Friday, June 29, 2007

Very Personal Income Data

Since income is such a big factor in housing purchase, here is an incredibly detailed site related to income. You can search by county and job type. The privacy aspect is somewhat troubling (the link was forwarded via a list serve dedicated to privacy issues).

Wow......based on some rough estimates, federal employees in California, it seems almost 20% of these folks make over $100,000. I didn't realize government work paid so well. And this doesn't include many of the folks who make big bucks. Excluded from the database are employees of the FBI, CIA, Defense Department, State Department and other positions deemed sensitive by federal law. Congress, the White House, and independent commissions, such as the Postal Service, are excluded from the data complied by the U.S. Office of Personnel Management.

With incomes like these, I can see why so many can afford to live so well in the local region.

This and That

Answers: Naturally Occurring Asbestos in El Dorado Hills
First I want to thank everyone for providing information and opinions on this subject. After several flip flops on this issue, hubby and I have determined we will continue to consider EDH as a potential location for a home purchase. I spoke with our pediatrician yesterday, he said it would be like not living in California because there is more sun than other states. He has been practicing for 16 years in the county, and his wife is also in general medicine. They have not seen any asbestos related health problems, and assured me that the medical community in the county is not concerned. They live in Shingle Springs (5 acres accessed by a dirt road) so his wife was initially concerned when the controversy came up. She looked through the very thorough county health records (back to the 1800’s) and did not find anything to cause alarm. This was especially reassuring since it addressed the 20-30 year incubation period.
It’s hard to believe if you pay the slightest bit of attention, but there are many who still don’t believe there is a problem in real estate.
There is something very wrong about this marketing remark: “Customized Neutral Colors”

Thursday, June 28, 2007

The Weekly Screen Scrape - A Flurry

Lots of activity this week. I am starting to wonder if there is some lag in the data since last week there was almost no activity.

Anyways, several new contracts pending, escrow closings and new listings. However the net result was the same as before. It appears the market is in a state of equilibrium. The only thing worth reporting was the sizable number of price reductions, dropping the average price per square foot of homes for sale in my criteria another dollar.

The house on Smith Way that was so interesting to watch (first listed at $350,000, then at $500,000 but Zillow's for considerably more) just completely dropped out of the data. Not sure what happened there.

Looking forward to seeing this month's numbers.....Melissadata is showing really low averages so far....wondering if the end of the month activity will bring it back in line with previous months, or if we have finally reached a tipping point.

Wednesday, June 27, 2007

Blackstone - O Catalyst! My Catalyst!

Buckle your seat belts boys and girls, its going to be a wild ride from here on out. The 800lb gorilla in the closet has made an appearance......the 900 acre Blackstone community opened their first sales office on Saturday.

The new places at Blackstone are all solar (yippee!), and there will be a nice community clubhouse. It is very appealing, and at an average of $194 a square foot, why would you buy a resale tract home when you can get a new one for less?

To put this in perspective, for Centex's 2744 square foot house, only 2 resales beat their base price (their prices include $20,000 incentives). Of course the HOA and district taxes are rather hefty, around $250, but they include the clubhouse, which has a gym and swimming. I kinda see the solar power as an environmentally friendly discount on the taxes and HOA. Many of the resales that they are competing with also around $150 in extra monthly fees as well.

As I have theorized elsewhere, the new home builders are going to lead the market down. They have to have regular cash infusions, and can't afford to carry inventory the way emotionally involved owners can, so they have been forced to sell at a discount. Blackstone is an enormous development, which means more inventory competing for the same small pool of buyers. This is the catalyst I have been waiting for (Blackstone homes were supposed to begin selling in early spring...which was part of the reason I was forecasting a downward acceleration in prices by early summer).

O Captain! my Captain! our fearful trip is done;
The ship has weather’d every rack, the prize we sought is won;
The port is near, the bells I hear, the people all exulting,

Tuesday, June 26, 2007

Predicted Housing Market Decline for Folsom and EDH

Thanks to Lander’s detective work….I got a hold of the Global Insight housing study as well as the raw data! Based on the data, I project an additional 20% decline still to come in these two markets (all else being equal…which we know its not…but it at least gives us something to go by).

This figure was derived by taking Sacramento’s overall decline from peak (Q3 of 2005 to Q1 of 2007....a drop of 22%) so far, and comparing it to the decline so far forFolsom and El Dorado (around 15% right now). The study currently shows a 30% overvaluation for the Sacramento MSA. I then computed the current overvaluation for Folsom and EDH based on this ratio. The Sacramento MSA data came from the Global Insight study, and the Folsom & EDH decline was taken from my monthly historical charts of Dataquick/Sacbee data.

After looking at the time series of data available, I was very pleased since they showed 2002 to be the “just right valuation”.This is the same conclusion I had come to in my original data analysis (albeit using some similar data).

Monday, June 25, 2007

Framework for Analysis of Local Asbestos Risk

The naturally occurring asbestos in Folsom and El Dorado Hills seems to cause quite a controversy. Some feel the risk of exposure is not worth the benefits the area has to offer. I offer a framework for analysis of the risk….and pose some general questions that need to be answered to fully evaluate the problem.

Economics assumes that people process information and make rational decisions with it. While it sounds simple, this framework is highly flawed, since it assumes 1) people have full information, and 2) that they act rationally. This flaw is especially evident when it comes to issues of risk. For instance, it is well known that after September 11, 2001, many people were afraid to fly. However by driving to their destination instead, they increased their risk exposure because flying is statistically so much safer than driving.

In general a risk should be evaluated based on the following criteria 1) how serious is the risk (fatal vs. inconvenient), 2) what are the chances it will occur. For instance catastrophic flooding in Sacramento is a very serious threat and there is roughly a 1 in 100 chance it will occur each year. Personally, I don't want to live in a flood plain around here.

Most of us take precautions to mitigate risks, such as wearing seat belts, locking our doors, and wearing sunscreen. But many of us also play sports, live in an area where the air quality is poor, have stressful jobs, don’t eat a healthy and balanced diet, and don’t exercise enough. I believe this is because we make trade-offs between risks and our quality of life. Driving in a car is very risky as far as statistics go, but I know very few Californians over 16 that don’t drive.

So how do we put the risk of asbestos exposure into perspective? And how do we make trade-offs with the increased quality of life that comes with living in Folsom and El Dorado Hills (i.e. low crime and great schools? First we can compare the asbestos exposure risk to other risks. By my calculations (I am certainly no expert). The worst exposure level in EDH, 85/1,000,000 risk of cancer, looks to be less than dying by homicide. Additionally, what these statistics also doesn't tell me is how the risk of cancer equates to survival rates.

Growing up very close to Casmalia, California, I saw unmistakable evidence that exposure to the toxins caused health related problems in the local population. So what I am wondering, has there been any evidence to show an increased incidence of asbestos related illnesses in the local area?

I have only been able to locate information that suggests the increased exposure risk is there….but no evidence to suggest that the local population shows any elevated level of symptoms related to the increased exposure (perhaps because asbestos is found in so many homes, it would be hard to create a study based solely on natural asbestos).

Saturday, June 23, 2007

Latest from Global Insight

Looks like they have updated my favorite statistical/econ study of the housing market at Global Insight.

For a bit of commentary on the studies methodology, see my earlier post. Sacramento made the press release for one of the largest declines last quarter. They didn't e-mail me the study this time when I requested I can't give too many details other than the press release.

Thursday, June 21, 2007

They say a picture is worth 1000 words

An extra treat since I will be attending a research conference for the next 3 days.

I don't think this needs much explanation.....but just in case, you can find the inventory explanation here. The population data is a bit old, but still does the trick. There is an empty zip between 95660 and 95673 (I had no data on that one).

Weekly Screen Scrape - At a Standstill

Well, not much happening this week. Contract activity, closing escrow, re-listings, first time listings, price changes.....all very slow. Must be the heat.

Side Note: I had forgotten how intense the Sacramento heat can be. We would talk about it wistfully while suffering through the humidity back East....saying "it gets hot, but its a dry heat." Not so wistful these days.....

Wednesday, June 20, 2007

Taking Stock - The 6 month mark

Hard to believe, but we have been back in the Sacramento area for a little over 6 months now. Based on our research, word of mouth, the RE blogs, and Sunday drives/walks we have slowly been exploring different neighborhoods. Below is a general summary of our assessment so far (based on a house that can comfortably fit a family of four, a 25 year old fishing boat, as well as a teleworker office, for under 500k):

Neighborhoods we are seriously considering:
-El Dorado Hills (asbestos issue still under investigation)

Reasonably interested and more affordable than Folsom and EDH (but would need a further price drop to offset the poor performing public schools):
-Rancho Cordova (Elliott Homes off Zinfandel we have now talked to several folks who live there and the airport related noise doesn't seem to be a problem, depending on where you are in the development).

Still looking into:
-Gold River
-Cameron Park
-West Sacramento

Wish List (can't afford):
-Downtown/MidTown (especially Nifty Fifties & Fab Forties)
-North side of American River (along American River Drive)*
-River Park
-Land/Curtis Park
-Granite Bay

More or Less Off the list:
-Fair Oaks (seemed to be just as expensive as Folsom....but across the river)*

*Our general area of interest is along the American River and Hwy 50. The idea of fighting traffic everyday to crossing over the river is daunting. It would take a very special home to make us seriously consider living on the North side of the American.

Tuesday, June 19, 2007

Rent it is!

With the weekly screen scrape showing increased contract activity, and the monthly sales report showing a plateau in prices....I was getting a little discouraged. However, Agent Bubble kindly reminded me that June is typically the busiest month for contracts in Sacramento, and some other's reminded me how sticky prices are on the way down.

To make myself feel better I ran the rental vs. purchase numbers for the Folsom and EDH market. Please keep in mind these are very generic numbers.....nothing scientific or even methodical . They looked about right for what I have been seeing in terms of rentals and current home prices.

The idea was to figure out what the break even rental price was for a given house price (based on monthly payments). Then to figure out how much current house prices would have to drop to get to the rental break even point.

It was a very encouraging exercise. Based on this it looks like the market will need to come down around 30%. Of course rental prices can also rise, but with all these rentals on the market...I actually think rents are going down right now.

There is a range of rental sizes as well as current for sale listing prices for each break even point. For example, you can rent a house with 1900-2200 square feet for around $1800 a month. This monthly payment (fully loaded with taxes, tax breaks, etc.) would buy you a house for $320,000. However you can't purchase a house at this price. For approximately the same sized house, you would have to pay around $425,000 to $475,000. Which means prices would have to drop almost 30% for the break even and current market to match.

A big part of the differential comes from the interest you earn on your down payment (which I accounted for as a $ 275 reduction in monthly rent).

Monday, June 18, 2007

Folsom & EDH May 2007 Sales and Price Data

While sales for both Folsom and EDH are still slow, on a seasonally adjusted basis, it looks like pricing appears to be hitting a plateau. This doesn't surprise me much for Folsom, whose month's inventory is still low compared to the rest of Sacramento, but it is unexpected for El Dorado Hills with between 9-11 months inventory out there.

In general, I was hoping to see the correction pick up speed after the spring selling season collapsed under the weight of all the inventory. For these two zip codes, that doesn't appear to be the case. Is this the end of the correction for these two 14% and 16% from the peak?

Saturday, June 16, 2007

Average Buyer Goes Resale Shopping

At less than $170 a square foot (and with larger than average lots, .25 acre and .5 respectively) I am certiainly willing to check them out.

By my earlier calculations sub $180 a square foot means a green light for shopping.

Of course at this point, when the averages for Folsom and El Dorado Hills are still way above $200 a square foot, I don't have high expectations. In my experience, when it looks too good to be usually is. (However hubby is very handy, so a light fixer is okay, if not preferable in my book.)

Friday, June 15, 2007

Month's Inventory by Zip for May/June

The latest sales figures from Sac Bee DataQuick have been posted. While we are still squarely in buyer's territory, with a Sacramento area weighted average of 8.4 month's inventory, momentum has been lost. Month's inventory is actually down slightly compared to last month.

The zips highlighted in bold had increases in month's inventory. I am rather pleased, Folsom has finally reached the tipping point at 6 months, although EDH dropped by 2 months, but is still in buyer's territory at 9.4 months.

Many areas actually saw a decrease in month's inventory. Please keep in mind some areas, like Woodland at the top of the chart with 21 month's inventory, are really skewed by low numbers (they went from 15 sales in April to 6 in May).

For a better description of this data and where it comes last month's post here.

Thursday, June 14, 2007

Weekly Screen Scrape - More Interest

Uh.....seems the upward contract/pending trend is continuing. Instead of writing about it, I made a quick chart. Again these stats are for Folsom and EDH homes that meet my criteria (around 80 right now).

The bright spot in all this is 20% of the homes in my criteria are now below the $200 a sq ft mark!

If this trend keeps up another couple weeks, looks like we are going to have to start doing some serious house shopping.......My hope is that this is just a temporary last gasp of buyers bullied/scared into a contract by their mortgage broker who told them to lock in their interest rate.

For all those following the 1053 Smith Way still hasn't gone pending (after 2 weeks) at $161 a square foot!

Wednesday, June 13, 2007

Market Outlook of an Average Buyer

Now that agents have seen what a dismal spring it was, they will hopefully turn up the pressure on their sellers to drop prices. Those who need to sell quickly, new home inventory, and foreclosure/bank owned activity should also help accelerate the downward pressure on prices this summer and fall.

Less desirable areas in Sacramento, as well as outlying suburbs will see price drops first (we are already in this phase). Eventually, those looking in nicer areas like Folsom and Midtown, will see they can get much more house for their money elsewhere. This will siphon off demand for those nicer areas, and will eventually lead to softening prices (but not nearly to the extent of the less desirable areas).

I expect prices to drop in the less desirable areas around 30-40%, and around 20-30% in the more desirable areas, for an average of 30% for the Sacramento Metropolitan Area. This is considerably less than the Global Insight study (at 40% overvalued), but I am not inflation adjusting at this point. In sum, I think prices need to get back to 2002 levels with a little upward adjustment for inflation.

Of course the big question mark in all this, especially lately, is the effect interest rates will have. If they go up, obviously the small pool of buyers will get even smaller, which will prompt the market correction to speed up. If interest rates stay relatively flat, I think the correction will take at least another year and a half, if the rest of the economy holds up okay. If not, I think we may over correct, and prices will move south for at least two and a half more years.

Tuesday, June 12, 2007

Inventory Growth by Zip

Inventory growth has certainly slowed in many zip codes. Since I last canvased these zip codes in May (using Ziprealty), inventory has only grown 4.7% (compared to the April/May growth of around 18%). Not quite sure if the slowdown is due to increased sales, or just reaching some point where most of the inventory is already listed.

Some areas actually saw drops in inventory, such as Davis, and 2 zips in Roseville and Elk Grove. My inventory calculations don't include many of the outlying areas, which is why the total inventory is considerably lower than other reports (14,403).

I'm sure NAR will be calling another bottom soon since inventory isn't growing as fast as it was earlier =)

Monday, June 11, 2007

Investment Properties & Second Homes

One lesson I have certainly learned in my short time up here in Serrano, is to avoid any area where investors were allowed to purchase homes.

There is a significant number of renters in my neck of the Serrano hills. In addition, there are many empty homes (second and retirement homes). This makes for a very un-neighborly community (although us renters kinda hang together).

For instance, my next door neighbor's house is empty, they have never been there in the 6 months we have lived here. They have a very inviting, and well cared for, swimming pool we are tempted to help ourselves to =)

I also think this un-neighborhood dynamic has had a serious downward effect on the property values. Its hard to say exactly how much, because there is also a lot of inventory (investors trying to get out of the market). Some builders, like Centex state they will not sell to investors. My prediction, on average, their property values will hold up better in this market.

Of course, I tried to run some numbers on the Sac Bee stats for rentals, unoccupied, and owner occupied but the data didn't look right to me.

Sunday, June 10, 2007

Weekly Screen Scrape - Interest

Interest in Folsom and EDH certainly picked up last week. Over a quarter of the houses pending sale in my criteria went under contract this past week. The ratio of pending sales to available has increased significantly over the last couple weeks.

Could it be that the dropping price-per-square-foot has enticed buyers back into the market (its dropped close to $9 in 3 months)? Or could it be that borrowers want to lock in a purchase now before interest rates rise?

Friday, June 8, 2007

Fun with Listings its getting almost comical reading some of the listing remarks in Folsom and EDH:

436 Platt Circle: BANK OWNED/FORECLOSURE..NOT A Short Sale.

Saw another listing remark a week or so back boasting it was the only listing on a quite street.

Oh how times have changed.

NAR lies challenged by Economists

New study by Economists at Northwestern shows that FSBO sellers do just as well as those sellers with Realtors! Now if we could just figure out a way to buy a home without a realtor involved....

(Best I can tell, in California, there doesn't seem to be any incentive for a buyer to not use a realtor because they don't get to keep the realtor commission if they don't use one...I'm still a little shaky on the exact details here in CA.)

According to today's the NY Times:

"The conclusion, in a study to be released today based on home-sales data from 1998 to 2004 in Madison, Wis., is that people in that city who sold their homes through real estate agents typically did not get a higher sale price than people who sold their homes themselves. When the agent’s commission is factored in, the for-sale-by-owner people came out ahead financially."

"The findings fly in the face of studies by the National Association of Realtors. The group has said that houses sold via its members’ local multiple listing services get a 16 percent premium over homes sold by their owners. The economists’ study is likely to be seen as ammunition for critics and lower-cost competitors who question the need for 5 or 6 percent commissions — which deliver about $60 billion a year to agents and their employers."

Thursday, June 7, 2007

If I crunched RE numbers for a living

If I analyzed real estate for a living, I would perform a study by metropolitan statistical area (MSA) that took into account economic variables like income, as well as mortgage interest rates, population density, desirability of location, and house values over time.

Wait a second.....appears Global Insight already has it covered! This is the best statistical analysis I have seen yet. Global Insight is highly regarded in the industry. In fact my company purchases their economic MSA data for our forecasting work. This study came out in March 2007, not sure how I missed it.

Some highlights:

Of course Sacramento, as well as the rest of the Central Valley, were at the top of the most overvalued MSAs (out of 317). According to this study, Sacramento is currently 41.2% overvalued compared to 6% in Q4 of 2002.

They also note past corrections in various markets. Previously Sacramento housing valuations peaked in Q1 of 1991 at 17% overvalued and slid 14% from 1991Q2-1996Q3.

Interestingly they note that the more severe the overvaluation, the larger the declines and the shorter the duration of the decline. On average, for past declines, overvaluation was 35% and subsequent declines 16% over 16 quarters. Based on the averages, it looks like we have at least 10 more quarters ahead of us.

How I found this study - The WSJ has been keeping tabs on 18 or so real estate markets. Sacramento is one of them. I know Sac is not in top 18 largest metro areas....and decided to see where they ranked (in the mid 30s by most variables). As I mentioned above, our company purchases their data, but after reading the use agreement, I realized I shouldn't share their data on my blog without asking permission. So I went to their site, and happened upon this really fantastic study.

Wednesday, June 6, 2007

I've been slimed

I have really tried not to say disparaging things about Realtors and those involved in the real estate industry as a whole class, because there are some honest hardworking folks out there.

But this recent experience really pushed me over the edge.

Hubby & I looked at a FSBO in EDH in February. He was asking around $520,000. He had bought the place in 2005 for $430,000 and worked on it as a full time job (a.k.a. a flipper), sinking around $100,000 in upgrades into the house. He was currently renting, and saw the writing on the was time to sell it before the market tanked.

Eventually he hired a RE agent. Initially asking a little more than $530,000 in the MLS (since he had to account for the RE commission now). He later dropped the price to $479,000 on the MLS and the house is now pending sale.

In the mean time, I had spoken with an agent we met at an open house who makes it sound like the market is still as hot as it was in 2005. He had forwarded the listing since it met our criteria. Later he called to follow up, and informed me that the seller got a full price offer!

I wasn't about to waste my time and argue with him.....but I knew the seller lost a good deal of money, by over improving the house, not to mention the transaction costs. Full price offer my @ss. He dropped his price by almost $50,000 and lost a lot of money and time as a flipper. Just because the offer came in at the MLS price does not make it a full price offer! It wouldn't even surprise me if they actually lowered the price in the MLS to match the offer. Sad thing is, I don't even think it occurs to this agent that he is being deceptive/dishonest.

As a result of this experience, I am thinking about starting some type of real estate services blackball list. Folks myself or others don't feel meet certain ethical or customer service standards. If anyone has suggestions on the best way to do this, please e-mail or comment.

Tuesday, June 5, 2007

Folsom & El Dorado Hills Initial May Data

Hmm....while I love getting monthly numbers early, the data provided by Melissadata is really suspect and should only be used with caution.

They don't provide much documentation, but I am pretty certain their data contains new construction sales and prices. How else could we explain the all time peak in the average sales price for El Dorado Hills? With a meager 57 sales, high end homes must be really influencing the averages (which is why most real estate statistics don't use averages!).

Folsom on the other hand is looking very reasonable. Prices have dropped 25% from the Melissadata peak. We are now back to Sept 2004 prices. Obviously lower prices have spurred some activity because sales appear to be holding up okay in Folsom.

A moving average is provided to smooth out large variations in the data for both sales and average home $$.

Monday, June 4, 2007

The Weekly Screen Scrape - Its About Time

Well, after missing my screen scrape last Thursday, I was anxious to see what happened in the housing market upon my return to the US.

Great news....after holding steady for several weeks, average price-per-square-foot of homes for sale dropped a whopping $4. Considering it had previously taken almost 2.5 months for the average to drop that much, dare I suggest we are on our way to affordable housing once again?

When I first started tracking in early February, finding houses sub $200 a square-foot was rare. This week 3 of the 5 houses that showed up in my criteria for the first time (either new, or dropped into my price range) were below the $200 a square foot.

There was also the typical bump in escrow closings at the end of the month. Relistings have become common.

Two houses that were pending, are back on the market. One is particularly notable. Some may remember the Folsom house on Smith Way that Zillowed for over $700,000. They were asking $350,000 as list and were going to present the top 4 offers to the lender. It went pending within a week and a half, but is now back on the market at $500,000.

Another item of note was a house I had been watching that was above my price range (since we can always lowball). I heard it went up for auction approximately $50,000 less than the last asking price. It is now back on the market (apparently didn't sell?), for $25,000 less than the last asking price. Not quite sure what they are thinking.

En Venta (for sale)

Well, I wasn't exactly successful at cold turkey. I caved about mid week and went online to see if we hit the 17,000 mark.

Some brief real estate observations from my trip:

Lots of speculative real estate for sale south of the border (Puerto Vallarta). My father moved down there with his wife 4 years ago, because California (Stockton) was too expensive for them to retire. They are trying to sell their place (for 2x what they bought it for), and have had it on the market for over 2 years....along with the rest of the neighborhood.

Nothing like seeing living conditions in a third world country to make you appreciate even the humblest of houses in the Central Valley. I feel rather disgusted with my wish list knowing theirs includes things like electricity and drinkable running water (apparently they shut off the public water overnight).