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.

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.

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?

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.

Paul

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.

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?

Paul

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.)

Paul

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."

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.

Paul

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.

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.

Paul

$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.

Paul

Part 1 - Interivew: Making Sense of the Mortgage Market

This post has been deleted by the author.

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).

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.

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?

Paul

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."

Paul

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."

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?

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.)

Paul

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).

Paul

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 ago.....so 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.

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!"

Stressed Out - 6 Month Update

Its now been exactly 6 months since I started collecting weekly foreclosure and preforeclosure stats from http://www.foreclosure.com/. 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).

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).