Saturday, September 27, 2008

Never Say Never - The Weekly Screen Scrape

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

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

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

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

17 comments:

Paul said...

Check Radarlogic. IMO, although 60 days delayed, the freefall has stopped and the chart is starting to flatten. Although anything could happen, this certainly suggests to me we are nearing the bottom. We still haven't seen a top in foreclosures or ARM resets which could re-start the freefall, but the more banks the Feds own/control and freeze foreclosures, the less likely we will see substantial downside pressure due to REO inventory. Still, more downside pressure is likely and several years of flat prices will follow.

sacramentia said...

" I think we are getting pretty close to equilibrium around here, at least in my price range."

I think this is the key point - the different price ranges are bottoming at different times. The bottom Quartile looks bottomed, the top quartile looks like it has a ways to go.

sacramentia said...

I'm going to amend that bottomed comment with - close enough to not worry about massive additional drops, but will probably still slide for a few years.

Jacob said...
This comment has been removed by the author.
Jacob said...

What happened to that house you were eyeing a month or so ago?

I think we might be close to equilibrium in some areas however we will overshoot because of two reasons.

1) Credit is tight and will remain so. Regardless of any bailout, banks will not be lending to many people because they have too much debt, too poor credit, or not enough income or assets. Nothing will change that, so demand will be depressed because people that would buy cannot.

2) We are over built. So even if you keep everyone in their home and stop all foreclosures you still have a lot of homes that were bought by speculators and those will not all find a buyer.

But each area is different. Maybe your area is at the bottom.

I was looking at an open house in Rocklin today. It was a nice home, larger than I need, would have been a good deal at $450k, asking was $699.

Realtor assured me it was priced below market even though it was on the market for 4 months and even though it was $75k over the last sale which was $624 on Jan 05.

I think there is still room for it to go down. It was already reduced 100k from the last month.

I was hoping to buy in 09 but more and more it seems like that will not be a good idea. We'll see.

Good luck on your hunt.

Husmanen said...

Curious, how are you defining equilibrium? What metrics are you using (price/rent; inflation with a base year; median local income/median house; others?

Like many of us, you have keep close tabs on homes on the market, those coming on (mostly REOs), sales and the local/national/international economic situation. Is this where the 'equilibrium' is coming from.

Also, we are looking at basically the same areas and I noticed one house last week that came on, fitting 'almost' all my criteria. Price was good, light fixer, great size, but the only drawback would be that the street could be used as a 'thoroughfare', although probably not a lot of traffic but wouldn't want the kids to ride their bikes on it.

Thanks...

Buying Time said...

"What happened to that house you were eyeing a month or so ago?"

They all fell through for one reason or another. Mostly cause the banks are being stubborn.

"Maybe your area is at the bottom."

Bottom and equilibrium are different in my mind. Equilibrium is more the historical average/norm, bottom is the low in a cycle.

"even though it was on the market for 4 months and even though it was $75k over the last sale"

I think there will continue to be many of these homes on the market (they don't sell)...but I am also starting to see very attractive homes in the low 400s, high 300s, which is where homes we are looking at should be, loosely based on historical pricing as well as rent equivalent.

Husmanen - We should discuss details sometime, as I do think we are evaluating all the same homes...

Sold in '05 said...

Low 400's to high 300's would need to rent in the $2500 or higher range to break even. Is that what rent is in the area?

"I think this is the key point - the different price ranges are bottoming at different times. The bottom Quartile looks bottomed, the top quartile looks like it has a ways to go."

If the top is still falling, the bottom is going to get squished down also. So until the top bottoms, the bottom hasn't bottomed. In my area (West Roseville), the bottom is certainly where EVERYTHING is selling, but every day something nicer moves into that category and something that was previously the bottom moves further down.
The less than 300k market, that did not exist in Jan. now contains over 50 listings and grows every week.

I've noticed that while REO's are drying up so are sales. The listings are condensing down to short sales and above market priced normal listings that are not moving. It will be an interesting winter.

Dave Hoggan said...

Are you kidding?

If Fortis, B&B, and Duetshe all need bailouts too, this is far far from over. Banks are holding, thinking they are going to be bailed out. Wait until that plan fails and look out below.

Of course the real fun is when the asian markets open tonight

**is thanking her lucky stars she isn't holding EUR or GBP anymore**

smf said...

Equilibrium? Hah!

The financial consequences of all this have basically just started. The majority of people still believe that prices will reach 2005 levels in the near future.

And banks still have no idea how much money they will lose.

By all means buy a house if you like it, like what we did just 4 months ago.

But don't expect things to improve anytime soon.

There are still way too many houses that were built. What is going to happen to these newer areas?

What about all those multi-family dwellings in downtown?

What happens to the economy of Sacramento if the unemployment rate keeps getting higher?

sacramentia said...

smf -

There is a baseline level of income from welfare/section 8 and other subsidies. This will put a floor in the bottom of the market since incomes will not go to zero.

The bottom quartile is <176k and think those homes are done with the major drop and will be falling slower than the upper price ranges.

Deflationary Jane said...

I hate to say it but if deflation picks up any more, section 8 benefits will be reduced, both in number and amount.

smf said...

Sacramentia:

In all these chats, the elephant of excess supply is still not quite being addressed.

(Remember that I have worked in the construction industry in Sac. for almost 20 years)

This was not just a housing bubble. Excess homes were built. Excess condos were built for those 'priced out' of homes, and then for a phantom market. And to top it off, excess rental supply was built for those 'priced out' of the market.

There is a lot of excess out there.

At the same time, local governments estimated population according to the amount of housing built. There could be less people in the county than estimated.

All of this has to be sorted out before we can even guess where this market is headed.

But seeing the current market turmoil, it should be obvious that regardless of what you think, this debacle is still in its early stages.

sacramentia said...

I would be shocked if our government actually starts cutting back entitlement programs enough to really make a difference. Happy, but shocked.

sacramentia said...

@SMF, And even with all of your experience and knowledge you purchased a larger home this year that will almost certainly fall in value.

My bet is that you are not unique and these kind of actions will make housing stop falling before it reaches the 'fundamental' bottom based on economic factors.

smf said...

Yes, we bought a house...

...but...

1. It is a house we are comfortable staying in for at least 20 years.

2. It is in an established area.

3. We were going to lose the equity in our prior home, so before we lost it, we used it as a down payment.

4. And we are fully expecting to lose our downpayment. But we love our house.

But there are way too many new areas in the metro area that may fall harder, since anyone who buys there may take a huge risk as to the future of the area.

Patient Renter said...

will we overshoot now that the economy is tanking and credit has dried up?

Quick answer, IMO, yes.