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.