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).

Weekly Screen Scrape - Bucking the Trend

Even though inventory in the Sacramento Metro area has begun to decline, the inventory in my weekly screen scrape has continued to increase. Again I believe this is because prices are dropping, so there is a greater proportion of existing inventory showing up in my criteria. There has also been a slight uptick in contract activity (see graphic below). However buyers have wised up. The average list price for houses under contract is $8 below the average list price for those still available.

The graphic below is based on data compiled on houses in Folsom and El Dorado Hills that show up in my weekly search. This search helps me get a better feel for the amount of activity occurring in the market which in turn helps set my purchase expectations.

Shiller: Housing Market Creates Significant Recession Risk

Apparently Shiller is not optimistic about the direction of the economy.

Based on Shillers view's a look at our personal situation.......

Are our jobs recession proof? Not sure. Both hubby and I work with government clients (federal and state).

If a severe recession were to hit, how would we fare? I think it depends on inflation. We have a reasonable sized down payment as sizable 401k savings. Without a mortgage or student loan debts we can easily downsize our lifestyle. Lack of a mortgage also makes us extremely mobile, so we could move to find work if it were necessary.

Is purchasing a house with a recession highly probable a good idea? Not at this point. While interest rates and home prices are looking favorable, I am keen to wait and see how the economy as a whole weathers the bursting of the housing bubble. There isn't much out there to suggest we are at bottom, at this point there is nothing to lose by waiting.

What can we do to prepare for a recession? Not sure.

Waiting it Out

In a society that thrives on instant gratification.....patience is not always rewarded. Luckily, when it comes to the Sacramento housing market, patience is being rewarded.

Prices are dropping and so too is the cost of borrowing (assuming you have a down payment and good credit....otherwise you might not be able to find a loan at all).

We made a bet that the housing market could not continue to appreciate and it appears to be paying off. Others made a bet that it would, including individuals who feared they would be priced our forever, speculators and investors.

I'm not sure how long our patience will last. After we hit bottom, I believe there will be a fairly sustained period with no appreciation before the market starts to climb again. I am looking for bottom, and ideally waiting till I see some modest appreciation.....but in all honesty, I think we will pull the trigger somewhere in between.

Month's Inventory by Zip for Aug/Sep

Freshly prepared gnocchi slowly rise to the top when put in boiling water, and so to do almost all the zip codes in my month's inventory. Just a few hold outs left below the 6 month line (equal footing between buyer and seller) mainly downtown. Unfortunately, DQ didn't have the August sales data for Yolo county this month....

I'm doing my happy dance now......cause even Folsom is above the line now. El Dorado Hills has been cooked for a while now.....and prices have been dropping pretty steadily when owners want to actually sell the house they have listed.

I called on a house today that has been on the market for over 169 days, and has dropped its price over $150k......not a singe offer since it was first put on the market (and that offer was considered low at the time.....but it was still $100k more than they are currently asking....that's what happens when you are greedy/stubborn....cause they don't owe very much on it).


Existing single family home sales are from the Sacramento Bee's website and are gathered by DataQuick each month. The inventory numbers are for SFH that were listed on ZipRealty's website.

Weekly Screen Scrape - Increases and Decreases

Not much to report, but inventory in my screen scrape is still increasing even though total inventory in Folsom and El Dorado Hills is not. Prices are dropping, which accounts for some of the inventory increase....part new listings starting out at lower prices, and part old listings dropping into our range.

We have seen some nice looking homes in our price range lately...and are very encouraged. Might have to get a new letter from our mortgage broker so we can start shopping in two months (one month into our 6 month lease already. Conceivably in two more months we could make an offer to close escrow in 2 months, giving us a whole month to tidy up the new place and move in).

Smaller Homes will Fix the Problem?

According to yesterday's WSJ, it looks like the builders are responding to the market conditions by building smaller homes. The thinking is, they will be more affordable if they are smaller and contain less amenities.

They noted that the average size of a newly completed home was 2,248 sq. feet. Thinking in terms of my average sized family of 4 (no pets), that is approximately the size of home we would like to purchase when they finally come down into our price range (and some have already started). I know we should be able to get by in a much smaller home, but I work full time out of the house and require a separate office (don't want to work in my bedroom).

I knew there was something wrong with the housing market when......

My epiphany came when we were at an open house near our daycare provider's home (this was early 2005 back in Virginia) and ran into another couple whose daughter attended the same daycare. The mom was a lawyer in D.C. and dad was a mortgage broker. Just like us, they were young professionals who couldn't afford a reasonable sized house, in an older but reasonable neighborhood, pretty far from the city center (Fairfax County where we lived would probably be akin to Placer or El Dorado County's distance to downtown Sac), using reasonable financing mechanisms (30yr fixed rate) with 5%-10% down.

After that we began to watch the market carefully for signs we should sell. Several months before we learned we would be moving back to Sacramento, we had decided to sell our house and rent for a while (around July 2006). We probably would have tried earlier in the year, but my son was born in March of 2006 so that had us a bit preoccupied =)

Inventory Growth by Zip for Sept 2007

Not much change since August in SFH inventory. A 0.8% drop in inventory overall. Both raw numbers and percentages are presented (as the percentage change can be a bit misleading in zips where inventory is below 100). Guess this means August was our peak this year. Although if we included the upcoming auction inventory we might still be higher this month.

LA Times Opinion Piece is Right On

LA Times piece by Peter Viles September 4, 2007 captured much of what I struggled to articulate earlier. (I know this is old news in blog land, but I just got around to reading the article).

"And yet now, just as the market is starting to cool and possibly provide buying opportunities, many of these folks -- especially those patiently waiting out the bubble -- find themselves crashing a pity party for the very buyers who priced them out of the market. They are furious that the government appears interested in supporting overextended borrowers and high prices, and they cite data to support their position. According to the California Assn. of Realtors, 41% of first-time California home buyers in 2006 put no money down. The median down payment for first-time buyers was just $10,000. No wonder LA Land commenter "jbunniii" writes: "No bailout is needed -- most of the borrowers in trouble didn't put any money down in the first place, so they will lose nothing by walking away."You don't have to accept all of these arguments."

"There is no doubt that some big lenders confused and, in some cases, defrauded borrowers, with the tacit approval of Congress, the Bush administration and regulators. It's also notable that "bubble bloggers" are not disinterested parties. Many are hoping that prices will fall so they can buy."

"But it's striking how little attention the views of the anti-bailout bears have gotten. Politicians, by rushing to the defense of recent home buyers, give the appearance of endorsing price stability at historically high levels. This makes little sense in Los Angeles, which ranks among the least affordable markets in America when housing prices are matched against income levels. Why should government favor today's owners over tomorrow's buyers?""

"I make nearly 100K and cannot afford a home in California," "JK" wrote on LA Land. "Using my tax dollars to help irresponsible people keep homes they can't afford, while at the same time keeping me out of the market, will be enough to send me over the edge.""

Why Others like Sac

SF Chronicle article on why Sac is a great place to live. Most of these points were covered in my earlier post....but they bear repeating. Sacramento is a great place to live despite the fact that housing is ridiculously expensive.

Obsession Interrupted

Going to put my obsession on hold for a month while I crank out all our end of the fiscal year products.

Our 6 month lease starts this month, so it gives me another good excuse to pull back from my obsession. Will at least try and post the inventory bu zip so I can continue to do the month's inventory calculation. And of course the weekly screen scrape will continue, since that is why I started collecting data in the first place.

If I am at all successful at curbing my obsession, I may parlay into the healthy attitude into the new FY and attempt to exercise during my lunch break instead of obsessively reading the local housing blogs.

Another Pet Peeve

Its not like Realtors are all that busy these days.....you would think they could take the 20 seconds out of their day to respond to an e-mail inquiry on one of their listings.

Isn't that one of the listing agents main function?

Perhaps they just didn't want to answer.....I asked if there had been any offers on a house (its been listed for a really long time....and the price has dropped significantly). But at least a courteous acknowledgement even if they don't want to answer would be in order.

The Weekly Screen Scrape - All Time Low

In line with recent reports of national contract activity, the number of houses pending contract in my search criteria is at its lowest point ever. While I have not been through an entire RE cycle here in Sacramento (we moved here in late Oct early Nov), I can't imagine this is normal. Of the 100 houses that meet my search criteria on the market right now, only 17 are pending.

And they said Folsom and El Dorado Hills wouldn't be affected....ha. Can't wait to see the next month's inventory data for these zips (95630 & 95762)!

Since I started keeping overall stats on my weekly screen scrape (early May) the number of for sale homes that meet my criteria has increased by over 100% (doubled). Meanwhile inventory in those two zips has only increased around 20-30% during that time (I don't have those exact stats....darn it). I like to think this is a good sign....as a percentage more of the homes coming on the market are in my price range.

Top 5 ways to know its a distressed listing.....

Okay....time to have a little fun. I'm no marketing expert....but some of these REO listings are just downright pathetic. I guess they assume the price will sell the house. Little do they know, there is a lot of competition in that arena...so making their REO stand out from the crowd would be worth their time.

Top 5 ways to know its a distressed listing.....

1) The listing only has one picture of the front of the house, with weeds visible if you look carefully.
2) The description is anemic and pithy. At most two lines.
3) The term "as-is" is used in the description.
4) The real estate agency is one you have never heard of and sounds very mysterious (i.e. .......although this one might be legit...but you gotta love the mysterious name)
5) The term "bank-owned" is advertised.

Update: The name of the company in item 4) has been removed due to the receipt of several nastygrams using accusatory words like slander and defamatory. I had never heard of the company and their name sounded very mysterious...so I am not sure exactly what part was offensive....but I am certainly not trying to piss people off. Just convey the facts as I see them.

September Good Buys

Not too many "good buys" last month. However I think we are seeing many more, "better than before" buys ....but still very few truly "good buys".

Technically there were only 2 listings posted in August....so let's see if we can find at least 3 this month (will re-post the September comments made in the August section).

Check out the ground rules for posting. Next time will try and post this section on time (was out of town for the long holiday).

August MelissaData for Folsom and El Dorado Hills

Hmmm.....while sales continue to plummet, the average sales price has risen 2 months in a row for both EDH and Folsom. The increased average price could be a result of fewer home sales in the lower ranges (which is why most reports use the median price). These results are not very consistent with my weekly screen scrape, which is why I don't see the trend holding.

In the coming months we should see if the effects of the jumbo loan financing squeeze start to bring these averages back down.

In general the data for EDH is looking very erratic, partially because the sample size has shrunk dramatically. All my usual caveats for MelissaData still apply.