some cases fell dramatically. The local newspaper, The Elk Grove Citizen, had four pages of foreclosure notices the day I was there.
There are all sorts of deals from new home builders. The local newspaper had these offers for new buyers: Freeze your interest rate at 5.99% for 30 years: No home payments for one full year; and discounts of $50,000 to $100,000 offered for ready to move in homes.
Centex Homes advertised their Plan 3555 (3,555 sf) home of 3 beds, 2.5 baths, 3-car tandem garage and private study for $585,000. It was previously priced at $902,778!
There is a great deal of pain going on right now in places like Elk Grove. However, the inventory of homes will eventually be sold off and the housing market will return to a more normal one. I hope that it happens quickly.