Friday, May 30, 2008

Not so much of an oil conspiracy

I don't profess to know much about oil or other financial things, but BT suggested maybe I should do a rebuttal to her "conspiracy" post, so here are some of my thoughts:

1. China and India are sucking up huge amounts of oil that they didn't use even as recently as 5 years ago. Combined, their populations are about 8x that of the USA.

2. Ditto with America with the proliferation of gas guzzling SUVs.

3. The run up in oil started with Katrina shutting down pipelines, refiners and offshore supplies. Oil hasn't looked back.

4. Oil is priced in dollars. The dollar has depreciated substantially in the past few years, making oil more expensive.

5. When the price of oil started going up based upon simple fundamentals, the hedgies and others saw the runup and jumped on going long oil to enjoy the profits. (BTW. If you have money in Calpers or most mutual funds, you are probably a hedgie and don't know it.)

Now, virtually everyone is saying oil is not a bubble, that “this time is different,” and this time we really are running out of oil. For those who were around in the 70's, you will remember the exact same comments. For those of you who were around in 2005 at the peak of the real estate bubble, you will also remember everyone (except us AB readers), saying the exact same thing about real estate. I’m sure the Dutch said the same thing in 1634 about tulips, but my memory doesn’t go that far back.

I say no conspiracy, just another bubble that is about to deflate. But that is just my $.02 worth.

Thursday, May 29, 2008

What's Your Ratio?

Mine is around 21-25. What am I talking about? Price rent ratios of course. The NYT has a great article discussing rent/buy decision factors.

The author suggests that historical ratios are between 10-14, so at 21-25 (and that doesn't include the Mello Roos or HOA), it looks like this area has a lot of room for improvement.

Wednesday, May 28, 2008

Oil Conspiracy?

I ask for a little leeway with this one, as I am still working off two please forgive if this isn't my usual, somewhat reasoned approach.

As someone who is gullible and has a very vivid imagination, I am big on conspiracy theories. So when oil jumps from under $100 a barrel to over $130 in just 5 wheels start to turn as I look for answers.

Even the scholars, seem to think there is limited evidence of a bubble, because there has been no signs that oil is being hoarded or stored. Instead they all cite demand from China and India.

This is where they lose me.....if U.S. demand is scaling back in response to high prices, wouldn't the less affluent countries of China and India feel the pinch even more?

My theory: the run-up in price is due to the hedge funds and all the "positions" that these big investors have taken. It seems this global pool of money (see the great NPR story) is looking for a new place to park itself now that RE has gone sour. I think they have become sophisticated enough to move and possibly even make markets (as they did with RE to some degree). When you get to the top, I imagine its a small group of folks who control billions in investment dollars. If they all make the same bet.....they could get even richer somehow.

In my mind, there is no way that demand could have risen 25% over the last 5 months (assuming supply has been steady). Recent evidence shows that Americans are cutting back.....I have to think that people in other countries are as well. None of this makes any sense unless you throw in a conspiracy theory. =)

Monday, May 26, 2008

Bummed Out

This Memorial Weekend we had the opportunity to drive down Southern California's PCH (Pacific Coast Highway for those from out of state). Mr. BT made a joke about how you never see any of the big breasted, bikini clad, girls in roller blades that are always on the T.V. shows. Looking at all the middle aged beachcombers and high end stores, I then retorted that they have all moved to the valley since they can no longer afford to live around here.

Sad to say, but I do think there is a grain of truth to this. Not sure its possible to lead the beach bum surf lifestyle that California was famous for. Perhaps I am just being a bit nostalgic, having grown up on the Central Coast near some sleepy beach towns. The value of the Real Estate has now made it almost impossible to preserve any of their laid back charm.

Friday, May 23, 2008

Who’s idea was it?

Several years ago, in some Wall Street conference room, someone said, “I have an idea. What if we told people we would loan them $500,000 to buy a house with no down payment and regardless of their ability to repay the loan or their credit rating? People would climb over each other to borrow money from us.”

“And what if we told the rating agencies they wouldn’t get our business unless they rated these loans AAA? Then we could sell the loans as AAA loans and we would make a bundle!”

As they say and the readers of this blog know, the rest is “history.”

But someone had to come up with that idea. The other day, Mrs. Paul asked me who that person was. She wants to know that person’s name so that America can give that person the credit that he/she deserves.


Thursday, May 22, 2008

Weekly Screen Scrape - More Stagnation

I haven't metioned the results of my weekly screen scrape in some time, mainly because there hasn't been much exciting to report. After thinking about it, I realized that no news, can still be considered news.

Inventory on my list hasn't grown much, and pending sales are still rather high compared to historical records I have collected. Each week, some listings expire, some close escrow, some go pending, and some new ones show up. But overall this activity occurs within a fairly narrow range.

As some have noted, the available selection seems rather well picked over (like grocery store vegetables on Sunday afternoon). Without some more price drops, which seem to have dried up a while ago, I don't think there will be much action going forward. The one bright spot in all this, perhaps Spring comps will help pave the way for Fall purchasing.

If our latest offer on the REO offer doesn't work out (yes, this process is taking forever...we found some fairly major issues that need to be renegotiated), I'm not sure there is much else worth pursuing at this point.....sigh

Wednesday, May 21, 2008

Tuesday, May 20, 2008

April May 2008 Month's Inventory

The moment I wait for each month has finally arrived (the Dataquick SFH resales reported by SacBee). For the first time since I have been keeping track (a little over a year), total month's inventory has dipped below the 6 month mark. Of course this is not for all zip codes, as you can see from the table (sorted from most to least month's inventory) but it does seem that the market is finding its footing.

Sacramento has led the nation into the housing slump, and perhaps it will lead the nation out as well. In most zips, prices seem to have dropped enough that demand is beginning to balance out supply....hence inventory stabilization. This is much more serious than a dead cat bounce many cite (5.2 month's inventory down from a high of 12.4 in October). However, that's not to say I think prices will be appreciating any time soon. Housing is in for a long period of stagnation that will last until all the distressed inventory gets worked off.

For all the doom and gloomers, last year at this time, month's inventory was also at a low point, so its entirely possible this could be another seasonal low. Its anyone's guess at this point....

Monday, May 19, 2008

Unruly Vegetation got you Goat?

Its time for another, totally non-RE local quality of life post.

Coming home from Safeway last week, I was passing Wild Oaks Park on El Dorado Hills Blvd. There before my eyes was an enormous herd of goats eating the tall dry grass. Of course I had to stop the car and go investigate and admire.

My two little ones were fascinated, and the kid goats were absolutely adorable. We couldn't get too close, because they have an electric fence and guard dogs. But I thought this was a very clever, low-tech way to manage vegetation, and it looks like its a local company. To find out more go to

Look Before You Leap

I'm starting to think the home purchasing process/timeline is a little backwards, especially for as-is properties.

Best I can tell about the current process, buyer throws out an offer, seller counters, they go back and forth, and agree upon some sale terms. Then the buyer does their "inspection" of the property. In a normal situation (where the seller was the one that actually lived at the property), the buyers can then ask the seller to fix things or get some $$ for repairs based on the result of the inspection.

For distressed as-is properties, such as REOs or short sales, it seems this inspection is purely informational because the price has already been negotiated. At least with REOs, there is no disclosure, so a thorough buyer investigation is particularly important and can uncover some serious deficiencies.

I liken this process to purchasing one of those goody grab bags when you were a kid, it looks nice from the outside, and you can make some guesses as to its value and contents based on weight and sound, but won't know the true value of the contents till you open it up (after purchasing it). I never bought those bags, because I didn't want to spend my hard earned chore money on something of questionable value to me.

If you are serious about an REO or a Short-Sale, I would strongly suggest you do a thorough inspection prior to agreeing on a price, since you may need to reduce your offer price based on your findings. Or, worst case, you may decide to walk since it needs more repairs than you are willing to put in.

While this may sound expensive (luckily we have a very knowledgeable family member) it could save you a lot of $$ (and potential marital distress =) in the long run.

Saturday, May 17, 2008

Get a CLUE

One of the main drawbacks to purchasing an REO, is the lack of disclosure about the home. For Mr. BT and I, this is nothing new. In Virginia, where we purchased our first home, sellers are not required to disclose anything about the home (and in fact are discouraged from doing so by their Realtors).

One thing you can do to put your mind at ease if there is limited disclosure, is get a C.L.U.E. report. From what I understand, its a report that details any insurance claims on a home in the last 5 years. Unfortunately a buyer cannot order it, it must be done by your agent or seller.

To emphasize the need for these types of precautions, one of my favorite site lurkers told me a story about a family they knew who lived in Folsom. This family had built their dream home on Tarbolton Circle (very high end, around 800k), but eventually realized the home had a mold problem that was making them sick. They were foreclosed on and I believe the home was recently sold by the bank (in the last month or so). I believe they plan to warn the new owners about the problem.

Sidenote: Mold has really killed the values of several developments around here, such as the development South of 50 called Stonbriar. Those homes were way out of our league when we first moved here, but recently some have dropped below the 500k mark. Anyone know how to check for mold? Or who migh provide this service?

Friday, May 16, 2008

A longer term view of Sacramento

The central valley is now called ground zero for the housing bubble. Foreclosure buses and tumbleweeds blowing through new home subdivisions are the nightly fodder for the national news shows. Sacramento is reported to be leading the nation for declining home prices and consumer debt levels. With this kind of news coverage, if you were a national or international company looking to expand your operations, open new retail stores, build a new factory, research facility or call center, would you want to locate to an area that carries the stigma that Sacramento now carries? And if, as I believe, companies avoid Sacramento until the memories fade of the "greatest housing price collapse since the Great Depression," will this further dampen prospects for future growth (and home price recovery/appreciation) in the central valley?

What are your thoughts?


P.S. California's financial uncertainty arising from the state budget deficit and proposed new state taxes are perhaps at least as important factors that a company might consider as it reviews possible new business expansion sites.

Thursday, May 15, 2008

HOAs, the Good, the Bad, but not the Ugly

I recently discussed the merits of HOAs with another Serrano mom who knows we are looking for a home. She mentioned how there is a foreclosure across the street from her, but you would never know because the Serrano association does all the front yard maintenance. This in in contrast to the REO we are trying to purchase in an older neighborhood, which now has weeds taller than my kids in both the front and back, as well as a lawn that is dying from lack of water.

This week the WSJ had a good article that laid out all the pros and cons of HOAs in a real estate downturn. While HOAs help maintain the appearance of REOs, they also run into cash flow problems if people aren't paying. In newer communities, many of the promised amenities may not materialize since the HOA collections can't sustain them if homes aren't selling (this is a big reason we are still not purchasing new at the Lennar Blackstone development off Latrobe).

Even in good times, HOAs are a hot button issue for many.....some love them, and some hate them. In bad times, the the good and bad attributes seem to be magnified even more.

Wednesday, May 14, 2008

2001 Here We Come?

Thought I would do another status check to see where we are compared to historical levels. I only have data going back to August of 2002 (from DataQuick via SacBee). The columns in blue are the price per square foot, both nominal and real (inflation adjusted at 3.5% a year) from August 2002. If the numbers in the grey column are read that means that the March 2008 data are below the inflation adjusted price of August 2002, if they are also in bold, that means the price per square foot is also lower on a nominal basis as well. The last two columns show the max price per square foot from the DataQuick data I had on hand, as well as the drop from that max compared to today.

We have certainly come along way from the peak. Hard to tell how much farther we can go. For a previous comparison using the median price see this post.

Tuesday, May 13, 2008

April/May 2008 Inventory

I tell stories with data for a living.* But looking at the Sacramento Metro area inventory data lately, its really hard to figure out what the story is. Even though inventory hasn't been growing at its typical seasonal pace, until last month, we were still above the previous year's inventory level. This month, inventory has shrunk again (4%), and we are now below last year's level.

So I went searching for the story. As far as I can tell, I don't think inventory is shrinking because of increased sales. In fact, March sales, according to DataQuick were down for these zips around 9% compared to last year. Thus the only explanation left, seems to be that homes are not coming on the market due to discouraged owners/sellers who don't want to compete with bank owned homes. This also may explain the increasing proportion of distressed sales out there compared to "normal" ones. In other words, we have lost the spring bounce.

I do expect sales to start recovering this year, as 30-40% off peak is a substantial amount. Two people I know well have recently gone into escrow (my mom and our babysitter....our babysitter is a friend of the family who is a teacher, not a teenager, in case you were wondering). Don't forget that a 100% increase in 50k, which brings you up to 100k, only takes a 50% decrease to get back down to 50k. 30-40% is nothing to sneeze at. Of course the areas we are looking at haven't decreased nearly that much...sigh.

*For instance today I am trying find a good explanation for why total domestic aviation operations are down, but delays are up compared to previous years.

Monday, May 12, 2008

What do Sacramento and New Orleans have in Common

My mom just told me about a story in this weekend's LA Times, on Sacramento's precarious flooding situation.

Flood risk and poorly performing public schools are the main reasons we are looking to purchase in the foothill communities as opposed to areas closer to the city center (unfortunately we can't afford Davis).

Even with gas at record highs, I can't bring myself to knowingly move my family into an area that is at a known risk for serious flooding.....its just not worth it.

$7.50 a Gallon Gas?

Cringing as I filled up my relatively fuel efficient car this weekend, I started to think about how urban settlement patterns might change if oil gets even more expensive (apparently Paul Krugman and the NYT beat me to it).

As he suggests, it will be a slow transformation, since many of the necessary infrastructure changes occur on much longer time horizons. He mostly discusses the substitution of public transportation, which makes sense. And I seem to remember hearing on NPR recently that our light rail ridership is up.

I spent a year an a half living in Europe as a student, without access to a car. Public transportation was adequate, and I walked and rode my bike much more often than I do now. East Coast cites, which were developed in the days prior to cars, are also much more suited to public transportation (I also lived in D.C. for a year with limited access to a car). In both cases, streets are narrower, and there is more intermingling of homes and businesses, which makes walking and biking a viable alternative.

Out here in the West, we have a lot of elbow room. Many of life's necessities are only found once you make your way out of a planned development and onto a major transportation access point. Corner stores have all but disappeared from western cities, replaced by distant big box stores that offer tremendous variety and cost savings. Our entire urban landscape is basically designed around access by car.

This leads me to my next quandary. Are the foothills still desirable if gas prices continue to skyrocket? Folsom and EDH are not easily walkable cities, designed around a city center where residents congregate. Of course Davis immediately came to mind, but one look at home prices there, and I realized that wouldn't happen. I work out of the house, and Mr. BT has to travel to a constantly changing job I'm not even sure it would make much of a difference.

Proximity is one of Sacramento's most appealing traits. Its a lovely, livable city and near many wonderful things, Tahoe, Yosemite, and San Francisco to name a few. I wonder how it will fair when this proximity becomes a luxury few can afford?

Sunday, May 11, 2008

The Price is Right - Driveby Version

Mr. BT cannot drive by a "for sale" sign without stopping to get a flyer. So its usually my job to jump out and get it. As we pull up to the sign, we both take a guess as to the asking price.....

I have gotten pretty good at this game lately, as well as knowing around what range a home will sell for. But every once in a while one will really surprise me.

There have been two or three times in the last year or so where I think a home is at least 50-100k overpriced.....and yet, it sells within 3 weeks of listing. These homes (as well as the ones that are off the market before I get a chance to see them), are the ones that really make me wonder what the future holds for the local market. Conflicting messages abound, especially since numbers of new NODs and foreclosures show no sign of abating.

Friday, May 9, 2008

The Need for Speed

I find it hard to believe that all buyers are as obsessed with housing as we are. It takes time and effort to keep a watchful eye for price drops and visit new listings. Either that, or RE agents don't have as much to do, and are really staying on top of all the listings (but there are so many, so I find that hard to believe as well).

In any case, there seems to be quite a few who move the minute they spot a deal. Perhaps it's the local RE agent network that gives advanced notice that a home is coming on the market at a great price. I have no idea, but it seems that many of the truly "good buys" out there are pending before we even have a chance to react. If I had to guess, I would imagine its flippers or investors, since they focus on the market for a living, and can move on things without juggling schedules.

If you aren't Johhny-on-the-spot, these places disappear within days, such as 1109 Sandwick in Folsom. Although that seemed to be an odd case, but still, my agent called on it, and we had to get in line, hours after it was listed (for around 100-75k below comps). Another example was a home recently listed on Jared in EDH, it went pending before I even saw the listing, and once again, it was 100-75k below comps.

So anyone who tells me they can't sell their house, is really just saying they won't, cause there are plenty of buyers/investors out there looking for homes that are priced well.

May 2008 Good Buys & Offers

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

Pieces of data to include: Zip Code, MLS or Development Name, List Price, Incentives, Offer (if any), house details (sq ft, garage size, lots size etc).Feel free to post info for homes anywhere in the Sacramento Metro area.

Even though I tend to confine my search to the Gold River, Folsom, El Dorado Hills, Cameron Park areas doesn't mean others have to.

Thursday, May 8, 2008

The numbers tell the story

From today’s Wall Street Journal: There are 80 million homes in the US. Of those, 55 million homes have mortgages. Of those, 4 million (7.3%) mortgages are currently behind on payments. In 2007, foreclosure proceedings were started on 1.5 million homes.

I don’t know what the cure rate is on delinquent mortgages, but even if the cure rate is as high as 25% (which I doubt with so many homes underwater), that suggests a doubling of the number of foreclosures in 2008 (3 million units). Great for renters and home buyers. Grim for homeowners, banks and taxpayers.

And while this is happening, Wachovia and Washington Mutual are reported to be using the understated Otheo home price decline numbers rather than the more widely accepted Case/Schiller numbers, so expect more significant loan write-downs at Wachovia and WaMu in coming quarters.

Sort of tempts me to buy a truck load of rice and move to a solar powered bunker in Montana.


Wednesday, May 7, 2008

Do home ownership rates predict where the market is headed?

According to the US Census, home ownership rates in America have hovered between 64-65% (+/- .5%) for the past forty years, at least until the recent bubble. During the bubble, home ownership climbed to a high of 69% in 2005. As we now know, the home ownership rate is declining and it is anyone’s guess as to where it will bottom. However, if we assume that the home ownership rate will decline to the same level as the last real estate decline in the early 1990's, that would return the home ownership rate to 64%. That means that 7.5% of the people who owned homes at the peak in 2005, would move from the home ownership camp, to the non-home ownership camp.

Frankly, I find this scenario very scary. I have always believed that the meltdown would impact about a million homes, but 7.5% of the homes in America, is a much more serious number. Although I want real estate prices to decline so we have more affordable choices, I’m not sure I want to see 7.5% of the population lose or give up their homes.


Tuesday, May 6, 2008

Good equity vs bad equity

At the height of the bubble, an enterprising loan person left a flyer on my door. I was so taken aback by the content, I kept the flyer for all of these years.

Of course, this "equity management specialist" is not alone.

According to a recent CNBC article, the gub-mint folks say that 32% of homeowners in 2006, owned their homes free and clear. "The question for these consumers is what to do with a houseful of equity." The article goes into great length about how folks can pull the equity out and what they can then do with all of that equity.

Whatever happened to the philosophy of buying a house, paying for it, living in it, and not using it as security for a HELOC (or similar) that you may or may not be able to ever pay back? In my small circle of friends, all but two live in homes that are free and clear, and none have any plans for taking out a loan. (If you are curious, all have lived in the same home for many years. Home values range from mid $100k to +$1million. At least two built their own homes, very slowly, using cash.)


Sunday, May 4, 2008

Buyers Behaving Badly

Many of us have discussed how the current business model for real estate agents is poorly suited to a buyers needs (for suggestions on how to change it). However it can be a double edged, and doesn't always work out for the RE agent either.

I was rather saddened to hear of a situation from a mom I know, who has been showing a particular client many homes. She typically did this on weekends, even though she would rather spend time with her daughter. She had even written an offer on a short sale and was still waiting to hear from the bank. However at our last play date, she mentioned that they had been using several agents, and ended up having an offer accepted with a different agent.

While I can understand taking an agent for a test drive or two (one or two showings), but stringing along several agents, without any compensation for their time is very naughty (can you tell I have two young kids =).

Friday, May 2, 2008

Trigger Happy

I think spring fever has hit. I find myself daydreaming about the REO home we have an offer on (going on week two, with no word from the bank). I've even been turning on HGTV after the kids go to bed (to glance at while I read my WSJ).

I am ready to buy a house, almost any house at this point.......I know this feeling will pass, as it has the other 10 times or so it has hit in the last year and a half....but it doesn't make the situation any easier (of course writing in a blog dedicated to housing on a daily basis doesn't help my situation). Each time it gets stronger though (kinda like labor contractions). And each time it happens, prices are a little lower, so it becomes easier to justify going forward with a purchase (I had a bad case of it last fall Fall too).

Previously, a little time would cure my problem, and set me back on a rational course. But lately, I can't seem to get this house off my brain. Everything I do makes me think about how it would be in the new house.......(with summer coming up it is especially noticeable, since the home has a patio, and our rental doesn't have any shade in the back yard).

Yesterday I almost had the mind to walk into one of the new home developments and plunk down a deposit. Yikes! They are much more competitively priced compared to resales (except for REOs), and compared to REOS, new homes don't have any major maintenance and repairs needed. I am also getting tired of the hassle of trying to work with banks.

Thursday, May 1, 2008

Driving Home the Debt

The WSJ has a small monthly section on the Hottest Car Models that I just recently noticed. I have saved these sections for the last two months, figuring they might be good material for a post. If you look at the data below, you will see why.

My jaw totally dropped when I saw the price tags on these cars. Almost all of them are what I consider “luxury” cars (anything over 30k is a luxury in my mind). How is it that the average American can afford these? The average price of these cars is just about double what we paid for ours (and yet we are well above average in the household income department).

I see this all the time around here, and its not just with homes. I have no idea how people afford all this stuff. Are we just crazy frugal? Or are people gorging on debt because they can handle the monthly payment?

Well today’s report that car payment delinquencies are way up may indicate I am not as crazy as I have started to think.

Another possible explanation, is that average people aren’t purchasing cars these days, so the data may be skewed toward the wealthy who aren’t worried about their finances and hard times ahead.

Silent Night

One of the best things about hot Sacrmento summers, is the cool night air (and the delta breeze). To conserve energy, we open all our windows and turn on the ceiling fan to circulate the night air into the house. As an added bonus, from our bedroom we are lulled to sleep by the songs of the crickets and frogs. Our current situation is ideal, since there is almost no road noise, and the bedrooms are on a second story and ours faces a vacant field.

Looking for a home in winter and early spring, we had completely forgotten about this highly desirable trait (luckily I was reminded by one of my favorite EDH renters who hates road noise).

Unfortunately, both of the homes I currently lust after are not likely to come with such tranquility. I tend to be a location person (caring more about the location than the actual house). Which means we often end up not too far from busy streets. However this situation, has made me reconsider our single story preference.

Avoiding busy street locations is a big consideration since we have young kids, but even cul-du-sac homes around here often back to main roadways, so the noise is still present. For some reason, when we make trade offs, noise is always the one that loses....I just hope we don't regret that decision down the road =)