Winter Break

Will be on hiatus for quite some time (at least till after the new year).

Hoping this holiday season finds everyone happy, healthy, and employed.

Below is a picture of what our family woke up to Monday morning (the view from our backyard). The wonder and delight in my kid's eyes was contagious.


Best to all.

Chafing at Charity

This time of year I find myself thinking a lot about needs versus wants. Two things set me on this train of thought. The first, was the FHA loan limit for the Sac Metro area, and the second, a wish list item for a needy family. Let me make a couple observations before I get back to this.

In theory there are very few basic needs for someone living in a developed country: nutritious food, clothing, clean water, shelter, electricity (for heating and cooling), transportation to and from a job.

There are also many additional things that are considered basic needs by most Americans, but which I classify as wants: cell phones, TVs, name brand clothing and shoes, ipods, sushi etc.

So back to the housing related discussion.....in theory, the FHA is supposed to help folks of moderate means secure a loan to buy a home. So I was pretty stunned to learn that the FHA limit for the Sac Metro area is $580,000 (according to my google query). A loan of that size gives you access to over 90% of single family homes in the Sacramento area. A family of modest means should not be purchasing a home for almost 600k. The whole FHA thing has gotten way out of control.

As to the second item, call me a Grinch, but I recently received the wish list of an "Adopt-a-family" through my moms group, and I was really surprised. It had items like "gift card for ipod", and matching bedding set. These are items my kids don't even have.....since when does a kid from a truly needy family have an ipod?

Are my ideas of basic needs to stringent, am I being too judgemental? When I first moved to Sacramento after college, I ate ramen noodles, had a bike, a bean bag, a small radio, a microwave, and slept on a futon. I made due on my $10 hr job at a non-profit, and even managed to save some money for graduate school.

As many of you all know, I'm a bleeding heart, but using taxpayer money to subsidize a loan for a $580,000 home in the Sacramento area, and buying ipod gift cards is a stretch, even for my sense of charity.

California October 2009 Home Sales

Was looking for some context on how the Sacramento Metro Area housing market compares to the rest of California. Below are two charts, the first has data for all California cities, and the second, only data from cities in the four county metro area.

The horizontal axis is the Oct 2009 median home price, the vertical axis is the % change from Oct 2008, and the size of the bubble is the number of home sales in Oct 2009.

Charts were cut off at 1 million price tag and 50% increase/decrease to better show the majority of the data. The grey bubble in the first chart is data from the city of Sacramento.

November Market Stress Update for 95762 & 95630

It's probably too early to tell, but the wave of NODs appears to be cresting a bit. At this point, I expect REOs to start picking up steam, now that many of the NODs have run their 90 day course. I also expect NOD activity to be elevated for some time as the 3 & 5 yr (Option) ARM loans issued in 2005 - 2007 begin to readjust. Low interest rates won't protect these folks forever. Hopefully they are taking advantage of low interest rates and are refinancing into a fixed rate (if they are able).

I would really love to see an updated chart of when the different loans begin to adjust (taking into account refinancing etc).....like the chart here which seems super scary till you look here and see the perspective of what we have already been through (we are around month 35 if I read the chart correctly).....this one is the latest I have found and doesn't seem all that different from the original one (all links courtesy of Lander's Blog).

Dogma or Doghouse?

I'm one to continually reassess my views as new information comes in. If you had told me at this time last year that we would be purchasing a house in February, I would have looked at you with an incredulous stare.

Up till now, I figured the worst of the price declines were behind us.....but I am beginning to reconsider. Today's WSJ development's blog had a very disturbing statistic that really jarred me. The post was about the fact that the FHA, VA and other government backed, low down payment, loans account for an overwhelming proportion of the market. The post noted that "In Northern California, for example, builders said that the government accounted for 76% of all mortgages."

I had seen a couple posts on Dr. Housing Bubble and Calculated Risk which broke out purchases by loan type, with roughly 28% using FHA, and 26% using cash (investors), for Sacramento. This seemed reasonable given the tax incentives and distressed inventory, but 76% for the region is downright frightening. Assuming 25% investor purchases, this suggests there is absolutely no demand without government subsidization.

I shudder to think about the fate of our housing market if this is true. With interest rate likely to rise as the government pulls out of the mortgage backed securities market, and very little organic demand......we may be in for a bigger drop than I had originally foreseen. The only saving grace is the continued reduction in inventory.....but in the face of these statistics, I'm not sure it will be enough.

On Track for Stabilization?

As some of you know, I really like to monitor housing tracker since it looks at several price ranges as well as inventory. Thought I would do a retrospective look at how the market has behaved over the last couple years, and compare it with the predictions I made back in December of 2008. The top table is the raw numbers from HT. The second table is the % change from one line to another (except the last line). Price declines have certainly moderated since Feb 2009, compared to previous year, with even a slight uptick at the low end. Meanwhile inventory continues to decline. Both of these are good news for Sacramento housing market health.






My 1 year prediction made back in December 2008....so far seems right on the money

As banks complied with the legislated wait period in California, new NOD activity slowed to a crawl in the fall of 2008. This means the pipeline of foreclosures will temporarily dry up sometime in early to mid-2009. Together with inventory down significantly, this should lead to stabilization in prices for at least a couple months. But slowed economic activity and job losses will take a toll on the local economy. Excess housing inventory and frustrated sellers, will keep downward pressure on rents. As a result, by the end of the year home prices will continue their downward march, eventually surpassing what I consider affordable/sustainable levels (based on historical price/rent ratios and income)........In terms of time lines…..next year home prices will level off then continue to fall to affordable levels, with years 2-4 seeing no increase, and perhaps single digit decreases, in prices as excess and distressed inventory are absorbed.

I'm curious to hear the predictions of other market watchers....what do you think things will look going forward? Continued stabilization or or plummeting prices?

Not Much Hope for the High End

Last Spring I reported that I was aware of several folks in the local market to purchase a home. All were actively looking and making offers at what I consider the high end (500k and up).
At the time this gave me hope that the market was starting to spring to life.

My have things changed. In the end, two gave up and stopped looking to buy, and the third is not very hopeful about their current negotiations. I believe all three attempted short sales at some point and were incredibly frustrated by the process.

This is not very encouraging news, even though it is only anecdotal. I don't really run in those circles, so if you think about it, this turn of events is even more disturbing given the small sample size!

As a sanity check, I took a brief look at homes which fit my old criteria in the 95762 zip code. If all the PS homes were to close in one month, it would mean a 4.8 month supply...which is fairly modest. So there is at least some life in the market.

Average Buyer 6 Month Update

It's now been a little over 6 months since we moved into our new place. There doesn't seem to be much to write about lately, so I thought I would post an update on our situation as I am in serious procrastination mode.

Job Front - Huge sigh of relief for me. It was just announced that the Federal government (Department of Transportation) renewed our contract . Barring any major unforeseen troubles ahead, in theory, this means I have job security for at least a year or two. Mr. BT works for a small company, so his situation is always somewhat precarious.

On the home front - In terms of landscaping our barren lot, we obtained all the proper permitting, and are now working on building a deck. I'm doing a terrible job keeping plants alive so far (this is nothing new, but for a while my track record was improving). I'm not sure if it is our backyard exposure (to the South), but even the herbs that flourished last year, didn't seem to take this time around. Perhaps it's because I used the leftover seeds from last year?

I still look at the MLS and Ziprealty, but primarily for backyard ideas. We are somewhat limited with what we can do, as our soil is incredibly rocky. It's a bit of a catch-22, in that I hate to spend a lot of money on plants if they are just going to die, but if I don't spend more money and buy a larger established plant, it is much more likely to die.....sigh.

I still haven't covered 7 windows with anything permanent (we have paper up). We hired a contractor to help pour the concrete deck pilings, so we decided to wait on some non-essential spending like window coverings.

The builder is putting the finishing touches on the last couple houses in our development. We have been really pleased with them, as they have been very responsive in terms of customer service/maintenance issues after we purchased.

As far as our neighborhood, I couldn't ask for better. People really seem to look out for each other. For example, one night I forgot to close my garage door, and the neighbors across the way called around 9pm to let me know it was open. In addition the neighborhood has an e-mail chain, that helps alert everyone to problems/issues, and community events.

Auto Front - We also bought a new family car at the end of June. The lease on our Subaru Forrester (the flower mobile as I fondly called it) was up this year, and we decided not to keep it. The Ford dealer offered 0% financing and some cash back. Feeling concerned about our economy, I wanted to buy from an American company, which was never really a factor in the past. This was a big purchase we had put off, because we didn't know what our budget was going to look like going forward. Once we purchased our house, we had a better idea of our expenses (i.e. if we had stretched to buy a home, we would have bought a more modest vehicle.)

Family Front - We experienced a terribly tragedy in July. The wife of Mr.BTs brother was killed in a motorcycle accident (she was in her 30s and had two kids from a previous marriage). This has motivated us to get on the ball regarding a will/trust and to make sure there are provisions to take care of our kids should something happen to both of us. I still get sick to my stomach every time I see a motorcycle on the freeway. I mention this as food for thought because, it has ramifications on how you record the title of your house.

What Were they Thinking?

This tale just keeps getting more bizarre by the minute. The short sale saga I told earlier this month, just took a very weird twist. It was just listed on the MLS #90072959 for a whopping $692,900. This is the exact same house, that sat on the market for over a year for $550,000, and then dropped do $475,000 for over 6 months.

As mentioned in the last post, according to the Bee database, it was bought for $359,100 recently. Why on earth would they list this house so ridiculously high? It has done nothing but deteriorate since it was last listed. Perhaps they sunk a couple 100k into fixing it up....unlikely. I have an appraisal that valued the home at 460k.

Good thing we didn't wait around to buy this one from the bank.....it will certainly be interesting to see how much it actually sells for.

Updated Historical Housing Sales and Price data for EDH and Folsom

It's been a long time since I posted the updated historical charts for Folsom and El Dorado Hills. Please note that the unlabeled source reports the median price, while the MelissaData chart is the average. I believe the MD chart includes new home sales, while the other is primarily for resales.

The late fall is when the biggest price drops have occurred over the last couple years. It will be interesting to see if this trend holds true for the current year. With many tax credits expiring and a backlog of foreclosures, it is certainly possible.

Is it Price or Percentage that Matters Most?

I commented on yesterday's thread that I think the dollar drop is more important than the percentage drop, since real people deal with real dollars and not percentages. This theory is primarily based on my observations of the housing tracker data which tracks three different price points, the 25th percentile, the 50th (median), and the 75th.


Below is an excerpt from the data which illustrates my point. While the percentage difference at the three price points, varies greatly, from -54% to -34%, the actual drop in value is much closer. Important to note also, that the 75th percentile has dropped almost 20k more in dollar terms, even though the percentage makes the total drop seem small compared to the 25th percentile.

I thought it might be worth reposting an update to yesterday's post in case folks don't follow old material.

Update: I calculated the weighted median price (for the June 2009 data) and it comes out to be $211,628. The weighted median per sq foot is $125....this implies a median home size of 1,687 square feet. Which given 3x income, is affordable to a household making $70,550 a year. (Statistical note...you can't just average all the zip codes, you have to weight the data by the number of sales in each zip code to get an accurate picture.)

Status Check: Sacramento Metro Median Home Price

Below is a table (apologies for so much data in such a small font), with a comparison by zip code, starting with the June 2009 median price (as well as count of transactions and price per sq ft), compared to the minimum and maximum prices since August 2002 (data doesn't go back any further).

In the minimum field, a red date indicates the median price minimum was before the bubble burst, a blue date indicates a median price minimum was hit after the bubble burst. No color indicates that the most recent month was the minimum.

The percent drop from peak (maximum) is also color coded for the severity of the drop (red most severe, green least). Zip codes are sorted from the greatest dollar drop from peak to the least.

Update: I calculated the weighted median price (for the June 2009 data) and it comes out to be $211,628. The weighted median per sq foot is $125....this implies a median home size of 1,687 square feet. Which given 3x income, is affordable to a houshold making $70,550 a year. (Statistical note...you can't just average all the zip codes, you have to weight the data by the number of sales in each zip code to get an accurate picture.)

Note: Data has been filtered for zip codes with at least 10 transactions in June 2009.

Time and Time Again

Hats off to Michael Choe. Time Magazine (2005 & 2009) and the Sac Bee both featured him for his prescient decision to sell his Natomas home (that he bought in 2001) in 2004 and buy a foreclosure in 2008.

While our story is similar but a slightly later timeline......what really struck me was his true reason for purchasing before things had bottomed out. According to the Sacramento Bee "The real story was that his son was ready to start school. Otherwise he would have waited two more years to buy."

Our purchase this year was highly motivated by this same reason. Closing in February gave my daughter enough time to get to know some of the neighborhood kids who are also attending/starting the local elementary (she started Kindergarten in August).

Of course I get serious pangs of anxiety about this decision, as I watch the NODs in our neighborhood pile up. But knowing there are other bubble bloggers out there who followed the same route has us, is giving me great comfort.

Sometimes life just gets in the way of making a buck. For instance I forbade my husband to even think about selling our Townhouse in D.C. when I was pregnant/on maternity leave. I just couldn't handle the stress of a toddler, a newborn and a move. So we missed the peak in the market by about 6 months(luckily the peak in our area was almost a year later than Sac), .......and moved to Sacramento when my son was 9 months old.

The Bee article states that he frequent the blogs....hope he pays Average Buyer a visit, as he sounds like a kindred spirit.

A Short Sale Saga

Some may recall, that during our house hunt, we pursued a short sale, twice. Here is a brief timeline and recap of the latest developments on it:

A flipper bought the home for $550,000 in March of 2007. At the time, she thought she was getting a great deal. With a first ($440,000 with National City and second lien for $55,000 with Countrywide). House was put up for sale in October of 2007 listed at $579,000 (then dropped to $550,000). She had worked out a deal with them to lower her payments while she tried to sell the house.

February 2008 - We submitted a written offer and negotiated with a seller on a short sale. Unfortunately, the bank would not approve the sale at our offer price (approximately 20% below asking). The seller did receive bank approval at 14% below their list price, and they immediately re listed the home (before we even responded that we wouldn't increase our offer price). We feel like we were played so that they could bring an offer to the bank and get a "bank approved" figure.
August 2008 - We resubmitted for the Short Sale that we tried for in February in the hopes that the bank would be more willing to negotiate now that 6 months have passed. We even paid $300 for an appraisal. The bank would not negotiate. We believe the home is now going into foreclosure.

According to Melissa Data and the Sacramento Bee Homes Sales Database, the home sold in June 2009 for $359,100. I was confused since it was way below what the first lien was.

I then checked the El Dorado County Assessors office, and the new owner is National City Bank (the first lien holder). The home hasn't shown up on the MLS yet. It was already in serious disrepair by the time we made our second offer (which was less than our first).

Side note: One part of this saga that really confused me was how an appraisal could come out at asking price....even though a home had been on the market for over 6 months at that price. A home is worth what someone will pay for it. If no one is willing to pay that price, then in my mind, it is not priced right. (Conversely, recent stories of homes not appraising for asking, even though there are 3 legitimate offers over asking....means a home is worth more than asking).

Having seen the home come through on both Melissa Data and Sac Bee, made me somewhat suspect of their data. It was my understanding their data did not include sales back to the bank. Thus any statistics (median price etc.) that are derived from these sources, will not be an accurate reflection of the market. Initially I thought perhaps the house was bought at auction, but the assessors office confirmed that the bank now owns the house.

I will be very curious to see how much the house actually sells for. I am guessing between 375k-425k depending on the shape its in (our last offer in August was $425,000 if memory serves me right).

Bank should have taken our first offer (pretty sure was more than what they were owed at the time). Obviously they had our best interest at heart ;) even though it didn't feel that way at the time.

Neighbors Seeing Red or Red Tape

Last night Mr. BT and I had a spare moment to turn on the TV (doesn't happen often). A short time filler came on (KVIE, public TV) called Rob on the Road, which explores California. He featured a man from Woodland that has turned his home into a really cool gas station museum.

Of course my next thought was, to wonder what the neighbors thought (traffic, eye soar etc.).

This thought made me pause. We have been going through all the motions to build a deck in our backyard. We have already applied and received CSD (community service district) approval ($85), and then I spend some time in Placerville applying for the building permit (and asking some other questions) ($350). Of course all our relatives think it is outrageous that we have to jump through so many hoops to build a deck in our own backyard.....and I am a little ticked off at how expensive the fees are, since we are doing most of the work ourselves.

All this to say, I wish there was a happy medium. Less red tape, neighborhoods with character and charm, but nothing too over the top.

Trickle or a Flood?

With all the chatter about shadow inventory, I thought it might be helpful to look at some local numbers.

According to Metrolistmls.com the number of REOs on the market in EDH is 47, and about half of those are pending sale. Folsom has about 43, with many pending sale as well.

According to foreclosure.com, EDH has 96 total REOs, and Folsom has 85. This means about half the REOs are actually listed in the MLS, leaving a theoretical shadow inventory of one out of every two bank owned homes.

Below are some historical inventory levels of single family homes (does not include pending) gathered from Ziprealty.com, as well as the current number of NODs.

El Dorado Hills Inventory of Single Family Homes
2007 - 507
2008 - 433
2009 - 366
Current NODS - 267

Folsom Inventory of Single Family Homes
2007 - 400
2008 - 266
2009 - 292
Current NODS - 298

To sum, inventory is down almost 30%, from 2007. Total REOs are down 17% for EDH, and 26% for Folsom from last year, however NODs are way way up. NODs are 33% above their level last year at this time for Folsom, and a whopping 54% above for EDH.

Sometimes It's Good to Be Below Average

As I reported about a year ago, my family has been experiencing quite a bit of displacement in regards to employment (way above average). Last month, after a difficult search, my Aunt who lives in the Rosemont area, finally found employment.

And this week, I found out my cousin, who graduated UC Davis in December, has finally landed a job in the Bay area (he moved out a week ago).

So at this point, just about everyone who was looking for work has found it. I must say, for the first time, in a very long time, I am starting to feel downright hopeful (heck even my 401k has been resuscitated from its forsaken state of misery!).

I'm just praying this momentum is sustainable as opposed to a bounce along the way to the next leg down.

August 2009 Market Stress Update - El Dorado Hills & Folsom

At first I thought stress indicators might be leveling off....but, as of the last two weeks or so, they don't appear to be.

At this point, all the local homeowner/investors I figured would end up in foreclosure, are somewhere on the list. In some small way, I find this encouraging, as I am hoping most of the troubled mortgages have been recognized, and no longer lurk ahead.

The Spirit of Sacramento

While on a Southwest flight to San Diego, I browsed through their "spirit" magazine. They had a little fact sheet, based on Pew Research Center statistics. The survey asked Americans where they would like to move to.

I was shocked, by the results.....Sacramento made number 9! With 28% of Americans wanting to move here (sandwiched between Portland and San Antonio). At the top of the list was Denver, San Diego, Seattle.

A while back someone made a request for a list of "affordable social events for people on an average entertainment budget."

So here are several of my top picks that are free:

• Second Saturday - Great way to spend an evening in MidTown.
• Nimbus Fish Hatchery - Truly amazing to watch when the Salmon & Steelhead are spawning. The visitor center is very well done.
• American River Trail - We recently parked at the Fish Hatchery and rode north on the trail past Lake Natoma, and then stopped for a bite to eat at Dos Coyotes.

My other favorite past time (before we had kids) was the 4th of July float down the American River. Although, from what I have heard, they have cracked down on drinking and floating. One year actually we made the local news with a makeshift pontoon boat, that had an American flag on it...the flag pole doubled as a beer bong.

Don't hesitate to list some of your favorites in the comments.

Doubling Up

My cousin, who just graduated UC Davis (after 5 years in the military), has been living with us for the last month and a half while sorting out his life ambitions. He did have employment offers in Salt Lake City, where he grew up, but he prefers to find a job in the Bay Area.

To me, this situation illustrates two important trends. 1) As many have reported, demand for housing and rental units will remain tempered, since unemployment forces people to accept less than ideal housing situations. 2) California will never lose its luster, especially for the young and single.

The Time has Come?

Apparently the time has come......the WSJ has more or less called a housing bottom in Sacramento (with the unemployment wild card).

The reason for my proclamation....back when the bubble began to burst, and with only a couple blog posts to my name, the WSJ was all over Sacramento as the poster child for what is wrong with the housing market. I wrote a post, making a joke about how the WSJ will likely let us know when there are signs of life in the market.......which occurred today on page D1.

They also include the D.C area (Virginia suburbs), where we came from.

Further Bifurcation

Been thinking a bit more about what the next year or two will bring in terms of local real estate trends. They way I see it, the lower end is starting to stabilize. But the higher/desirable end (i.e. areas people would prefer to live) will be broken into two distinct patterns.

In areas with substantial new development (homes built in the last 10 years), such as Elk Grove, Rocklin/Roseville, Folsom, El Dorado Hills, West Sac etc. home values will fall fairly fast. Many homes in these areas were built and bought at or near the top of the market. Thus they are much more likely to see a disproportionate number of foreclosures due to the heavy use of Option-ARM and other affordability products, which puts substatial downward pressure on prices.

Established Sacramento neighborhoods, like East Sac, Arden/Arcade, Fair Oaks, Davis, Land Park etc. will fall at a much slower pace. As a percentage of total homes, there will be fewer buyers who bought at the top (but probably some who HELOC'd themselves into foreclosure). In general though, these owners are much less likely to be upside down.

Eventually, those who would have purchased in a more established neighborhood, will opt for a less expensive newer neighborhood (I know we did). This drain on demand will eventually push down prices, or at least keep them from appreciating in the established neighborhoods.

Making Headway

Just had to share some happy news (it doesn't seem to come often these days). My uncle's wife, who was laid off from a local propane company in August, finally received a job offer. The search has been very difficult. For every position she has applied for, her resume has been one of hundreds. Our whole family is so very relieved to hear this news.

Unfortunately, my uncle the printer, is still being furloughed frequently. As I have mentioned before, I consider printing activity a leading indicator, so I don't think the Sacramento economy is out of the woods just yet, but it does mean at least my uncle's family should be okay....phew.

Sac Bee Editorial on El Dorado County BOS

Below is an editorial from the Sacramento Bee related to rehabilitating housing in El Dorado County. Thought it might be interesting to the blog's readership.

I really don't understand why the BOS rejected the money. It's not like they would be saving the Federal government money. The money has been budgeted and will be spent regardless. I would rather seem my federal tax dollars spent here as opposed to somwhere else.

__________________________
Editorial: El Dorado should take federal money

Published: Tuesday, Jun. 23, 2009 - 12:00 am
Page 10A Last Modified: Tuesday, Jun. 23, 2009 - 8:05 am

It's rare that the left and the right find common ground in El Dorado County, but that's what happened the other day.
A conservative Republican real estate agent and an activist Democrat affordable-housing advocate both urged El Dorado County supervisors to accept $1.6 million in federal stimulus funds to rehabilitate foreclosed homes.
The supervisors refused, arguing that stimulus money would lead to more government intrusion into society.
Initially, the supervisors rejected the federal grant 4-1 without even bothering to schedule a staff presentation on the proposal. When local contractors and real estate industry representatives raised a fuss, they reconsidered.
But the board majority of Jack Sweeney, Ron Briggs and John Knight voted "no" a second time. Supervisor Norma Santiago favored taking the funds all along. Ray Nutting, who'd voted with the majority the first time, wisely switched sides after listening to his constituents.
The $1.6 million would have allowed El Dorado to rehabilitate and resell between eight and 18 homes to families with low and moderate incomes.
Workers would have been paid the prevailing wage, supervisors noted, which in California means the union rate, which makes projects more expensive. But anything built with government funds in El Dorado, including roads, dams, overpasses and schools, requires union wage rates. Why get squeamish about that now?
Judy Mathat, a real estate agent and activist Republican, told the supervisors she agrees that government intrusion into the economy is dangerous. Nonetheless, she urged them to accept the funds. Her industry has been devastated by the housing collapse. The funds would have helped contractors, plumbers, painters and others in her industry keep their own homes from sliding into foreclosure.
To spurn federal help now, with the county in an economic slump, was just foolish.

Unexpected Dis-Utility

By far, the worst thing about moving has been dealing with all the utilities. The only utility that seemed to get it right was our trash bill.

I didn't account for any additional savings or expenses from utilities into our rent/buy decision. Unfortunately, so far there have been several unanticipated expenses, and hours of wasted time.

1) El Dorado Irrigation - We didn't receive our first bill, then when the second notice came, it had a late fee that they wouldn't waive (over 2 years of prompt payment at the other house meant nothing to them). Apparently it's my fault if I don't get the bill. To top it off, the bill was much more expensive. If a house has no record from which to base the sewer charge, they just charge the area average.....again, our over two years of below average use at the other house meant nothing. Incredibly frustrating.

2) Comcast (Internet, TV, Phone) - I don't even know where to begin....Comcast has been an absolute nightmare to deal with. At the rental, we had the AT&T U-verse set up which was considerably less expensive compared to Comcast.

• The original installer was so anxious to get to his next appointment he closed out the ticket before I had phone service....which then took me 2.5 days and multiple phone calls to get settled. This was a major issue for me as I work out of the house.
• They have yet to cap all the lines in the front of our house, even after several calls.
• They won't list their bundled services separately on their bill (so I can be reimbursed by my work), so we have to pay extra for that privilege (ridiculous).
• To top it all off, their service is very spotty, phone calls get dropped, Internet goes out for long periods of time during the workweek.

I have about had it with them, and plan to switch to AT&T & Dish service next month. Unfortunately their U-verse is not offered here, otherwise we would have started with that.

3) PG&E - For some reason, the lady on the phone changed the service into our name the day I called, as opposed to the day we closed escrow. Major inconvenience trying to get that straightened out, but at least it didn't cost us extra.

A lesson in frustration to say the least.

Is High End Relative?

There has been much emphasis in the bloggosphere about the fact that subprime was only the beginning of our troubles. With warnings of huge defaults of Alt-A, Option ARM , and even Prime loans soon to come (yes I am mixing products and types).

We are now seeing big increases in the defaults of these products and types of loans. There seems to be a general consensus that the lower price ranges have more or less bottomed....but the mid to high end are still to take a big hit.

However what I want to know, is what exactly is mid to high end? Is it relative to all the homes in a metro area?.....say 350k for Sac. Or is it relative to the entire stock of housing in California?...say an 650k home in one of the coastal cities.

I wonder about this, because what might be considered a high end price range in the Sac Metro area, is probably just a starter home in many of the Coastal cities (LA, SF, San Diego, Orange County, Santa Barbara, etc.).

Basically I want to know how much of the forecasted doom and gloom applies to Sacramento and other cities in the valley (i.e. Stocton, Merced, Fresno, Bakersfield), versus the cities along the Coast of our financially doomed state.

A Failed Friendship - Hurt by Housing?

This post has been removed....I needed to write about a very hurtful experience I recently went through...but have realized, it was probably not a good idea to post it.

Sorry all.

Friday Forecasting Fun

Back in March (Friday the 13th to be specific) shortly after the DOW hit new lows....our department started a "pool party" on when and at what point the DOW hits bottom.

I will be out of the money here shortly as I had guessed July 8th at 6394. Thinking CRE was still to hit the fan as well as inflation.

I'd like to get everyone's thoughts on our macroeconomic situation here.....in particular the answers to some of the questions below.....

In theory the stock market is a foreword looking indicator (not sure I agree). Curious to know what others think, was March 9th bottom, or is this another false rally...yet to plumb the depths of the market?

Opinion on the recession..... are we really past bottom...bumping along bottom? If so, long recovery (L) or short recovery (V)? If not, why not?

I've also heard a lot of conflicting thoughts on inflation. Some think we are in a liquidity trap, others think inflation is going to take off very shortly here. What do you think?

Will market volitility ever abate?...in particular I am refering to commodities like oil. Steep swings in prices are really tough for industries like aviation to digest and will be a huge drag on recovery. Is it speculators driving the wild swings or legitimate concerns about the dollar and inflation?

Frustrating Foreclosure Findings

Last year my father bought a foreclosure in Stockton. It wasn't an easy process. The bank was slow to capitulate, the realtor was pushing a lower offer that she was double ending etc.

With many other homes for sale on his street, my father is now attempting to purchase another foreclosed home for his mother (my grandma) so she can be nearby, but still feel independent. After much wrangling with my grandmother, he still had the bank to contend with. When he went to sign the papers on this modest home, he was in for a nasty surprise. The bank (BofA)included an addendum, which was over 15 pages, and was downright atrocious about it (giving a 2 hour window to sign etc.). As much as this home made for the ideal situation for my grandmother, I was pleased to hear that he walked away. In my mind, no home is worth signing away all rights and releasing all liability (and then some), the way they require in their addendum (especially on a home priced less than 100k).

We were in a very similiar situation and eventually walked as well. Our take away from the process, when bidding on a foreclosure, ask for the addendum up front.

Quieting the Cold Calls

I can almost sympathize with the individuals mentioned in the media who received so many pestering calls they eventually relented, and refinanced or took out equity. I have heard that when there is a NOD, owners receive a flood of calls and offers of services.

In the last week or so, we have received numerous calls fishing for loan or credit card problems. We don't have trouble with either, hence I assume they are fishing. But if they are fishing, then that means they are violating the Do Not Call registry rules, since they aren't calling related to a company we do business with.

One time I humored them and got connected to a series of people offering to help. Of course they wanted all kinds of personal information. It's hard to believe people would actually give this type of information to a cold caller, but I supposed when you are desperate, emotion tends to win out over reason.

If you resent getting telemarketing calls at 6am the way I do, you can sign up for the do not call registry here. To be fair, we disconnected our number and reconnected the same number at the new house, so it could be our number was taken off the registry.

Join the Club?

As long time readers know, I am a big fan of the master planned community concept where the centerpiece is a community clubhouse (complete with swimming pools, fitness centers, gathering rooms, etc). They offer a nice setting for meeting neighbors (which builds community) and also provide activities for kids that don’t involve a TV or computer.

I recently had the occasion to visit two of the more popular developments in the Sacramento Region, the Whitney Ranch House, in Rocklin, as well as the Anatolia Clubhouse, in Rancho Cordova. Both were very nicely done, and made me wistful that we passed up on Blackstone in El Dorado Hills.

I especially liked the wading pools for the little ones that can’t swim. The Clubhouse at Anatolia even has theirs gated, so moms don’t have to worry about the little ones wandering off near the big pools. However the Clubhouse’s lack of bathrooms for people in the swimming area was a huge inconvenience for my 5 year old who makes frequent trips.

Regarding the Whitney Ranch House, the kids loved the “magic” water spray area, and we really liked the personal cabanas. However, the amount of surgical enhancements on display, made even the EDH Sports Club look tame.

Regarding Blackstone in EDH, we seriously considered purchasing there, primarily for the location and clubhouse. In the end, we didn’t want to risk purchasing early in the 900 acre development (due to the greater economic troubles etc.), and weren’t real keen on the home layouts we could afford.

In my early quest for a clubhouse like setting, my previous land lord mistakenly thought that the Serrano Country Club was a part of the package with the HOA (like it is with his development down in Elk Grove). However, when my husband and his mom when to check out the Country Club, they were in for disappointing news, as it’s for members only. To add insult to injury, someone actually asked my mother-in-law to leave while she was looking around because she was wearing….gasp…..black Jeans (no jeans allowed). So we obviously got off to a bad start with the whole Serrano experience (not to mention the snotty assistant when I went to get my car sticker).

Yet Another Sign of the Times

In doing my usual weekly scan of NODs & foreclosures in EDH and Folsom, I was saddened to see that our old landlord is now on the list of NODs.

He was a really great landlord, and a funny guy, with a nice family. When we met him, his story seemed the epitome of the American dream. He and his wife came to this country, started a successful business (that was expanding when we met him), and had amassed a modest empire in local real estate.

Not sure if it was for our rental home, or the one two doors down from us that he owned as well. I know he had found tenants shortly after we left. In any case, I am really quite distressed at this news.....even though I figured the day may come.

Speaking of the foreclosure & NOD listings.... www.foreclosure.com, where I gather my data, has changed their free format. There seem to be many listings for land and commercial properties now. Not sure if I am only noticing because of the format change, or if their listings have expanded to include more listings.

Facts from Our First

I looked up our old place (in the D.C. suburbs) on Zillow today. According to their site, our first home has depreciated 21% since we sold it in the fall of 2006. Not near as bad as the market here in Sacramento. If we hadn't sold it, we would still have substantial equity, as the home has appreciated at an annual pace of 4.8% since our initial purchase in 2002 (a 41% CAGR).

Public Facts from Zillow:

Condo (actually a townhouse, attached on both sides, but we owned the land)
3 beds
2.5 bath
1,070 sqft
Lot 1,727 sqft
Built in 1979

Mixed Messages

Using some slightly non-scientific methods (the ZipRealty interactive map), I took a look to see how the different Sacramento housing market price levels are faring this spring. On March 4th of 2009 inventory was around 9000 SFH units. Today its now down to around 8400 units, a drop of 8.2%.

This is very misleading if you look at total inventory. Luxury inventory, over 500k, actually went up by 5.3% (at approximately 18% of total SFH inventory). In the mid-priced homes, 250k to 500k, inventory is down by 10.6%, and in the starter-home category (below 250k), inventory is down by 12%.

This may account for some of the trends we have seen in the Sacramento Housing Tracker weekly/monthly numbers. As lower end inventory dries up, and higher end inventory grows as a percentage of total inventory, thus driving the asking prices higher.

Side note.......While I really like Housing Tracker because it tracks multiple asking price percentiles (25th, 50th, 75th) as well as inventory, I have never understood where their inventory numbers come from. When I look at the greater Sacramento area on the ZipRealty interactive map, (from Davis to the West, Auburn to the North, Cameron Park to the East, and Elk Grove/Franklin to the South), I only come up with inventory at around 9,200, whereas HT is currently listing around 14,500. If I include land listings, it only bumps my number up to around 10,500.

P.S. We went to our first River Cats game on Sunday. The weather was perfect, the stadium is really nice (not to big). But I was surprised at how empty it was and wondering if it's the economy or normal attendance (not complaining...cause I usually stay away from venues like that cause I don't like huge crowds). The announcer made a comment of how the River Cats have the best attendance of all minor league teams. Perhaps I am just used to big city crowds (but very grateful to get away from them!!!).

Investment vs. Shelter

Adjusted for inflation, a home is not a very good investment, especially if you consider transaction costs and maintenance. So if you are looking for long term gains on investment, there are many other relatively safe alternatives that offer higher returns.

This is why I have never been very concerned with when the bottom of the cycle occurs. If I were looking at a home as an investment, the buy low, sell high, would be the rule to follow.

So if it's not an investment (as many were led to believe during the boom), then what exactly is it?

• As long as you don't have a neg-am loan, a home is a forced savings account. With each payment, your equity grows (in a normal market).
• If you do have equity, a home can also be a source of emergency cash in times of crisis (medical bills etc.).
• It could also be a hedge against inflation should it spiral out of control as it did several decades ago.
• And of course most importantly, buying is an alternative to renting.

Hence, I always get a chuckle out of the "now is a great time to buy," which I have heard countless times since we bought our home in Feb. This is part of an investment mindset. When I meet people who are thinking of buying a home because "now is a great time to buy," I always bring up the analogy that they aren't stocking up on gas, since it is now half off what it cost last summer. Why is a home any different?

3 Month Mark

Well it has now been a little over three months since we moved into our new home. Several have inquired, so I thought I would post an update on our life as happy homeowners.

So far, we really adore our neighborhood. We have a community e-mail chain, which is helpful for getting the word out on different events and issues. At the Easter Egg hunt the neighborhood organized, we met at least 6 other families who will have kids starting kindergarten next year along our daughter. There was even an impromptu block party this weekend which was very enjoyable.

To be fair, I am not sure if our neighborhood is that much more friendly, or if we are just more apt to participate and get to know the neighbors now that we own, compared to when we rented. In general we are rather outgoing. I crave human interaction, being couped up all by myself for my day job, so I am inclined to believe that former rather than the later.

As for our house itself, we have done our part to boost the economy. Pier 1 has been a big recipient of our funds, as we have purchased (okay, let's be honest, I have purchased) drapes and some decor. Surprisingly, I have not had the urge to paint just yet. Instead, I prefer to put my efforts into the yard for now. I am pretty new at gardening (except for the container garden we started last year), and have purchased some books on landscape design and irrigation systems. Speaking of the yard, we went to the home and garden show in Placerville last month. Our magnificent valley oak tree has had all the mistletoe trimmed out, and we spend lots of time watching the many critters that call it home.

The builder has been very responsive regarding our concerns and issues (they even patched the hole Mr. BT drilled in the wall when trying to install wiring).

As a planner, its been a huge mental relieve for me. No more, putting life on hold in case our offer goes through, no more wondering if we will have to move the kids out of their preschool or find a new doctor/dentist etc. if we moved a distance from the rental. These benefits are sometimes overshadowed by my concern that our neighborhood could be awash in foreclosures in the near future (homes in our development started selling in early 2006....these loans are just starting to go bad).


However, all in all, things are going well so far.

You can see the kids and I in the June edition of Sacramento Magazine. Speaking of the media, the NYT contacted me for their Sacramento housing story a couple weeks back. As much as I would love to do something important enough to land on the front page of the NYT, not sure buying a house should qualify =) I also don't think I have thick enough skin for national scrutiny.

Housing Market Stress Indicators - Folsom & El Dorado Hills

As many had predicted, homes in more desirable areas are now defaulting at an increasing pace. All three markets have surpassed previous highs. However the number of foreclosures has diminished as a result of the legislation passed last year (moratorium on NODs....so the pipeline dried up).

We haven't been in our new neighborhood long, but already we are hearing some of the stories (Bay Area lawyers abandoning their home etc.) and seeing some of the fallout it creates (tensions among otherwise very friendly neighbors).

Note: I have removed the period where foreclosures in Folsom shot up, by approximately 100 units, then just as suddenly went back down. I believe it was a data issue, and not a big bank purchase.

Folsom & El Dorado Hills Historical Sale Data

At long last, below is the historical sales number and price data from two separate sources. Astute observers may notice that the name of the second data source name has been omitted as the actual source of the data has changed. Note that all four charts have the same scale for sales number and price for easy comparison between the markets and data sources.

Hard to tell if we are on a elongated spring ledge or if the market is starting to level itself out a bit. Only time will tell. Last I checked pending sales were at one of the highest levels I have ever seen. Now that more homes meet my criteria, this is much more indicative of the broader market.

Random Acts of Kindness

It's been a very stressful couple weeks lately. Lots of travel and late nights getting home. So I was tickled pink this evening, when crossing the Benicia Bridge, I learned, to my wonder and amazement, that the car in front of me paid my toll.

This random act of kindness really touched me. In these economic times, few are feeling generous. So this small, selfless, and completely anonymous act, gave me a glimmer of hope, as I often despair that service and community have been lost to selfishness and indifference.

For all their theories and equations, economists can't explain this seemingly irrational behavior. But isn't that the true beauty of it? Against all odds, these random acts of kindness still occur.

Pulse Check: The Good, Bad and Ugly

There has been a lot of speculation as of late, in both the media and on the blogs, that some sort of bottom is in sight. To paraphrase Calculated Risk, there are actually two housing bottoms, sales and price. I think Sacramento hit the sales bottom a while ago, with a fimly established year-over-year increase in sales trend.

So the real question is, "When do we hit a price bottom?" I can see why the debate has been lively. There are good arguments to be made for both sides.

Personally, I think we are seeing some seasonal firming, due to usual spring activity, coupled with a reduction in downward pressure from foreclosures (not as many foreclosures due to the effects of earlier legislation), BUT come this fall, we will see additional price declines as the backlog of NODs turns to foreclosures.

So now for the summary:

Good -

• Inventory is way down compared to the last couple years.
• Sales are up (which also helps bring inventory down).
• Pending sales in my (now monthly) screen scrape are close to a high.
• Interest rates have been hovering at an all time low making homes more affordable in monthly payment terms.
• Anecdotally, in some lower priced areas bidding wars are becoming common again.
• There are fewer foreclosures on the market (at least where I had been looking), due to the legislation that was enacted last Fall.
• People are saving money again and using less credit.
• Homeowners who are able (i.e. enough equity), have taken advantage of low interest rates and refinanced out of ARMs and into fixed rate loans.

Bad -

• Rents are falling, increasing the bar for the rent/buy break even calculation.
• Fewer people qualify for financing due to underwriting standards and lack of down payment.
• People are afraid to commit to such a large purchase in times of economic instability.
• Interest rates are likely to rise, which will reduce affordability and lead to stagnation.
• Tax credits (both Federal and State) artificially inflate demand.

Ugly -

• For the markets I track, NODs are reaching all time highs, now that the foreclosure moratoriums have been lifted.
• Alt-A and Prime loans are now starting to go bad. This is especially true for certain products like Option ARM and Neg_Am loans, as well as homes with a 2006 & 2007 vintage.
• Sacramento unemployment is in the double digits, with no reason to believe will abate any time soon.
• The state of California is in a massive budget crisis, which means cutbacks and furloughs, disproportionately affecting the Sacramento region.
• The full impact of the commercial real estate bubble are yet to be felt by the economy.

Hoping I will have time to put up the latest numbers in the coming days (things have been a little hectic for me lately on the day job...but I figure it's good that my skills are in demand).

Changing Horizons

Times have changed. Homes are no longer thought of as a sure fire "flip to get rich quick" investment, they are back to being a place to actually live and perhaps a store of wealth for retirement.

A lot can happen in the 20+ years someone plans to live in a home. Nearby fields are developed, secondary roads are turned into main thoroughfares, infrastructure can deteriorate etc. These are things, humans have control over.

But there are also many things we can't control. One of my early posts examined how parts of Sacramento would fare against some of the the woes mother nature can cause. In those cases, people can try to avoid high risk areas in the first place, or build to resist these problems (i.e. the wood we are considering for our deck has a very high fire rating).

I somehow forgot to mention drought in that post, which is one of the most common of our woes here in California, and is becoming more and more serious this cycle. Living in Northern California, I don't worry about this as much as I would if I were in down south, but I have been increasingly concerned about its impact on our already weakened economy.

I digress...back to long term changes that affect where your chose to live. What I am wondering about.....is this drought, and all the odd weather patterns we are seeing across the U.S., just a part of our regular climate cycle, or are they the result of a larger shift due in part to climate change? Not sure anyone has the answer...but the thought of Sacramento getting hotter and drier is not a reality I want to face over the next 20+ years.

Heal Thyself?

Today's WSJ Developments blog suggests Sacramento (where we moved to), and Washington D.C. (where we moved from), will be among the first housing markets in the U.S. to recover.

They use the term rebound in the post, which I think may be a bit strong for what is in store for us. But their observation regarding inventory is still valid. Based on Max's most recent inventory stats over at SacRealStats there is no spring in inventory numbers this year.

Oddly enough, the analyst mentioned employment as a potential spoiler, but not foreclosure activity (which the blog just noted in an earlier post, is set to soar in California).

Obession Pays

I was recently asked about why I obsessed about the housing market. In a nutshell, it makes financial sense to do the research.

People spend time on Sunday's clipping coupons to save $5 - $10 dollars at the grocery store the following week (not to mention the time it takes to find the items on sale). People drive to out of the way gas stations to save 5 cents a gallon (even at 20 gallons, that's only $1). People will go from store to store, and spend countless hours online to save $20 or so on a purchase.

In those cases, the return for the extra time invested is very very small. Not so with housing.

Given my obsession which has lasted approximately 2.5 years, assuming I spent 1.5 hours a day on housing related research during the work week, and also assuming we saved $150,000 on our purchase price (what homes our size sold for 2.5 years ago), I saved approximately $256 for ever hour of my time invested. Totally worth the time if you ask me.

Conventional wisdom encourages people to do independent research on their financial investments (like stocks and bonds). Relying on a commission based broker for all investment advise creates a conflict of interest. This same wisdom should apply to home purchases as well.

Top 25 to Bottom 35 in just 3 years

Well, the data gods must have been listening to my earlier laments......just yesterday I got wind, via the WSJ, that the Global Insight / National City (now PNC Financial Services Group) housing valuation study is still being published.

While I greatly respect the methodology, the current valuation results don't quite seem credible. In Q4 of 2005 Sacramento was in the top 25 in the nation (ranked from overvalued to undervalued, out of 330 markets), at an overvaluation of 53.3 and a home price of 391.2. That I believe.

Fast forward three years, we are now in the bottom 35 in the nation, with an undervaluation of 22.4, and home price of 216.5 (the price seems right, but the undervaluation does not).

In fact they are showing that much of California is undervalued or fairly valued.

If I had to guess why their valuation seems off , it's because they take into account interest rates in their affordability calculation. Yes, interest rates are historically low, but not everyone can get a loan with today's more rational underwriting requirements especially at the higher end.

Reference Check

The media tends to throw around percentage statistics without giving a point of reference. I myself have been guilty of this on occasion. But it makes a world of difference. Economist and analyst predictions of another 20% drop in prices can mean two very different things, depending on where you start from.

To give an example, I pulled Sacramento housing tracker data, from May 2006 and Feb of 2009....Depending on the percentile, we have seen anywhere from a 37% drop to a 57% drop.

Below that are two separate calculations, one is 20% off the 2006 number, and the other is 20% off the 2009 number. The difference between the results in all three cases is around 40k. Certainly nothing to sneeze at.

If I were the cynical type, I might suggest that they are leaving the reference point out on purpose, that way they can easily revise history depending on how things turn out.

Average Buyer Turns 2

Hard to believe its been two years since my first blog post. In some ways, that first post doesn't really seem all that long ago....but at the same time, a lot has happened since then. When I started blogging, I didn't realize people could actually "find you" if you linked to their site. I figured I would type away in complete obscurity, till I eventually found a home to call my own.

But that was not what fate had in store for me (well Lander actually). With that link, my obscurity vanished, and I soon realized I wasn't alone in my frustrations.

While it may seem cheesy or cliche to thank those who read and comment on the blog, I am still going to do it. Thank you, thank you, thank you. I am truly grateful for the community we have developed. I have learned a tremendous amount over the last two years, you all have given me great comfort, and most importantly, I managed to wait (not always patiently) for our dream home to come along.

Also thanks to those who filled out the survey. From the results, I gather staying focused on Sac Metro RE, with a smattering of posts on national econ, and some buyer/seller issues thrown in is the way to go.

Springing to Life?

I couldn't help but notice, that Housing Tracker is showing price increases for the last couple periods, since Feb 2009....the first increase since May 2006 (at least for the bottom 25th and median).

It is rather shocking to see that the 25th percentile, back in Apr 2006, at 344k, isn't all that far from what the 75th percentile is now...389k. Kinda puts it all in perspective.

Inventory continues to fall, even in the face of the higher asking prices. This is a very good sign.

And for all you perma-bears out there, yes there are caveats, these are only asking prices, individual zips will bottom at different times, and once interest rates start to creep up the market is likely to stagnate.

Sex, Politics, Religion, and House Prices?

I've never really been one to conform to social norms..... My upbringing never taught me that some topics are off limits....of course my mom left out some other important details, like the fact that I am not supposed to double dip at parties....so I guess that's not saying much.

I have had to learn the hard way what topics are amenable to polite society. I never understood this taboo. It also makes for very boring conversation (and I hate small talk).

So my question is this....Is it okay to ask someone how much they paid for their home?

It's publicly available information if you are even the least bit internet savvy.

One time I was listening to some moms, and they seemed horrified that someone asked one of the other moms. In general, I try not to pry too much, but as a numbers gal shopping for a house, I didn't think this question was that offensive. Now that I own, I don't mind people asking, but I no longer see any need to ask others.

San Francisco Here We Come, Right Back Where we Started From

There has been a lot of speculation that the desirable zip codes have not fallen near as much as their less desirable counterparts. I saw a very interesting graphic on Calculated Risk last week that broke the San Francisco Case-Shiller into tiered price points. According to the chart, after tracking in lock-step for two decades, the three price points diverged during the boom. The low end shot up like a rocket, with the other two tiers lagging behind somewhat. In this context, I suppose it makes sense that the higher end homes have not fallen as much, because they also didn't rise as much.

As pointed out on CR, the higher end does have farther to fall, to be back in line with the dramatic decline of the lower end, but it is not near as steep a drop as some have suggested. Of course the Bay Area is not Sacramento....but I still think some parallels can be drawn.

If I had to hazard a guess, the higher end hasn't fallen as much as the lower end, because there were fewer sub-prime loans (i.e. foreclosures) at the higher price points. The "affordability products" for these pricier homes, Alt-A and Option ARM, are just now beginning to hit the skids.

Market Stress Update - April Fools?

The timing seems rather appropriate. If you will notice, the blue line with the black circle around it for Folsom REOs...... right around September it shot up, then mid March, it dropped back down. I don't have enough info to say if this is real or not. I would guess it's not, as I haven't been seeing the REOs show up in the MLS. The only semi-plausible answer would be a massive (over 100 homes) sale to an investor.

Just last month, I was expecting Folsom to see some serious downward pricing pressure (mainly based on this data), but it looks like, the shadow inventory is really a shadow and nothing more. With this turn of events, Folsom no longer looks like it will tip into the abyss as many have expected.

In any case, NODs for all three zip codes have now surpassed their previous legislation levels. I even had to adjust the scale to accommodate the number of NODs for Folsom (but El Dorado Hills is not far behind).

Diminishing Data

So I was just lamenting the fact that DQ data by zip code is no longer publicly available via the SacBee. It then occurred to me that I hadn't seen a story on another one of my favorite data sets, the Global Insight/National City housing valuation study. I checked some of the old links to their studies, and it seems National City merged, and the links and studies are no longer available.

While I didn't really agree with some of their recent model results (showing Sac as fairly valued back in Q1 of 2007), I really liked their more comprehensive methodology. Their methodology, while perhaps not tuned properly, took into consideration multiple variables. From what I remember inputs included: income, population density, and interest rates.

Of course I am partial to this type of modeling based valuation methodology as I do this kinda stuff for a living (just related to air transportation). Too bad I can't make a living playing with RE data =(

In any case, this is a very disturbing trend.

Tempt the Fate of Average Buyer

With Average Buyer's two year anniversary quickly approaching, I wanted to get an idea what type of content you would like to see going forward.

I have posted a poll on the right-hand sidebar to gauge interest levels. If the majority are only interested in Sac Metro RE topics, the posts will not be as frequent, as I am no longer actively looking to purchase a home (and data sources are drying up).

Now that our search is over, I am having difficulties staying on topic. Hence I am trying to figure out if these posts are agreeable or annoying.

Blogs that stay on topic and provide relevant content tend to develop the best community of readers (joined by a common interest). The community that developed around this blog has been a great comfort to me (other frustrated potential buyers and onlookers). Outside this narrow niche, we seem to have very different views, so I hesitate to subject you all to my inner monologue on other topics.

All this to say, I would really appreciate it if you would take a moment to answer the poll. Or leave comments on topics you would like to discuss.

Dearth of Data

When we moved back to Sacramento in the fall of 2006, I was all set to buy a home. But quickly realized, after seeing the differential between rents and home prices, that buying was not a financially viable option for us.

In my attempt to reign in my very strong nesting instinct, not able to trust the realtors I had met, I turned to the internet where I found publicly available data. In particular, the data provided by zip code was the most relevant, when trying to discern trends in areas of interest. Through the local RE blogs, I found links to two separate sources, DataQuick and Melissa Data. It was nice to have more than one source of this data, to confirm trends, and ferret out bias.

Unfortunately, the favorite of my two, DataQuick has now stopped providing data to the Sacramento Bee, by zip code on a monthly basis (I finally e-mailed the Bee to inquire when it didn't show up this month). The best I can find is their data by city, which doesn't appear to corroborate with their previous data by zip.

This is a very frustrating turn of events, as this source of data was one of the best on the local housing market.

Is Mix Affecting our Median?

There seems to be a dogma that has developed over the last year, that the mix of homes makes the median home price unreliable. The argument goes, high end homes aren't selling, which means the median is particularly low due to the mix of low end foreclosed homes.

I would imagine this is fairly accurate for coastal cities, like the S.F. Bay Area, L.A. and San Diego, where jumbo loans are regularly needed.

But I am not so sure how much this applies to Sactown and other central valley cities. For mix to matter, you have to have a lot of high end or very expensive homes. Currently, in ZipRealty, there are around 9013 SFH in the greater Sac Metro area listed for sale, less than 15% of those are listed for more than $550k.** Thus only 15% of homes would need a jumbo loan given my assumptions (below). While 15% is significant, it is not enough to drastically alter the median for Sacramento the way some suggest. Of course the mix argument can affect pricier local zip medians, where a larger percentage of jumbo loans are required.

As they say, all real estate is local.


**My assumption was that $521K is the selling price for a home listed at $550 or less, which allows someone to meet the conforming loan limit of $417k if they have 20% down payment. I don't know what the conforming loan limit is for Sac anymore, so I just used the standby.

Can You Hear Me Now?

When looking at a home, there are certain criteria many consider: home layout, location, school district, price, neighborhood etc.

Having moved into our new place, I was reminded of another criteria that is growing in importance.......cell phone reception. Our home in the D.C. area, as well as our rental in Serrano both had terrible cell phone and radio reception.

It's something you kinda learn to live with....but it can be a big inconvenience, especially for friends or family that are visiting (you have to go outside to make or receive calls). For example, it caused my cousin serious anxiety as he waited for a callback on a job offer. He just graduated UCD and was staying with us for several days.

We probably wouldn't even have a home line if it weren't for my work needs. In fact, quite a few of my friends and family members have gone cell only. It's a great way to save $$, but is only viable if you get good reception at your home.

Our new place is up on a small ridge, so we now get much better cell and radio reception. Just one more thing to love about our new place =)

A Bountiful Backyard

Rather busy this week preparing for a conference...but I wanted to comment on something I read in the WSJ related to psychological depression trends (emphasis mine):

"They are taking cash out of the bank in preparation for a long-haul bad time. A friend in Florida told me the local bank was out of hundred-dollar bills on Wednesday because a man had come in the day before and withdrawn $90,000. Five weeks ago, when I asked a Wall Street titan what one should do to be safe in the future, he took me aback with the concreteness of his advice, and its bottom-line nature. Everyone should try to own a house, he said, no matter how big or small, but it has to have some land, on which you should learn how to grow things. He also recommended gold coins, such as American Eagles. I went to the U.S. Mint Web site the next day, but there was a six-week wait due to high demand."

I was rather surprised to read this, as it is reflective of my thinking as well. We went for a bigger lot (smaller house), which will allow us to grow fruit trees and have a garden. I figure not only is it fresh produce, that is more or less organic, but its also not shipped from Chile, and is a good hedge against supply disruptions or massive price increases. Of course this all assumes we have a green enough thumb to keep things alive, and the weather cooperates. Little did I know, the foothills are a great place to have a backyard orchard. On the problematic side, I had forgotten about the whole, you need two trees for cross-pollination to occur.....so we'll see how far we actually get with this endeavor.

Uncertain Health (Off-Topic)

We are facing a bit of a dilemma regarding our health care coverage....and I was curious to hear how others might view this trade-off.

Mr. BT has coverage (which changed recently), so that we don't pay any monthly premiums, BUT the annual deductible is high, $3,000 per person (up to $9,000 per family).

I could get Kaiser through work, which would run us around $2,600 a year.

We have average health for our ages (some allergies etc.). So it boils down to, we could be certain to pay $2,600 or potentially pay between $0 - $9,000 a year. I am very risk averse, so I lean toward Kaiser (which I have had good experiences with in the past). But Mr. BT is leaning the other way.

More Market Mayhem?

Okay, so perhaps I am a little naive, or maybe just bucking the tide of mainstream thought (again =). But I will ask the question, why can't we let the big financial institutions fail (albeit in an orderly fashion)?

The major argument for not doing this.... It would throw our financial system into a panic.

Well it seems to me, our markets are currently in a panic....credit market conditions are now just as bad as they were shortly after Lehman failed back in September. The stock markets are back to 1997 levels.... I'm not sure how much worse things can get.

The other argument...it would wipe out shareholder value.

Some of these banks are trading for pennies on the dollar. Their value is largely wiped out at this moment. Hopefully individual investors are well diversified, so they won't feel the effects as much. (I recently heard a story of a very wealthy woman living off the dividends of a financial stock....very bad retirement strategy.)

Why can't we add a little fuel the the already hotly burning fire in the hopes that it would burn itself out more quickly? The analogies abound....like taking off a band aid quickly versus slowly.

The Irony

Seems Sacramento is now being used as a beacon of hope....we made the NY Times.

"In inland areas of California, for instance, sales are surging now that prices have fallen sharply. But most of the sellers are not individuals but rather banks that foreclosed on homeowners who could not or would not pay their mortgages."

On the Move

High transaction costs greatly reduce the overall efficiency of the housing market. One reason we never moved to a cheaper rental was the cost and hassle associated with moving. Landlords & apartment managers know this, and use it to their advantage. Unless you are young or with few earthly possessions, no matter where you move, to a rental or a home, it’s hard to avoid some costs. I consider our move, relatively low cost by most standards (given how much stuff we have).

Moving truck for two separate weekends (Sunday for the house, Saturday for the garage): $120
Cleaning costs associated with rental home move-out: house $120, carpet $300, misc $50
Sandwiches and pizza for our family movers (aunt, uncle, brother, father, and friend): $75
Utilities one-time charges: $66
Additional rent: $600 (we allowed for a little over a week of overlap to make it more manageable).

So it cost approximately $1300 for a family of 4, living in a larger than average home to move. I should report, that there was no obvious damage to any of our things (the bottom of an IKEA dresser drawer was a bit busted up, not unexpected for press board). I am not counting some of the time we had to take off work (approximately 20 hours or so for the whole process).

I don’t count the $300 or so my husband dropped on our 67’ Dodge Charger to get it running, so it could be driven to the new house as opposed to towed. (He went to rebuild the carburetor and sheared off some of the screw heads, so he bought a new one.)

I should also note, in some ways, it was like Christmas in February, as we opened all the boxes we hadn’t unpacked while in the rental.

Market Stress Update - Back Where We Started

As of this week, NODs are back to the same peak levels prior to the enactment of legislation in California. The number of foreclosures has dipped slightly, but not in a very meaningful way.

This data still suggests to me that Folsom prices will have more downward pressure compared to El Dorado Hills. Looking at the ratio of REOs on http://www.metrolistmls.com/, compared to total foreclosures (gathered from http://www.foreclosure.com/), only 26% of REOs are listed for Folsom, compared to around 52% for EDH. In other words, there is 74% REO shadow inventory in Folsom, and 48% in El Dorado Hills. Some of this is likely due to processing lags, but 75% seems awfully high to me.

Separately, the ratio of all foreclosures to total MLS listings is very high in Folsom, around 54%, compared to 28% in El Dorado Hills.

Fool Me Once Shame on You, Fool Me Twice, Shame on Me

When we bought our first home in the D.C. area, we muddled through the process, with many misgivings. We were highly reliant on the recommendations and advise of others. Internet searches for things like "closing costs" were incredibly generic, or specific to certain loans or regions. Hell, I didn't even know that realtor commissions were negotiable.

In any case, we learned many lessons from that experience, and hope some of the first-timers will not repeat our mistakes. Many of these items have been discussed on this blog over the last two years, but I wanted to put together a compilation (for easy reference on the side bar), now that we have officially purchased a home for the second time.
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Consider all costs. Don't just look at the sale price of the home, but consider all the money you will spend to make the house what you want (remodeling/repairs etc.). I know this may seem basic to some, but it wasn't something that really occurred to us when we bought our first home. It's also a big reason we bought a new home here in CA, as opposed to a foreclosure. Buying a home that needs tons of repairs or remodeling requires a big chunk of cash or credit. With tighter lending standards and credit, it's more important than ever to make sure you properly account for these costs ahead of time. Having owned a home before, we were able to walk through homes and estimate these costs more accurately. The first time, we relied heavily on an inspector who was recommended by our realtor. It was a huge waste of $400. For example, a couple months after closing we found an exterior wall in our home was rotted due to moist soil against it.

When considering all costs, don't forget to account for taxes, and any homeowner dues. One of the reasons some developments seem so much cheaper than others, the extra fees and taxes. And of course, there are big variations in monthly costs, such as utility bills.

Shop around for homeowners insurance. Some of the quotes we received this time around were 2x higher than the policy we chose. We checked the CA insurance commissioners survey to get a feel for who had lower rates, then went to J.D. Powers to make sure the company was well rated.
The second time round, we were also much more cautious about the people we worked with. The first time, we went with a realtor based on a recommendation, and then used all the services he recommended (appraisers, loan officers, inspectors etc.). While this can be very helpful in some situations, there are also major pitfalls, say if kickback are paid.

Find out what items are negotiable, and what are usual and customary for your area. This applies to both the closing costs and items in the home. It seems in California homes rarely come with a fridge or washer/dryer. Whereas back East, they stay with the home. Window furnishings, hot tubs, etc. all tend to be negotiable.....If you are expecting something to be there when you move in (or not to be there, in one case for us...debris in the yard), make sure it's in the contract (a good realtor should be able to help with this). Closing costs add up quickly, so negotiating those away is always a plus. But in some cases it may be to your advantage to go the other way....for instance we offered to pay for more closing costs, in exchange for price concessions from the bank (which lowers our taxes).

In the hustle and bustle of offer and counteroffer on a home, don't ignore the financing aspects. Pay attention to interest rates, and educate yourself. We didn't fully understand the whole points/origination fee etc., or how brokers made their money. The Mortgage Professor has many good resources on this topic.
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Please feel free to make other suggestions.....this is in no way an exhaustive list. Just what I can think of off the top of my head today.

Whose Guidelines?

On the internet, calculators abound for "how much house can you afford," or "rent versus buy."

But there are many many ways to do these calculations. Recently the government has come out with some guidlines, suggesting that payments of 31% of pre-tax income are manageable. But even in that case, what exactly is a "payment"? PITI (principle, interest, taxes, insurance)? Or just P&I? Other guidlines I have seen are PITI no more than 28% of take home pay.

Most of the sites with these calculator are trying to sell you something banking or financing related. They also tend to have much looser guidelines and built in assumptions, so it's tough to find a non-biased opinion about the best parameters. Some of the calculators I have seen go so far as to obscure biased assumptions, i.e. using a default tax rate of 31%.

When I compare rent verus buy, I look at PITI, minus tax deductions (interest and taxes), plus maintanence (varies by the age/condition of the house). Yesterday's WSJ article on renting versus buying suggested that only PITI is compared to rent.

So I am curious what guidelines others follow?

A New Obsession?

So I will confess, housing data just isn't as interesting as it once was. One of my new obsessions, checking on California rainfall data here.

Agriculture is a vital part of our state's economy (my mom was employed at a family owned fertilizer company for almost 30 years)....three years of drought will make a bad recession even more painful. Ironically, the NY Times picked up the story this weekend.

• "The country’s biggest agricultural engine, California’s sprawling Central Valley, is being battered by the recession like farmland most everywhere. But in an unlucky strike of nature, the downturn is being deepened by a severe drought that threatens to drive up joblessness, increase food prices and cripple farms and towns."

It's not Just Me

According to today's WSJ, rent/own ratios in Sacrmento are back in line with historical averages.

Lander also has a post, showing Sacramento area affordability is now up to 66%, from a low of 7%.

The economic fundamentals are lining up. Is there still downside risk, yes. However, if you buy a home as a place to live, fundamentals are a good indicator for the long term.

Historical Price and Sales for El Dorado Hills and Folsom as of January 2009

Not much time to ponder the latest data.....still unpacking....and getting way behind on my day job. Enjoy.

Hometown Hero

I make a very concerted effort to stay away from political topics (aside from housing, which has become very political in the last couple years). But I will tiptoe into that territory today, as I want to acknowledge my hometown representative Abel Maldonado. Santa Maria rarely takes the national stage (save the Michael Jackson trial). So I was very pleased to see that he helped get us out of our ridiculous budget stalemate, and also delighted to see his proposal for open primaries, which should foster less extreme candidates, and hopefully lead to fewer ideological standoffs.

I have been disgusted and appalled at the behavior on both sides. It is the one primary responsibility of legislators....to make sure the State has can pay its bills. If they pass some laws, that is gravy. By stalling the budget, and related measures, many costs increase for the state, wasting more money. Interest is owed on contracts, overtime is paid for employees who take a day off on furlough day, then work over the weekend, etc. For example, Mr. BT is now subject to the furloughs, so he has to cut back his work to 40 hours (from 55-60) in order to drop 8 every other Friday. This will slow down his contract progress considerably, and will end up costing the state more $$.

Personally I do not believe that government workers should be unionized (save perhaps teachers). For example federal air traffic controllers make mid six figure salaries, with only a high school education, and get full retirement at a very young age. I was glad to see our governor try to trim back on state worker benefits (fewer holidays). Few in the private sector enjoy such job security and nice benefits.

The stalemate between the Dems and Reps was absolutely embarrassing and unnecessary. In a normal household, when times are tough, people look for additional revenue (take on second jobs), and cut back on expenses. With the Reps not wanting to raise taxes, stalling the budget, people lose jobs and revenue (reducing revenue further). If I had to guess, most would rather have a job, and pay a little more taxes. With the Dems not wanting to cut services, stalling the budget, people lose jobs, thus adding to the rolls of those who need services.

So this is my long winded way, of saying, thank goodness this is over.....for now.

(In other news...our local BofA was robbed on Tuesday, the suspect looks a lot like my old Sac roommate who used to chip cable boxes).