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.