Misleading Market Indicators

As of late, I have been a bit concerned about housing inventory. Primarily because the biggest price drops tend to occur in the last quarter of the calendar year when it is more difficult to sell a home (at least over the last couple of years). So I checked in on our local listing service, Metrolistmls, and was in for a very pleasant surprise. They have recently rejiggered their site, so you can now search by status (active, pending, and sold). This is great news for us market watchers and data hounds.

What is even better, is that I can now easily calculate "months inventory", which is a key market statistic for determining supply and demand. With a click of a button (single family homes under 500k), for both El Dorado Hills and Folsom, I was able to see that EDH had 109 homes pending, and 138 that are active. Meanwhile Folsom has 165 homes pending and 207 active.

The results of both these queries shocked me (perhaps someone can double check my queries). This is a little over one month of inventory for both markets assuming all the PS close in 30 days. Of course, more realistically (dealing with banks), homes can take around 3 months to close, but even then, that is still only 3 months inventory.

So just maybe, the positive trends I have seen over the last couple months in these areas will hold. For instance, the number of foreclosured homes in EDH is back down to levels not seen since mid 2008. Some could argue that the banks are holding back inventory, and that a flood is coming, but the whole shadow theory has lost credibility in my eyes.

I'm feeling more confident that we have indeed found bottom, and are now scraping along.

Hanger Homes: A Lesson in Supply and Demand

From one of my aviation industry newsletters:
"The FAA says so-called through-the-fence agreements, where "hangar home" landowners adjacent to airports have gated access to the airport next door, threaten operations, safety, security and future expansion of airports and House Committee on Transportation and Infrastructure heard from all sides of the debate over whether these kinds of deals should be allowed. The FAA has proposed that the 75 existing arrangements between publicly funded airports and private owners be honored but that no further through-the-fence deals be allowed."

This policy proposal may make things interesting for the hanger homes adjacent to Cameron Park AirPark. If the FAA rules that no new agreements can be made, I would imagine that home values for this development will go up. These homes have a very unique value proposition, commute to work, perhaps in they Bay Area, without ever leaving the comfort of your plane. The streets in their neighborhood are extra-wide for taxi-ing aircraft, and the garages are essentially small aircraft hangers.

Losing the Bubble

In aviation, there is a great saying people use when they lose situational awareness, it's called "loosing the bubble." The origin (best I can tell) is related to a piece of equipment that uses a bubble to helps pilots orient themselves to the ground. So when someone "loses the bubble" they become disoriented and don't have a full grasp of what is going on around them.

So all this to say, I have lost the bubble on housing recently. Probably no surprise given that my posts have become very few and far between . So please keep that in mind as you read the following observations.

After a really great June, both sales and prices were up year over year in Folsom and EDH, July was less than stellar as many analysts had predicted (with the end of the government handout). For the most part, we are still off recent lows, but not by much.

What really has me worried as of late, is the build up in inventory. If this continues, we could go back to the era of double digit price declines. According to housing tracker, Sacramento inventory has been steadily climbing, and is now at levels we haven't seen since November 2008. Folsom and El Dorado Hills don't appear to be abnormally high, but we are moving into the time period where it gets harder to move a home.

There are a lot of analysts predicting a double dip in housing. I'm still thinking, for the Sac Metro area, flat year-over-year for several years (no appreciation, but not much depreciation either). Foreclosures and NODs appear to be cresting, but I continually hear stories of new ruthless defaults.

On a personal note, I don't imagine I will make much effort to get my bubble back. I thrive on new challenges (our garden is my new project), so posting activity will continue to be very sparse, and eventually go the way of Sac Landing and SacRealStats.

Their Lot in Life

I recently heard a first-hand account from a friend who put in an offer on a vacant short sale lot in the El Dorado Hills area. The bank initially agreed to their offer, but then balked and said they had to pay all the back HOA dues. Back dues were not something they could roll into the cost of their loan, and represented a sizable chunk of money, almost 10% of the offer price. The bank wouldn't budge, they withdrew their offer. The lot goes into foreclosure next month, and to the best of their knowledge the bank has no back up offers.

Seems like a lose-lose-lose situation. Now the HOA get's no $$ from the sale, the bank is likely to lose more $$, and our friends are lotless. When will the madness end?

Finally Movin on Up?

A while back, I reported that the high end was "hopeless," based on some statistics, and a lot of anecdotal stories.

Well times have changed (it is late spring after all). Several of those that had decided to hold off, are now back in active offer mode. All are move-up buyers. Our dear friends, are even a bit frustrated.

DQ numbers are out for the month of May. Sales and price are both up (year-over-year) for Folsom. Sales are up for El Dorado Hills, but median price is down 5.4% annually. However the median is still above the low hit in Oct 2009.

Median Price Per Square Foot - Folsom & El Dorado Hills

By special request, below is the chart of median price per square foot for Folsom and El Dorado Hills. Again, seems to me that we are in a new phase, where prices fluctuate a bit month to month, but overall, stay fairly flat.

The growing gap between Folsom and EDH is somewhat distressing, and leads me to believe it may close up some time in the future (either Folsom dropping, or EDH rising).

Updated Housing Market Stats for Folsom and El Dorado Hills

Wow, I didn't realize it had been so long since I last posted the historical charts. As usual, both sales count and price (average and median) are presented from two different sources. Note that the Melissa data includes new home sales, and cites the average, which is typically much higher than the median.

To help wade through all the monthly fluctuations, the 6 month moving average is now emphasized. The strong downward pricing trend over the last couple years has given way to a new period of relatively flat prices. I believe this new trend has momentum since sales are also up, or flat.

The forecasted flurry of foreclosures appears to be more of a steady trickle. The number of foreclosures and defaults, while elevated compared to historical standards, are both off their previous peaks for Folsom and El Dorado Hills.

Off Topic - Budget Crisis

When we bought our place a year ago, I put together a monthly budget to make sure we could afford it on one salary, should one of us be out of work for an extended period of time. At the time it seemed doable. Now, I am extremely unhappy at work, and have been looking at our family budget from a new angle: "Can I afford to quit?"


So inspired by today's post on the Juggle Blog, and the State's finances.....I am seeking some budget advice. Before I start in, let me preface this by saying, we have really tried to find a financial advisor, but have not had any luck. Advisers tend to fall into several camps, they only deal with folks with high net worth (focus on fewer clients), they work on commission only (we don't have investments outside our 401ks/IRAs), or they don't follow up with you.


Ideally I would like to get answers to questions like, "Are we saving enough for retirement?", "Do we have a big enough cash cushion?, " "How much life insurance is really necessary?"etc.

Looking on the web, I find lots of advise, but none of it seems that realistic. Do people really have that big of a cash cushion, or that much life insurance? (given that the personal savings rate in this country is so very low).

I have attempted to go it alone, and created a large spreadsheet for retirement projections, factoring in inflation, SS earnings, contributions, and withdrawals. It all seems reasonable, however because retirement is so far off for Mr. BT and I, the projections are especially sensitive to the assumptions due to all the compounding, so the exercise becomes almost meaningless.

If I were to quit, we would no longer be able to save for retirement, and we wouldn't have much extra cash to start saving for our kids college education. On the other hand, we do have a substantial nest egg by national standards (we have been putting away the max contribution in our 401ks for several years now). Mr. BT and I used a combination of loans, work study, and scholarships to pay for our educations.

So any words of wisdom or advice? I'm really not satisfied with any of my options at this point.

Or perhaps a financial advisor to suggest. The irony in all this, to get a financial advisor, you have to have a lot of investable assets. But how do you get a lot of investable assets if you don't have a financial advisor?

Are we there Yet?

Dare I Say Bottom? I know we have had a lot of fits and starts, especially in the spring time, when you typically get a little bounce, but the market around here is really beginning to firm up (of course it's hard to say with all the tax credits flying around these days).

This winter things were looking pretty bleak for my beloved neighborhood, almost 10% of the homes were up for sale, several still left to be sold by the builder, some short sales, a couple foreclosures etc. When I checked this morning, all but one are now pending sale. That's a pretty dramatic turn around.

And as much as I would love to think everyone else has discovered how wonderful our little community is, I know our situation is not unique. Melissa Data average prices in El Dorado Hills hit a bottom in November (09), and have been slowly (but erratically) climbing since then. Similarly, Folsom has had 3 months since their last low (back in Jan 10). And year-over-year sales have increased for both those zips since December 2009.

The fact that price and quantity are beginning to move in tandem, which hasn't happened consistently since Mid 2005, is a big deal in my book. After 2005, prices were still increasing, but sales started dropping. In the last year or so, sales have been increasing, but prices were still dropping.

So what do you think....are we there yet?

Don't Fence Me In?

The first time I visited the East Coast (Philly suburbs), what made the biggest impression on me was not the Liberty Bell, but the fact that backyards weren't fenced (I was around 12 at the time). As someone who had grown up in California, I had never seen a home without a fence, let alone entire suburbs without them.

Many years later, this is still a very common practice out there. In fact, my sister-in-law is now renting a newer home in a very upscale neighborhood in the D.C. burbs, and there are no fences.

Aesthetically, the no-fence thing, is very pleasing since fences can vary in appearance significantly from neighbor to neighbor, and they also look terrible if not maintained. In California, a backyard without a fence is virtually unheard of. HOA's and CCnR's have evolved to reign in the use of a multitude of materials and styles.

Our backyard doesn't offer as much privacy as most. Some in my family think this is very odd/unusual. Perhaps because we spent so many years living on the East Coast we no longer saw backyard privacy as that essential. That said, we are in a very private little development, with limited access, so the only people driving by, are the ones who live her.

How do privacy requirements fit into your purchase criteria?

Housing Market Status in El Dorado Hills

Earlier this month I was really surprised when I took a look at the MLS in my zip code. So I decided to take some time to scrape the MLS for El Dorado Hills to get a better idea of what is happening. The results are presented in the table below.

As you can see, I was not imagining things, PS and PSB together make up over 100 listings. It is also obvious why median is a better statistic, because the average is strongly skewed toward the high end, due to some really pricey homes in this zip code.

Month's inventory, while low by these numbers, is somewhat useless in a distressed market. PS take longer to close when dealing with banks, and all the AS/ASC listings can take months to go PS, even when they have a legitimate offer.

It will be very interesting to see if this pace keeps up.

Housing Market Stress Indicators Two Year Perspective

With this month's update of market stress indicators in our local area, I now have 2 years of historical data on NOD (notice of default) and REOs (real estate owned). These two metrics for El Dorado Hills and Folsom, while off their previous peaks, are still highly elevated compared to normal times.

It's safe to say that home prices in the area are no longer in free fall, but continued stress will keep a lid on any appreciation for a long time to come.

Speaking of market predictions, by now I had expected interest rates to be at least a full percentage higher. It was one of the factors (not a huge one, but certainly material) that led us to purchase when we did. But there has been a lot of talk on the blogs and in the MSM lately about interest rates, and how we have managed to keep a lid on inflation. Guess it's a good thing I still have my day job, cause predicting economic indicators doesn't seem to be my strong suit.

Yearning for Yard Crash

As most of you know, when you purchase a new home, they typically come with front yard landscaping. This leaves a blank slate for the backyard . So Mr.BT and I regularly watch Yard Crashers on DIY to get some ideas. Of course, every time we hit the hardware store, we are hoping to find the host, Ahmed Hassan there.

Recently I realized its not a completely far fetched fantasy. Now that we have started doing work on our yard, I've become familiar with some local Sacramento companies. Lately, when watching the show I noticed some of the same local Sacramento companies. For instance, we bought wood for our deck from Berco, which is a local lumber yard that is regularly featured in the show. I also saw the lighting geek appear a couple times. From what I can see of the store layout where he meets people, I think he prefers OSH , but I hear he has also hit Emigh's.

So I did a little research after tonight's show out of curiosity, and apparently Yard Crashers is produced by a local Sacramento company!

Unfortunately, by my calculation, I doubt we will ever make the show cause I figure they find folks on a Friday afternoon, so that they can come back over the weekend to do the work (and Mr. BT and I are usually hard at work then). With spring upon us, we are envisioning all the possibilities, but certainly wishing we had a little help.

Housing Market Milestone in EDH

The new DQ stats are out for the Sacramento area zip codes. February 2010 marks a milestone for EDH. This is the first positive year-over-year median price since November 2006.

I also took a look at the MLS the other day. I was stunned by how many high end homes were PS. By my rough count, less than 6 months inventory at the high end, which is simply shocking, as I remember it being over 30 months a while back. Again, this assumes that everything PS closes in a month, which we know it doesn't.....but still, a huge sea change from earlier, especially given all the gloom and doom hype about the high end.

Lot o' Caveats:
It's a small increase for EDH, and I don't have the #s for Feb 2009 (for the 38 data points, ironically that's the one I am missing), and the year-over-year price per square foot is still slightly negative.

One additional caveat, this happened to Folsom a couple months back, but now they are back to double digit declines. I should also note, that recent statistics show that Folsom has caught up to EDH in terms of correction. Both have corrected between 38-40% off the peak price, and are only 5% above late 2002 levels (which is the earliest my data goes back).

All stats are based off DQ resale numbers.

Update: Some corroboration from today's WSJ.

Does Two Months a Trend Make?

Popular wisdom posits that high end home prices still have a ways to fall in California. The short version of the story goes, that sub-prime loans went bad first, so the lower end homes have more or less hit bottom, but the Alt-A and Option ARM loans which were sold as "affordability products" to purchase more expensive homes have yet to sour/reset en masse.

Last month I noticed that sales were up in the two zip codes I tracked. These two zip codes are generally considered higher end for Sacramento. The January DQ numbers just came out, and it appears this trend has continued and was rather pervasive.

To test this hypothesis, I compared the year-over-year change in sales, with median home price for all the reported zip codes in the Sacramento Metro Area. The results confirmed what I observed, a positive Y-o-Y increase in sales was correlated with higher priced zip codes, +.27 correlation. When I removed zip codes with very few sales (less than 5), the results were even better (removing big % swings due to small numbers). For zip codes with 5 or more sales in the month of January, the correlation with median home price was even higher, +.34.

I realize two months isn't a trend....but December and January are notoriously some of the worst months in real estate. I am now anxiously awaiting February sales numbers to see if the trend holds.

One Year Market Assessment

We bought a new home a year ago last week. As one who follows market trends, I was well aware of the continued downside potential in the Sacramento housing market, so our decision still causes me a bit of anxiety.

However according to the latest DQ stats, so far the damage isn't that bad. As of January 2010, the number of homes sold in El Dorado Hills is up (29%), median price is only down 3.4% and price per sqft is only down 1.3%. Stats for Folsom are fairly similar. Of course three numbers can masks a lot of undercurrents. But other stats are looking favorable as well......the number of NODs in the two zips continues to fall and foreclosures have held fairly steady despite the earlier surge in NODs.

At the same time, my own neighborhood, a new development, is slowly starting to crack. There are many short sales currently on the market and at least two foreclosures now. However Zillow only shows a drop in value of 3.4% (perhaps tied to the median price decline as opposed to comps?).

On a personal note, so far we have been absolutely delighted with our decision. We love the neighbors, we love the neighborhood, we love the house, and we especially love the drive into and out of our neighborhood. On a clear day you can see the snow capped Sierras on the way in, or the entire Sacramento Valley on the way out.

Our only disappointment has been that our builder, Pulte, did a super crappy job landscaping our front yard, and laying the drainage. I will report more on that in a later post.

Report from the East Coast

I spent last week on the East Coast. Scraping ice off my car in 17 degree weather, and spending an hour on the toll road to drive 5 miles on my commute to work, are just two of the reasons I was so thrilled leave and return to Northern California.

However the market for both residential and commercial real estate is strong there. No for sale signs (even in high end neighborhoods) or vacant store fronts.

It's a stark contrast to what I see around here.

Is December a Month to Remember?

Below is a short summary of housing statistics for Folsom and El Dorado Hills. The data come from two separate sources. The top set only included stats for existing single family homes, while I believe the bottom includes new home sales too (note the bottom set also uses average, and not median).

December's numbers surprised me quite a bit. Double digit increase in sales, and only single digit drops in price. Typically December is a really slow time of the year for real estate, and I figured it would be even worse with government subsidies drying up.

Could this be the end of free fall, or is it just a dead cat bounce?

EID Rate Hike

In case you haven't heard (thanks to all who forwarded e-mails), El Dorado Irrigation District is proposing a huge rate hike (80% over the next 5 years). Up till now I was hesitant to post anything about the protest, since I was worried they might default on their bond obligations. The literature I read made it sound like they needed the money to pay for infrastructure projects etc.

Well, now I am pissed off. I just saw today that the proposed rate hike is not all about covering the cost of water projects. Apparently there were some massive pension increases (35%) approved back in 2004. This seems really irresponsible to me. Times have changed. I understand that forecasts were calling for continued revenues, but revenues have changed drastically. Everyone should be asked to sacrifice, not just the rate payers.

Copied below is the e-mail I received from several folks explaining the situation:

EID is proposing a series of rate hikes starting with 35 percent in 2010, 15 percent in 2011 and concluding with 5 percent raises for the following three years, 2012-2014. The notices began arriving last week in your bill. Altogether it compounds out to an 80 percent increase in five years. The first rate hike is planned to go into effect a week before February, 2010.

The notices start a 45-day deadline for ratepayers to mail written protests to EID. Protests must include the assessor's parcel number of the property in which the person signing the protest letter has an interest, either as the owner or a tenant paying the utility bills. Only one written protest per parcel is counted.

Under the terms of Proposition 218 if 51 percent mail in objections to the rate increase within 45 days the rate increase is defeated.

Investing with Neutral?

After complaining about the beige and neutral colors of our rental home for several years, you would think I would be jenny-on-the-spot with a splash of color. Oddly, now that I have the option, the desire has left.

But this got me to thinking about wall color. With our first home, we were careful not to choose wall colors that were loud or bright. We didn't plan to stay there long term, so Mr. BT was always concerned about resale value.

Since moving back to California, I have noticed that wall color is not very common in the homes we have looked at. In fact, rentals and MLS write ups often tout neutral colors as a selling point.

So this brings me to my question, is wall color simply out of fashion, or are people still thinking of their home as an investment (i.e. don't want to personalize the home and risk making it less appealing)? If it's actually the latter, paint sales would be a great indicator that the market has finally returned to normal.

As for me, I'm thinking of trying out some textured wall paper in the bathrooms. (Anyone know of a good selection in the Sacramento area?)

Cresting Wave or Holiday Respite

Back in November, I suggested that the wave of NODs in the two zip codes I track may be cresting. A month and a half later, it sure does appear that way. However, I'm starting wonder if there could be something else is afoot.

Around this time last year we saw a significant drop off in fillings due to state legislation, coupled with a holiday reprieve by some of the government agencies (not sure if it only applied to foreclosure or if it applied to NOD filings as well). So I'm starting to wonder if the wave is actually cresting, or if it's just a temporary lull to avoid the potential bad PR of throwing a family into the streets during the holidays. It's hard to know for sure. I'm curious to hear other's thoughts.

In any case, I do think the number of foreclosures will slowly creep back up, as the NODs run their course. To be honest, I expected to see a lot more foreclosures by now. Fewer NODs are resulting in foreclosures (at least according to the data I track). Perhaps banks are more willing to negotiate short sales, perhaps there is shadow inventory, who knows.

Only a Sucker will Sacrifice

There are plenty of stories swirling about the blogs that make me feel like a sucker for having played by the traditional rules. The worst is the story that goes something like this.....a couple buys a home with no money down, extracts thousands of dollars in equity, which is then used to purchase exotic vacations and cars, then they stop paying their mortgage and bank the savings for a year while the bank slowly processes the foreclosure, or better yet get a permanent mod with a principle reduction.

The one I have actually experienced first hand, more than once, is related to short sales. The story goes like this, we walk into a nice home, with furnishing worth 8 to 10 times ours, the house is adorned out with all the latest electronics (massive flat screen TV, home theater stereo), toys galore (often high end car or boat in the garage), and of course the built in BBQ in the backyard, only to find out the house is a short sale. If they sold off even 1/5th of their possessions, they would have enough money to make the mortgage for the next year or so. Then Mr. BT and I leave feeling like we played the game all wrong.

So yes, I am bitter and venting a little, please bear with me (I just spoke with another friend who is now planning a short sale/walk).

I realize there are plenty of people who played this game and lost everything......but at the same time there are way too many who played it and hit the jackpot (heads I win, tails you lose). The way I see it, without skin in the game, it will be played over and over with the same result (the 3.5% FHA down payment loans are perpetuating this game).