A new twist

Okay, so the following story is not about Sacramento, but I thought it was a rather ingenious way to easily transport their product....and is a new twist to a problem we have had in the area. (Of couse this was particularly entertaining for me cause I am in the aviation field.)

FLORIDA HANGAR USED AS MARIJUANA FARM
In rural Sarasota County, Florida, police have been on the lookout for "grow houses," secluded properties where barns and even homes are used as factories to grow large amounts of marijuana. This week, their investigations led to an airplane hangar at an 11-acre property in a
neighborhood with a private airstrip. The home and a hangar had been sold to new owners in February.

November/December Month's Inventory

November sales are from DataQuick via the Sacramento Bee. Inventory is from ZipRealty for single family homes.

Holiday Cheer: What's your type?

This time of year is one of the best for checking out potential neighborhoods. The way people decorate the outside of their home, can also give you a great clue as to what they might be like as neighbors.

I see homes falling into the following types, with my guess as to possible characteristics of the inhabitants as well:

• No decorations: too busy for stop and celebrate the holidays, away for the holidays, hermits, or possibly Grinch's who don't want to pay the higher electricity bills.
• Single color light string across eves and roof: Type A, likes everything in its place, or perhaps not Christian but interested in showing some holiday spirit.
• Many types of lights and no particular pattern: Pack rats, kids helping put up the lights.
• Lawn ornaments: People who like to collect things (stamps, baseball cards, china, dolls, cars, boats etc).

Where I grew up on the Central Coast, there were more homes decorated than not. Here in Serrano, we seem to be in the minority. My daughter is just old enough to enjoy all the decorations, so it anyone knows of some good streets around here....please let me know.

Looking for Signs

Thanks to Paul for the following thoughts on knowing when bottom is near:

I've been reading Contrarian Investing by Anthony Gallea and William Patalon. For those unfamiliar with the concept of contrarian investing, the idea is to buy when others are selling (at market troughs), and sell when others are buying (at market peaks). (It is one of the strategies utilized by Warren Buffett in his investment decisions.) One of the principles of contrarian investing requires the identification of market peaks or market bottoms, by sometimes subjective evidence. For example, when the likes of supermodel Gisele Bundchen demands to be paid in Euros and not dollars because of the declining dollar, this is an indication that its time to buy dollars and sell Euros, because the dollar has reached a bottom. Another measure of a market reversal is when the most bullish of bulls in the market, capitulates and admits the market is going south.

So the question came to me, "What will signal capitulation and the bottom of the decline in real estate prices?"

Saturday's Wall Street Journal gave me the answer. In a page 2 story talking about real estate price indexes and the scheduled December 26th release of the latest Case Shiller home price index, the writer mentioned the forthcoming NAR release of existing home sales data on December 31st. While not rendering a prediction as to the actual content of the December 31st NAR release, the author opined, "One prediction is safe: The Realtors will see signs of hope on the horizon."

Which, of course, led me to the answer of what will signal the bottom of the decline in real estate prices. When the NAR stops telling us "there has never been a better time to buy real estate" or "real estate is picking up," I will know that we are at the market bottom!

The Weekly Screen Scrape - Pulse Check

Not much time for numbers this week (and I didn't bring my spreadsheets), but a quick screen scrape confirms we are still on track. Average price per square foot dropped another dollar. And while total listings within my criteria have dropped from the peak, they are only down by a couple listings.

Hopefully Sac Bee will post the DQ numbers soon.

Happy Holidays to all........

Help for the Holidays

I am in D.C. this week, and will be busy helping Santa next week.....so if anyone has material or ideas for posts please let me know.

I am without my WSJ this week, and don't have any spare time to formulate new ideas (well except for when sitting in the ridiculous traffic here!).

Please e-mail to average_buyer@yahoo.com

Global Insight/National City Q3 2007 Home Valuation Data

According to my favorite housing study by Global Insight/National City Sacramento has gone from over 50% overvalued in Q3 of 2005 to 15.9% overvalued in Q3 of 2007!

I am not sure I completely agree with their assessment. Likely because they account for interest rates, so perhaps with low interest rates, it makes their overall valuations look better at higher median prices. Excerpt on what their study covers:

"Our approach to determining statistically normal house values1 considers not only house prices and interest rates, but household incomes, population densities and any historical premiums or discounts metropolitan areas have exhibited over time."

Don't know exactly when this was released...usually it makes the news...just happened to stumble on it when showing a friend in D.C. the stats. Apparently declining home value studies don't even make the major news outlets anymore!

Strategies for Living within your Means

In many ways we are a very average family: 2 kids, 2 jobs, 2 political parties. But I am beginning to think we are not so average because we actually live within our means. My personal strategies include:

• 30 year fixed interest loan (or shorter…we refinanced our first home into a 20 year loan when the rates dropped).
• Pay off credit cards every month.
• Put away the maximum in 401ks each month.
• Check my receipts (especially the grocery store) for mistakes. I tend to find at least one every other week.
• Count my change. Its amazing how often people give you the wrong change. And being the honest gal that I am, I give back the money if they make the mistake in my favor.
• Keep our books. I use Quicken and update it every 3 months to keep a fairly updated picture of our financial situation (I did it more often before kids…but making the time is tough these days).
• Don’t sweat the small stuff. I try and keep saving money in perspective. Its not worth driving 10 miles to a cheaper grocery store to save $4. The time and gas isn’t worth it. It is worth shopping interest rates for your car and mortgage payment, your two biggest monthly expenses. (Most of us don’t have much choice when it comes to health care so that doesn’t make the list.)
• Time is money. As a working mom, my free time is valuable, so I tend to shop at places where they have good prices on average (Costco, Target). For me, getting a great deal on one item out of the 20 that you need isn’t worth an extra trip. I would rather go to one store and buy all the items I need and reasonably low prices than shop the sales (I liken it to dollar cost averaging).
• Payoff you student loans before saving for your kids education.
• No expensive personal care. No $100 highlights, no massages, no facials, no manicures or pedicures (I dont' even know how much these things cost, but I know they aren't cheap, especially if you do it every month). But we don't skimp on health related items. We belong to a gym and get flu shots. If you don't have your health, its hard to enjoy your wealth =)
• Know where quality counts. The quality of an item I purchase depends largely on how often and how intensely I will use a product. For example, my wedding dress was only $200 (including some extras)…..after all, you only wear it for a couple of hours. But I don’t mind spending $$$ on a quality pair of shoes I will wear twice a week.
• Try not to eat out more than once a week.
• Don't forget to splurge every once in a while (we do on our date night).

I'm sure there are many more...but so much of this is unconscious behavior. I have been doing it so long, I don't even notice it much anymore. Other suggestions are welcome......

Do I feel sorry for educated folks (especially second time buyers) who bought into a lifestyle instead of their budget, or didn’t read their mortgage documents? Not really. Your home is by far the biggest purchase you will ever make. While I can understand not reading the terms of use for a software product, or the privacy policy on a website, I can’t understand how people can be so negligent about mortgage papers. I find this situation strangely similar to one occurring in the financial world. (Special thanks to Paul for the following write up):

“There is a parade of banks and other financial institutions in the news taking financial write-downs. In each instance, they have reported that there may be more write-downs in the future because they are not able to accurately value the subprime loans and CDO's in their portfolios. In other words, the banks and financial institutions have huge exposure to investments that even they do not understand and cannot value. If these so-called investments are so difficult to understand and value, what were they thinking when they bought them?”

The Weekly Screen Scrape - Home for the Holidays

Some interesting items of note in the weekly screen scrape. First and most important to me....inventory is still at record highs, as prices get lowered to combat the winter doldrums it keeps my price range filled with lots of choices!

Second, contract activity is up significantly, perhaps in response the some of the huge price cuts I saw last week.

Hoping SacBee will post their Dataquick stats tomorrow, as I head out to D.C. next week and won't have much time for my RE obsession.

A little schadenfreude

Some of you may remember my excitment when a home came on the market with the following description: "bring all offers." My agent called on the home, apparently it should have read "bring all offers above $400,000."

They are now listed at $399,000 (down from $439,000)! And in my opinion, still have a long way to go.

Mr. BT might get annoyed with me....but I will post details on this one. Its not a secret, that we have been looking at homes that back to the American River, south of 50 (I rented a room on Twin Falls out of college, and loved it). This home is one of the few 4 bedroom 2000 sqft+ homes in the area. From the drive by, it looked well maintained. But now we know why they don't have more pictures......really bad add on and poorly done DIY upgrades.

MLS 70108202

Where is the mortgage insurance in this mess?

What ever happened to mortgage insurance? We paid it until we had 20% equity in our old place.

I wonder if there has been an increase in claims? I don't seem to hear much about it, except for some excerpts that the insurers started refusing to do business with some lenders. If a person takes out an equity line of credit, can the 1st lien holder then require them to pay mortgage insurance, if the borrower no longer has 20% equity?

I'm sure this has been covered somewhere....but I don't read the national housing blogs. Anyone know of a link that covers this subject?

Marketing tip of the day: If the home is worth 520k - 530k, then price your home at $521,000, which is $417,000 plus 20% down so the buyer doesn't have to take out a jumbo loan.

Midtown Sacramento Historical Data

Sample size is small so the data is rather jumpy. Although I do detect a bit of a downward price trend.

Not sure how much I buy the "land scarcity" leads to appreciation argument, as nice suburbs tend to hold up better in many metro areas, and blighted inner cities neighborhoods tend to stay that way.

I think the land scarcity is one small piece of the puzzle. Home values are highly dependent on many factors. Hence East Sac does better than West Sac, even though they are somewhat equidistant to downtown. There is a lot more in play than just the land.

Can't Stop the Bleeding

I have noticed an up tick in rental offerings around here. Seems folks know that the market is slow in winter so they are trying to rent instead.

I call this the bleed slowly strategy. Many owners would much rather bleed $500 a month below carrying costs, than sell for $10,000-$100,000 less than it would have fetched in 2005.

Now if I had paid more attention in finance class, I would have been able to present a nice options model to value these two choices over time with market condition assumptions. Instead I have just prepared some simple numbers to show how costly the bleed slowly strategy is in a down market.

If someone rents out their home for a $500 monthly loss, that's $6,000 a year they are in the hole. However, if you add onto that, the longer they wait to sell, the more their home will have depreciated from its peak value....its a double whammy.

If they decide to "wait till the market comes back," then they have tied up their cash for 10 plus years. Thus they still have the opportunity cost of the cash (foregone investment returns elsewhere) they put into the deal, as well as the loss they have taken on the rent.

December Change in Inventory By Zip Code

Sacramento saw a 6% drop in inventory overall. Not sure exactly how this compares to the typical seasonal levels. From at least one measure,inventory is still unusually high for this time of year. To mix things up, I sorted by December inventory levels.

Depressing technical note: Typically I name my graphics by the month and type of graph. I have started adding the year, as it seems I may be at this for longer than I planned.


Inventory was gathered from ZipRealty for single family homes on the date indicated.

The Problem with Modern Architecture

A little holiday fun at the expense of those with more modern tastes. (I'm a bit old school....I tend to like the rustic look).

Sacramento Schools that Make the Grade

U.S. New just came out with their latest rankings of High Schools.....our 4 county area schools that placed are listed below.

Silver
Oak Ridge, High El Dorado County, El Dorado Hills, CA
Ponderosa High, El Dorado County, Shingle Springs, CA
Rocklin High, Placer County, Rocklin, CA
West Campus, Sacramento County, Sacramento, CA
Davis Senior High, Yolo County, Davis, CA
Folsom High, Sacramento County, Folsom, CA

Bronze
Galt High, Sacramento County, Galt, CA
Natomas Charter #19, Sacramento County, Sacramento, CA
County Special Education, Sacramento County, Mather, CA

I don't know much about Granite Bay, but from what I have heard, I was surprised they didn't show up in the rankings. A methodology issue perhaps?

As discussed earlier many of the best schools are in the least affordable areas.

Lack of Affordability in Sacramento

The WSJ Developments Blog features Sacramento today, telling us what we already know...that homes here aren't affordable!

"Median household income in the Sacramento metropolitan area, measured earlier in 2007 by the American Communities Survey, is $56,950. Realistically, if you don’t want to spend more than 33% of your take-home pay on a mortgage and you earn the median, you should pay no more than about $1,570 towards your mortgage and taxes. That caps your mortgage loan at $240,000 (which still leaves you a modest $150 a month to put toward taxes) at a 5.85% interest rate (this week’s going rate for a 30-year fixed). But the median single-family home price in the third quarter was $375,400 in Sacramento. That’s a $135,000 gap. What’s more, the median income to sales price ratio balloons to 6.6 in this equation. There’s nothing affordable about that.

You’d need to have a median income of at least $70,000 — or nearly 25% more than the median — and a 20% down payment to buy the same home in the Sacramento area. This situation plays out in dozens of pockets of the country every day, even as housing prices soften."

Sample Contract Language

Attached is some sample contract language that helps buyers gain a bit more leverage when making an offer. I make no claims that this will stand up legally or otherwise....so please use at your own discretion....(I suggest you have your agent carefully look it over). Another twist on this theme is to have the offer expire within a certain time frame.

"Buyer is concurrently making offers to purchase other real property. This offer is only one of the offers being made by Buyer. Notwithstanding the submission of multiple offers, Buyer intends to only purchase one property at this time. Therefore, Buyer’s receipt of a duly signed acceptance of another offer before Buyer personally (not Buyer’s agent, if any) receives Seller’s written Acceptance of this offer, shall be deemed as a withdrawal of this offer and Buyer’s deposit will be returned to Buyer. In such event, Buyer will attempt to inform Seller of said withdrawal as soon as reasonably practicable."

Average Buyer is Moving!!!!

A new overpriced home you ask? A new rental perhaps? A new city/state where the cost of living is cheaper?

No…..A much worse fate in fact. I am making the much dreaded move into an older demographic group.

This week I transition from the young hip coveted 25-34 year old demographic, into the scorned and stodgy 35-55 group. According to our youth obsessed culture, this is a sad time for me. At least I will get a nice sushi dinner out of it.

However Big n Rich just reminded me of the upside of this move, I qualify to run for president now!
_________________

In case I am being too coy, this isn’t meant to offend anyone….its meant to be a social commentary on how marketing executives covet the younger demographic when it’s the 35-55 year olds (and up) with the disposable income.

For example, I went to Sunrise Mall, and couldn’t find a place to buy clothes. The only two choices seem to be teeny bopper shops and matronly department stores. I desperately wanted to get some new clothes, but couldn't find any place to shop. I left without purchasing a thing.

Perverse Incentives

Is it just me, or does it seem really stupid that the stock market actually goes up when news of record foreclosures hits Wall Street. Yes I realize they are doing it on the hope that a rate cut is more likely....but it still seems pretty ironic and short sighted.

The Weekly Screen Scrape - Holiday Discounts

Well this week was one for the record books. Saw more price drops than ever before, and we have hit a new low in terms of price per square foot for the homes in my search criteria. Contract activity is back down, and total listings is still higher than spring or summer (since many listing have now dropped in price into my range).

Seems whenever I start to get really discouraged that prices are starting to bottom out in 95762 & 95630, I see some nice movement. Thanks Santa!

Help Me be a Better Bargainer

One of the main reasons I am so addicted to housing data, is because I am terrible at bargaining. I am a softy, which means I typically play good cop (getting very excited and emotional about an item, pointing out its attributes), while Mr. BT plays hard ball on the negotiations. These roles also tend to play out in our parenting styles as well =).

The best negotiating tactic, given my personality inclinations, is to play the innocent intellectual role, using data as my weapon of choice (I really love it, but I can't figure out why its priced 10% over comps). Hence the only suggestion I have been able to offer is to use publicly reported builder data as a basis for negotiations.

Yes I have time and a relatively low rent payment on my side….but becasue I don't bargain well, it just means I am likely to walk away, as opposed to trying to negotiate a better price or contract terms for the house I want.

All this to say, I would love to gather input on tactics that have worked for others. I will compile suggestions and put them in a separate post on the sidebar since I know many of you are finding homes that are now within range.

For example, a previous commenter suggested changing the standard contract text to allow the buyer to make multiple contingent offers, which I thought was pretty brilliant because it prevented sellers from shopping the offer.

If your Average Buyer could Legislate

Not sure if I am ready to handle any more drama. But here goes…...

Below are my suggestions for addressing (notice I didn’t use the word “fixing”) the housing mess. Many of these good ideas have come from commenters….I am merely trying to put them all together in a framework. Of course the best solution for us buyers is to let the market fully correct so that housing is affordable once again, but at least right now, that option is not on the table politically.

How to address the current situation:

1) Exempt first time homebuyers from the tax hit if they sell at a loss. If they end up foreclosing, give them a “free walk on their credit”. More flexibility should be given to first time homebuyers in terms of negotiating rate freezes and longer loan periods. A little more on the rationale behind this can be found here and here. We should not try and keep people in homes unless it actually makes financial sense to do so (financial sense for the borrowers, not the investors).

2) Second time home buyers, should only be eligible for loan period extensions since, in theory, they have a better understanding of the process and cannot claim ingnorance.

3) If a person took out a Home Equity Line of Credit on their house over $5000, (or refinanced for a larger balance) for anything other than vital home repairs (a leaky roof, or broken water heater) or other documented emergency (medical or funeral bills) they should not qualify.

4) Any Realtors or Mortgage industry folks, not allowed to qualify since they cannot claim ignorance.

5) Investors or persons with more than one home are not allowed to qualify as they are not losing their primary residence, or if they are, they have another home they can sell to make the payments on their current home.

How to prevent this from happening again:

1) Get rid of all the fancy mortgage products (not sure how to do this exactly). Or at least require the borrower be shown a worksheet of their income and how the fully loaded monthly payment (taxes, principal, interest, and insurance) compares at both the teaser rate and the reset rate. This documentation should clearly list out any fees and penalties associated with the mortgage product such as prepayment penalties. Have HUD collect statistics and create a web page, where buyers can enter their closing costs and financing terms. The website will compare their individual data to national, state, and local trends to see how their loan product stacks up.

2) Require borrowers to be sent all mortgage related documentation 2 weeks in advance. (I hated how closing is scheduled for 1 hour, and they make you sign all these docs you are seeing for the first time that are several pages long…Its obvious they don’t want you to actually read them. We had requested them in advance).

3) Restructure compensation so that RE professionals, like Agents and Mortagage brokers are not commission based (only fee for service) to help avoid conflict of interest as well as brokers peddling products they get higher fees for. I was once told that there is actual legislation related to Realtor commissions which is why they are so hard to get rid of.

________________________________
Separately, but related from the Washington Post (emphasis is mine)

“Until now, President Bush favored government restraint. But with investors losing millions as Wall Street banks write down billions of dollars in bad home-loan investments amid mounting concerns about economic stability, the White House is pressuring the mortgage industry to offer a sweeping fix for the problem.”

Commentary: I see, so he’s getting involved to save the investors. I guess those pesky homeowners are threatening his economy.

Record Lows - MelissaData for November

According to MelissaData, both Folsom and El Dorado Hills hit record sales lows this month. EDH has been steadily declining over the past year, so it was not unexpected. But Folsom seems to have hit a brick wall all of a sudden. Their stats tend to be a bit jumpy, so perhaps December will be stronger (since they don't seem to report in exact monthly increments). Of course the data only goes back to 2001 so a record low doesn't imply an all time low.

We're selling homes!!!

I always like to have a safety home (think safety school when applying to college) in mind just in case something catastrophic happens and we needed to buy right away (or if I just can't take the beige rental wall any longer).

Up until yesterday, that safety home was in the new Blackstone development in EDH. With incentives the Lennar homes were priced well under resales and I could justify the outrageous HOA & Mello-Roos with comparisons to gym fees and the solar energy discount.

Bit of background.....bit of rant.

When we first visited the development shortly after opening (mid summer), we initially spoke with Peter (he was very condescending with us). After that experience we were pretty turned off. The homes were at least 50K over priced.

But decided to check back a couple months later since we were in the neighborhood, which was when we met Patti, who seemed much more open and honest, and was really trying to help us find a place we liked. We were glad we checked back cause the list price had taken a haircut of around 20K - 50K (in just 2 or so months of opening).

So I had stopped in on Friday talk to Patti again and see if they had any year end specials going. But she was gone and Peter wouldn't give out any details. He remembered us, not sure if it was from the initial visit or not. He insisted several time that they were selling houses, and then asked my price range. I replied under 500k. He then motioned to the list prices, basically telling me there wasn't much that fits that description (they do have a couple list under 500k). I left, rather disgusted.

Did he really have to do that? Who the hell believes that the list price is actually what they are selling for? I think they might have sold 2-3 homes a month since they opened....that doesn't seem like much to me. But perhaps its enough so jerks like Peter feel free to treat folks as if they aren't worthy of living in his development. So that is why Lennar at Blackstone has been removed from my safety list.

There are now some nice resales, under 500k going in the 150s a square foot around here. They are a bit bigger than we are looking for, but seems the mid sized homes aren't budging as much in price. So I am off to find a new safety house.

Update: So about an hour and a half after this posted, I got a call from...wait for it.......Peter! Very suspicious timing if you ask me. Not going to post the details of the call, till we make a decision either way......cause its tempting. Quite a bit bigger than we were looking for...but I have gotten rather used to our rental that's about the same size.

December Good Buys & Offers to Sellers/Builders

Please post homes you think are a good buy or any offers you know of that were accepted, especially to builders. It will help give others negotiating leverage when they are ready to buy. Even just letting people know what type of builder incentives they can expect would be helpful since its hard to tell if they give everyone the same incentives.

Pieces of data to include: Zip Code, MLS or Development Name, List Price, Incentives, Offer (if any), house details (sq ft, garage size, lots size etc).

Feel free to post info for homes anywhere in the Sacramento Metro area. Just cause I tend to confine my search to the Gold River, Folsom, El Dorado Hills, Cameron Park areas doesn't mean others have to.

Exactly why is our primary residence is considered an investment?

Somewhere along the way, a dogma was established, perhaps by the RE industry, that we should think of our home as an investment as opposed to shelter.

I can see purchasing a home because it makes financial sense when compared to renting. But does that make it an investment? For example we often purchase cars because it makes more financial sense than renting or leasing? But they are not considered investments because they rarely appreciate in value.

I think we have been conditioned to think of a home as an investment, because there is an implicit assumption that homes primarily appreciate in value. But looking at most inflation adjusted charts we see that is not necessarily true historically.

There are very few things that we actually use (which deteriorate with age), that are considered investments. The only other things I can think of are jewelry and artwork (and they don't really deteriorate much). Do we take out loans using them as collateral? Rarely. (Personally I hate the idea of art as an investment….seems contrary to the whole idea of art).

Collateral is the only aspect of a home that really seems characteristic of an investment. We can take out loans against our homes. But homes are not very liquid assets. As many have learned the hard way, just because you can use it as collateral, doesn’t mean you should.

Trends in East Sacramento 95819

By request......

Unfortunately I couldn't get all three metrics, total sales, median sales price, and median per square foot on the same chart.....

To build, to fix, or to merely live

As mentioned in an earlier post, how we think about housing can really shape our actions. At my current stage in life, I see a house as the place I want to raise my young family not as an investment opportunity.

As a mom I am fortunate to work for a flexible company and still make good money. Why is this relevant? Its relevant because I don't think any home project will produce a return equivalent to my hourly wage. In economic speak, fixing or building a house is not worth the opportunity cost of my time. I highly value the time I have with my family and don't want to give that up to work on a house (We already fixed up one house, and I am not willing to do that right now. As discussed when we were looking at a serious fixer this summer).

So for right now, a move-in, or near-move in condition home is what I am looking for even though we aren't likely to find everything on our wish list. I know Mr. BT would love to build a custom home (his family has extensive construction experience). Once the kids are grown and want nothing to do with us, I would be willing to build a home to spend the rest of our days in.

Here are the pros and cons associated with the different strategies:

To Build:
In general building custom is cheaper than buying custom. You get exactly what you want and are willing to pay for. Not much control over how the neighborhood turns out. Very time intensive. Managing contractors can be frustrating and picking out all the trimmings can be a bit overwhelming.

To Fix:
You get closer to what you want for less $$. an be time intensive.

To Merely Live (move-in condition):
You pay more, but you are not spending nights and weekends working on the house or managing contractors. You aren't likely to get exactly what you want. You have a pretty good idea how the neighborhood will age.

Average Buyer's Holiday Wish List

Well since it's that time of the year...thought I would put in my request with Santa.

Keep in mind this is a wish list.....I will likely add to it from time to time since its good to have something like this on hand. As always, additional suggestions and thoughts are welcome.

Listed more or less in order of importance.....

• 2000-2400 sq ft. and quality construction (min 3 beds and 2 baths, with an office or den)
• Large lot (1/2 acre would be wonderful)
• House set back on lot, and not too close to the neighbors (e.g. privacy) and not too close to a busy street
• Established neighborhood with nice trees
• 5 minute access to hwy 50 in Folsom, CP, or EDH (implies good schools, low crime, and no flooding)
• No HOA or Mello-Roos fees
• Single story
• 3 car garage with a small workshop and side storage for a small boat
• Hardwood or tile floors (not oak)
• Relatively Flat lot
• Quite street where kids can play with friendly neighbors, sidewalks
• Lots of storage space
• No oak cabinets, no tile counters or showers (I hate cleaning grout....but I don't "need" granite)
• Close to park
• Gas range and water heater, solar
• Covered porches (front and back)
• Front of house faces North or South so harsh summer sun doesn't overheat the backyard in summer, but allows some warmth in winter.
• Fruit trees (including avocado) in the backyard
• No dining room or separate living room unless they can be easily turned into a play area for the kids, otherwise they are wasted space.

Weekly Screen Scrape - Shopping

Well the weekly screen scrape numbers from last Wednesday indicated a strong jump in contracts...probably smoothing out last weeks dry spell. Inventory finally took a small dip, and average price per square foot moved higher.

Not a thing to give thanks for this last week......sigh. Maybe Santa will bring me something to cheer about.

Taxing us out of House and Home

After reading the article about Elk Grove's insane tax bill levied on a custom home.....I thought it was time to talk taxes. The following is probably more opinion than educated analysis, as I am still trying to figure out California's system of local housing and property taxes.

I was just a wee lass when Prop 13 and the District Mello-Roos initiatives were passed in California. Combined, these two initiatives really make it tough for new comers to the state, first-time buyers, and new housing developments (basically all the things that help grow an economy).

I do favor localized taxes for localized benefits, like taxing the folks living in the flood plains to strengthen the levy. In theory their lower home value reflects that they live in a flood plain, just as homes under the approach path of an airport tend to be priced lower as well to reflect the environmental externalities.

However, the way I understand many of the new development taxes and the Mello-Roos, it seems only the newly purchased homes get taxed at higher rates (property taxes for both resale and new homes, and Mello-Roos for the new homes and newer resales). So us new buyers end up paying more taxes, while everyone in the community benefits from the services those taxes provide. This doesn't sit well with me.

While I am happy to pay taxes for local infrastructure and schools, I shouldn't have to pay twice as much compared to others down the street in my local community. The perverse economic and social consequences created by this system have wrought havoc on our once well performing school system and forced local governments to promote unfettered growth so they can collect adequate revenue.

I am not arguing with taxes based on the assessed value of the home, as I feel its a good surrogate for ability to pay. The system they had in Virginia where I lived seemed to work relatively well....and their pubic schools and transportation system are consistently ranked top in the nation.

Focusing In

After checking out various Sacramento neighborhoods for the better part of the year......we have begun to seriously focus on a couple areas which are all off the 50 South of the American and have reputable public schools. Below I list out the associated pros and cons as I see them.

Gold River - Larger tract homes, in nice established neighborhood. Closest to downtown. SMUD (much cheaper than PG&E I hear). River close by, but in the flats.
Folsom -Nice smaller city within a city. Lots of family related activities available. Primarily tract homes. SMUD. Traffic and congestion becoming more of an issue as more retail is added. Lake close by, some hills.
El Dorado Hills - Mix of older custom homes and new tract homes (we can't afford the newer custom ones). PG&E is very expensive. Our daycare is here. Rather conservative crowd. Reminds me of SoCal. Lake close by, foothills, potential asbestos exposure.
Cameron Park - Some nicer custom homes on larger lots. Must drive down the hill to Folsom and EDH for most activities. In addition to expensive power, I hear water is also very expensive. Longest commute to downtown. People seem to be more friendly and down to earth compared to EDH. Above the fog line, potential asbestos exposure, cooler in summer and winter.

There are a couple notable exceptions to our main target areas...... such as the "bring all offers!" house near Sac State.

Unfortunately, even with a hefty correction I think East Sac/Midtown and Davis will remain too expensive.

Folsom & El Dorado Hills October Update

Not much of note this month. I have more or less run out of new topics to cover...so I will likely post charts like these for some other zip codes in the near future (after Turkey day). However I won't update them monthly the way I do for Folsom and El Dorado Hills.

Month's Inventory by Zip for Oct/Nov

Finally some data I can sink my teeth into. Looks like month's inventory has shrunk considerably. Sales have increased compared to last month, and inventory has decreased....for a double whammy.

Does this mean I'm going to get a new letter from my lender......heck no...we are still at an average of 10.6 month's inventory for the zips I track. Only 3 holdouts below the 6 month demarcation line (where buyers and sellers are believed to be on equal footing).


In case you are new to the blog....the inventory is gathered from ZipRealty (single family homes), and the sales are from DataQuick via the Sacramento Bee.

The Weekly Screen Scrape - Early Holiday?

Well it seems home shoppers have taken an early holiday. Not a single home went pending last week. While I don't keep stats on this (only the total pending), I believe this is a first.

To boot, inventory crept higher as well. Of course these trends only apply to the homes that come up within my search parameters in EDH and Folsom.

Curious to know if anyone tried home shopping via Comcast OnDemand.....they show a lot of commercials for it. We tried it once and there was very little selection.

Tale of Two Cities

Its now been a little over a year since we left the D.C. metro area. Upon reflection, its amazing how quickly our expectations have adapted to the local market conditions in Sacramento. Both metro areas heavily dependent on government largess, however D.C.'s economy is a bit more diversified than Sacramento's.

Sacramento's data is shown with the solid markers, and D.C.s has the transparent markers. Over the years, the two cities have experienced remarkably similar housing cycles (I haven't compared with the rest of the nation to know if this is common or not). However the last two years has seen some divergence.

Sacramento prices are adjusting downward, while D.C. appears to be hitting a plateau. Looking at income statistics by county can explain some of what we are seeing. Fairfax County, where we lived, and neighboring Alexandria, Arlington, Fall Church, and Loudoun (as well as across the Potomac in Montgomery County MD) all rank within the top 25 in the nation. As for California, only 4 Bay Area Counties make it into this top 25.

November Inventory Changes by Zip Code

Total inventory declined 1.5%. Some zips are still experiencing growth despite the seasonal slowdown. Inventory for Single Family Homes was gathered from ZipRealty.

Waiting for the market to rebound might cost even more!

From Wednesday's EDH section of the Sac Bee, looks like they are considering fines for vacant homes:

"The Board of Supervisors on Tuesday directed staff members to draft an ordinance setting standards for maintaining vacant buildings, and fines for banks, mortgage companies and investors that fail to meet them."

"Board chairwoman Helen Baumann said she requested figures on foreclosures after residents attending a recent community meeting in El Dorado Hills raised concerns about the effect of vacant homes on neighboring property values." (emphasis is mine)

"Jim Wassner, county code enforcement supervisor, reported that as of Oct. 6, 199 homes were in foreclosure in El Dorado County. An additional 514 were in the pre-foreclosure stage, and 104 were in bankruptcy. Citing Nov. 5 figures for several communities, he reported that 119 homes in El Dorado Hills were in foreclosure, 126 in pre-foreclosure and 26 in bankruptcy."

Commentary - Silly neighbors....if they make it more costly to hold vacant homes, owners are more likely to reduce their asking price to sell.....its a no win situation for property values. The fines, just speed up the process.

The Weekly Screen Scrape - Defying Gravity

Wow...big jump in inventory for this week's screen scrape. The inventory of homes that meet my criteria (in Folsom and EDH) now stands at an all time high.

How can it be you ask? Isn't inventory falling? Yes, but so are prices. As prices drop on existing inventory, they eventually show up in my screen scrape.

However when prices fall, contract activity goes up. The best deals do get snapped up ....saw one at $153 a square foot go pending (not sure if it was a new listing or a price reduction). New homes also make for a sizable portion of the homes pending.

How bout a raise?

Hmmmm...another expert predicting things to flatten out in 6 months.

Unless Bernake plans to give us all a hefty raise, say double our current salary, I don't see how demand will return to stabilize the housing market. Yes homes aren't as expensive as they were 1 year ago.....but still, the went up between 50%-100% over the last 5 or so years, and they have only come down 10%-20%....

With all the non-traditional loan products, more or less, off the table, it will take some seriously low interest rates to make these homes fit within people's budget.

I am really starting to lose my faith in Bernake.....seems to shill for corporate America these days, not a champion of the U.S. economy.

Rolling Back the Clock?

Anyone who regularly reads the HBBs has seen the projections in terms of what the "right" price level is for the Sacramento housing market. In fact this was the subject of one of my first posts. (I've learned a lot since then.) Many studies have been done (see my favorite here).....but we all have our own idea. Some feel its as early as 1997, and others think it is 2004 (more or less where we are at now).

While this is a nice overall guideline, it doesn't provide much guidance on a personal level. If someone sees a home at $125 a square foot, it that a good deal? Hard to say...it really depends on the location and the condition of the home.

This is why I continually go back to my rent versus buy spreadsheet (which I have promised some of you...but haven't gotten around to sprucing up yet). This spreadsheet tells me, on a very specific level, if it makes sense to take on the monthly costs of ownership. This is not an investment approach, but a cash flow approach. It also helps answer questions like....How much less house can I afford if my monthly HOA is $150? Of course this assumes you know how much the rent is for a comparable home.

If you want an investment approach....the e-loan calculator is rather comprehensive, but some of their default assumptions need some serious revision....below are my suggestions:

Income Tax Rate: Way too high for most of us.....however they do have a guide: Not sure?
Annual Home Maintenance: This depends on age & condition of the house and should be adjusted since it can have a big impact.
Monthly Renter Insurance: I consider this a bit of a wash, since you have to pay homeowners (although I am basing this off my insurance rates from when I lived in D.C.)
Annual Rental Increases: Of course this depends on your personal situation, but I would say 1-2% for places here in Sacrament (if that)
Yearly Appreciation on the Home: Depends on your actual zip...but I would say zero over the next 7 years (7 years is their default time horizon)
Your Savings or Investment Rate: 5.5% (based on earlier comments)

Caveat: Their spreadsheet doesn't really include a separate section for HOA (add in the home maintenance section) and Mello-Roos (add in the properly tax section).

MelissaData

According to MelissaData, both zip codes saw a 45% decrease in sales (year over year) for October.

Price drops are a bit more erratic, but seem to be moving in the right direction lately. Once again, I think the Folsom average sale price data looks more realistic because their larger sample size helps to stabilize the data (averages can be easily influenced by outliers).

The Facade is Ending

Took my camera on a leisurely stroll around the "prestigious" gated community of Serrano where we currently rent. Countrywide is offering a free appraisal and credit report on the second one. Talk about incentives. Saving $400 on a $429,000 house (that's a whopping .1% savings). Across the street is another for sale (but I wanted to make sure I got the side-by-side bank owned clearly in focus).

Looks the perfectly manicured facade is starting to crack in beautiful El Dorado Hills.

Supporting My Habit

We joined the gym in September. It was the same month we renewed our lease. I figured it would be much more constructive way to spend our weekend, as opposed to driving around and looking at houses.

Funny thing happened on the way to the gym. Mr. Buying Time (he refuses to be called Mr. Average), who always drives, takes a detour. We end up in some previoulsy unexplored neighborhoods where he recently saw some homes listed.

Its very hard to kick a habit when your spouse is a contributing factor.

Expert Advise

From this week's Dear Miki column Folsom & El Dorado Hills Telegraph:

"Last night our real estate agent came over to the house and showed us a comparative market analysis (CMA). After much discussion on the value of our home, "Marge" suggested that we wait until the market is on the upswing. Although Roy and I don't have to sell, we told her we wanted to give it a try. I almost fell out of my chair when "Marge", our agent for the past 20 years and the recipient of our referrals, refused to list our house. What kind of service is this? I'm so burned up that I am calling all our friends and telling them not to use her because she is just too lazy to work harder."

Response:

"A CMA is designed to give facts which can be qualified and quantified, by giving number of bedrooms and baths, approximate square footage, size of major rooms, amenities, home's age, property taxes, homes' currently for sale list price and those sale price of those that have closed escrow. Basically, it tells you in black and white how your home stacks up with the competition."

Ensuing random discussion about whether CAR telling people not to test the waters is legal issue.....then last paragraph.....

"Give her a break! She has no time to coddle your curiosity by spending money on marketing your home, when she must feed family and pay a mortgage. Who knows, she might even be working part-time at a department store to pay the bills."

November Good Buys & Offers to Sellers/Builders

Okay courtesy of Mike's suggestion, please also post any offers you know of that were accepted, especially to builders. It will help give others negotiating leverage when they are ready to buy. Even just letting people know what type of builder incentives they can expect would be helpful since its hard to tell if they give everyone the same incentives.

Pieces of data to include: Zip, MLS or Development Name, List Price, Incentives, Offer (if any), house details (sq ft, garage size, lots size etc).

Its Not Nice to Tease

A house came on the market last week that hubby and I were keenly interested in. Its listed for $439k currently and according to ZipRealty had sold on 5/28/04 for $338,500.

The only words in the description are "Bring all offers!!!"

So here hubby and I figured this gave us a license to put in a reasonable offer at around $350,000 (our estimate after a drive by). We had our agent call to get the scoop and see if it had been updated. I wanted to see if my hunch was correct, that it was bought cheap and fixed up.

The seller's agent informs our agent that they aren't considering any offers below $400k! I think they should revise their description.

The Weekly Screen Scrape - Beneath the Surface

Thought I would give a bit more details on the weekly screen scrape. While the totals I report on (for sale, pending and price per square foot) have not changed much recently, they mask the fact that there is actually quite a bit of activity under the surface.

For example this week, the total listings (107 total, 24 of which are under contract, 3 with a release clause) only dropped by one. 4 homes expired or were removed, and 6 closed escrow. 9 new listings showed up (2 of which were relists), and 6 new contracts were entered. All this activity only amounted to a net loss of one listing (total contract numbers stayed the same).

So its not like the market has completely collapsed.....there is quite a bit going on. Granted, this week saw a bit more activity than usual, but from what I have seen the last week of each month tends to see an uptick in activity, especially escrow closings.

Learning to Market in a Down Market

Recently received two glossy auction publications in the mail from Hudson & Marshall, one for SoCal and one for NorCal. Inside cover reads...."Don't be intimidated by the auction process!"

Background: Over the summer, hubby and I thought we would attend one of the auctions. After we registered (which is how we ended up on H&Ms mailing list) online we started to read more of the details on the auction process, rules, and associated fees. We also tried to browse some of the many listings, but there weren't many pictures and not much info to accompany the listings. Once we realized what a sham the whole thing was, we decided it wasn't worth the trip or waking up the kids (who were napping).

Based on the mailings, it appears they are stepping up their service to generate more interest. The nice glossy is a welcome change from the frustrating experience I had earlier. I believe they were previously operating under the (mistaken) impression impression that$10k - $30k off market would be enough to generate crowds of bidders. We all know how well that worked out for them based on Agent Bubble's diligent follow up (at last report, less than half the properties actually closed escrow).

Again, inside cover reads, "Over 90% of the bids were accepted the day of the auction." I call BS!

The Sacramento auction set for Nov 18th. If anyone attends, please give post a report.

Stop the Presses - Recession Ahead

Typically I am an optimist. However, over the past 3 months, I have become increasingly anxious about a major recession/depression. I have come to believe that record oil prices and the bursting of the housing bubble are the prelude to something bigger.

On the other hand, I have been confounded by the rise in the stock market as of late. Unfortunately, the much needed corrections that have occurred over the last year have been short lived.

Yesterday, my fears became much more real and localized. My uncle, who has been living in Sacramento for over 18 years, is a printer. I consider printing to be the local equivalent to cardboard boxes. Its a leading indicator of how the economy is doing. When times are good, menus, brochures, mailings etc. are being printed. He was even laid off in the early '90s, so my theory holds up pretty well. He was asked not to come into work on Monday because they didn't have any new jobs lined up. He has been at this company for over 6.5 years and can't really remember another time when this has occurred.

I am not normally one to prognosticate on things like this. But I think this Goldilocks economy is going to take a turn for the worse.

Renting is Even Cheaper than You Think

Home prices are dropping, and if you are anxious like me, you might be starting to compare your monthly payment (adjusted for taxes) to your rent. But there is a little twist that many don't consider.

If you buy a house, you will no longer be making interest on your down payment. (I'm making a rather brazen assumption that have to have a sizable down payment to qualify for a loan.) So when I compare my potential adjusted monthly payment (including any HOA and Mello-Roos etc) to my rent, I use an interest adjusted rent (Rent minus the $250 or so in interest that I make off our down payment each month). To some degree, you could say I am factoring in the opportunity cost of buying a house.

When you make this downward adjustment in your rent (13% reduction in my case).....you will realize that we are nowhere near where we need to be for this market to recover. Compared to purchasing, renting is a bargain. When you adjust your rent for interest, its even more of a bargain than you realized!

Speaking of downpayments earning interest. We are looking into a higher yielding investment to stash our $$ while we wait this out. Being optimistic, we originally put it into a high yield savings hoping to purchase sometime this year. Seeing as how we are still a ways off, we figured we should do more with our down payment.

Anyone have suggestions? I don't know much about the dizzying array of financial products beyond the general stuff.

If you build it - will they come?

Late last week on Lander's blog, a topic came up that I had been planning a post on. Earlier in the week, I had taken my son to the pediatricians office located on Golden Foothill Parkway, just South of 50 and White Rock. I counted at least 14 different signs between the office space/warehouse for lease, buildings for sale and commercial property for sale.

When I first moved here, I had assumed it was newly developed (thus explaining the high vacancy rates). One year later, the picture doesn't seem to have changed much. In fact I think there are more signs up now.

On the retail side, in the last month I have now seen two businesses close their doors in the new Town Center just up the street from the commercial development. To make matters worse they are building more retail by the new Target, and hadn't even filled up the existing retail space in the rest of the Town Center. Not to mention the large retail development going up across the street. One exit up at Bidwell they are putting in a new mall (okay, so I will admit, it will be nice not to drive 30-40 minutes to get to a nice mall), and what looks to be additional retail. And of course there is the partially vacant shopping center off Fransisco in EDH with the new Safeway.

I don't see how the local demographics can support all this retail. I have got to assume that these projects were planned years ago, cause it just doesn't seem to make sense now. I also have to assume that they didn't realize that everyone and their brother were also planning to build. Especially since there doesn't seem to be anyone taking up residency in the existing retail or commercial properties. Although I do believe the mall tenants have already been signed on.

Short rant - I don't like the new trend where these planned developments put all the retail space right up next to the freeway entrance, and all the housing after that. It creates lots of unnecessary congestion as the homeowners and the shoppers get intermingled. I saw a map of the proposed development for Folsom South of 50, and it follows this exact layout. Sigh.

Folsom Mall Layout....see below. If you want the .pdf you can e-mail me. Its much easier to read the store names.

The Weekly Screen Scrape - Re Acceleration

So looks like the downward price trend is picking up steam this week, the average price per square foot of homes for sale in my criteria dropped by $2 from last week. Inventory is holding and contract activity increased a hair, but is still below the average for the stats I have collected.

Back in May I did some premature calculations on when I would feel comfortable buying given the current trend in price per square foot. Shortly after that, I got incredibly discouraged as I saw the price per square foot creep up.

However we have been on another down slope for over 2 months. Nonetheless, at its current rate, it would be almost a year before the average dropped to $180 a square foot....sigh.

Inequality Increases

Slightly off topic post.....

My last post reminded me of an article I read in the WSJ a couple weeks back. As those who read regularly have already observed, I tend to be a bleeding heart. I see this situation as a failing of both our market economy and of our democratic political system. In fact, I find it downright disgusting.

Kudos to the Journal for covering this. Their readers are in the top income brackets and need to be exposed to these figures. How can it be that so few have so much, while so many have so little in this "land of opportunity"? Our middle class society doesn't seem to have much of a middle class anymore.

Excerpt below:

"The richest Americans' share of national income has hit a postwar record, surpassing the highs reached in the 1990s bull market, and underlining the divergence of economic fortunes blamed for fueling anxiety among American workers.
The wealthiest 1% of Americans earned 21.2% of all income in 2005, according to new data from the Internal Revenue Service. That is up sharply from 19% in 2004, and surpasses the previous high of 20.8% set in 2000, at the peak of the previous bull market in stocks. The bottom 50% earned 12.8% of all income, down from 13.4% in 2004 and a bit less than their 13% share in 2000."

Dazed and Confused

Skimmed an article online regarding yesterday's report on existing home sales. What really strikes me, is the shock that these "experts" display with regard to how quickly and strongly the bubble has burst. How can they be so surprised about this? Are they really being genuine, or were they pushing their product the way RE Agents and mortgage brokers are?

Year after year people were astonished at how the market was going like gangbusters....was there no rigorous analysis as to what was driving this unprecedented growth? Stating it was fueled by low interest rates is not rigorous analysis.....and is akin to blaming the subsequent correction on subprime....its not the whole story.

In what industry have we ever seen 50%-100% appreciation in 5-7 years (okay so there might be a few....like perhaps oil..but I haven't checked the charts) without some type of correction?

As a percentage of a family's budget, housing tends to be the biggest monthly expense. If oil goes up by 50%, yes, it will affect consumption to some degree, but as a percentage of our net income, its still small potatoes compared to housing (unless you are one of the crazy live-in-Sac but commute-to-Bay-Area folks).

In other words, there really is a natural cap on the price of housing, and its directly related to income. Other items can be substituted to a degree. Buy things at Wal-Mart as opposed to Target or Macys. And the mix of items a family buys can change in response to price. Spend more on gas, and less on movies.

But housing....its not something you can change your consumption of on a day to day basis (once you are past your 20s). How did the "experts" miss this chapter in their economics courses?

Sacramento vs. Bay Area

Okay, things are a little slow here, so I thought I would stir up some controversy. I know there are quite a few folks out there who merely "put up" with Sacramento. They consider it to be a low-brow cow town. However we are here because we prefer it. In theory I could move to the Bay Area, since I work out of the house...but I can't really think of any compelling reason to do so. Aside from living in SF proper (which is not a place I want to raise kids), the rest of the Bay Area seems like a big sprawling suburb to me, especially East Bay. What am I missing?

So lets examine the quality of life evidence....*

Housing - Sacramento much less expensive
Traffic - Sacramento not as bad (although I can't say for sure). Both cities have clean and efficient public transit system (hubby takes the light rail to work).
Weather - Hard to say, while Sac has the heat, SF has the fog.
Air Quality - Most likely the Bay Area.
Economy - SF is more dynamic and diversified, while Sacramento is more stable but growing.
Public Schools - Really hard to generalize this one.
Cultural Events - Bay Area (In all honesty, this no longer enters into my decision making since I can't take my kids to these events).
Parks and Recreation - Not sure, but Sac has a lot to offer in this department.
Downtown District - Both cities have unique downtown districts. So its hard to compare.
Restaurants - Bay Area has more to offer. But once again, I'm not at that point in my life where we get to take advantage of what is available. Sac has some nice places to eat, and considering how often we go out (date night is once a month) the more limited selection is not an issue.

*Non of this applies if you are young and single. In that case, the city (SF) is where you want to be.

Negotiating Tactics

Catching up on my WSJ reading I came across an article from September 26th on housing. The article states that Lennar's average home price was down 6%, to an average of $296,000, and the average discount/incentive was up to $46,000 (not exactly sure where they got these numbers).

Why is this important?

If you are looking at a new home, not a bad idea to do some homework to get these figures for your builder. If we decide to purchase with Lennar (they are a front runner right now if we buy new), we can use this information for negotiating purposes.

For instance, if the list price of a home is $459,000, then using the same percentage discount/incentive off their average home price (15.5% ) brings us down to$388,000 or so. Its their data, so it won't be as easy to refute. Of course they will still backpedal and make excuses as to why they can't do it...but its a very reasoned approach from which to start negotiating.

Truthfully, its probably a bit more realistic than the pick-your-year home price plus inflation, that us affordability nuts like to use.

Anyways..feel free to share negotiating tactics, as affordable housing is nearing the horizon.

Sacramento September Month's Inventory by Zip

Slowly all the zips succumb to the market correction. Only a limited number of holdouts below the 6 month mark now (this mark generally signifies a balance between buyer and seller).

As the for sale inventory persists and actual sales plummet (even beyond the normal seasonal drop)....the month's inventory take on some ridiculously high values in some zips. As a whole, the region is at 12.2 months inventory.

This "buying power" is a very welcome change compared to when hubby and I went shopping for our first house back in the early spring of 2001.

Separately, I'm a bit frustrated with the media as there seems to be a lack of sympathy (and even some hostility) towards prudent buyers who are priced out of the market. Seems all the sympathy is directed towards sellers (or in most cases listers). The coverage is very one sided.



As usual, the sales stats are from DataQuick posted by the SacBee each month. The inventory is gathered by zip code from ZipRealty each month for single family homes.

Folsom and El Dorado Hills September 2007 Data from DataQuick

Had to double check the data to make sure the numbers were correct. My my, things are certainly starting to pick up downward momentum.

Separately, but related.....I went back and talked specifics with Lennar (Blackstone development). Very tempting. Around $180 a square foot, plus solar, for a new home that really meets all our needs (except its a 2 story and we would prefer one...but other than that the layout has all we want). Only issue is the lot size and placement....a little too close together, but hard to tell cause they don't have much built. Its also an excuse to place the decision on hold for now. At least till spring, when they have more homes up and we have a better idea how long this market is going to slide.

In the mean time, we have joined a gym, so now we can go work out instead of cruising neighborhoods and open houses on the weekends. Let's hope the distraction works.

The Weekly Screen Scrape - Trolling

Not much to report on the weekly screen scrape. Inventory appears to be holding, and a small increase in contract activity.

Hard to believe our townhouse in D.C. was sold one year ago this Friday. Speaking of which, I did the screen scrape a day early because I go in for LASIK tomorrow. Paying off our massive student loans and my LASIK surgery were the two earmarks for our house proceeds...the rest has gone to the down payment fund. So far we have been very good about keeping to that plan. I find it somewhat ironic that I will now be able to see clearly thanks to the housing bubble.

Almost forgot to mention, I'm a bit burnt out from work travel, so I trolled the MLS today. Neighborhoods I never would have looked in previously, because they were way out of our range, are now coming within reach. This is very encouraging.

What do Pregnancy and the Real Estate Bubble have in Common?

....both tend to have better outcomes the longer you wait.

For he record, I think difficulty with waiting is a personality quirk of mine.

For example, I had the same anxiousness with my first pregnancy. I had to wait 9 month after we decided we wanted to have a baby for it to actually arrive. Mentally I knew the longer the baby gestated, the better. Of course I didn't want the baby to come early. I knew waiting was the best option....but it doesn't make the wait any easier (not to mention the whole pregnancy discomfort thing). Fortunately I come from a very fertile family, so we didn't have to go through the initial agony each month of finding out we weren't pregnant. I truly sympathize with my many friends who have had these difficulties.

I tend to be a very action oriented person, and also a planner.....so when I make a decision to do something life changing, like have a kid or buy a house, I want to take action right away.

But I have learned to cope with my quirks. On the kid front, with the second we "started" months before we were actually "ready." Then by the time I was actually "ready" for my second, the wait only ended up being 2 or so months.

In a somewhat similar fashion, that's how this blog was born.....to make my wait for reasonably affordable housing more bearable, and of course take comfort from the company of others in the same situation.

Hopefully the Bee will post September sales soon! The wait is killing me =)

Mental Note to Self

Nothing like a nice long plane ride to get me back to a rational state of mind (currently blogging from Kansas).

New home shopping is a lot like window shopping.....all the products are displayed so nicely, tempting you to buy.....but then you get it home, and there it sits....all by itself, without the rest of the display...and the magic that you saw and thought you purchased quickly fades....you don't use the product near as much as you thought you would.....and start to realize the justifications you used to purchase it aren't really panning out.

Mental reminder to self.....no purchasing till we know more details on hubby's next contract (in Spring).

I need a hobby....waiting makes for a really lame obsession.

A Family Tree of Renters

Recent events made me realize I have very few immediate family members who actually own a house in California. Both my husband's and my family are long time Californians (3 or so generations).

So here goes...

My Side -
Grandpa - Rents (a renter ever since I can remember)
Mom - Rents (sold in fall of 2006, not sure if she plans to buy anytime soon)
Dad - Moved to Mexico to retire since CA was too expensive (previously owned in Stockton)
*Brother - Purchased a couple years ago in Orange County.
Uncle living in Sac - Rents (but recently moved in with girlfriend who owns)

Hubby's Side
Parents - Rent (owned many years ago)
Brother-in-Law & family - Renting (never owned)
*Grandma - Owns

So this is around a 25% ownership rate in my close family. Nowhere near the national average. Hopefully the market correction will allow most of them to be owners.....as I know many of them would like to be (especially my in-laws)....but they were also smart enough not to buy into the get in way over our heads now or be left out forever hype.

Lead me not.....

......unto temptation. For I am weak and my patience is not indefinite.

We just looked at a new house by a very reputable builder today.....on almost a quarter acre lot in EDH, that is priced at around $187 a square foot. If we use their lender we get another $10,000 towards closing.

Looking at my screen scrape numbers, $187 puts them in the bottom 15% of over 100 listings. Folsom and EDH Prices would have to drop another 13% to make this the average price (and I do think they will drop at least that). So if average prices drop another 20% that would make our this house approximately 7% above the average price....for a new home. Okay, okay.....I am seriously justifying....

On the other hand, looking at the HOA, Mello-Roos and the fully loaded payments, its way over our rent. I could handle $500 a month over rent...but this is averaging $1000 over.

Sigh...temptation....we may go back later and look at some hard numbers....

Inventory Changes by Zip Code

Its a rather mixed bag this month in terms of inventory changes. Still seeing increases in some zips (ranked from high to low this month). So its not necessarily all downhill from here.

The Weekly Screen Scrape - Milestones

We have now reached a new low in listing price average (per square foot). Since March when I started keeping track of general stats on my weekly screen scrape of Folsom and El Dorado Hills houses that meet our criteria....the average price per square foot has dropped almost 5% and the number of listings, not pending, in my criteria has more than doubled.

More choices, lower prices......so far its definitely been worth the wait.

Comp Provider vs. Knife Catcher

I have a new term for what some in the HB world call 'knife catchers." My term is "comp providers."

If no one buys houses, then we don't get falling comps. Without falling comps, sellers price their houses based on unrealistic and out of date comps. With poorly prices houses, we don't get any sales. So the only way out of the Catch-22 is for someone to purchase, and bring the comps down.

As one commenter has observed....there actually are some 'good buys' out due to highly negotiable sellers. In other words, there are some folks purchasing who have done their research and used it to negotiate reasonable contracts.

And I want to thank them.....cause they are providing comps for the rest of us who are still sitting on the fence.

WSJ Analysis of Mortgage Data

As I have mentioned elsewhere, I have grown to love the WSJ's excellent reporting and analysis . Today is a shining example of why I am an avid reader. They have a front page analysis on subprime and high rate loans. They go into lots of data, and the website has even more interactive features.

Unlike many new outlets, the WSJ doesn't rely solely on anecdotal quotes and NAR provided data (although even they have been guilty of this at times).

Their independent analysis confirms what I suspected upon moving to Sacramento.....that it wasn't just subprime borrowers who are in trouble. Mortgage related woes are affecting affluent families that used high rate loans to get into houses and neighborhoods they couldn't qualify for under conventional financing.

Based on their analysis of when, and in what quantity, these loans were made....they suggest "that the pain could last through next year and beyond, especially if housing prices remain sluggish."

Dealing with Uncertainty

The WSJ had an article yesterday "Nothing can kill drive and inspiration like a long wait." While the point the author was making was rather interesting...the examples were poorly done. Luckily I kept reading and found some very interesting tidbits of research which I think apply nicely to those of us waiting out the housing cycle. In fact, I think it may partially explain some of the "irrational" behavior we see. I know there are times I get so tired of waiting, I am ready to buy a house...any house....but eventually my rationality returns when I compare my potential PITI to my rent.

"The torment of waiting arises partly from an uncertainty that seems to gather over time."

"Research shows that waiting for uncertain outcomes can be more uncomfortable than adjusting to the worst of them...."

"Waiting drives some of us to make dumb decisions. In a study conducted by Gregory Berns, an associate professor of psychiatry and behavioral sciences at Emory University, respondents were given an option of receiving an electric shock now or a lesser shock after waiting. Roughly a third opted for more voltage sooner."

The future of housing in housing futures?

Really interesting article buried in last Thursday's WSJ on page D6. It discussed how housing futures are now being traded on the Chicago Mercantile Exchange. According to recent contract trading, analysis indicates that we can expect an average 10% drop in home prices through Nov 2011. Trading is market specific, and includes all census bureau MSAs....unfortunately they don't show Sacramento's projection in their graphic. Apparently this wasn't really news until recent changes made the S&P/Case Shiller based contract market applicable up to 60 months into the future.

Separately the same article also showed Sacramento inventory dropping by 0.4% while the 18 metro areas tracked rose by 1.2% compared to last month. They also noted that inventories were up 18% from a year earlier in the 17 metro area where they had comparable data.

Commentary: The timing of this article was incredible...I had just been thinking how interesting it would be to apply this technique to housing. I know they apply it to many things, including election outcomes. And it is becoming well known for its accuracy above and beyond the experts. After all people are betting money on their positions.

Inventory persistence (as I will call it from now on) looks to be occurring across the nation as bank and distressed properties stay on the market with no hope of finding buyers. I'm no real estate expert, but I imagine that previously sales activity would whittled down the inventory in fall and winter at a faster rate than new listings....which accounted for the decline in inventory. But with few sales, and more distressed listings being added, that relationship does not appear to be holding. This party just keeps getting more interesting!

Each day the WSJ ranks its articles based on most e-mailed and viewed online....guess which article ranked at the top on Friday!! Why they bury this stuff on page D6 is beyond me. Its important and interesting stuff, especially since everyone and their brother seems to blame their woes on housing these days.

The Weekly Screen Scrape - Back Down

After 3 months, we are finally back down to an average of $215 per square foot for the homes I am tracking that are for sale. I had seen some nice declining trends in late spring, but then all of a sudden in the summer, the average started climbing again.

In general, the homes that are pending sale in my criteria (in Folsom and EDH) have a lower average list price per square foot. It seems, the few buyers that are out there are looking for bargains. Speaking of buyers, contract activity it is still really low.

My total listings did finally drop this week, as end of the month expirations and escrow closings kicked in. But I imagine it will pick back up as more homes drop their prices below my price cap. I have been seeing quite a few meaningful price drops the last month or so. Of course there will always be the annoying $1,000 to $2,000 drops, but those are now the minority.

September 2007 MelissaData for Folsom and El Dorado Hills

For the life of me I can't figure out what the heck is going on with the EDH data. Their averages are all over the place, but still moving upwards even thought sales have tanked. Only explanation I have is that the mix of homes has changed....with new, more expensive homes, influencing the averages.

On the other hand, Folsom is acting as a perfect poster child of a market correction (i.e. fewer sales brings down prices as sellers have to compete for buyers).

Is it just me?

Don't know about the rest of you Sac housing fanatics, but my obsession has slowly evolved into a mere daily/weekly task. My passion started to wane as the credit crunch and gravity of housing woes began to permeate the national consciousness. Once NAR acknowledged that housing was not going to recover till 2008 (and even then their estimates are always optimistic), the fun and excitement of countering the MSM dissipated. In other words the spark has been lost now that everyone acknowledges that housing is in for a major correction.

I had to laugh out loud last week when I read the first sentence of a WSJ article stating that the lackluster housing performance has ended up being worse than even the most bearish had predicted. I’m no paid expert, but it didn’t take more than some basic economics to know housing was in for a BIG correction. Yeah, it felt a little uncomfortable to try and justify my opinion in the face of what industry experts thought, but it was rather enticing at the same time. Now that we all agree….it has become kinda boring.

Of course I still love a good deal, so I continue to impatiently wait out the market correction.

October Good Buys

Looks like we picked up a bit of momentum last month (thanks to Cymst). Hoping we will make it to at least 5 "good buys" this month. I will have to rely on others, as I have been trying to curb my MLS habit as of late (since we are in our lease for another six months).

The "good buys" section tends to generate a respectable number of hits each day.....so listings posted later in the month will still be viewed.

The Weekly Screen Scrape - Sleight of Hand

I must have missed this tactic last week, as I was a bit preoccupied with work...but oh its a good one.

I noticed this week (and it was there last week as well)...that the dismal pending sale numbers are actually worse than I thought. Turns out, almost 20% of those pending sales (4 out of 21) are actually new homes. To make matters more interesting....turns out new homes don't seem to be listed until they are under contract (there are none listed in the MLS....and we know they have spec home inventory)!

Why is this so important? Seems builders are trying to game the numbers by beefing up contract activity, and minimize inventory numbers in the MLS. Is this done on purpose? Who knows....but it sure was an interesting find....it means contract activity is really in the toilet around here.

Immobility

I started forming a theory (not Sacramento specific) as I visited with some of my D.C. friends this week who are also fed up with the area and hoping to move in the next year or so. My friend wants to move to California (preferably the Bay Area), but most likely she will be moving somewhere in the Midwest due to the cost of living. Gwynster also made a comment that confirmed my suspicions that this is a widespread phenomenon.

If the housing bubble doesn't burst, the economy is still in for it because there is a good chance the high price of homes will end up limiting the mobility of the workforce, thus causing a drag on the economy. In other words, those in the more expensive areas who were fortunate enough to have purchased several years ago, can stay or move to less expensive areas.....so its like trickle down housing (as opposed to economics). If you live in the middle of nowhere, forget about getting out....you don't have many options unless you made a fortune running an internet business!

One of the things our economy depends on is a dynamic labor force. Cost of living has become a huge limiting factor....the only people who can afford to move to places like the Bay Area are very well paid professionals and people coming from comparably prices metro areas. This means the companies that are located in the expensive metro areas will start having trouble recruiting at current salary levels. Eventually salaries will have to rise or, due to the lack of influx of people, home prices will have to depreciate. The other option is that companies start moving out of the more expensive metro areas.

I wish there were some statistics I could look at to buttress this theory (that people are increasingly stuck where they are, thus shrinking the available labor pool).

The Price we Pay for Quality Public Education

Thought I would leave you with some really interesting data before I head to D.C. to present my research.

Recent comments had me wondering about the premium we pay to live in areas with "high quality public schools." So I put together some publically available data to see just what that premium is. The weighted average API score is 6.5 for all the zipcodes on a scale from 1-10.

One strategy hubby and I have discussed is buying in an area where housing is less expensive and using private schools. Otherwise we end up "paying" for a quality public education out of our home premium and annual real estate taxes. I plan to run some numbers on a break even scenario at a later date.

Methodology:
Took the weighted average (the number of valid students multiplied by a school's 2006 API score) summed it up and derived a single API school score for each zip code. I compared this with median June 2007 housing prices from DataQuick via Sac Bee to get a better feel for the "quality school" premium. (You can't just average all the schools scores for a zip code because the number of students can vary so widely from school to school.)

It is obvious, that aside from select areas, there is a pretty high correlation between higher median home prices and better schools (median home prices over 400k are highlighted). From what I remember of CA school funding, this is a bit of a catch-22, since schools are largely funded with real estate taxes (so more money to give to schools where real estate prices are higher which gives schools more resources to perform well).