Sunday, November 4, 2007

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.


Cmyst said...

Thanks for the visual!
This kind of goes along with the water cooler thread on Lander's blog about foreclosures. Last time, sure, the economy sucked and people were losing jobs, but I only remember actual foreclosures in any number in the poorer areas of Sacto. This time, the economy is all fine and dandy by government measures, mostly REIC related job losses, and there are foreclosures even in Serrano.
People got out of control, lenders got out of control.

wrong moves said...

We invited friends over for supper on Sunday night. The husband is an agent/broker so the talk always turns to why we still rent.

I respect him in many ways, but we simply do not share a mental model when it comes to the future of the local market.

His point of view in my mind can only be described as real estate schizophrenia (my term, but y'all can use it). A state characterized by the coexistence of contradictory or incompatible elements. Or a severe mental disorder characterized by some, but not necessarily all, of the following features: emotional blunting, intellectual deterioration, social isolation, disorganized speech and behavior, delusions, and hallucinations.

Just one point out of so many to choose from, he claims banks will NEVER take a loss more than 90% of what the loaned value is. He says they will sooner sell to an institutional investor with a block of houses that will then be placed back on the market and sold for a profit.

I don't feel I have to explain my rationale to this forum, but this is just bass-ackwards thinking to me. If a bank can't sell it, why could an "investor" sell it later for a profit?

For icing on the cake, the discussion turned to his brother in law who is a mortgage loan officer. He is looking for other imployment because he just isn't selling loans anymore. I thought this guy was well established, he has been doing this since at least 1997 that I can vouch for.

I really do trust this guys intentions. I consider him a good friend. He has even offered to broker deals for us for free. It scares me to think about how the NAR / CAR got to him. He drank the Kool-Aid. As confident as I am and many on these blogs are about our view of why the market is going down, there are others with equally strong convictions and some strong rationale as to why the market won't fall far.

PJH said...

Is that Arenzano? If so we went through those two homes. One is missing linoleum, and has some really strange blue countertops.

Buying Time said...

Unless I find out someone is renting, I won't even talk RE anymore. Its become too controversial of a subject. Unlike politics and religion, homeowners have a very direct financial stake in this market.

I also find myself using the same NAR/CAR lies to console people who are upside down. Cause what else can you say?

Buying Time said...

Yup its Arezano. I know of a short sale that just occured down the street from those two as well. As they say....trouble in paradise.

PJH said...

Buying Time:

I can't remember where I read it, maybe on Sac Landing. About waiting until prices were back to 2003. All the homes in this subdivision were built2004-05. I was wondering what you thought were fair prices for the two homes in the pics. I think they are currently asking $420 for the one on the left.

Buying Time said...


In that case I would do a rental break even spreadsheet to see how the fully loaded monthly payment (including the HOA & Mello-Roos) compares to monthly rents.

From what I have seen rents are around $1900 to $2400 depending on the place in Serrano (and don't forget to deduct from the downpayment interest from the rent). If you need some help with this, e-mail me, and I can send you my excel spreadsheet.

Once owning isn't that much more expensive than renting a comparable home...I plan to jump in.

Gwynster said...

doesn't matter when they were built. Even saying 01' prices isn't right.

What would those homes have sold for in 97? What would they be worth now assumng a reasonable amount each year? That's what you need to worry about.

Scroll to the bottom of this thread

mbc said...

I think houses were a bit undervalued in 1997, so even though there was higher than normal appreciation from 1998 to about 2001, this was "catch-up" appreciation. After 2001, the catch-up point was overshot and things got crazy, so I think 2001 is a good baseline.

Gwynster said...

Low was 93-96. I was just starting to look. 97-98 was where the prices worked in relationship with incomes. 99 was ok and 00 and up was pure speculation IMO.

srcerer said...

buying time,

How do the results of eloan's calculator compare to your spreadsheet?

Buying Time said...

srcerer -

Its different. I lay out the numbers for various price points on a monthly payment basis.

If you don't know any better, E-loans default assumptions really stack the deck towards owning (go figure)....i.e. If you are in the 35% tax rate category, I doubt you would be on e-loan's website doing a rent versus buy decision. Of course my favorite assumption was their 4% home appreciation...

So my spreadsheets do not look at total investment over time. Which I probably should, but I don't know what my time horizon is, so I want my decision to make financial sense on the here an now.

Sippn said...

The free appraisal and credit report on a REO is because they won't look at your offer unless you are pre approved!

alba said...

is that asbestos I see on the lawn of the houses in the picture?

srcerer said...

buying time,

Yes, it does stack the deck.
Ironic then, isn't it, that using that calculator led me to believe renting was the best option.
Goes to show how crazy this bubble is.
Of course I did fiddle with the appreciation and time horizon numbers to be more reasonable for my particular life.
So I suppose it wasn't quite as stacked as the default.
Though even with the defaults it wasn't much in favor of owning.
Basically a wash, and who wants the head ache for nothing?

Would you be willing to post your spreadsheet?
Change the personal numbers to some default that needs to be changed to suit the person using it.

Not sure what you mean about not using a rent vs own if you're in the 35% bracket. Doesn't everyone want to do that math?

Gwynster said...

Try the CEPR rent/buy. I also like the bankrate rent/buy that lets me adjust the appreciation into the normal range and figure in the taxes and ins costs.

Nothing pencils out yet unless you get really lucky. My area is being flooded with 3 and 4 br houese for rent so the downward pressure on rents is accelorating despite any happy face the MSM tries to paint.

Buying Time said...

srcerer -

Unfortunately I don't know how to post files on the blog....I'm still pretty new at this (that's why I offered to e-mail).

As for the 35%....I was just being snarky, cause anyone making enough to be in the 35% bracket probably has an army of investment advisers and tax accountants, so they aren't likely to use e-loan's tool.

srcerer said...

buying time,

If one has an army of investment advisers and tax accountants, then it's doubtful one pays anywhere near 35% ;)

Warren Buffet says he pays less in taxes than his secretary (as a percentage)

srcerer said...


Thanks for the tips. :)

Here are the links for anyone that's too lazy to use Google ;)

Buying Time said...

srcerer -

That was kinda my point. While fall in the 35% tax bracket based on their is rarely their effective tax rate.