Thursday, July 31, 2008

My Prediction, Part II

Okay, not really a prediction, but it seemed to tie to yesterday's post.

I use Radarlogic to monitor local price trends. Not perfect, but it allows me to compare prices over time. For example, current (May 31, 2008, because Radarlogic lags 60 days) Sacramento MSA price is the same as March 2003.

Again, I don't know where prices are going to go, but I feel comfortable in predicting a minimum 10% additional decline (and possible additional 20% decline, all on a local level, of course). A 10% decline, per Radarlogic, would take us back to May 2002 home prices. A 20% decline would take us back to May 2001 prices.

If we see 20% further local declines (which I am not predicting but could happen), that would mean that everyone who bought after March 2003, even with 20% down, would have negative equity. Pretty discouraging numbers, but certainly motivation to be a patient renter.

Wednesday, July 30, 2008

My prediction

I don't profess to know what is going to happen 5 minutes from now, let alone next week, next month or next year. But that doesn't stop me from having beliefs that only time will tell are right or wrong.

Tomorrow is the last day of July. I think a lot of sellers have been holding off dropping prices over the summer, hoping to find a buyer who is participating in the claimed summer buying binge. Now that we are about to enter the month of August, I think we will start to see a small amount of capitulation and many of those sellers (read: banks) will make significant price reductions to try to capture a buyer before the market goes into the autumn/winter doldrums.

What is your prediction?


Tuesday, July 29, 2008

More than a little irony

As you have no doubt heard by now, last night Merrill Lynch sold +$30 billion in mortgage backed securities for $.22 on the dollar. Personally, I think this is a big deal for several reasons. First, it forces other CDO holders to mark their securities down to $.22 on the dollar (read: More write downs to come). Second, I am guessing this is close to the floor for markdowns on CDOs, after all, how much lower can the price go after a 22% mark down?

But what I find interesting is that Merrill sold the approximate $6.7 billion in CDOs, to a buyer who paid only 25% down with Merrill financing the balance. Now admittedly this is better than the 100% home financing that got Merrill into this situation, but the 100% home financing was in a rising home price market, whereas the 75% financing of the CDO's are in a declining CDO price market (Merrill valued these CDO's at +$11 billion only 28 days ago). So will Merrill soon be foreclosing on the CDO's that it just sold, while the CDO's are foreclosing on the underlying homes?


Sunday, July 27, 2008

The "stealth" bailout

You all know about the $300 billion "Stick it to your Children Act of 2008," but have you done the math for the rest of the bailout (so far)?

From CNBC:

1. Gone (in the past 12 months) from the Fed's balance sheet, $311 b in treasuries, used for such things as auction rate securities to Wall Street banks, bailout of Bear Stearns, etc.

2. Federal Home Loan bank "advances" to members using members' mortgage securities as "collateral," $284 b.

3. Mortgage securities purchased by Fannie/Freddie in the past 12 months, or so, $621 b.

4. Added to FHA (unrelated to the legislation passed this week), $90 b.

Total per CNBC, $1.43 trillion. (I know, my numbers don't add up. If you read the original CNBC article, you will see why my numbers are actually less.

Maybe all of these billions will be repaid. Maybe not. As someone in my office opined, we need to make more children to help pay these future debts off!


Friday, July 25, 2008

Historical Housing Statistics along Highway 50 in Sacramento

As I mentioned yesterday, I'm a little burnt out on our home search and depressed about our prospects for finding a home anytime soon......

So instead I am generating some data to keep idle Friday workers entertained. Below is the monthly DataQuick sales count, median price per square foot, and median sales price data I have collected from the SacBee website for the major zips along Hwy 50 in Sacramento (95819, 95826, 95827, 95670, 95630). As with all my SacBee DQ data, I don't have any means of updating it (like when DQ changed their methodology), so for the record I am not making any representations as to the data's accuracy.

Feel free to post Zip requests. I will try and fill them next week.

Thursday, July 24, 2008

Seven Cent Solicitation

I just don't have much to say lately and am on on a feel free to post RE related thoughts.

I would be especially keen to hear everyone's seven cents on the recent Housing Legislation passed by Congress. My hope for a veto was recently extinguished.

At least there are some provisions for first time buyers...but they look a bit complicated at first blush (and could anyone figure out the definition of a first time tends to vary by context?).

I will try and post some historical data on different Sacramento zips in the coming days to fill some space.

(Why not two cents? According to Webster's "two cents" tends to be unwelcome/unsolicited advise, so I figure I'm inviting comments, coupled with inflation, and a bit of tongue twister....and cents.)

Wednesday, July 23, 2008

The Power of Averages

Some may be familiar with the anecdote of when Sir Francis Galton visited a livestock fair in 1906. While there, he stumbled onto a contest where villagers were to guess the weight of an ox. He found that if he took the average of all the guesses, it came within one pound, even though no one's guess was correct.

All this to say, I am a little disappointed that the average of all the experts didn't quite work out in this situation. I am continually stunned by the fact that so many "experts" were blindsided by the housing and mortgage bubbles.

If you ask me, most were clueless because they were so out of touch with average Americans. If you are working 80 hours a week, and only hang out with like minded individuals (often from the same profession), you have no way of knowing the struggles average people face. As I stated in an earlier post, Wall Street does not know the lives behind the Main Street data. The data can only tell you so much. When things were good, no one felt the need to look beyond the data.

This is where I have always had the upper hand. I'm the type of person who will start chatting you up in line at the supermarket to pass the time. I was also that person in high school who refused to stick with one particular group of friends (the jocks, the ags, the surfers, the goths etc). I have family all over the state in many lines of work (some blue collar, some white collar) and I love to listen to people's stories (which is ironic since I tell mine on a daily basis).

So yes, I have a masters and can analyze data, but I also read columns from various new sources (not just gloom and doom blogs), and listen to what average people have to say. Of course I sometimes get worked up reading the housing bubble blogs, but I try hard to keep an open and objective frame of mind.

Tuesday, July 22, 2008

Did you ever have that feeling?

I have toured houses that were for sale, and my skin crawled because they were so dirty. I have toured houses where I knew a death had occurred, with no particular reaction other than sadness over the loss of life. When I have listened to others tell me about their "dark feelings" in a particular house, I have tended to be cynical and mostly polite, thinking of a house as a commodity and shelter, free from the evil forces that Hollywood movies conjure. This all changed when I walked into an otherwise unremarkable home on Sunday afternoon. I do not believe I have ever in my life felt such a dark and deathly force overcome me. I don't know anything about that home's history, but I was shocked at both the existence of the feeling and the overwhelming magnitude of the feeling. I immediately grabbed Mrs. Paul and almost ran from the house, not explaining the "why" to her until we were safely in the car.

Maybe I've turned into a "kook" after all?

Monday, July 21, 2008

Folsom & El Dorado Hills Historical Home Sales Data - June 2008 Update

Below are the latest sales and $$ charts for Folsom and El Dorado Hills. The downward pricing trend is continuing. We are now at $183 median price per square foot in EDH! Not nearly as promising in Folsom, which stands at $206 as of June. Hence we have just about stopped looking in Folsom, since we can get much more house for the $$ in EDH.

Sales in both zips seem to be leveling off a bit, which is why the year-over-year numbers look so promising. One of the main reasons I look at the data over a longer time horizon is because y-o-y numbers can be very misleading. Comparing a bad year to another bad year, doesn't give enough context for the data.

Anecdotal note: Was out for my usual walk with the kids yesterday afternoon, and saw a piece of paper taped to the door of a house we always pass. I didn't go up to check, but I have a strong feeling it wasn't a cookie recipe from a neighbor. This home wasn't even in my data. With the HOA maintaining the outside of homes in Serrano, there isn't much to outwardly indicate financial stress. So its always a bit of a shock for me, as opposed to a predictable progression.

Sunday, July 20, 2008

Mistaken Identity

I wake up Saturday morning and check my e-mail. A great home in one of our favorite neighborhoods had dropped it's price 75k! Boy was I excited. It was in our price range, even with current interest rates.

I was very hopeful (an actual owner occupied home), but wanted to move quickly since homes in the lower price range are selling much more briskly around here. We even took my MIL by the house, since she was in town for the night.

To make a long story short.....turns out, the agent put the price on the wrong house (even though the wrong price equated to the average price per square foot for EDH last month).

Needless to say, I was crushed.

Friday, July 18, 2008

Bankruptcy anyone?


The last bankruptcy in El Dorado County was filed in August 2007 ... that is until June 2008. In June and the first two weeks in July 2008, there have already been 40 bankruptcy filings. (Filings actually take place in Federal court in Sacramento, but the debtor addresses are listed in EDC.) No area is immune, including 12 in EDH, several in the high rent portion of Cameron Park, and a couple in South Lake Tahoe.

June/July 2008 Month's Inventory

Month's inventory for the zips I track has dipped even more this month, down to 4.2 from 4.5. It's amazing what happens when homes start to become affordable again!

I haven't seen as many rentals on the market lately either (at least where I live). So I am beginning to wonder if low supply will put upward pressure on rents, which will further facilitate market normalization (rents go up, and home prices go down...eventually finding an equilibrium point between the two adjustments).

Of course the elephant in the room is distressed inventory......which should continue to hit the market now that the Alt-A and Option ARM is starting to implode. I have started skimming Mr. Mortgage's blog. He has some disturbing predictions for what's to come.

Zips are sorted from high to low, month's inventory. Sales is from DataQuick courtesy of the SacBee, and inventory was collected for SFH resales from ZipRealty.

Thursday, July 17, 2008

Too Shady to Sell

Some of you may remember an earlier post on a home near downtown Folsom, that was too good to be true. Well I guess they learned their lesson, and have now included the adjacent parcel and dropped their price even further. The new MLS listing number is 80062942.

Glad to see these shady sales tactics are not being rewarded by the market.

Deer in the Headlights

I am off the grid for a mere 5 days (our annual Yosemite trip), and I come back to find our nation's financial system teetering on the precipice.

Coming back to all the news reports, which I still haven't quite sifted though, my general mood about the future has gone from nervous trepidation, to helpless and overwhelmed angst.

Let me start by saying, we are a very average American family. We don't have an army (of accountants, financial advisers, lawyers, tax preparers etc.) at our beck an call to offer advise and expertise. We also come from working class families, so we really don't have any trusted relatives we can turn to for this type of advise.

While my gut has been telling me we were headed for rocky economic times, I have been at a loss as to what actions to take in response. The vast majority of our savings is in 401k (except our down payment). Back in January I attempted to read up on my 401k investment options to look for a safer choice going forward. But with all the disclaimers they put in, its really hard to tell what the true risk is for each fund....even the money market and cash reserves seem to have large disclaimers about no guarantee on your principle. Needless to say, I didn't get very far, and gave up. In hindsight, I would have been much better served to have found some help on this.

At this point I am a bit like a deer in the headlights. To preserve the purchasing power of our down payment, I feel we should buy a home soon, as a hedge against inflation and higher interest rates. But at the same time I don't want to purchase a depreciating asset, which is also a quick way to lose our down payment.

I have developed this nagging feeling that I need to be doing something to prepare ourselves financially and physically for hard times ahead, yet I am at a loss as to what exactly those preparations should be.

I am also starting to wonder if I would be better off in ignorant bliss. I would love to know what others have done in response (to the future prospects of our changing economy), if anything.

Wednesday, July 16, 2008

More signs of the times

We live in a geographically isolated part of Cameron Park, in an area with about 70 newer homes.

In early 2005, if a home listed, it went pending within 24 hours. By autumn 2005, there were 18 homes for sale, of which 14 were vacant.

Now, there are 9 homes for sale, 2 vacant. Four homes are in some stage of foreclosure.

One neighbor used to have magnetic signs on their cars advertising his/her mortgage company. The signs disappeared some time back, and yesterday, so did the neighbor, driving away behind two big moving company vans. The loan has been in default since May 2008 but the house hasn't been listed and like most REO's that I see, no one even attempted to sell it before they let it go back to the bank.

Tuesday, July 15, 2008

Today's WSJ ...

Sorry I'm a little short on time today, but some odds and ends from this morning's WSJ:

1. One of the new requirements that Bernanke is imposing on mortgage lenders, is the novel idea of requiring that the mortgage lender actually take steps to verify that a borrower can repay the loan. I wonder if certain members of Congress are going to be as outraged over this proposal as they have been over other recent events. Don't worry about a sudden dearth of homebuyers ... the new rules wouldn't take effect until October 1, 2009!

2. IndyMac has suspended home foreclosures, saying it (the FDIC) wants to help as many people as possible remain in their homes. As you will recall, IndyMac was at the forefront of the no-doc jumbo loan market. So now that you and I own IndyMac (or at least its liabilities via the FDIC), there are unlimited resources available to keep the folks in homes they perhaps couldn't afford in the first place.

3. Unrelated to the new Fed rules, lenders (including Fannie/Freddie) are now requiring borrowers to have an adequate downpayment, credit history and demonstrated ability to pay, or in the alternative, requiring borrowers to obtain mortgage insurance (from one of the likely insolvent mortgage insurers). At the same time, the mortgage insurers are scrutinizing the borrowers to make a similar inquiry into the borrowers ability to repay the loans. This will likely increase the cost of borrowing, reducing the amount folks can borrow, and reducing the pool of possible buyers for the mountain of inventory out there.

4. Another aspect of the Feds new requirements for mortgage lenders, is the return of the impound account for taxes and insurance.

Now if they would only enforce the thousands of rules and laws already on the books ... sigh.


Sunday, July 13, 2008

Fannie and Freddie

As you know, Fannie and Freddie's status is currently in question (notwithstanding efforts to prop them up). Briefly, they hold or have insured about $5 trillion (yes, trillion) in mortgages. Combined, their capital is a little more than $50 billion. And about 1% of their loans are currently delinquent (about $50 billion). If their portfolio's don't get any worse (highly unlikely IMO), their capital is already at risk of being erased.

As you also know, our gubmint is working on homeowner "rescue" legislation that would, among other things, permanently increased the Fannie and Freddie loan limits from $417k to $729,750. So if Fannie and Freddie are soon to be (if not already) insolvent, what impact will doubling the loan limits have on them?

And if you haven't read the fine print in the legislation regarding the tax credit for new home buyers, according to the WSJ, the buyer must repay that tax credit over 15 years. In other words, an unsecured, no interest, mortgage on top of a mortgage. As if that isn't what is getting so many people in trouble now!


Friday, July 11, 2008

July 2008 Inventory by Zip

This is the first month that I have comparable year over year inventory data (from ZipRealty). Looks like we are almost 16% below last year at this point, but we are also 7.7% above last month. So this means sales have slowed or listings have picked up, or a bit of both.

I sorted the zips by % change over last year. As you can see, the relatively expensive zips where prices haven't fallen as much are lagging behind. Their inventory is still growing.

At Any Rate?

The Bee had a story last week that hit close to home. All three of the homes we have tried to purchase, led to negotiations with the bank (2 REOs, 1 SS). In two of the three cases, negotiations played out over months, as opposed to days.

In both of those cases , I watched interest rates fluctuate over the course of our drawn out negotiations. This gave me considerable heartburn as I had predicated our offer on a particular rate (a tad conservative, but obviously not enough to capture the fairly large changes).

So of course, being the risk averse planner that I am, I wanted a rate lock. So here comes the Catch-22. To get a rate lock, I need a contract, but to agree on a contract price, I wanted a rate lock. Argh.

As of today, both of the REOs are Pending, and the SS is still sitting.

Thursday, July 10, 2008

Seed Money Update

Given all the gardening interest from the Government Seed Money post, I thought I would offer a quick update on our little container garden.

Keep in mind, my kids helped with the planting. My 4 year old was very meticulous about getting the seeds in the holes, but my 2 year old flung them about the minute they hit his hand. All this to say, the labels may not match the sprouts. We over seeded, and will have to thin some of the sprouts. I haven't done this in a while, and figured our odds were better if there were more seeds.

Thyme - very small with little growth since they broke ground
Rosemary - nothing
Basil - seems every seed has sprouted and they are over an inch tall now.
Sage - nothing
Pepper - a couple small sprouts
Marjoram - nothing
Cilantro - lots of good sizes sprouts
Parsley - can't tell if they are parsley sprouts (which I imagine look a lot like cilantro) or if they are just wayward cilantro sprouts.

I think the Pepper and Marjoram may have drowned, my kids "helped" water that bucket when I wasn't paying attention. My 4 year old is spellbound by the whole process, and gives us daily progress reports.

Indicator of Things to Come

Every time I look at the latest market stress stats, the first word that comes out of my mouth is, "wow." I am still pretty floored at how rapidly both these zips are deteriorating. I think my earlier predictions, of another 10% drop, may have been too tame. Gas at $4.50 a gallon surely isn't helping.

I should also note that EDH's inventory is a bit misleading (tall green bar), while it looks high relative to Folsom, a third of the inventory is homes over $800,000. They are selling at a very very slow pace. I think there were 8 pending out of 150 homes when I last checked. Can you imagine the carrying cost on those for two years...yikes!

Wednesday, July 9, 2008

Price Fixing

My new favorite quote (courtesy of BMIT):

"There's nothing the price can't fix."

The Mommy Connection

Several months ago, I received an e-mail from a mom whom I had met at Bunco shortly after I moved here. She asked if I had anything to do with a local RE blog........doh! She obviously has an above average memory.

Well since that time, we have started meeting for play dates regularly. Aside from all the usual kiddy talk, we share a lot of dirt on housing related stories. She has been a great source, especially since she has lived here longer and knows her neighbors much better than we do.

So on to her latest dish......

Apparently someone in her neighborhood, struggling to avoid foreclosure, moved out at 3am.
I have heard reports of this in the news/blogs, but have never quite understood it. Why in the middle of the night? Did they take all the appliances and didn't want anyone to witness? If that is the point, wouldn't they do it in the middle of the work week when everyone is gone? I would think nighttime would be when all the neighbors would wake up and want to know what the heck was going on. Or perhaps, moving vans are in such high demand that 3am is the only time they have available? In any case, the situation strikes me as very odd.

A friend of hers who lives nearby, in the RE industry, had regularly refied their home. She was so underwater, that their monthly payment was almost twice our rent, even though their home was considerably smaller. Their home is now in foreclosure. Too much Kool-Aid. Now I am a big fan of personal responsibility and living within your means, but in some cases, like this one, it doesn't make sense for a person to try and stay. Walking away, renting for seven years, seems like a much better alternative to complete financial suicide.

The bank did not have to give them the money. The bank also set the terms for the contract that they signed, which lays out all remedies if they cannot pay. I don't understand why some feel it is such a bad thing to walk in this situation (I was raked over the coals by another blog for my thoughts on a lawyer of all people....whom you would think would understand the idea of a contract).

Of course if there is any type of fraud or misrepresentation involved, that is another ball of wax entirely.
Six months ago, I heard of these types of stories, but they occurred in places like Elk Grove and Natomas. Now they are in my neighborhood. Unfortunately, no zip code is immune.

Tuesday, July 8, 2008

A Few of My Favorite Things

Two years ago this week, I saw perhaps the most remarkable home in the entire United States, Falling Water. It is a stunning piece of architecture, and a magnificent engineering feat for its day, but not exactly a home I would want to live in.

This got me thinking about the architectural elements that make a home suitable for everyday life, as well as the flourishes and design elements I am drawn are a couple of my favorite things (although they don't all necessarily belong in the same house.....

Design Elements
In general I love the rustic farmhouse look, which includes, exposed wood beams, lots of covered porches and balconies, pine or other rustic wood cabinetry (the type they are always covering over or demolishing in HGTV specials....much to my chagrin). I don't really like tile, but will make an exception for slate. I also like darker metals and woods, no polished brass or oak. I prefer homes with a nice open flow, no need for a separate dining or living room etc. We are not formal people.

Entry closet near the front door for shoes, jackets and umbrellas.
Laundry near the bedrooms.
Back patio access near the kitchen or main living area.
The bedrooms should be grouped together and somewhat separate from the main living area.
No carpet in the eating areas.
Closets should not have sliding doors so large that you can't easily access what is inside.
(I'm sure there is much much more to this list, but I have to get back to my day job)

If anyone happens to run across my perfect home in their MLS searches, do let me know.

Monday, July 7, 2008

One Subscription, Two Purposes

I was a little skeptical a couple weeks back when looking at the big spike in foreclosures and NODs in the surrounding neighborhoods. I was using the free search from and thought some listings might be duplicates (but you have to pay the $$ to really know). So I signed up for the three day trial at based on Mr.Mortgage's recommendation.

While the data was slightly different, the results were more or less the same. Best I could tell, neither service had complete and up to date info, without duplicates. All three foreclosure information services that I know of, charge about $50 a month for a subscription, which is pretty steep for an non-investor/home buyer (gratefully I found someone to help subsidize my subscription). kinda pissed me off cause they won't tell you how much their service costs unless you put in all kinds of personal information first, so I didn't even bother considering them.

I plan to sign up this week, for two reasons. First and foremost, to make sure my landlord is paying the mortgage (I see it as a small insurance policy). And second, to get better information on the NODs and foreclosures prior to them hitting the MLS.

Anyone have a recommendation for a better foreclosure info site before I sign up with

Sacramento Leads the Nation

For once we see the title above, and its not about our dismal housing market. There is a really interesting front page article in the WSJ about Sacramento's Blueprint for growth. I'm rather proud that our city would take such a proactive stance on smart growth.

Of course, I felt a substantial twinge of guilt as I realized that our home criteria are the antithesis of this concept.

Thursday, July 3, 2008

Redefining Patriotism

Time for another non-RE post.

I was sitting at Dallas/Ft. Worth airport this morning, when people spontaneously stopped and broke into applause. The applause was contagious and within seconds, almost everyone in the terminal was clapping. The reason….service men and women had deplaned and were walking through the airport.

This scene, which occurred a day before the 4th of July, brought tears to my eyes.

Yet it also reminded me of the frustrations I have felt, since 9/11/2001 about the meaning of patriotism. For quite some time, anyone who disagreed with President Bush and his policies was vilified as being “unpatriotic”. At the same time, anyone who wore a uniform was instantly labeled a hero and patriot. Somehow the many freedoms, that our military have fought all these years to preserve, have been subjugated by rhetoric and fear mongering.

The support we showed our troops at the airport this morning stands out as a reminder of how things could and should be. I am routinely saddened, by the lack of support and respect we show fellow Americans in our everyday lives. So many are quick to judge and condemn. Of course the media today panders to this mentality, taking statements out of context and crucifying those who made them.

While I am dismayed at the religious extremism that fuels terrorists abroad, I have been equally dismayed at the extremism which has taken hold here in the U.S., much of it wrapped in patriotic fervor. The fact that a commercial with a well known cook (Rachael Ray) was pulled from the air because she was wearing a scarf (thought by some to be symbolic of terrorist support) is just absurd. Have we learned nothing since McCarthy’s day?

This country was founded on principles of civic debate, participation and tolerance. In my mind, actively exercising these virtues are what make us patriotic. Americans who display intolerance and hatred toward each other and foreigners, in the name of patriotism, should not be placated. Their behavior makes them no better than those they profess to hate.

Instead, we must be confident in our democratic principles and lead by example.

Tuesday, July 1, 2008

The Fever has Broke

Both the local market and my personal "spring fever" have both broken.

First the local market. Last year the ratio of PS to available home that meet my criteria reached 33% for about a week, and quickly faded back into the 20% range. At that time, there were very few homes on my list (but it was growing). This year, the PS to available home ratio has stayed in the low 30% range for over a month. But as of last week that has now fallen back into the 20% range. More inventory is coming on the market. Some of it is heavily discounted (like $135 sqft) which helps keep the PS ratio up.

As for us, I think we are going to take a breather. My intense desire to nest this spring has now abated. We plan to reorganize our lives to be more comfortable in our rental (find storage for our old fishing boat so we can actually use the garage). With oil over $140 a barrel, the dollar weakening, foreclosures rising with no end in sight, inflation on the rise......I am just too anxious about the future to feel comfortable making such a permanent decision about the next 10-15 years of my life and our entire nest egg.