Tuesday, January 27, 2009

Enumerating the Uncertainties

I would be lying if I told you I was perfectly at peace with our decision to purchase a home next month (we close mid-Feb). When I visit the house, everything feels right. But then I get back to the daily grind, and my confidence is shaken by the steady drumbeat of layoffs and record setting economic bad news.

I am a planner, and therefore very unsettled by uncertainty. Unfortunately, right now, uncertainty abounds. We are making this purchase decision based on assumptions and expectations about our future. Given our assumptions, the decision seems a reasonable one. But who is to say if those expectations actually play out? For instance, our intention is to stay in this home till our little ones graduate high school. But a lot can happen in 20 years (medical, family, job issues).

By the time we close escrow, we will have waited out the bubble for almost 2.25 years. Mr. BT and I are both ready to move on, and focus our efforts on other things. We look forward to designing our backyard and planting fruit trees, starting a real garden, and getting to know the neighbors.

Some days the anxiety is worse than others. Today is one of those days.....sigh.

Wednesday, January 21, 2009

Market Stress Update for Jan 2009

Last December I suggested that the supply of foreclosures would be slowly depleted as a result of the legislated delay in NODs. With no new NODs in the pipeline for a time, the existing foreclosures inventory will dwindle. So far things are moving along according to plan (see smooth lines on chart).

It is yet to be seen if the second half of my theory proves correct. In a couple months, fewer foreclosures will mean less downward pricing pressure. This in turn will giving the market a false sense of bottom come late spring. Unfortunately, it is false, because the NOD activity is rebounding with renewed vigor (see dotted lines on chart). The effects of all the new NOD activity on prices should be seen by late summer/early fall (given the current foreclosure timeline and pace of bank inaction).

Sunday, January 18, 2009

The Hazards of Insurance

We are in the process of shopping for homeowners/hazard insurance. It's been very frustrating so far (and way more expensive than Virginia). When we give the agent details like, home size, zip code, basic material description, their model spits out a quote for the replacement value of the home which is considerably above our purchase price!!!!

They claim it is based on the cost to rebuild. I then explain it is a brand new home that was just built in the last 6 months and is being sold for less than what their model is telling them. Both materials and labor have come down considerably, so I find this explanation a bit hard to swallow. I am assuming their model is out of date, but they won't insure for less that what their model estimates.

For those who may be in the market, the California Department of Insurance has a nice premium survey tool that can be used to get an idea of competitively priced policies.

Thursday, January 15, 2009

Listless in Sacramento

Moving from a 1000sqft. home* to a gigantic McMansion rental almost 3 times the size, we quickly became the repository of choice for all our family’s unwanted furnishings. Now that we are downsizing, we are attempting to unload some of the items, and purge the last of our baby items. After checking with family first, I was given permission to sell.

Back in the D.C. area we bought and sold a fair amount on Craigslist. I usually get a pretty good idea of price points by looking at other listings and the Target/WalMart price for an item. I almost never had to relist items at a lower price.

So I was rather astonished, as I haven’t received any serious inquiries for any of our items so far. To give an example, one item, I saw at Target for $200, we listed for $75 or best offer (in excellent shape, and the leading quality brand). At first I was thinking, it might be our location, after all, EDH is not very central. So yesterday I offered it to my daycare (for free), since they could use it. The lady I spoke with relayed a very similar experience with Craigslist she had recently (pennies on the dollar for an almost new item), and she lives in the Rosemont area. So there goes that theory.

I find this situation rather perplexing and somewhat disturbing. You would think more folks would be turning to CL for purchases instead of buying new (especially for durable items like furniture). At the same time, I wonder if there are too many distressed folks downsizing, thus flooding the market and depressing prices?

Any way you look at it, this is a very very bad (anecdotal) indicator, when even the second hand market for items is in a slump. I almost want to post a listing for an unbelievable deal, to test my hypothesis and see if I would get a response.

*Our place in D.C. had a finished walk-out basement. For reasons I have never understood, they don’t include basements in the square footage.

Wednesday, January 14, 2009

A Salute to My Muses

I knew the day would eventually come. The day when the housing bubble bloggers started to close up shop, either because their predictions had largely played out (Sacramento Landing), or because their aspirations for home ownership had finally been achieved (Bubble Market Inventory Tracking).

Our family owes an immense debt of gratitude to these bloggers for the countless hours they spent providing us with informative insights and data. Without them, we quite possibly would have committed financial suicide. (The same model home we are under contract for was sold for up to 25% more in the last 3 years.)

I imagine a year or so from now, there won't be much left of this community, as many will have finally purchased their dream home. It will be a bitter sweet goodbye, as my hope for affordable housing will have been realized for much of this generation, and hopefully those to follow.

Tuesday, January 13, 2009

Trade Offs: Distressed vs. New

While investigating the perverted California property tax system for our new home, I happened upon a very handy tool. You put in the home APN, and it spits out all the additional taxes and fees associated with a property (Mello Roos, library, ambulance fees etc.). It only works for APNs in El Dorado County, but there is likely something similar for other counties.


Of course we would have preferred a home without a Mello Roos, but so far the trade offs seem worth it. Compared to our short sale and REO experiences, this purchase process is an absolute dream.

So far, the way I see it, buying new, as opposed to dealing with the banks on distressed inventory, has the following benefits:
1) The purchase contract seems much more evenhanded (less skewed toward the bank).
2) There is tons of disclosure.
3) Construction defect accountability etc. (California Civil Code).
4) The supervisor at the development has been very responsive about questions we have had (regarding an abandoned easement, and arborist reports).
5) The builders offer special financing incentives. I recently heard a story of how the bank’s title companies (primarily in SoCal) are charging exorbitant fees, which they are requiring the buyer to pay.
6) Putting in a backyard is pricey (for a new home) but you get exactly what you want, and can control the cost. The distressed homes we put offers on needed complete overhauls on the yard (dead plants and grass). It isn't as expensive, but still requires a lot of work.

Of course, many question the construction quality of new homes. However, I always tell people that homes made in earlier decades had their problems too. It’s just that time makes those defects apparent so they can be priced into the sale or fixed at the owners expense (our home in D.C. was very poorly made, and settled so much that doors wouldn’t close). My hope is that the home we are purchasing now was constructed with more care (since builders are no longer throwing up homes as fast as they can). I guess only time will tell.

Sunday, January 11, 2009

Give or Take a Peak

Thought I would do an updated peak check for the whole Sacramento market, as I have heard rumors that bottom is forming in some areas, but nowhere in sight for others.

I did a comparison by price per square foot (first two columns), as well as median price (last two columns), using the historical DataQuick SFH resale data from the Sacramento Bee. This is very similar to the data I posted last May.

  • The point of reference is the November 2008 data.
  • The DQ data only goes back to August 2002, so that is my earliest comparison date. While some argue that 2000 or 1997 is a better point of reference, this data hasn't been inflation adjusted, so Aug 2002 seems somewhat reasonable.
  • Peak was defined as the max value for a zip code between Aug 2002 and November 2008.
  • The data is sorted by the % change in median price from 2002.
  • Values in green are positive (not so many of those left anymore).
  • The yellow values are -25% to -50%.
  • The red values are less than -50%.

Friday, January 9, 2009

Belated Year End Stats Review

I was a bit to busy over the new year to put together some summary housing market statistics.....so here they are a little belated (pardon the formatting, but didn't have time for a spreadsheet):

From my personal screen scrape (which includes Folsom & EDH homes) -

Date: 1/3/2008 ---- 1/8/2009
Total Avail. Listings: 96 --- 144
Total Pending: 28 ---- 58
Avg. Price sq. ft.: $199 ---- $171

Not bad for a market everyone thought was immune to the forces of economics =)

Going back even farther, to when I started collecting the generic data (my room/size criteria were slightly different, but max price point was the same):
Date: 3/18/2007
Total Avail. Listings: 42
Total Pending: 22
Avg. Price sq. ft.: $224

As for the Monthly Data Quick SFH resale data:
Market: Folsom ---- El Dorado Hills
Decline in Median Price since peak: 29% ---- 35%
Decline in Price Per Sq Ft since peak: 26% ---- 36%

(Peak for Folsom was Sep 2005, peak for EDH was Sep 2006 for price and Nov 2005 for sqft)

MelissaData average price shows comparable declines from peak for EDH, however it shows a 35% delcine from peak for for Folsom.

Of course a good portion of this drop in median is due to the paucity of sales at the higher end. Once the high end starts to move again (don't count on that anytime soon) I imagine the median will stagnate (due to change in mix of sales). This applies much more to El Dorado Hills than Folsom, as EDH has many many more homes over the 500k mark (currently Folsom has 80 homes over 500k while EDH has 241).

Thursday, January 8, 2009

Pessimism Bubble?

Very interesting post over at five thirty eight.....he asks the question "is there a pessimism bubble?"

Housing bubble bloggers are often accused of being overly pessimistic, so I thought this was apropos. While I am certainly bearish on the economy, and have been for over a year and a half, my hope is that we are now entering the containment phase (having more or less assessed majority of the damage.......prior to this December I don't think everyone fully realized just how bad things are).

Wednesday, January 7, 2009

At Any Rate (revised)

Back in July, I expressed my frustrations over the volatility of interest rates. In particular, this was a problem with offers on bank owned homes and short sales because the negotiations and contract periods were so long, it posed considerable interest rate risk.

Being the incredibly risk averse person that I am, I was anxious to lock in a rate as soon as possible for our current contract. I was almost giddy yesterday after talking with the builder's lender. They offered surprisingly competitive rates (I thought it would be a bit of a shell game to offset the financing incentive they offered...i.e. they charge lots of points, to get you to a normal market rate). However, we locked in a rate of 4.75% which is a full .5% less than what I had budgeted for! (I checked with a broker friend, Bankrate.com, and the Mortgage Professor to see if the rates were reasonable.)

Those in the know, speculate that rates will continue to go down as the government becomes more involved in the market (they actually started buying bonds on Monday), or as new programs aimed at reviving the ailing housing market are implemented. However, at the same time, I am nervous that the stimulus package, soon to be unveiled, will include provisions the mortgage industry and investors will not be happy with (cram-downs etc.). This has the potential to push rates in the opposite direction.

The uncertainty on both sides, coupled with the year's track record of volatility, was a strong incentive for me to lock in a rate. We are not ones to hold out or bicker over marginal gains. 4.75% is a fantastic rate given historical data. In fact, this rate is even better than what we had on our home in D.C., and that was a 20 yr fixed loan at 5%.

If anyone has advise on mortgages/financing/closing etc., now is the time. I am relatively clueless regarding this stage of the home buying process. For instance the whole points thing, is still a bit confusing to me (i.e. how much interest rate 1 point buys). Mr. Mortgage seems to favor them if you hold the home for over 4 years, and with the builder paying our closing costs, they seem like a no-brainer (our quote includes 1.25 points...I didn't even know you could partially point).

Tuesday, January 6, 2009

Declining Service - Bad for Economy, Good for Homeowners

Some may recall my off topic post, a while back on declining regional air service levels.

In that spirit, I offer this link to a USA Today story. It details the drops in domestic scheduled service by state and airport. According to the data, SMF is down 13.2%, and OAK, an alternative used by many in our metro area, is down a whopping 28.5%.

Just to add a housing element to all this, finding out the local traffic pattern of metro area airports is always a good idea. My apartment in D.C. was just under the approach path into National Airport. There were times when I couldn't hear the person I was talking to on the phone because it was so loud.

In particular you want to look at the noise contours. These are typically available in the environmental studies associated with an airport. For instance see here, for Mather airport noise info, which affects many communities along the 50. If you are buying a home near an airport, its also a good idea to look at an airport's master plan to see their growth projections, and the type of air traffic they allow (commercial, general aviation, cargo).

Monday, January 5, 2009

Ebbing Ebullience

Still brimming with excitement (for our pending home purchase), the cold water that is a crumbling economy could not be kept at bay.

We were saddened to find out, once again, that Mr. BTs cousin was laid off (he works for a local auto dealer, that is now closing it's doors). He was laid off from a different Sacramento dealership back in June.

On a brighter note, my step sister, who was laid off down in Fresno, found a job in Sacramento as an administrative law judge.

Sunday, January 4, 2009

What Changed our Minds?

As some of you may recall, at the end of September, my desire to purchase a home had completely faded. Only three months have passed since that time. So what has changed since that time?

  • NBER has finally acknowledged what we all knew to be true; we are in a full blown recession as of Dec 2007. This declaration alone means very little, but I believe it has many psychological and political implications. Now that we are "officially" in a recession, which is already approaching the average length, we can focus on pulling ourselves out, as opposed to debating/denying its existence.
  • Americans elected new leadership in November. Obama is a brilliant and articulate man, who seems less bent on blindly following ideology, and more focused on finding the right solution to what ails our nation (I don't want to start a political discussion here, so please limit your comments on this one).
  • Interest rates have come down considerably, approximately a full percent (from mid 6s, to mid to low 5s).
  • After looking for 2 years, we finally found a home in our price range, meeting most of our criteria, that doesn't need major repairs or renovations (this was a big issue for me, with two young kids, a full time job, and a husband that travels for work...I would much rather continue to rent than spend all my spare time fixing up a home to make it livable).
  • Sacramento home inventory continues to decline, and sales continue to rise. Of course this doesn't mean prices will stop falling, but it may help with the pace of the decline.
  • As I mentioned in the last post, our daughter will start kindergarten this fall.
  • Mr. BTs job contract should be good for at least another 9 months and is likely to be renewed. My job, which is closely tied to air transportation infrastructure, will hopefully continue to be funded by the federal government (since it is aligned with the agenda of the federal stimulus).
  • With relative job security for the next 9 or so months, a job loss will be offset by the reduced daycare payments when our kids start public school (currently an outrageous $1,700 a month for a local center).
I have to be honest, I really didn't think the builder would accept our offer. So this is a very unexpected turn of events. But I am fairly comfortable with it, given the items I outlined above.

Side note: unlike the MSM that often crucifies our political leaders for changing course, I actually admire people who keep an open mind and re-evaluate their position as new information and data comes in. (I'm not talking changing fundamental beliefs, but rather reevaluating the best course of action, i.e. I was pleased that Paulson changed his course on the TARP, from buying bad assets to infusing capital.)

Friday, January 2, 2009

Home at Last?

I am pleased to announce that as of today, we are under contract for a new home. We read and signed over an inch and a half of papers, and turned them in on Wednesday, December 31st, 2008.

Turns out Santa came through after all. This home is almost everything we wanted, and much more. I never would have though we could afford a home like this, especially if you had asked me two years ago. My husband and I both come from modest working class families and paid our way through school.

I feel very blessed that the housing market has been so good to us, as I know countless others have not been as fortunate. We sold our home in 2006, after living in it for almost 5 years. With the proceeds we were able to pay off our ginormous student loans, and still have a substantial amount left over for a down payment. For the last two years, we have waited, not so patiently, for the housing market to become affordable again.

As I have maintained throughout my time as a blogger, we were not waiting for bottom. My daughter will start kindergarten in the fall which is a big motivating factor for us to purchase sooner than later. To be quite honest, I am also worried inflation will start to erode my purchasing power by the end of 2009. With low interest rates, it seems like the ideal time to for us purchase the ideal home.

Below is a picture of our majestic oak tree and the view from our backyard (which we will need to finish). Unfortunately, I don't have much time today, so I will post more details later.

Ironically, OCRenter at BMIT just posted today that he became a homeowner.