Monday, December 29, 2008

One Last Attempt in 2008

A new home, we had our eye on last summer, fell out of escrow this month. It is priced competitively, given current interest rates, as is the other local development we had our eye on (even with all the extra monthly fees and taxes). It was a bit of a difficult decision, but we figured we would go with the higher priced home since it best meets our needs.

So we put in our first offer on a new home in a development (last year's offer to a builder was not in a new home development, it was more of a one off type deal). Our offer was only 5% below asking, so I don't feel we are being unreasonable. After all, they already received a 5k deposit on it from the previous buyers, and if we had come in with our realtor the first time we visited, they would have given him 5k as well.

So now we wait.

(The part that was most disconcerting about this offer process was, they didn't care/ask or want any documentation about the financing, like what our credit is, or if we have any money down etc., all they really wanted to know what what price we were putting an offer in at.)

Nov-Dec 2008 Month's Inventory for Sacramento Metro Area

Well, I couldn't help myself, I gathered inventory data for the Sacramento Metro area this month. Below is a comparison of this year versus last year. Month's inventory is way down. For most zips its below the 6 month mark, which is traditionally heralded as equilibrium.

Yet, if we are truly at equilibrium, prices should not be dropping at a double digit pace. So this leads to my big 6 months inventory still equilibrium? With few buyer's who can qualify for loans, I am inclined to think that 4 months is the new 6 months.

Data is sorted by the change in month's inventory from year to year (third column). Inventory data is collected from ZipRealty for single family homes, and the resale data is from DataQuick via the SacBee.

Hope everyone had a happy and safe holiday.

Sunday, December 21, 2008

Articulating 2009

Here is a link to the round table story in the Sacramento Bee.

I sound "kind of" very inarticulate, as if I can't complete a sentence properly. I will chock it up to all the drugs I was taking at the time for my cold (knowing full well that I totally overuse that phrase). This is why I feel for all the politicians and celebrities whose every word is subject to public scrutiny. It takes a lot of practice to be articulate all of the time. Luckily for me, I can revise and spell check.

For those who might be finding this blog for the first is a link to my slightly more articulate comments, as well as the comments, predictions and insights of others who watch the market with me.

I think the comments over at the Sac Bee have already started shredding everyone involved (some deservedly so.....but I will refrain from commenting more than that).

Saturday, December 20, 2008

November 2008 - Folsom and El Dorado Hills

It's been a couple months since I last posted the historical price and sales volume data. Below are the charts updated with the November 2008 data.

Note that the DataQuick/SacBee data is resales only, and the Melissa data likely includes new homes.

Speaking of homes, with Christmas fast approaching, I thought Santa might need a gentle reminder, that my wish list hasn't changed much. Unfortunately it went unfulfilled in 2008.

Tuesday, December 16, 2008

California Here I Come....

Just another, of the many many reasons we moved back to California......

The University of Michigan compiled a list of metro areas based on their cooling and heating demand (the less demand, the better the rank). Sacramento was ranked 6 out of 50, only to be beat out by other cities in California (hat tip WSJ Developments blog).

I would hate to think of what my utility bill would look like if we were ranked 50! Of course "demand" and costs are not always related. Just look at the difference between PG&E and SMUD.

Saturday, December 13, 2008

A realtor, a broker, a builder, and a buyer walk into a room...

As some of you have already surmised, last week I attended a real estate round table hosted by the Sacrament Bee.

A quick caveat before I make some observations, the investor/bottom caller dropped out with the flu (probably not a bad thing as he was likely to get beat up). I was on the verge of dropping out, having come down with a mutant form of Strep on Monday. But I washed my hands thoroughly and pressed on, in a heavily drugged state (antibiotics, Advil, and decongestant). So needless to say I am not sure my arguments were coherent, let alone cohesive.

Overall, it was a very civil, and lively discussion, with each person bringing a unique viewpoint to the table (an agent, a broker/credit, a building consultant, me, and several from the Bee). Without divulging the details, the story is supposed to run in next Sunday's paper, I wanted to make a couple of observations.

This group has hindsight clearly in their favor. Back in late 2006/early 2007 I couldn't find a RE agent (and we looked hard) that would tell me a home was overpriced, nor could I find a broker who would only give me a quote for a 30yr fixed loan (2 other quotes that lowered my monthly payment always seemed to come with it). So its interesting to see how history gets revised. Of course I didn't know these particular individuals at the time, so I can't say for certain.

Early in the conversation the effect of lower interest rates came up (and whether it would stimulate more demand). So I threw out a somewhat standard line, that a smart buyer would wait till prices decreased further, thus paying taxes on lower principle, because they can always refinance when interest rates move lower. Idea being, you can always lower your interest rate, but not your principle. This idea went over like a lead balloon. Perhaps I didn't phrase it properly?

At one point in the conversation the mortgage/credit guy, Michael, suggested I was throwing away money by renting since there are tax benefits to owning. We have discussed this before, and basically agreed that tax benefits merely defray some of the many additional costs associated with owning a home (insurance, property taxes, HOA, Mello-Roos, maintenance). I include the tax benefits in my rent/buy calculations, at current prices, we are way still better off renting than purchasing a comparable home.

When I let on that I had 20% as a down payment, realtor Ruben, seemed to think the world was my oyster. Unfortunately, this has not been our experience. 20% down, and no contingency (no home to sell first), doesn't seem to make a lick of difference when we present our offers to a bank or builder.

Of course, the "when is bottom" question came up. And while I did give an answer (over a year away with no appreciation for some time...but the price declines will moderate considerably as we approach bottom) there was no time to get into the discussion of how different areas of the city will bottom at different times. This is a finer point, but one that I like to emphasize since it is important for buyers.

In all it was an enjoyable discussion (and that's not just the drugs talking), and as an added bonus we were led on a tour of the newsroom. I'm a bit anxious about reading the comments when the piece comes out, some of the people who comment on Sac Bee stories are super angry mean. So much for "love thy neighbor."

Sunday, December 7, 2008

Short Run Solutions

As Keynes was quoted as saying, "In the long run, we are all dead." With that in mind, lets look at the short run. Right now interest rates are at the lowest level I've seen since I started tracking them. Compared to rates earlier in the year, current rates could lead to almost $300 savings a month given our specifics.

In the short run, low interest rates are great for everyone. Buyers pay less each month, or can afford more house for their money. Home owners with ARMs, who are not already under water, can refinance into a low fixed rate mortgage. Thus low interest rates both increase demand, and help lower the distressed supply.

Lest we forget, low interest rates were one of the culprits fueling the housing bubble. Longer term, we will still have to ween ourselves from our low rate addiction, leading to the economic shakes. (I know some of the hardcore econ folks tackled this issue, but I had a sick kid all week, so no time for reading up).

With all the $$ being thrown around by the fed, inflation is bound to kick in, thus interest rates will inevitably be raised. Once again, we will be faced with housing market problems as demand dries up, but hopefully by then, all the toxic loans will be out of the system (either through refi, modification or foreclosure) leaving us with a slightly less onerous housing downturn.

Thursday, December 4, 2008

Average Buyer's Crystal Ball

Being the ever opinionated person that I am, I was asked to participate in a year-end forum on the Sacramento housing market. I’m sure one of the big questions on everyone’s mind will be: “What the future holds in store for our metro area.”

With that in mind, I would love to hear everyone’s predictions if they dare*…..for the 1 year mark and 5 year mark. Here are some of mine (I did my best to keep it short):

1 Year – As banks complied with the legislated wait period in California, new NOD activity slowed to a crawl in the fall of 2008. This means the pipeline of foreclosures will temporarily dry up sometime in early to mid-2009. Together with inventory down significantly, this should lead to stabilization in prices for at least a couple months. But slowed economic activity and job losses will take a toll on the local economy. Excess housing inventory and frustrated sellers, will keep downward pressure on rents. As a result, by the end of the year home prices will continue their downward march, eventually surpassing what I consider affordable/sustainable levels (based on historical price/rent ratios and income).

5 Year –The economy will experience the deepest slump since the Great Depression, as consumers and companies undergo painful deleveraging. The Sacramento market will not be spared. However its housing market will stabilize before the rest of the country, as home prices have dropped the hardest and fastest here. Our local economy will also recover sooner than others, buoyed by relatively stable government employment, and a stabilized and affordable housing market. In terms of time lines… year home prices will level off then continue to fall to affordable levels, with years 2-4 seeing no increase, and perhaps single digit decreases, in prices as excess and distressed inventory are absorbed. Finally in year 5, modest appreciation will be possible as the housing market and local economy eventually find their footing.

Unfortunately I see no end in sight to the economic troubles our country is facing. Of course the big wild card in all this is the government’s response, which can drastically change the timeline, but not necessarily the forestall end result. I do however consider myself optimistic on our local housing market. I know of several first time buyers getting into the market now distressed inventory has made select areas of Sac accessible (note that I used the term accessible and not affordable).

*Making public predictions is a pretty tough gambit, as we have been through quite a roller coaster this last year, between wildly fluctuating commodity prices, a change in administration, and the demise of the investment banking industry, it’s hard to imagine what the future has in store for us.

Monday, December 1, 2008

Tribute to Tanta

I was deeply moved yesterday to read that Tanta had passed away (she is a co-blogger at my favorite non-local blog, Calculated Risk).

So young, smart and witty. I will miss her.

A reminder to us all, to cherish our time with friends and families.

Wednesday, November 26, 2008

Something to Chew On

As some of you may recall, for the past couple months, there has been very little NOD activity in the markets I track. The NOD count for Folsom, El Dorado Hills and Auburn, has basically been halved.

Prior to today, I attributed this drop-off to the new law that became effective in California, SB1137. But, best I can tell, that law only added 45 days to the process. Thus we would have expected a pick up in NOD activity around late-October, as lenders complied with the law that became effective Sept, 8, 2008.

But here is where my conspiracy minded brain starts to ruminate. It wasn't till this week, 75 days, after SB1137 went into effect, that I began to see a pick up in NOD activity. Hmm, perhaps these lenders were holding their breath, waiting for the government to relieve them of these troubled assets.

When Paulson announced that the TARP funds were no longer going to be used to purchase mortgage-assets, they went back to business as usual. This idea came to mind, primarily because I had heard rumors in the blogosphere that Countrywide was not foreclosing or sending NODs while it was in the process of being bought by BofA. No idea if any of this is true or even possible, but it does seem like a plausible explanation given the timing.

Coincidence or conspiracy......thoughts?
So does anyone know what has happened to Housing Tracker? It was one of my favorite sites for historical context and housing statistics.

Monday, November 24, 2008

If you Insist

As many of you know, I am not real keen on the government deciding who wins and who loses in the marketplace. I prefer the government to create a business environment with a level and equitable playing field (through regulation and oversight).

If the government insists on getting involved, I normally prefer to rescue people (providing safety nets, like unemployment and retraining), and not corporations (i.e. the big 3 now begging for a handout).

There seems to be a growing chorus for the government to get to the "root" of the economic problem: the housing market. My earlier recommendations, are still highly relevant, but I have some additional observations, based on recent data.

Today on Calculated Risk, there was an excerpt stating over 50% of modifications are defaulting. This is a rather astonishing number, and makes me wonder if workouts are really worth pursuing. It suggests that workouts only prolong the housing correction, as many of us have suggested. (For the record, I do support workouts for people who bought their home using at least 10% of their own money, paid their own closing costs, and whose income situation has not changed materially.)

Today's WSJ discusses a new tactic, help the buyers, instead of the owners. Of course, given my situation, I am a rather biased in favor demand-side solutions. However I think it has some legitimate merits as well. Offering subsided interest rates to home buyers, basically neutralizes my gripe from last week (home buyers have to pay market rates for mortgages and market value for homes, while workouts "homeowners" receive below market interest and principle).

So if the government insists on meddling in the housing market (which they have already done to a large degree), leveling the playing field so that buyers and owners enjoy the same perks, seems like an entirely reasonable thing to do.

Wednesday, November 19, 2008

November Market Stress Update for 95762, 95630, 95602, 95603

You know you are a nerd, when you are pissed off about work, so you play with housing data to help get you mind off things.

Anyways, here is the latest market stress update for El Dorado Hills, Folsom, and now Auburn. I wanted to include the monthly sales too, but it was just too much data on one slide, so I have attached the sales data separately (that MCB had sent me earlier...thanks again!). Do take the time to compare the monthly sales numbers to the NOD & REO levels.....if I had more time I would have done some combinations, but unfortunately I am really short on time these days.

As you can see, NODs have been stopped in their tracks by the recent CA legislation. Few new NODs are being filed, while old ones are getting resolved or reverting to REO status (notice the steady rise in REOs).

Just noticed I didn't label the data legend very well. It is the sales price bin in thousands of dollars. The data was rounded for ease of aggregating, so the "300" bin, is actually comprised of homes that sold from $250,000 to $350,000.

Friday, November 14, 2008

Going Public

Not sure I should do this......but I suppose everyone in the RE industry does (with their pictures on their cards).

So if you happen to see me on the street or at an open house, please say "hi", and offer me a smoking deal on your home.

Speaking of homes, there is a foreclosure back on the market I am trying to talk Mr.BT into. Haven't seen the inside yet, but the stats (do-able on one salary) and pics look good.

Thursday, November 13, 2008

Why Punish the Prudent?

Dear Lawmakers –

I have a couple questions I was hoping you could answer. Why is it that people, who put little to no money down on a home, are now eligible for 2.5% interest backed by the government, and principle reductions of 90% to market?

We would love to purchase a home using a 20% down payment, however all we can find are interest rates at 6% or higher, and market home prices? It seems to me that those of us who have excellent credit scores, and down-payments are actually being punished and asked to pay more when compared to others.

I honestly don’t mind the government helping out actual homeowners. However, I don’t consider someone a homeowner unless they put more than 10% down when purchasing their home.

So all this talk about keeping people in “their” homes, seems like rhetoric aimed at people’s heartstrings. How am I, a renter, any different than someone who moved into a home with little to no money down? For a renter, it’s called a deposit, but for these “homeowners” it’s called closing costs. Yet paying closing costs, now entitles them to lots of special government subsidies that I am not eligible for.

As I am sure you are aware, rewriting loans to keep people in “their” homes, will prolong the pain and keep home prices higher than they would otherwise be. If a loan is rewritten, the government /lender should be required to record the new principle balance with the county, so that us home buyers can at least benefit from the lower more affordable comp.

As evidenced in many parts of Sacramento, the housing market is not broke. People will buy homes once they become affordable (using responsible lending products). Right now homes under $250,000 in our area are receiving multiple bids.

Letting the market adjust back to affordable levels has many benefits. If people are spending less on housing, they will have more disposable income to fuel the economy. It also means people can buy homes closer to work, as opposed to distant suburbs. This had a dual benefit because it will cut emissions and energy demand, while allowing people to spend more time with their loved ones and less time commuting.

Best of luck saving the economy,

Your Average Buyer

Thursday, October 30, 2008

Local Builders Behaving Badly?

From the Mountain Democrat:

"West County home-building company known for constructing multi-million dollar homes in Serrano has been accused by one of its clients of fraud and forgery.

Ultimate Development Inc., an El Dorado Hills-based company that reported $13.5 million in construction activity in 2007, is not only being sued by Serrano homeowners Robert Keszler and Jennifer Cutts Keszler, but is also being investigated by the State Contractors License Board.

The state licensing board is investigating what it calls a probable violation for a willful or fraudulent act that leads to substantial harm, theft and forgery. The investigation stemmed from a complaint being filed by an unknown party. "

Wednesday, October 29, 2008

Making a Move

Now that we are no longer actively looking to purchase a home, Mr. BT and I have been struggling with whether to find a less expensive rental that would suit our family better for the long haul. Our current rental is much larger than we need, and we hear the local elementary school is impacted which may force us to drive our daughter across town every day (all this for only three hours of kindergarten).

But moving involves a lot of trade offs in terms of time and $$. The premise is based on two questions that we continually struggle with. How much rent savings justifies the move, and how long do we need to be in the new rental to make the rent savings worth it. There is a lot of time and hassle involved in a move, and some expense (moving costs, utilities etc.).

Moving a family of four is not something I take lightly, even if it is a local move. My kids are too young to be of any help. In fact, they have a special knack for unpacking and destroying any semblance of order. Which will likely make moving more even more difficult.

Its not like our current economic climate will last forever....I am hoping we will know by spring how bad and how long of a recession we are in for (V, U, or L shaped recession). Perhaps by spring prices on the higher end (most of the homes in East Sac, Davis, Arden, CP, EDH, and Folsom) will finally be in line with the rest of the market (Pending Sales are way down according to my weekly screen scrape). According to Housing Tracker, the 75th percentile has started moving downward again, after a bounce earlier in the year.

We aren't too far from what I consider equilibrium (based on income and rent multipliers etc.). However an "L" shaped recession could easily push us past that point.

Wednesday, October 22, 2008

Weekly Screen Scrape - Another Milestone

Homes in my weekly screen scrape have broken through another barrier. There are now 2 homes that meet our criteria (in 95630 or 95762) listed below the 300k mark (and 41 homes between 300-400k).

This is encouraging news for us, as we would only consider homes we can afford on one salary at this point.

Since January of this year, price per square foot of homes in my screen scrape has fallen by 11%. However there is a great deal of disparity out there. Price per square foot ranges from $114, to $235. With EDH primarily on the lower end, and Folsom primarily on the higher end (if I had to guess this is due to home size and extra taxes/fees that EDH homes tend to have).

Sunday, October 19, 2008

Registration Deadline

Just a friendly reminder that the deadline for California voter registration is Monday. For more information see the Secretary of State website.

It may not always feel like it, but we live in a democracy. For our government to be effective, citizens need to be informed, participate and vote.

No complaining if you don't vote.

Thursday, October 16, 2008

The Day, the Music Died

I am now on the books for a 40 hour work week. This leaves me with less time to think about, and collect data on our local housing market. Separate, but certainly related, due to economic events way beyond our control, we have decided to put our home search on hold.

Thus I will be posting very infrequently from here on out (but hopefully once a week), until we decide to start up our search again. The timing seems apropos, seeing as how national economic events have completely overtaken our local housing market.

I don’t plan to continue tracking home inventory and the subsequent month’s inventory by zip code any more. Both metrics have become rather useless lately due to the influence of distressed inventory. The monthly screen scrape will continue, but I don’t plan on reporting results unless they are in some way significant.

To the tune of American Pie:
A long, long time ago...I can still remember how
That housing data used to make me smile.
And I knew if I had my chance,
That I could make those people dance,
And maybe they'd be happy for a while.

But October made me shiver,
With every blog post I'd deliver,
Bad news on the RSS feed...
I couldn't take one more deed.

I can't remember if I cried
When I read about our wild ride
But something touched me deep inside,
The day the music died.

Soo..Bye, bye miss Average Buyer
Drove my Chevy to the levee but the levee was no higher
And good ol' boys predicting it could get dire
Singing no time to wallow in the mire,
no more time to wallow in the mire.
Best to all, on surviving our wild ride.

Tuesday, October 14, 2008

Hitting our Home Away From Home

Our household received some very shocking news this morning. Our daycare was closing two of its classrooms, including the one our son is in. Apparently, California's tough economic times have now trickled down to the service sector. The daycare/preschool has seen their enrollment drop substantially with parents getting laid off, or looking for less expensive care etc.

We just found out today and have to find care by next week. I'm in serious shock.

One of biggest factors influencing our home search in foothill communities along the 50 corridor, is the fact that we really like our daycare/preschool situation.

Monday, October 13, 2008

Can you Bank on It?

Last month we pulled our down payment out of a savings account at national bank (where we had banked online for the last 8 or so years) and put it into a regional institution. Call me paranoid, but I like the idea of having a branch office in times of turmoil.

Wondering how others feel about this national vs. regional issue when it comes to banking. Do you have a local/regional bank or credit union to recommend? Or do you feel big national banks like BofA are the way to go, since they are likely "too big to fail"? Or do you chase the best returns, wherever they may be?

I've never been one to shop banks.....I tend to be a creature of habit and convenience.

I understand the FDICs need to keep people from pulling their money out of troubled institutions, however it would be nice, to have some understandable and objective ratings as to an institution's liabilities and exposure. I used Bankrate's safe and sound ratings to check but they seemed kinda generic.

In particular, with the local/regional institutions, I worry about their commercial real estate exposure. It can't be a pretty picture. All I see around EDH is empty commercial space, with even more being built!

Friday, October 10, 2008

Two Year Anniversary

This month will mark the beginning of our third year as renters in the Sacramento area. I still count my blessings that we didn't buy immediately after moving back to CA.

These are very somber times. According to yesterday's WSJ, California led the way into the recession. With all the job losses my friends and family have experienced, I am relieved to hear it's considered a recession around here, cause I would hate to think what things would look like if we hadn't hit recession territory yet.

Even though some bubble bloggers take joy in the aftermath, I am certainly not one of them. Although I must admit, its nice to know I didn't spend 60k on a top B-school education, only to find out everything I learned about fundamentals was rubbish.

But in every other sense, its absolutely no fun being right. I knew there was a housing bubble, and that stocks had gotten a bit out of control, not realizing the extent of the trouble we were in,. However I had no idea, when I wrote about it last October that we would be in such dire straits a year later.

Unfortunately, I am not seeing many factors kick in that will bring an end to the troubles we are experiencing. By my calculation, using today's Zillow data, our starter home in the D.C. area has at least another 10% to fall, in order to reach a somewhat reasonable level.

I guess the only bright spot right now is that oil and other commodities have retreated substantially. (I probably obsess over oil more than the next person, as my industry, aviation, lives and dies by the price of oil).

Rant on/
Of course this couldn't happen at a worse time. If other government agencies are like the one I work with, so much forward progress is on hold waiting for the next administration. With the exception of the Treasury Department, the rest of the federal government seems to be in a 9 month paralysis. No one wants to make a decision or take action. From my perspective, this is incredibly frustrating, as we are wasting precious time.
/Rant off

Wednesday, October 8, 2008

Market Stress Update Oct 2008

Some interesting developments over the last month. Folsom foreclosures shot through the roof, and NODs are down. If I had to guess this is a direct result of the legislation recently passed which requires lenders in CA to contact the borrower (or something like that). Mr. Mortgage has a write up if you want more details.....and his observations mirror what is happening here.

If this is the case, then starting real soon, we should see a surge in NOD activity.

I also started tracking market stress in Auburn last month, and should have some sales statistics to pair up with the market stress data for next month's update (courtesy of MCB44).

Tuesday, October 7, 2008

401-Keg Plan

A little mid-day humor. If your 401 looks like mine, you could probably use it.


If you had purchased $1000.00 of Fannie Mae one year ago, it would now be worth $31.00.
With Freddie Mac, you would have $37.25 left of the original $1000.
With Lehman Brothers, you would have less than $5.00 left.
If you had purchased $1000.00 of AIG stock you would have $44.00 left.
If you had purchased Bear Stearns, you would have nothing left

But, if you had purchased $1000.00 worth of beer one year ago, drank all the beer, then turned in the cans for the aluminum recycling refund you would have $214.00. Based on the above, the best current investment advice is to drink heavily and recycle.

This is called the 401-Keg Plan.

Historical Housing Data for Folsom & El Dorado Hills

For some reason the Sac Bee didn't post their Data Quick data by zip code, so all I have this month is Melissa Data. While Melissa Data is certainly better than nothing, it does tend to be erratic, as I believe it also captures new home sales.

I have heard those in the real estate profession claim that sale are up (implying that the market is on its way back), but as you can see from the charts below, they are nowhere near historical levels. Last year was a terrible year, so the fact that sales may be higher than last year is setting a really low bar. This is precisely why I like to get a broader historical perspective on the data.

Housing Tracker is showing a lot of stickiness at the 75% asking price range for the Sac Metro Area.

Sunday, October 5, 2008

Surprisingly Savvy

For the last year and a half we have attended open homes when we don't have something scheduled on a Sunday afternoon.

Up till recently, I haven't been all that impressed with the Realtors we have met (yes I know, usually the junior folks looking to bring in business). Normally we get the typical "it's a great time to buy" routine. Sadly I often feel I know more about the local market forces than some of these professionals.

However at two recently open homes, bank owned homes in Serrano, we met very savvy and knowledgeable Realtors. It was so very refreshing to hear their take on the market.

In the past, maybe I was just looking for Realtor's that validated my world view......but these two guys, seemed to know the details of the broader market, and had some facts and data to back up their opinions. I am happily swayed by opinions that are backed with sound theories and data. Up till now, many of the Realtors I met rarely had much to back up their claims.

Perhaps its a sign of the times, maybe all the soccer mom Realtors have left the market, leaving only the seasoned veterans and business savvy. In any case, I was really pleased to have a real and honest conversation (up till now I only smiled and nodded, not wanting to argue why now is not really a good time to buy, especially at the price they were asking ).

Thursday, October 2, 2008

Homeowner bailouts

I've switched sides. I am now in favor of bailouts for homeowners, flippers, speculators, investors ... everyone! So if loans need to be written down (including in bankruptcy court), or interest forgiven, or interest reduced, or principal reduced, I'm all for it.

In return, each person being bailed out will sign an agreement to pay from any future sales proceeds, 80% of the profits to the lender who took the initial financial hit on the bailout. If they aren't willing to share the profits, then no bailout.


P. S. Although this is my original idea, I seriously doubt I am the first to think of it!

Wednesday, October 1, 2008

Oh....Range on the Home

Many of the online tools I use, while very helpful, do not allow you to specify a range (except for price). In most zip codes this would not be a problem, but in the land of largess along the 50 corridor, it can be somewhat frustrating.

In particular, a home size range is needed to weed out the enormous homes (over 3000 sqft.). I guess all the search tools assume that bigger is better, so they only let you specify the bottom of a range.

Of course in some small way, its nice to actually have this problem. Two years ago, a 3000+ home would never have shown up in my criteria.

Tuesday, September 30, 2008

A Hostage Crisis

The front page of yesterday's WSJ declared "Lehman's Demise Triggered Cash Crunch Around Globe". They are suggesting that Lehman's fall is what has caused such dire consequences.

I find all of this very disturbing. How did our economy become so fragile that any given financial institution's demise can precipitate world economic chaos? This is terrible policy from a national security point (among others).

September 11th was not a security breach, as the terrorists were allowed to have box cutters on planes. That event has changed the paradigm of how we view national security. We have spent billions of dollars and created new government organizations to shore up physical vulnerabilities and prevent this from happening again.

Yet one of our most cherished assets, our vibrant economy is left wide open and incredibly vulnerable. One of the main theories behind security and safety systems is to have several layers and redundancy, so that there is no single point of failure.

I now believe that our financial system is so weak, that an unfriendly government actor or wealthy group could easily plunge our economy into even deeper trouble and essentially hold our country hostage. I am deeply troubled by this fact, and hope that going forward we have learned our lesson, and do not allow an single company to be so vital to the U.S. economy that it has the power to hobble our great nation.

Monday, September 29, 2008

The Beginning of the End

Watching today's market, and Congress, I am sufficiently freaked out right now. Enough to call off our home search until I feel we have a reasonable indication that our economy has found its footing.

Until today, we had renewed interest in the housing market, with lower interest rates, and some attractively priced homes. Now, I think it would be prudent to save our down payment for a rainy day (decade) fund. For me, renting in times of turmoil is also preferred. In case one of us looses our job, then we can look for a cheaper place to rent nearby or where ever we find work.

Of course I often change my mind, so if we do get serious about a home in the near future, it would have to be one we could afford on one salary.

Along the lines of economic survival, I also will be resuming a full-time work schedule with the start of the new fiscal year, so posting activity on Average Buyer is likely to suffer.

P.S. Does anyone know if the Sac Bee posted the DQ Sac metro sales by zip this month? I never saw them.

Local Services - Recommendations

Off Topic Post -

Consider today's post an open thread for local services (doesn't have to be RE related) ......feel free to solicit or recommend, and try to be particular about the area you are looking in.

Background - I have put off a ton of errands lately, as our fiscal year close has been busier than usual, as well as my travel schedule. There are a couple things I desperately need to do, like go to the dentist and get my hair cut. Up till now, I have tried a several places, but haven't been crazy about any of them. So far folks I have asked, have been rather luke warm in their recommendations which is why I figured I would tap into my HBB community.

Saturday, September 27, 2008

Never Say Never - The Weekly Screen Scrape

It's coming up on two years that we have been back in Sac. When I first started tracking homes in Folsom and El Dorado Hills, there was a little over 40 that met our criteria, and the average price per square foot was around $224. Fast forward and there are now over 120 homes that meet our criteria (which has changed slightly, but same price point), and the average price per square foot has dropped below $180.

Back when we first moved here, I never thought we would be able to afford a home around here. This week, a home on my favorite street dropped into our price range. Never in my wildest dreams did I think we could afford something on that street.

As of the last couple weeks, I have seen some very attractively priced homes. One went PS before we could even check it out (Mr. BT was on travel)...bummer, cause it was perfect. I think we are getting pretty close to equilibrium around here, at least in my price range. I would say in the next 3-4 months we will be in solid equilibrium territory.

So the big question is, will we overshoot now that the economy is tanking and credit has dried up?

Friday, September 26, 2008

Conscience Un-Masqued

A week or two ago, I received an e-mail from a mom asking if I knew if Masque (in EDH) had closed. I assumed that it was perhaps a special event. But then someone else mentioned it as well.

I got home late last night, after being on the East Coast for a week, and saw a write up in the Village Life, that the local four star has closed its doors. There is a great deal of speculation as to why the restaurant closed down...apparently the owner isn't talking....but the article did mention "downright snarky blog entries" which got me worried that my gossip piece may have found a wider audience.

So I checked my Google statistics, the search term "Masque" never came up, only "swingers el dorado hills" and "bedroom community." So I am pretty sure my earlier entry, was not a contributing factor in all this.

I should mention that Mr. BT & I never went there, or to Z's bistro for that matter (which also closed its doors recently). I assume that is the more telling factor since we are local and haven't even eaten there.

I should also mention that the activity I referenced in my post was widely known and discussed in my mom's group. I even forbade Mr. BT from going there at happy hour due to the reputation.

The goal of this blog is not to do harm, but to inform and discuss. In the future, I will do my best to not share juicy gossip. For the record, I have restrained myself on countless occasions from excoriating those whose behavior shocks my conscience.

Bank failures and the FDIC

The FDIC has a list of "troubled banks," with about 117 names on the non-public list. Does anyone find it troubling that neither IndyMac (4th largest failure?) or WaMu (largest failure ever) were not on the list? Something is wrong with this picture.


P.S. Judging from the erosion of their stock prices and the cost for credit default swaps, it looks like Wachovia, Downey and National City might be next in line.

Thursday, September 25, 2008

So long as we are just giving away money ...

... that we don't have, and even though the $700 b Wall Street gift is not yet finalized, apparently some members of Congress are saying they are going to present a new +$50 b "economic stimulus plan" as early as this afternoon.

Is it just me, or does fiscal irresponsibility permeate American society from top to bottom, including corporations, politicians and everyone on my street who attempts to live beyond their means? Is this a result of too many years of entitlement mentality?


Wednesday, September 24, 2008

Bailout number xxx ...

Frankly, I've lost count of what number this week's bailout is. Although I am convinced we need to do something to prevent the total meltdown of the financial markets (for those of you who don't watch the markets daily, we came very close last week), I don't profess to know what the solution is. But, after watching C-Span, I do have some observations:

1. Congress would get a lot more done if there weren't cameras in the room, especially in an election year.
2. Although Paulson's plan doesn't include a bailout for homeowners, some pols are demanding bailouts for the homeowners too, apparently forgetting the $300 b homeowner bailout that Congress approved just a few months ago.
3. And although Paulson's plan doesn't include any caps on executive compensation, some members of Congress are determined to use this legislation as their stepping stone to take control over this aspect of corporate affairs. (This isn't new for those of you who recall Eliot Spitzer's failed attack against Richard Grasso's NYSE compensation package.)


Monday, September 22, 2008

The Irony of the Fall

It is ironic that the financial institutions, who are now going, hat in hand to Washington, still insist on playing hardball with their troubled borrowers, and those attempting to buy their properties.

Lack of oversight and public scrutiny exacerbated this financial meltdown as banks hastily approved loans and threw cash at anyone that could “fog a mirror”. So forgive me if I am incredibly nervous about the haste at which this rescue plan is coming together. Shouldn’t we subject the financial sector to the same scrutiny that they subject their troubled borrowers to?

From my feet on the ground perspective, the banks are making things worse by holding on to assets when they get a "reasonable offer." For example, the foreclosure my father purchased for under $140k in Stockton had a much higher bid on it back in May. We know because, the gentleman who put in the bid stopped by and asked what he paid for it. Our personal experience has been similar. Banks are holding out for more $$ only to pass up offers that will be considered generous in 6 months when they finally capitulate.

So my proposal is this…..If troubled borrowers are going to be given better terms by the Fed, how about we also make provisions that banks must make every attempt to sell their homes to people who will actually occupy them. This would help stabilize communities, and give first time buyers a fighting chance against all the investor money. It also puts something on the table for everyone…not just the ubiquitous homeowners.

Of course my favorite idea comes from Tanta of Calculated Risk:
"What I really really like is the idea of subjecting CEOs to the same petty humiliation everyone else gets treated to. I suggest that for every separate asset these CEOs sell to the government, they be required to write a Hardship Letter over a 1010 warning (that's a reference to the statute forbidding lying in order to get a loan) explaining why they acquired or originated this asset to begin with, what's really wrong with it in detail, what they have learned from this experience, and what steps they are taking to make sure it never happens again."

Friday, September 19, 2008

Hello, my name is ...

I'm from Washington and I'm here to help.

For example, I'm going to increase the taxpayers' exposure by $4 trillion in 24 hours, by insuring all of the money market mutual funds in the USofA. Then I'm going to buy all of these so-called toxic loans from Wall Street. And I'm going to do it all by fiat without a Congressional vote.


Thursday, September 18, 2008

Poser's Unwelcome

It seems incredibly trivial to talk about Sacramento real estate issues as our financial system is crumbling before our eyes, but my shady business practice alert is sounding.

I have noticed that every time the topic of down payment assistance (DPA) comes up on the Sac Bee, or anything even vaguely related, it is then commented on buy "firsttimebuyer," who then sings the praises of DPA. If I had to guess, its part of the PR campaign of Sacramento-based Nehemiah Corp. of America to win back the hearts and minds of the populace. I checked and this particular "commenter" became active this August on the Bee's website.

The timing and comments all seem very suspicious, and if it is someone from that organization posing as a "first time homebuyer" then their business practices are even more shady than the media gives them credit.

Over the last two years that I have surfed the local Sacramento real estate blogs, there have been plenty of investors, real estate agents, mortgage brokers, towing the line. But I have never seen such blatant and specific support for a particular financing issue from a single commenter (even a post with url leading to a Nehimiah sponsored website). Shame on them for this ethically questionable conduct.

While I like the theory of DPA, the practice seems fraught with peril and needs to be outlawed, at least until the housing crisis is over. DPA's wouldn't be needed if housing were more affordable for every day folk. DPA's inflate the demand for housing, and with that demand prices become inflated as well, reducing affordability. So I am not really seeing the benefits, since DPAs seem to be a self-fulfilling prophecy....the more they are used, the more they are needed. Is it just me, or does putting low income folks in homes with 100% financing in a declining real estate market seems like a really bad idea?

Of course, my usual caveat, when I am talking about things way outside my realm of expertise. I don't know much about DPA's except the recent news sound bites. I am sure there are some redeeming qualities........which "firsttimebuyer" will continue to extol.

Wednesday, September 17, 2008

How long before the Fed runs out of money?

Certainly a question that has been on my mind, realizing that the Fed has a finite balance sheet. Well, today we have the answer. The Fed is out of money. With the $1.43T in commitments CNBC previously reported and I recapped here, plus this past week's $285b (Fannie/Freddie/AIG), the Fed has asked Treasury to sell treasury bills so that the Fed can raise money to finance the Feds nationalization plans. So, more debt to finance more debt ... Kinda deja vu all over again.


Tuesday, September 16, 2008

$85 billion here, $200 billion there ...

Soon, it starts to add up.

So, how does everyone feel being the proud owner of AIG? Personally, I don't feel any better about it than the $200 billion I (as a taxpayer) paid for Fannie and Freddie, but sadly, the gub-mint doesn't care much about how we feel.


Part 1 - Interivew: Making Sense of the Mortgage Market

This post has been deleted by the author.

Monday, September 15, 2008

And then there were two......

Only two left.....with Lehman filing for bankruptcy, and Merrill being acquired by BofA. And of course Bear Sterns was acquired by JP Morgan in the Spring.

I feel bad saying this but I am experiencing a serious bout of schadenfreude. I realize many people at these firms had nothing to do with getting us into the current meltdown (i.e. the admin staff). But I can't help but feel that these firms and their employees were among the primary enablers. These folks with their MBAs and Ivy League degrees were supposed to "know better." They were supposed to correctly evaluate the risk and determine the appropriate actions. All the while, they were making ridiculous sums of money (as all on Wall Street do, regardless of their competency).

I have many friends and family suffering various consequences of the housing meltdown (most all in unrelated industries). In my mind, it only seems appropriate that Wall Street should also feel the consequences of its failings (beyond a reduction in their 6 figure annual bonus).

Sunday, September 14, 2008

September 2008 Sacramento Housing Inventory by Zip Code

Inventory is down both month-over-month and year-over-year. Compared to last year, there is 25% less single family home inventory on the market. Compared to last month, inventory is down around 3.5%.

One interesting exception of note, inventory in Midtown, Arden, Loomis and East Sac are up a bit over last year.

Inventory was gathered from ZipRealty for single family homes.

Saturday, September 13, 2008

Hank Paulson needs a mistress

Don't get me wrong, I'm not normally an advocate of extra-marital affairs for anyone, but I've learned that when Hank Paulson works on the weekend, my share of the national debt goes up on a grand scale. Last weekend, he worked all weekend and the taxpayers (meaning you and me) promised to ante up $200 billion in fresh new capital for Fannie and Freddie. Now, Paulson's working this weekend on Lehman Brothers and that can only mean one thing for the taxpayer and its not good. So I'm thinking, maybe if Paulson had a mistress, he wouldn't have so much time on his hands to spend our money?


Friday, September 12, 2008

August foreclosure activity

From RealtyTrac, California was up 40% m-o-m in August, and up 75% y-o-y.

My "guess" that we might be on the cusp of a bottom, appears to have been premature with this much more REO inventory coming down the road.

But one AP writer possesses an overwhelmingly firm grasp of the obvious, stating, "If home prices and sales stabilize or improve, the foreclosure situation could get better."


Thursday, September 11, 2008

Stealing Minutes for Buying Time

Things are busy here. It's the end of our fiscal year, and I have also been traveling more than usual. Luckily Paul has been filling in.

We are also doing homework on a couple homes we are considering. More details to come.

I visited my Dad in Stockton last weekend at their new place. Haven't been down there in a long time. His wife suggested that the bars on the windows and around the front of the yard in the neighborhood are a decorative flair preferred by Hispanics.....I have to say I have never heard this before. But since they are the ones that have been living in Mexico, I wasn't about to contradict her. In any case, no shortage of vacant homes in the area.

Gotta run.....

2Q 2008 National Housing Metro Valuations

My favorite housing study was just updated for the 2Q 2008. While I really love the methodology used by the National City - Global Insight Housing Valuation Analysis I am starting to wonder if their statistical models have been skewed by the housing boom. As they now consider most of California to be fairly valued.

A small excerpt, "Extreme overvaluation is essentially nonexistent. Only six metro areas are judged to be overvalued during the second quarter of 2008, down from a peak of 51 metro areas in 2005. The decline of overvaluation is even greater when measured as a share of total housing units and real estate value."

Tuesday, September 9, 2008

Above Average Unemployment

National unemployment is now over 6% .....but I don't think the whole story is being told. In my family alone, there has been considerable unemployment and underemployment in the last year an a half. This undermines the stability of young families and makes it difficult for them to save money.

Of my step-brothers & sisters, my brother, and my husbands brothers & sister (numbers include most spouses)....

4 were laid off within the last year and a half, but have found work. One was laid off and is still looking for work, and 9 are still employed. Another ships off to Iraq in a month, he couldn't find work so he rejoined the military. The one in jail doesn't count since he's not looking for work.

Of my extended family here in Sacramento, my aunt is still out of work, but Mr. BT's cousin found a new job that is better than his last one. My uncle, is being asked to take days without pay since they don't have much work (I consider this underemployment).

Have other families been impacted this much in recent years?

Monday, September 8, 2008

Answer: $51.75 per hour

Question: How much would you have had to earn each working hour this past year, to offset the loss in value if you owned a median priced home in Sacramento?

August 2007 median= $313,500
August 2008 median= $210,000
Loss = $103,500
Avg annual hours worked= 2,000

(If you prefer using "average" home price, rather than median, the answer would be $56.65/hour. If you prefer average price sq/ft, it would be about $60/hour assuming a 2,000 square foot home.)


Sunday, September 7, 2008

The national debt doubled this morning ...

So, the Feds have placed FNM and FRE into conservatorship, basically, adding their $5 trillion in loans (and loan guaranties) to the existing $5.7 trillion national debt. Yes, I know that is an oversimplification and that much of the loans will be repaid or collateral recovered so it won't be a $5 trillion loss (at least I hope not).

Two comments: First, expect FNE and FRE to freeze foreclosures of their portfolio loans. How else can they minimize the expected losses, if they keep adding REO inventory to an already depressed market? They will do this by letting the flippers and homeowners who are delinquent, keep the properties with "re-negotiated" loan terms, including reduced interest, principal and forgiven back payments.

Second, I don't usually rant about the mainstream media, but with 240 channels on my tv, only CSpan had the live coverage of Paulson's press conference. We double the national debt and it isn't maybe a little newsworthy? CNN carried the first 60 seconds of his 30 minute press conference, then the talking heads cut Paulson off to tell us their opinion of the impact of Treasury's actions, before Paulson had even finished! And CNBC decided its infomercial was more important.

And, yes, it's true, some say I need a life, but this is a huge event that I don't think most people understand or appreciate (except of course, the regular readers of Average Buyer).


Friday, September 5, 2008

Cha Ching!

Wholesale conforming interest rates just dipped below 6%!

I use the Mtg. Professor for the daily rate as well as some good info and advise.

Have you Been Waiting Long?

Working from a home office gets kinda lonely. So I try to get out as much as possible with the kids after work. I should also note that I am one of those folks who will strike up a conversation with just about anyone. (When I actually worked in the office, I was often the keeper of secrets when my coworkers needed to vent or sought advise.)

While at the pool in Folsom one afternoon this week I struck up a conversation with the mom sitting next to me. Turns out, they had moved into the area a year of course I had to ask if they bought a home yet. They hadn't, and were also waiting!

It was like we had this instant bond, since we both felt a) everyone thought we were crazy by waiting and were tired of the "its a great time to buy" advise, and b) we were so happy to have someone to talk to since we can't really express our opinions with other parents who are homeowners (telling them we think prices will continue to deteriorate is not a good party topic).

It was a welcome relief for me to actually meet another family, just like ours, continuing to wait. Since almost everyone I know who wanted to buy a home has has now bought one in the last 6 months, I was starting to feel a bit like a hold out. My mom & her boyfriend, my dad & his wife, my babysitter, some parents we know from our kids school, several local bubble bloggers, even my real estate agent! (Of course the blog party back in April was great too, cause I got to meet other in the same situation as us.)

In any event, I may be alone at work, but I am not alone as I wait (even if it seems like it at times).

There is also a thread on the Sac Bee Blog today about someone who is waiting.

Thursday, September 4, 2008

Slightly Sunnier Outlook

There is a popular joke economists use to break the ice at the beginning of forecasting conferences.....

Q: Why did God create economists?
A: In order to make weather forecasters look good.

Just today I was making light of the recent IATA (International Air Transport Association) 2008 forecast. Which, just 9 months ago was 10.2 billion higher.

This got me to thinking about my own predictions over the last year.

Economy - Last year around this time, I was feeling increasingly queasy about the U.S. economy. I thought we would be in a full blown recession by now, as consumer spending slowed due to less and less HELOC $$ sloshing around. But banks and financials have been slow to respond to the new realities. Of course some will argue that we are in a recession, especially after today's unemployment numbers, but so far the economy has limped along.

Stock Market - I was rather shocked by the new high we hit back in October of last year. Why stocks were riding high (since they are supposed to be forward looking) mystified me. I was thinking we were in store for a 20% "correction" from the peak, which is not too far off from the current situation.

Interest Rates - I figured by fall, with high oil and commodity prices, inflation fears would prod the fed to increase rates. I guestimated that conforming mortgage rates would be around %6.75 by now, which was why I felt a bit pressured to purchase this spring. For a time they were close, but I am delighted to be wrong on this one.

Housing - I predicted that the bottom would hit for the lower end before it did for the higher end, and this seems to be playing out. I also predicted that the high end wouldn't fall as much as the low end, but it is still way too early to tell on that front.

So perhaps I have been overly bearish. Reading housing bubble blogs as a hobby can do that.

I leave you with another classic economist joke....

Three economists were on a hunting trip, and came across a large deer. The first economist fired, but missed, by a yard to the left. The second economist fired, but also missed, by a yard to the right. The third economist didn't fire, but instead shouted in triumph, "We got it! We got it!"

Wednesday, September 3, 2008

Stressed Out - 6 Month Update

Its now been exactly 6 months since I started collecting weekly foreclosure and preforeclosure stats from I do not use a precise methodology, just a raw count of the number of active properties in 95762 & 95630 (the site has duplicates, and miss some listings but I feel the overall trends are indicative).

As you can see, the rate of increase in the NODs seems to be moderating a bit, especially for EDH. Since I began collecting statistics, EDH NODs are up 33% and foreclosures are up 262%. In Folsom, NODs are up 94% and foreclosures 215%.

Using a 3 month lag factor for the NODs to foreclosure, it looks like we are at a 30-40% "cure rate" (BTW my cure rate calculation is totally bogus since it doesn't track individual homes, just the ratio of NODs to foreclosures three months later).

Tuesday, September 2, 2008

The Weekly Screen Scrape

Of the homes that meet my purchase criteria in Folsom and El Dorado Hills area, the ratio of homes pending sale is at a record level, and has been increasing all month long. The under 500k market is where it's at.

Could this flurry of activity be due to the dip in interest rates? Or a rush to purchase while down payment assistance is still available. I'm not sure, but I have to admit, I was rather surprised by the recent numbers.

On the other hand, of the 150 or so homes listed in the MLS for sale in the EDH area over 750k, only 4 are pending sale. That's over 3 years of inventory (and that calculation makes the generous assumption that all three close this month).

Sunday, August 31, 2008

The Home Stretch

Of all the new home developments in the area, the one we are most tempted by is the Pulte Laurel Oaks development off Bass Lake Road in El Dorado Hills. They have single story homes, on nice sized lots, in a lovely little valley, and even managed to keep some of the existing oak trees.

Initially the prices were way too high and we had written them off our list. But they are close to finishing the development (which is a huge plus) and dropped their prices back in May to move the last couple homes, and added in some upgrades.

When we visited last time, we were incredibly tempted, but the lots weren't quite what we were looking for (odd slopes, angles etc). So it was a bit easier to pass up. At that time, there was a particular lot that I coveted, but it was already reserved. As with recent trends, the buyer pulled out....and now it's available.

When we sat down with the sales guy after looking at the home, the monthly quote he gave us was a bit surprising. It was considerably higher than we had calculated (his higher interest rate, my tax benefit inclusion). We could afford the payment, but it would really stretch us, and force us to change some of our spending/saving habits. It's also significantly higher than our current rent.

There are some not-so-minor financial issues. 20% on the home is a bit more than our current down payment, so we would have to get a loan from family to avoid PMI. Pulte won't pay our agents commission, which is really annoying, since I have been working with him for over a year to find a home. And, with all new homes, we would have to put in a backyard.

So basically, it all comes down to money, and how much we are willing to stretch. The home is everything we want, but money would be very tight in the short term. I'm just not sure the perfect home is worth the financial strain. Sigh.

Friday, August 29, 2008

Between a rock and a hard place

Lots of talk about the Feds doing something (what we don't know) with Fannie (FNM) and Freddie (FRE). With all of the uncertainty surrounding the survivability of FNM/FRE, it has driven their cost of money up, which in turn has increased the cost of mortgages, which in turn has reduced the number of qualified buyers/borrowers, which in turn leads to lower home prices, which in turn leads to more write-offs at banks, which .... Well, you get the picture.

FNM and FRE have $223b (yes, billion) in short term debts, maturing in September (starting next week). They need to pay this debt off, probably with new debt. But it remains to be seen whether they can borrow this much new money (and at what cost), with the uncertainty hanging over their heads.

The pundits say that if the government intervenes, the common stock will be wiped out. At $5/share, I think that is a done deal ... Even Bear Stearns shareholders got $10/share! But what about the next level of shareholder, the holders of preferred shares? In the pecking order, preferred shares are above common shareholders, but below debt holders. The $64,000 question is, would a Fed action wipe out the preferred shareholders (who are currently collecting dividend yields from FNM/FRE in the range of 16%)? Would the Feds wipe out the equity of $36b of preferred shareholders?

Now, before you all say "don't bailout the preferred shareholders," many of those shareholders are banks, and the preferred shares represent as much as 16-34% of some banks tangible capital (GBTS, MBHI, WABC). In the case of Sovereign Bancorp, we are talking about +$800m of FNM/FRE preferred stock on its books. So if the preferreds aren't bailed out, then it is likely the FDIC will be taking over more banks (another kind of taxpayer funded bailout), as the banks' balance sheets are devastated with the writeoff of their preferred FNM/FRE stock holdings.


Thursday, August 28, 2008

Auburn Update

MCB44 was kind enough to send some updated statistics for Auburn. They continue to show the trends we were seeing back in April; more sales at the lower end of the market. This mimics what we are seeing in many areas of Sacramento, and largely accounts for the huge drop in the median price being reported by DataQuick (since the bulk of the home that are actually selling are at the lower end of the spectrum).

This skewed distribution can be seen by contrasting the recent OFHEO figures with DQ median (which is showing between 20%-35% drop depending on the county). The OFHEO data only shows a 17.68% drop in prices over the last year, and are still showing a 22% increase over the last 5 years.

From the Bee's Homefront Blog, OFHEO "is the national gold standard for measuring home prices. It reflects the same homes sold over time rather than the median, which lately tends to reflect the lowest end of the market activity with foreclosure properties."

I don't know too many who's wages have increased 22% over the last 5 years (the equivalent of getting a 5% raise each year)*.....its no wonder the buyer's still can't keep up.

* Of course I work at a not-for-profit, so those in the private sector may have done better in the boom years.

Tuesday, August 26, 2008

The more things change, the more they stay the same

The Mortgage Asset Research Institute reports that the number of fraudulent mortgages climbed 42% in the first quarter of 2008, compared to the first quarter of 2007. The most common fraud is employment history and overstated income. The biggest jump came from understated liens and judgments. Florida leads with 24% of the nation's total, with California in second place (and 52% of those in Los Angeles).

Apparently, with mortgages harder to obtain, folks are being less candid on their loan apps. So will we see these loans coming back in a few years as REO's?

I found it interesting to read on the actual fraud report, MARI's tag line, "Know your customer." What a novel idea for a modern business.


Monday, August 25, 2008

Privatized profits and socialized losses

Seems like that is where America is headed now. Today's estimates are that Fannie/Freddie will require $200 billion in bailouts. Detroit automakers want another $50 billion in bailouts. I have previously summarized hundreds of billions in bailouts via the Federal Reserve, Federal Home Loan Banks, etc. And if history is a guide, the estimates are going to be way too low, and the actual bailouts will be much higher. After all, if $50 billion to Detroit doesn't work, the gubmint is in too deep to not give them more if they need it. Same thing with Fannie/Freddie. I guess equally important is the fact that once the gubmint starts bailing, it must keep bailing regardless of the cost, because if it stops, it would be tantamount to an admission that maybe it wasn't a great idea in the first place, and of course, a "waste" of all that money already spent on the bailout.

Those printing presses much be humming 24 hours a day printing new money for all of these "gifts" from Washington.


Sunday, August 24, 2008

The Credibility Gap

Yesterday on the flight to D.C. I was catching up on my WSJ reading. I was on August 6th and read the article on FirstFed. It was very unsettling, even though I had seen the accompanying graphics on Calculated Risk earlier in the month.

This got me to wonder, why does an issue have a larger impact on me when I am physically holding a paper with a chart of the data, as opposed to reading it on the internet?

I don't really know the answer, but imagine it has something to do with human nature. Often a problem becomes much more "real" when you or someone you know is directly affected by it.

Or could it be, that I had the time to sit and read every word of the article (as opposed to my usual skimming online) and absorb the true impact of what they were saying? Perhaps on the internet, there is just too much information vying for our attention. Which, in the end, results in nothing keeping our attention? To be fair, I was on deadline that week (hence the unread WSJ).

In any event, this is a pretty big deal (which many bubble bloggers already know about). In my immediate circle of friends and family I know of at least 3 folks with ARMs due to reset in the next two years. While many are calling bottom for the low end in Sacramento, I think the party is just getting started on the higher end.

Random note about queuing: At work I am surrounded by Operations Research folks, so queuing is very serious business. I use use LIFO when it comes to my reading stack. That way, all the articles anticipating an event don't need to get read, since I am reading how it was resolved before I even get to the earlier articles. As obsessive as I am about my WSJ reading and housing stats, I am actually a pretty laid back in most other respects.

Friday, August 22, 2008

Circling In

When we moved into our rental in the Fall of 2006, we signed a 6 month lease. We figured that would give us plenty of time to get reacquainted with the area and purchase a home. At the time, I was open to living in almost any family friendly part of Sacramento that had reasonable public schools.

Little did we know, we would still be renting the same home almost 2 years later. During this time, we have made friends, become active in local groups, and basically settled into the community.

As a result, I find myself wanting to purchase a home closer and closer to where we live now. In other words, my home searching radius is getting smaller the longer we stay here.

At this rate, if we are still here in another 2 years, I may have to talk Mr. BT into purchasing our rental home =)

Thursday, August 21, 2008

July August 2008 Month's Inventory

Wow, month's inventory is still shrinking! We are now down below 4 months for the Sac Metro area. And while some of the pricey zips still appear to have a high month's inventory, in reality, lower priced homes are in short supply, while the expensive ones sit for what seems like an eternity.

This is good news, and proof that the market is working its way towards equilibrium. It also proves that buyers are out there, so its merely a matter of the market finding price levels that buyers can afford. If they price it right...the buyers will come.

Wednesday, August 20, 2008

Riddle Me This?

How can a home, which has been sitting on the MLS for almost a year, and at the current price for 4 months, without ANY offers, recently appraise at 97% of the value?

I obviously don't understand real estate......

We agreed to pay for an appraisal for the short sale we put an offer on, in order to convince the bank that it wasn't worth what they wanted. The appraisal came in much higher than our offer (which was about 10% off list....our previous offer was 95% off list when interest rates were lower).

Supposedly, the home is now going to go into foreclosure. It will be interesting to see if we are able to purchase it then....

In the mean time, many homes in my favorite neighborhood have come on the market. Two at prices we can afford, and the rest way above our means.

Tuesday, August 19, 2008

Defying Gravity

Zillow came out with some interesting study results this month. Seems most homeowners think that, while home prices are falling in general, their home value is not (as the article points out, its akin to everyone thinking their IQ is above average).

According to ForeclosureRadar, on my street there are:
  • 5 homes in preforeclosure
  • 2 bank owned homes
  • 2 homes slated for auction
  • 7 homes listed on the MLS (3 of which are PS), which includes some of the home listed above.
Luckily, my rental is not one of them.

Monday, August 18, 2008

Update: Driving Home the Debt

A couple months ago I did a post on the WSJ's monthly "hottest models." As some may recall, I was flabbergasted by the price tag on these cars that were so popular.

In another sign of the times, the July 2008 list is a very different list. This time, only three cars had price tags over 30K, as opposed to the vast majority in Feb/Mar. The average price tag for all the models listed has fallen around 28% compared to the earlier time frame!

Not surprisingly, the Toyota Prius tops the list (it was also the only car under 30K on the list in March).

It's Negotiable

Was delighted to see that one of my favorite publications, Consumer Reports (who would have guessed ;) did a recent survey on real estate.

Below is a very interesting conclusion from their study, which is good news for both buyers and sellers (hat tip to the WSJ Developments blog):

"Many real-estate brokers are willing to cut a deal on their commissions, and readers who successfully negotiated for a lower commission, often cutting the traditional 6 percent to 3 or 4 percent, tended to be just as satisfied with the result as those who paid the full fare."

If I had my way, I would completely redesign the compensation system. Here are my thoughts on how commissions should be structured.

Friday, August 15, 2008

A Huge Sigh of Relief

This is my virtual sigh of relief. The week is ending with oil down to $113 a barrel, and the dollar gaining ground. I feel we are now in manageable territory. At this price, industries and consumers should be able to cope.

At $147 a barrel, I believe we were facing economic implosion. The economy was already limping due to housing woes and the credit crunch.....expensive oil and commodities would have been the fatal shot to the heart.

This is not to say we should throw a party. $113 will still be tough going for many industries, like aviation, but 23% is certainly worth a sigh of relief.

Street spam

Is your neighborhood inundated with illegal advertising signs on every corner? The question I have is, who's job is it to remove them? We know the criminals (if you put up an illegal sign, presumably you are a criminal) aren't going to remove the signs.

Although the signs are illegal, Cameron Park Community Services District tells me 'there is nothing we can do about them.' (Of course, IMO, not true, but that is a blog for a different day.)

In addition to being an eyesore, the signs eventually become more litter in our fields and gutters as they are blown down by the wind and weather, most of which appear to have a biodegradable 1/2 life of about 500,000 years, due to the fact they are frequently made of plasticized something-or-other.

I'm not talk about election signs (which are also an eyesore, but protected under the Constitution), or bonafide local real estate signs, or even neighborhood garage sale/lost cat/found dog signs. I'm talking about "Earn millions working from home," "Bankrupty Lawyer" (one of my personal favorites), "We Buy Houses!," "Avoid Foreclosures," Whole House Fans," Humane Rattlesnake Removal," "XYZ Gym and Fitness in Folsom," and so many more.

The Cameron Park area that I drive in is virtually free of the signs. (Wish I could say the same for the portions of EDH and Folsom that I see.) Of course, the criminals still put up the signs, but with apparently less enthiusiasm than time past. I've heard, but have no way of verifying if true, of course, that someone in CP stops his/her car when they see and illegal sign, and picks the sign up for later recycling.

Perhaps if their signs disappear from the horizon as fast as the criminals put them up, word will get out and the criminals will move on, thus making our neighborhoods look more like neighborhoods than litter-bound eyesores.

Just my opinion.


P.S. Did you know there are actually blogs devoted to street spam, tools for removing street spam, legal issues, etc? Heck, a short while ago, I didn't even know what "street spam" was!

Thursday, August 14, 2008

The Growing Gap

I haven't reported on my screen scrape in some time. Several interesting things of note.

The number of homes pending sale has jumped again. We just hit a new record high, at my scrape yesterday. While the total number of homes meeting my criteria is still very high, the pending sale, and short sale homes make up the bulk of the listings these days. The list price differentials between the categories is what is the most interesting.

Average list price per square foot for homes in Folsom and EDH that meet my criteria -
Pending Sale -$174
Short Sale - $174
REO & Normal - $189

Thus, even though there are tons of homes for sale in the area, there is very little of interest on the market worth pursuing, except a couple REOs. We are attempting to negotiate a short sale, but my expectations are very low at this point.

Wednesday, August 13, 2008

Updated Market Stress for Folsom and El Dorado Hills

Below is the updated market stress data for Folsom and El Dorado Hills. The NODs had leveled off for both zips for a while, but this week saw a renewed upward trend. I included some additional data this week for context, such as REOs listed on Metrolist (which includes the REOs that are Pending Sale), to get a feel for the level of shadow inventory as discussed on SacRealStats.

I should note that none of these data sets are complete, and they don't all necessarily overlap the way they should. But I think the magnitude of the data is about right, and that relative comparisons can still be made. For example, the SFH listings, from ZipRealty could be subtracted from the Total MLS listings, to get a relative feel for how many homes are currently pending sale in each zip. The REOs could be subtracted from the foreclosures to determine the level of "shadow" inventory etc.

Tuesday, August 12, 2008

Bemoaning the Budget

Since budgets are all the talk right now in Sacramento, I thought it would be a good topic for the day.

When average folks have a goal, like home ownership or early retirement, the standard advise seems to be "make a budget". To me this is a lot like the "food diary" advise for weight loss. Nice in theory, but just way to intrusive and hard to keep up for a busy family.

I do reconcile our credit cards, bank statements, etc. in Quicken every couple months. I also categorize the purchases, but there are many items that fall outside a normal budget (like loans to family, or work expenses), or ATM cash that just disappeared. I have tried on several occasions to use the budgeting functionality in Quicken, but for some reason or another, it doesn't get me what I am looking for.

This leads me to wonder, does anyone actually have a household budget and if so, do you follow it?

There are many categories, in which I am unsure about how much to budget. For instance, how much to give to charity, how much should we allocate in gifts to family and friends, how much for travel and vacations?

Both Mr. BT and I grew up in families that struggled to pay for basics like food and clothes during some periods of our lives. This environment shaped our financial habits. We don't buy on credit unless we can pay off the bills immediately. Now that our massive student loans are paid off, we have relaxed the reigns a bit and spend a bit more freely.

I have an idea how much we spend on things, but I don't know if its above average, or if we are really pinching pennies. Talking to my uncle, who's family makes considerably less than us, I feel like we really pinch pennies on things like food, auto and cable bills compared to them. But I don't know if they are over spending, or if we are underspending.

With finances a somewhat taboo subject among friends and do people figure this stuff out?

Sunday, August 10, 2008

The Family Treehouse

Here is a quick rundown on how my immediate family has been affected by the housing bubble. Increased affordability has helped my mom and dad (separately) become homeowners again, but unfortunately it will be a struggle for my younger brother to hold on to his home.

  • Mom, Santa Maria CA, just bought a home with her long time boyfriend, paid cash, retired.
  • Brother, Aliso Viejo CA, has lost all equity on the home he and is wife purchased in 2005. Their ARM will adjust in 2 years, to approximately 50% their income. It will be difficult to work something out with the bank since they took out a 2nd when purchasing the home.
  • Father, Puerto Vallarta/Stocton CA, moved to Mexico from Stockton around 5 years ago, now purchasing a bank owned home in Stockton. Currently under contract. Retired.

Friday, August 8, 2008

It's Even More Official

The job losses are mounting.

My uncle, the printer, who has been living in the Sacramento area for almost 20 years, tied the knot this year. Unfortunately, the good times were sort lived. I am deeply saddened to report that his new wife, has been laid off without warning, after working at a local Sacramento business for 19 years.

She is the second family member in the area to be laid off recently.

I am at a loss for words to describe how I feel right now.

August 2008 Inventory

Inventory is somewhat steady compared to last month, but is still down 22% compared to last year. This month's data is sorted by the biggest drop compared to last year. Data was collected from ZipRealty site for SFHs. The increases are in green, and decreases are in blue.

Thursday, August 7, 2008

Sacramento Airport Activity Reflects the Region's Troubles

Max over at SacRealStats has been documenting his experience at several airports in CA.

Since aviation is my industry, I thought I would take a quick peak at our regions airport statistics for June of 2008, which is the most recent data they have on their webpage:

I don't have good news to report. Activity at our local airports is experiencing substantial declines. This is not a good sign for our region and our economy.

Sacramento International -
Passenger traffic is down 6.4% over last year.
Operations are down 10.4%.

Mather Field -
Operations are down a whopping 25.2% (with general aviation taking the biggest hit)

And operations at Sacramento Executive Airport are down 15.7%.

Update: I just checked the FAA's Terminal Area Forecast....from 2007 to 2008, SMF was actually supposed to grow operations by 2.3%! I guess we will be seeing some revised forecasts.

Market Manipulation

As many of you know, I have a strong hunch that Wall Street insiders and speculators are responsible for many of our recent bubbles (they manipulate the market and make a killing at the expense of the "ignorant masses").

This recent revelation by Reuters does little to quell my conspiracy theory leanings....

"A quiet data revision that has boosted by nearly 25 percent the number of oil futures contracts U.S. regulators think are held by speculators is raising eyebrows in the energy trading community. The revision means that speculators controlled 48 percent of the open interest in NYMEX crude oil futures and options as of July 15, compared with just over 38 percent under the previous classification.......The big shift is all the more surprising, oil traders and analysts said, since the CFTC apparently reclassified only one unidentified oil trader at the same time as the data revision."

I am quickly losing confidence that our free market society provides equal benefits to all involved. U.S. regulations and over site are out of date, and too disjointed to properly monitor the market and ensure that it is free of manipulation. Those with connections and resources routinely increase their wealth, while those without are left to foot the bill for the market's excessive risk taking.

Wednesday, August 6, 2008

We can Out-Wait, but can we Out-Wit?

Some may remember the short sale we agonized over this spring. In the end we decided not to go up in price and meet the bank's price. Our waiting strategy may pay off yet. After many months of sitting at the bank's (first loan's) price, we are going to resubmit our offer (albeit adjusted for the increase in interest rates).

Last Sunday we did see an REO that is amazing, and in our price range (the one on Moonstone in EDH). But they want us to go through all kinds of prequal and legal hoops, and the bank who owns it is Option One (not excited about dealing with them again). Our realtor figures it will go for much more than asking, so we are not inclined to go through all the hassle in order to get outbid.

I am also kinda still kicking myself that we didn't go up a bit on the last REO we bid on. It was basically in move in condition with lots of gorgeous tile and granite work. Sigh.

Sunday, August 3, 2008

As the Endgame Draws Near

According to Webster's "endgame" is the final stage of a game of chess, usually following the exchange of queens and a serious reduction of forces. This term seems appropriate for the eventual fate of this blog as well as many other RE bubble sites.

In that past couple months, many longtime bubble bloggers have purchased, or are currently purchasing a home, as prices in the Sacramento area have come back down to earth.

This leads me to wonder, what is going to happen to the vibrant community of bubble bloggers? Looking at all the links on Lander's site, its a sizable cottage industry =)

As for this blog, sometime in the short term, we hope to buy a home. If we don't, I suspect it will get really lonely around here, as many will have preceded us.

But what I am really curious about is the long term. In the long term, all the housing bubble sites will be obsolete. I suppose some sites with a large economic base, like CalculatedRisk, could evolve with the times.

Obsolesce is awkward. It's like the mom's I see around here, who, instead of aging gracefully, are still trying desperately to be hip and young.

When my time comes, I already know it will be hard to let go of something I have diverted so much energy and time to. This waiting game is a lot like being pregnant. The end product makes the wait worth the while (although this time we have waited longer than both pregnancies combined!).

Covered bonds, the next taxpayer bailout

Although too long and probably not suitable for including in a post, you are all encouraged to read "Covered Bonds, Exposed Taxpayers" in the current issue of Business Week. As sure as bears use Charmin in the woods, this will come back to bite us in the future.

In short, banks issue mortgage back bonds to finance real estate loan purchases. The loans remain on the banks' balance sheets, thus, if the bank fails, the loans are repaid to the investors ahead of payments to the FDIC. If there are insufficient assets to repay the FDIC, the FDIC takes another financial hit. Enough financial hits to the FDIC, and we are back to the taxpayer paid S&L bailout of 1990. FDIC Sheila Bair, who is a very bright lady and understands these risks, has limited banks exposure to 4%, but Treasury Secretary Paulson and the banks want higher limits for "increased liquidity." If we have learned nothing else in the past three years, "increased liquidity" is nothing more than code words for indiscriminate loans to increase short-term corporate profits, to heck with what happens to those loans in the future.