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.
Monday, March 30, 2009
Friday, March 27, 2009
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.
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.
Friday, March 20, 2009
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.
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.
Wednesday, March 18, 2009
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 $$, but is only viable if you get good reception at your home.
Our new place is up on a small ridge, so we now get much better cell and radio reception. Just one more thing to love about our new place =)
Having moved into our new place, I was reminded of another criteria that is growing in importance.......cell phone reception. Our home in the D.C. area, as well as our rental in Serrano both had terrible cell phone and radio reception.
It's something you kinda learn to live with....but it can be a big inconvenience, especially for friends or family that are visiting (you have to go outside to make or receive calls). For example, it caused my cousin serious anxiety as he waited for a callback on a job offer. He just graduated UCD and was staying with us for several days.
We probably wouldn't even have a home line if it weren't for my work needs. In fact, quite a few of my friends and family members have gone cell only. It's a great way to save $$, 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 =)
Monday, March 16, 2009
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.
"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.
Friday, March 13, 2009
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.
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.
Tuesday, March 10, 2009
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 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.
Monday, March 9, 2009
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."
"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.
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.
Friday, March 6, 2009
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.
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.
Monday, March 2, 2009
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.
_________________________________________
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.
___________________________________________
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.
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.
_________________________________________
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.
___________________________________________
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.
Thursday, February 26, 2009
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?
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?
Wednesday, February 25, 2009
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.
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.
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.
Friday, February 20, 2009
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 $$.
Personally I do not believe that government workers should be unionized (save perhaps teachers). For example federal air traffic controllers make mid six figure salaries, with only a high school education, and get full retirement at a very young age. I was glad to see our governor try to trim back on state worker benefits (fewer holidays). Few in the private sector enjoy such job security and nice benefits.
The stalemate between the Dems and Reps was absolutely embarrassing and unnecessary. In a normal household, when times are tough, people look for additional revenue (take on second jobs), and cut back on expenses. With the Reps not wanting to raise taxes, stalling the budget, people lose jobs and revenue (reducing revenue further). If I had to guess, most would rather have a job, and pay a little more taxes. With the Dems not wanting to cut services, stalling the budget, people lose jobs, thus adding to the rolls of those who need services.
So this is my long winded way, of saying, thank goodness this is over.....for now.
(In other news...our local BofA was robbed on Tuesday, the suspect looks a lot like my old Sac roommate who used to chip cable boxes).
I have been disgusted and appalled at the behavior on both sides. It is the one primary responsibility of legislators....to make sure the State has can pay its bills. If they pass some laws, that is gravy. By stalling the budget, and related measures, many costs increase for the state, wasting more money. Interest is owed on contracts, overtime is paid for employees who take a day off on furlough day, then work over the weekend, etc. For example, Mr. BT is now subject to the furloughs, so he has to cut back his work to 40 hours (from 55-60) in order to drop 8 every other Friday. This will slow down his contract progress considerably, and will end up costing the state more $$.
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).
Thursday, February 12, 2009
The Appeal of a Depreciating Asset
I am compelled to respond to a recent comment, about why one would purchase a home now, knowing the purchase will be worth less in the future, and still feel good about said purchase. The person called this behavior non-coherent and illogical. I thought I would explore this concept a bit. My reasoning may not be solid, but I think I can make a bit of a case.
If one thinks about a home purely as an investment, I somewhat agree with the commenter. I say “somewhat”, because this line of thinking can lead to irrational behavior (bubbles), based on current expectations of future value. It is hard to predict the future, there are many variables and actors involved. This summer everyone thought oil was headed for $150 a barrel….now it’s less than $40.
On the other hand, almost everything we purchase is a depreciating asset (cars, electronics, computers, clothing, furniture etc.) In theory, just as I currently rent my home, I could also lease a car, electronics and furniture. Taken to its extreme, one would never purchase anything given the above logic (except perhaps food and jewelry).
If I do not plan to use an asset for most of its useful life, then leasing makes more sense. But in reality, we typically purchase most items (weighing utility versus price). It’s often a matter of convenience, not having to worry about preserving the condition of the item, less billing etc. Sometimes our life circumstances change, and force us to sell things earlier than we would like. However, Craigslist is an excellent tool for recouping some of the residual value.
That said, I still try to be prudent in my purchasing of depreciating assets. Do I buy the latest and greatest electronics/computers when they first debut? No. I typically wait until I feel they are reasonably priced. Do I have time to shop around at every possible store to make sure I am getting the best deal possible? No. I usually check consumer reports to make sure I am getting a good value, and often purchase at Costco.
Of course some assets lose all value, but people still buy them. I bought a computer at Incredible Universe (now Fry’s) to use for grad school applications back in 1997. It cost me $2000 for the setup, and 6 years later was worth almost nothing. That computer was an enormous purchase for me, as I was only making $10.50 an hour (ah the joys of working for a not-for-profit in the public interest). Yes there were alternatives (library perhaps), but I chose to purchase the computer.
Given current macro/micro economic factors, are home prices where I live likely to depreciate. Yes. Do I feel making a purchase now is a good alternative to leasing given our current time horizon. Yes. Did I do much more homework and due diligence for my home purchase, since it is likely the largest purchase I will ever make? Once could argue either way. Is this illogical and non-coherent behavior? Perhaps, but humans are not always the rational actors economists assume (although some of that is changing).
P.S. I spend a disproportionate amount of time in my home (as a full time teleworker) so my utility of a home is perhaps greater than most.
If one thinks about a home purely as an investment, I somewhat agree with the commenter. I say “somewhat”, because this line of thinking can lead to irrational behavior (bubbles), based on current expectations of future value. It is hard to predict the future, there are many variables and actors involved. This summer everyone thought oil was headed for $150 a barrel….now it’s less than $40.
On the other hand, almost everything we purchase is a depreciating asset (cars, electronics, computers, clothing, furniture etc.) In theory, just as I currently rent my home, I could also lease a car, electronics and furniture. Taken to its extreme, one would never purchase anything given the above logic (except perhaps food and jewelry).
If I do not plan to use an asset for most of its useful life, then leasing makes more sense. But in reality, we typically purchase most items (weighing utility versus price). It’s often a matter of convenience, not having to worry about preserving the condition of the item, less billing etc. Sometimes our life circumstances change, and force us to sell things earlier than we would like. However, Craigslist is an excellent tool for recouping some of the residual value.
That said, I still try to be prudent in my purchasing of depreciating assets. Do I buy the latest and greatest electronics/computers when they first debut? No. I typically wait until I feel they are reasonably priced. Do I have time to shop around at every possible store to make sure I am getting the best deal possible? No. I usually check consumer reports to make sure I am getting a good value, and often purchase at Costco.
Of course some assets lose all value, but people still buy them. I bought a computer at Incredible Universe (now Fry’s) to use for grad school applications back in 1997. It cost me $2000 for the setup, and 6 years later was worth almost nothing. That computer was an enormous purchase for me, as I was only making $10.50 an hour (ah the joys of working for a not-for-profit in the public interest). Yes there were alternatives (library perhaps), but I chose to purchase the computer.
Given current macro/micro economic factors, are home prices where I live likely to depreciate. Yes. Do I feel making a purchase now is a good alternative to leasing given our current time horizon. Yes. Did I do much more homework and due diligence for my home purchase, since it is likely the largest purchase I will ever make? Once could argue either way. Is this illogical and non-coherent behavior? Perhaps, but humans are not always the rational actors economists assume (although some of that is changing).
P.S. I spend a disproportionate amount of time in my home (as a full time teleworker) so my utility of a home is perhaps greater than most.
Tuesday, February 10, 2009
Form, Function, or Eco Friendly
I am at that point in my life, where I tend to sacrifice form for function. Instead of purchasing a charming old farmhouse or bungalow, we purchased a new tract home. My husband and I both work 40 hours a week, and don't want to spend our limited free time maintaining our home or other possessions.
When we tell folks we are buying a home, the first question is 1) are we getting a dog, or 2) are we going to put in a pool.
Answers, no and no. Both of these require lots of $$ and maintenance. I discussed my swimming pool concerns last spring in this post. Dogs, while wonderful, must be walked, fed, can't be left along for long periods of time, and can tear up your house/yard. I already have two young munchkins that have many of those same traits, so I don't need to add more work for myself (we have fish instead).
So this brings me to the issue at hand.....grass. In our rental the HOA maintains our front yard, and both front and back use recycled water. We currently have a nice patch of grass in the backyard that Mr.BT faithfully mows. But we never really play on it.
As we contemplate what to do with our backyard, I am leaning towards a "no grass" yard. We won't have recycled water where we are moving. In my opinion, grass seems a rather irresponsible choice in a drought plagued state. It also must be mowed on a regular basis, which pollutes the air. No grass, means a lower water bill, and less time mowing/edging. This seems like a win/win since the kids don't really play on it much. If they really need some grass to play on, there is a very large grassy park area within a couple blocks of the house.
So what is the argument for grass, as I don't really see that many, aside from the aesthetic?
We still plan to cover the ground somehow. Living where we do, I feel compelled to cover the ground to keep potential asbestos out of the air.
When we tell folks we are buying a home, the first question is 1) are we getting a dog, or 2) are we going to put in a pool.
Answers, no and no. Both of these require lots of $$ and maintenance. I discussed my swimming pool concerns last spring in this post. Dogs, while wonderful, must be walked, fed, can't be left along for long periods of time, and can tear up your house/yard. I already have two young munchkins that have many of those same traits, so I don't need to add more work for myself (we have fish instead).
So this brings me to the issue at hand.....grass. In our rental the HOA maintains our front yard, and both front and back use recycled water. We currently have a nice patch of grass in the backyard that Mr.BT faithfully mows. But we never really play on it.
As we contemplate what to do with our backyard, I am leaning towards a "no grass" yard. We won't have recycled water where we are moving. In my opinion, grass seems a rather irresponsible choice in a drought plagued state. It also must be mowed on a regular basis, which pollutes the air. No grass, means a lower water bill, and less time mowing/edging. This seems like a win/win since the kids don't really play on it much. If they really need some grass to play on, there is a very large grassy park area within a couple blocks of the house.
So what is the argument for grass, as I don't really see that many, aside from the aesthetic?
We still plan to cover the ground somehow. Living where we do, I feel compelled to cover the ground to keep potential asbestos out of the air.
Sunday, February 8, 2009
Some Details on our New Domicile
We signed a stack of papers on Saturday, and close this coming Friday...so I feel a bit more comfortable sharing some of the details now. (The process is very different from closing in VA, where you get the keys the same day.)
For quite some time, I have been tempted by the floor plan, overall modest development size and location of our future home. We have visited on numerous occasions. Back in August we saw the lot our home would sit on. It fell out of escrow sometime in December. So the week between Christmas an New Years, we threw out an offer, 5% below asking and 15k toward closing (the 15k toward closing, if we used their mortgage company, was their standard offer for everyone who walked in the door). 5% below asking put us just beneath our 20% DP cap, and $179 a square foot.
I've never really been very good at bargaining, and house shopping is no exception. The builder accepted that day, with no counter. Of course we were thrilled, as we didn't think they would accept. After thinking about it, I felt a little lame as we must have offered too much. On the other hand, they may have been eager to report one more home pending by COB 2008, as we signed and turned in the purchase agreement on New Year's Eve. To make myself feel better, I went online to the SacBee home sales database, and as of October 2008, there had been no sales below the price we had agreed upon (since that time, I have come to find out that two homes on smaller lots have closed at prices slightly below ours, within 1%).
However when I look at comps in the area, there really aren't any homes in such good shape, with a similar lot size, and proximity to Hwy 50, at or below our price (especially when you consider we won't pay a dime toward closing). I'm sure there will be soon though. Prices seem to be dropping fast lately. In fact, there are now many upscale tract homes to be had in the surrounding area for under 400k.
All this to say, I don't feel we got any type of "deal." We put in an offer on a home that really suits us, at a price we could afford (comparable to rent when the tax incentives are included).
There also was some luck involved. When it comes to interest rates timing is everything these days. I had done my original calculations at 5.25% and we ended up with 4.625% (which now gives us a larger chunk of change to spend on the backyard). Side note: I was rather anxious about using the builders lender, thinking they would make up the 15k in marked up fees etc., but they have been very competitive, and offered good service to boot.
As much as I tried, the builder would not budge on the realtor commission, because he never came with us on our visits (especially the first one). We plan to pay him out of pocket once we close. He showed us homes on 6 different occasions, and answered many e-mails inquiring about listings.
My one current misgiving is that we may miss out on the $15,000 tax credit, as the last report I read suggested it won't take effect until enactment, which is likely a week or two away. Sigh.
For quite some time, I have been tempted by the floor plan, overall modest development size and location of our future home. We have visited on numerous occasions. Back in August we saw the lot our home would sit on. It fell out of escrow sometime in December. So the week between Christmas an New Years, we threw out an offer, 5% below asking and 15k toward closing (the 15k toward closing, if we used their mortgage company, was their standard offer for everyone who walked in the door). 5% below asking put us just beneath our 20% DP cap, and $179 a square foot.
I've never really been very good at bargaining, and house shopping is no exception. The builder accepted that day, with no counter. Of course we were thrilled, as we didn't think they would accept. After thinking about it, I felt a little lame as we must have offered too much. On the other hand, they may have been eager to report one more home pending by COB 2008, as we signed and turned in the purchase agreement on New Year's Eve. To make myself feel better, I went online to the SacBee home sales database, and as of October 2008, there had been no sales below the price we had agreed upon (since that time, I have come to find out that two homes on smaller lots have closed at prices slightly below ours, within 1%).
However when I look at comps in the area, there really aren't any homes in such good shape, with a similar lot size, and proximity to Hwy 50, at or below our price (especially when you consider we won't pay a dime toward closing). I'm sure there will be soon though. Prices seem to be dropping fast lately. In fact, there are now many upscale tract homes to be had in the surrounding area for under 400k.
All this to say, I don't feel we got any type of "deal." We put in an offer on a home that really suits us, at a price we could afford (comparable to rent when the tax incentives are included).
There also was some luck involved. When it comes to interest rates timing is everything these days. I had done my original calculations at 5.25% and we ended up with 4.625% (which now gives us a larger chunk of change to spend on the backyard). Side note: I was rather anxious about using the builders lender, thinking they would make up the 15k in marked up fees etc., but they have been very competitive, and offered good service to boot.
As much as I tried, the builder would not budge on the realtor commission, because he never came with us on our visits (especially the first one). We plan to pay him out of pocket once we close. He showed us homes on 6 different occasions, and answered many e-mails inquiring about listings.
My one current misgiving is that we may miss out on the $15,000 tax credit, as the last report I read suggested it won't take effect until enactment, which is likely a week or two away. Sigh.
Friday, February 6, 2009
Speculating from my Soapbox
To date supply side solutions offered by the government and lenders, mainly in the form of loan modifications, have not been very effective, as evidenced by the high recidivism rates. So the current proposal at least makes sense in that it tries to stimulate demand.
The two ideas being floated right now involve artificially lowering interest rates, and giving buyers a tax credit. While this may slow the decline in prices, increasing demand, it will only serve to prolong the market adjustment.
Interest rates are low right now, and I hope the government encourages anyone who is still able, to refinance out of their ARM and into a fixed rate, assuming they can afford the payment. I am relieved that at least one family member living in the LA basin has been able to do just that.
Personally, I would much rather see the government put the billion dollar subsidies towards creating jobs and infrastructure, so that families don’t lose their income and subsequently their home. There are a lot of construction workers out of work (I just met one on Tuesday standing in line to register my daughter for kindergarten). I would love to see them put to work rehabilitating our aging air traffic facilities and schools which are in an embarrassing state of disrepair.
By focusing on creating jobs and resuscitating the economy, home prices will find a bottom sooner, as there will be income to support the demand for housing once it reaches reasonable levels of affordability (which we are approaching in some areas). As a side note, I am thrilled to see that the bad press and new administration has caused banks and financial firms to cut back on bonuses and out-sized perks. The idea that they report enormous losses, take taxpayer money, yet pay themselves richly is just absurd.
Seems all these housing related proposals, do nothing but buy time. (Of course if the government plans to throw $15,000 at me for buying a home, I certainly won’t turn it down.)
The two ideas being floated right now involve artificially lowering interest rates, and giving buyers a tax credit. While this may slow the decline in prices, increasing demand, it will only serve to prolong the market adjustment.
Interest rates are low right now, and I hope the government encourages anyone who is still able, to refinance out of their ARM and into a fixed rate, assuming they can afford the payment. I am relieved that at least one family member living in the LA basin has been able to do just that.
Personally, I would much rather see the government put the billion dollar subsidies towards creating jobs and infrastructure, so that families don’t lose their income and subsequently their home. There are a lot of construction workers out of work (I just met one on Tuesday standing in line to register my daughter for kindergarten). I would love to see them put to work rehabilitating our aging air traffic facilities and schools which are in an embarrassing state of disrepair.
By focusing on creating jobs and resuscitating the economy, home prices will find a bottom sooner, as there will be income to support the demand for housing once it reaches reasonable levels of affordability (which we are approaching in some areas). As a side note, I am thrilled to see that the bad press and new administration has caused banks and financial firms to cut back on bonuses and out-sized perks. The idea that they report enormous losses, take taxpayer money, yet pay themselves richly is just absurd.
Seems all these housing related proposals, do nothing but buy time. (Of course if the government plans to throw $15,000 at me for buying a home, I certainly won’t turn it down.)
Wednesday, February 4, 2009
Out with the Bubble, in with the Recession
My last post wasn’t properly framed. What I was really trying to get at was two things: 1) The desirable areas, which many feel still have a long way to fall, have more or less fallen to pre-bubble levels (at least for the two zips I track), and thus 2) housing market declines from here on out, will be primarily driven by a sagging economy.
To respond to some of the comments……
Update: Regarding the last point, there is only a small amount of manipulation possible in my actual calculations. I primarily gather existing data and report on it. Manipulation can come from monkeying around with inflation adjustments. But for yesterday's post, I actually went to inflationdata.com to calculate inflation over the period of my data.
It's the interpretation of the data that can be biased...hence I try to publish it all, so everyone can come to their own conclusions. I have always welcomed comments from both sides of the debate. It's how I learn to be a better analyst. Groupthink, and biased interpretation on either side is undesirable.....and is largely responsible for this mess in the first place.
To respond to some of the comments……
“Under demand or over supply equal the same thing right?”
Same result (price drops), but they have different solutions. For example, in aviation, delay from weather, versus delay from wanting to land at an airport everyone else wants to land at, has very different implications and solutions.
“The excess housing out there has NOT been dealt with, and there are LARGE amounts still out there.”
I don’t agree. Based on my calculations Sacramento Metro area is under 5 months inventory, and has been for quite some time. Yes there are vacant homes, and foreclosures waiting to be put on the market, but I it’s not enough to get us back up to last year’s 12 month's inventory levels.
“So is this a case of using data to form an opinion, or now that you own you have an opinion and will see proof in everything and find stats to back you up?”
Probably a little of both. We wouldn’t have pulled the trigger if I felt we were still at bubble pricing levels. We had been eyeing this development for a long time and had plenty of opportunities in the past year and a half, but didn’t feel comfortable buying till now. Back when I started this blog, in April of 2007, my inflation adjusted calculations called for a decline from peak of 39% and 41% (in Folsom and EDH) to be back at “reasonable levels”. Two years later, we are very close to those levels (inflation adjusting for those additional two years).
Update: Regarding the last point, there is only a small amount of manipulation possible in my actual calculations. I primarily gather existing data and report on it. Manipulation can come from monkeying around with inflation adjustments. But for yesterday's post, I actually went to inflationdata.com to calculate inflation over the period of my data.
It's the interpretation of the data that can be biased...hence I try to publish it all, so everyone can come to their own conclusions. I have always welcomed comments from both sides of the debate. It's how I learn to be a better analyst. Groupthink, and biased interpretation on either side is undesirable.....and is largely responsible for this mess in the first place.
Seriously, another 20%?
Some are of the opinion that we have another 20% drop left in the more desirable zip codes. There have been suggestions that we could potentially lose 100k on our house value (which would be over 20%). While anything is possible....I'm not sure it's probable.
Below is a graph of inflation adjusted prices for Folsom and EDH, using two separate data sources. I inflation adjusted backwards (from the most recent value) since my data does not go back as far as I would like. Looking at the charts, it sure seems to me that we have squeezed out the majority of the bubble.
This is not to suggest we are at the bottom of the market cycle, as we are likely to over-correct due to the deteriorating economy. But I am rather doubtful we are going to drop another 20% from here. If that does occur, we would have much bigger problems on our hands than home values.
It is my opinion that we are no longer in an over-supply situation. It's now an under-demand situation (lack of qualified borrowers given current lending standards). The home purchase chain is still broken due to all the foreclosures. In a healthy market, a purchase allows the owner to "move-up," which is rarely the case in the current market (hence the "move-up" markets lag in their recovery).
In terms of the larger metro area, the last time I ran the month's inventory data, Sacramento metro was down to 4.6 months. It’s been below 5 month's inventory for the last 5 months. According to my same data, in 2007 it was between 7.8 and 12.4 month's inventory. This is considerable improvement.
Of course, we could probably wait for another year and find something just as nice for less. But the future is uncertain. Right now we have convergence. Interest rates are low, the rent/buy numbers work out, and so does the home (I still have to pinch myself to believe what a nice home we are able to afford). I am a firm believer in the saying: A bird in the hand is worth two in the bush.
Below is a graph of inflation adjusted prices for Folsom and EDH, using two separate data sources. I inflation adjusted backwards (from the most recent value) since my data does not go back as far as I would like. Looking at the charts, it sure seems to me that we have squeezed out the majority of the bubble.
This is not to suggest we are at the bottom of the market cycle, as we are likely to over-correct due to the deteriorating economy. But I am rather doubtful we are going to drop another 20% from here. If that does occur, we would have much bigger problems on our hands than home values.
It is my opinion that we are no longer in an over-supply situation. It's now an under-demand situation (lack of qualified borrowers given current lending standards). The home purchase chain is still broken due to all the foreclosures. In a healthy market, a purchase allows the owner to "move-up," which is rarely the case in the current market (hence the "move-up" markets lag in their recovery).
In terms of the larger metro area, the last time I ran the month's inventory data, Sacramento metro was down to 4.6 months. It’s been below 5 month's inventory for the last 5 months. According to my same data, in 2007 it was between 7.8 and 12.4 month's inventory. This is considerable improvement.
Of course, we could probably wait for another year and find something just as nice for less. But the future is uncertain. Right now we have convergence. Interest rates are low, the rent/buy numbers work out, and so does the home (I still have to pinch myself to believe what a nice home we are able to afford). I am a firm believer in the saying: A bird in the hand is worth two in the bush.
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.
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).
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.
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.
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.
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.
http://www.co.el-dorado.ca.us/auditor-controller/PropTax/pt_direct_apn.html
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.
http://www.co.el-dorado.ca.us/auditor-controller/PropTax/pt_direct_apn.html
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.
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).
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).
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).
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).
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.
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?
Nationally:
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.)
Nationally:
- 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).
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.
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.
Monday, December 29, 2008
One Last Attempt in 2008
A new home, we had our eye on last summer, fell out of escrow this month. It is priced competitively, given current interest rates, as is the other local development we had our eye on (even with all the extra monthly fees and taxes). It was a bit of a difficult decision, but we figured we would go with the higher priced home since it best meets our needs.
So we put in our first offer on a new home in a development (last year's offer to a builder was not in a new home development, it was more of a one off type deal). Our offer was only 5% below asking, so I don't feel we are being unreasonable. After all, they already received a 5k deposit on it from the previous buyers, and if we had come in with our realtor the first time we visited, they would have given him 5k as well.
So now we wait.
(The part that was most disconcerting about this offer process was, they didn't care/ask or want any documentation about the financing, like what our credit is, or if we have any money down etc., all they really wanted to know what what price we were putting an offer in at.)
So we put in our first offer on a new home in a development (last year's offer to a builder was not in a new home development, it was more of a one off type deal). Our offer was only 5% below asking, so I don't feel we are being unreasonable. After all, they already received a 5k deposit on it from the previous buyers, and if we had come in with our realtor the first time we visited, they would have given him 5k as well.
So now we wait.
(The part that was most disconcerting about this offer process was, they didn't care/ask or want any documentation about the financing, like what our credit is, or if we have any money down etc., all they really wanted to know what what price we were putting an offer in at.)
Nov-Dec 2008 Month's Inventory for Sacramento Metro Area
Well, I couldn't help myself, I gathered inventory data for the Sacramento Metro area this month. Below is a comparison of this year versus last year. Month's inventory is way down. For most zips its below the 6 month mark, which is traditionally heralded as equilibrium.
Yet, if we are truly at equilibrium, prices should not be dropping at a double digit pace. So this leads to my big question...is 6 months inventory still equilibrium? With few buyer's who can qualify for loans, I am inclined to think that 4 months is the new 6 months.
Data is sorted by the change in month's inventory from year to year (third column). Inventory data is collected from ZipRealty for single family homes, and the resale data is from DataQuick via the SacBee.
Hope everyone had a happy and safe holiday.
Yet, if we are truly at equilibrium, prices should not be dropping at a double digit pace. So this leads to my big question...is 6 months inventory still equilibrium? With few buyer's who can qualify for loans, I am inclined to think that 4 months is the new 6 months.
Data is sorted by the change in month's inventory from year to year (third column). Inventory data is collected from ZipRealty for single family homes, and the resale data is from DataQuick via the SacBee.
Hope everyone had a happy and safe holiday.
Sunday, December 21, 2008
Articulating 2009
Here is a link to the round table story in the Sacramento Bee.
I sound "kind of" very inarticulate, as if I can't complete a sentence properly. I will chock it up to all the drugs I was taking at the time for my cold (knowing full well that I totally overuse that phrase). This is why I feel for all the politicians and celebrities whose every word is subject to public scrutiny. It takes a lot of practice to be articulate all of the time. Luckily for me, I can revise and spell check.
For those who might be finding this blog for the first time....here is a link to my slightly more articulate comments, as well as the comments, predictions and insights of others who watch the market with me.
I think the comments over at the Sac Bee have already started shredding everyone involved (some deservedly so.....but I will refrain from commenting more than that).
I sound "kind of" very inarticulate, as if I can't complete a sentence properly. I will chock it up to all the drugs I was taking at the time for my cold (knowing full well that I totally overuse that phrase). This is why I feel for all the politicians and celebrities whose every word is subject to public scrutiny. It takes a lot of practice to be articulate all of the time. Luckily for me, I can revise and spell check.
For those who might be finding this blog for the first time....here is a link to my slightly more articulate comments, as well as the comments, predictions and insights of others who watch the market with me.
I think the comments over at the Sac Bee have already started shredding everyone involved (some deservedly so.....but I will refrain from commenting more than that).
Saturday, December 20, 2008
November 2008 - Folsom and El Dorado Hills
It's been a couple months since I last posted the historical price and sales volume data. Below are the charts updated with the November 2008 data.
Note that the DataQuick/SacBee data is resales only, and the Melissa data likely includes new homes.
Speaking of homes, with Christmas fast approaching, I thought Santa might need a gentle reminder, that my wish list hasn't changed much. Unfortunately it went unfulfilled in 2008.
Note that the DataQuick/SacBee data is resales only, and the Melissa data likely includes new homes.
Speaking of homes, with Christmas fast approaching, I thought Santa might need a gentle reminder, that my wish list hasn't changed much. Unfortunately it went unfulfilled in 2008.
Tuesday, December 16, 2008
California Here I Come....
Just another, of the many many reasons we moved back to California......
The University of Michigan compiled a list of metro areas based on their cooling and heating demand (the less demand, the better the rank). Sacramento was ranked 6 out of 50, only to be beat out by other cities in California (hat tip WSJ Developments blog).
I would hate to think of what my utility bill would look like if we were ranked 50! Of course "demand" and costs are not always related. Just look at the difference between PG&E and SMUD.
The University of Michigan compiled a list of metro areas based on their cooling and heating demand (the less demand, the better the rank). Sacramento was ranked 6 out of 50, only to be beat out by other cities in California (hat tip WSJ Developments blog).
I would hate to think of what my utility bill would look like if we were ranked 50! Of course "demand" and costs are not always related. Just look at the difference between PG&E and SMUD.
Saturday, December 13, 2008
A realtor, a broker, a builder, and a buyer walk into a room...
As some of you have already surmised, last week I attended a real estate round table hosted by the Sacrament Bee.
A quick caveat before I make some observations, the investor/bottom caller dropped out with the flu (probably not a bad thing as he was likely to get beat up). I was on the verge of dropping out, having come down with a mutant form of Strep on Monday. But I washed my hands thoroughly and pressed on, in a heavily drugged state (antibiotics, Advil, and decongestant). So needless to say I am not sure my arguments were coherent, let alone cohesive.
Overall, it was a very civil, and lively discussion, with each person bringing a unique viewpoint to the table (an agent, a broker/credit, a building consultant, me, and several from the Bee). Without divulging the details, the story is supposed to run in next Sunday's paper, I wanted to make a couple of observations.
This group has hindsight clearly in their favor. Back in late 2006/early 2007 I couldn't find a RE agent (and we looked hard) that would tell me a home was overpriced, nor could I find a broker who would only give me a quote for a 30yr fixed loan (2 other quotes that lowered my monthly payment always seemed to come with it). So its interesting to see how history gets revised. Of course I didn't know these particular individuals at the time, so I can't say for certain.
Early in the conversation the effect of lower interest rates came up (and whether it would stimulate more demand). So I threw out a somewhat standard line, that a smart buyer would wait till prices decreased further, thus paying taxes on lower principle, because they can always refinance when interest rates move lower. Idea being, you can always lower your interest rate, but not your principle. This idea went over like a lead balloon. Perhaps I didn't phrase it properly?
At one point in the conversation the mortgage/credit guy, Michael, suggested I was throwing away money by renting since there are tax benefits to owning. We have discussed this before, and basically agreed that tax benefits merely defray some of the many additional costs associated with owning a home (insurance, property taxes, HOA, Mello-Roos, maintenance). I include the tax benefits in my rent/buy calculations, at current prices, we are way still better off renting than purchasing a comparable home.
When I let on that I had 20% as a down payment, realtor Ruben, seemed to think the world was my oyster. Unfortunately, this has not been our experience. 20% down, and no contingency (no home to sell first), doesn't seem to make a lick of difference when we present our offers to a bank or builder.
Of course, the "when is bottom" question came up. And while I did give an answer (over a year away with no appreciation for some time...but the price declines will moderate considerably as we approach bottom) there was no time to get into the discussion of how different areas of the city will bottom at different times. This is a finer point, but one that I like to emphasize since it is important for buyers.
In all it was an enjoyable discussion (and that's not just the drugs talking), and as an added bonus we were led on a tour of the newsroom. I'm a bit anxious about reading the comments when the piece comes out, some of the people who comment on Sac Bee stories are super angry mean. So much for "love thy neighbor."
A quick caveat before I make some observations, the investor/bottom caller dropped out with the flu (probably not a bad thing as he was likely to get beat up). I was on the verge of dropping out, having come down with a mutant form of Strep on Monday. But I washed my hands thoroughly and pressed on, in a heavily drugged state (antibiotics, Advil, and decongestant). So needless to say I am not sure my arguments were coherent, let alone cohesive.
Overall, it was a very civil, and lively discussion, with each person bringing a unique viewpoint to the table (an agent, a broker/credit, a building consultant, me, and several from the Bee). Without divulging the details, the story is supposed to run in next Sunday's paper, I wanted to make a couple of observations.
This group has hindsight clearly in their favor. Back in late 2006/early 2007 I couldn't find a RE agent (and we looked hard) that would tell me a home was overpriced, nor could I find a broker who would only give me a quote for a 30yr fixed loan (2 other quotes that lowered my monthly payment always seemed to come with it). So its interesting to see how history gets revised. Of course I didn't know these particular individuals at the time, so I can't say for certain.
Early in the conversation the effect of lower interest rates came up (and whether it would stimulate more demand). So I threw out a somewhat standard line, that a smart buyer would wait till prices decreased further, thus paying taxes on lower principle, because they can always refinance when interest rates move lower. Idea being, you can always lower your interest rate, but not your principle. This idea went over like a lead balloon. Perhaps I didn't phrase it properly?
At one point in the conversation the mortgage/credit guy, Michael, suggested I was throwing away money by renting since there are tax benefits to owning. We have discussed this before, and basically agreed that tax benefits merely defray some of the many additional costs associated with owning a home (insurance, property taxes, HOA, Mello-Roos, maintenance). I include the tax benefits in my rent/buy calculations, at current prices, we are way still better off renting than purchasing a comparable home.
When I let on that I had 20% as a down payment, realtor Ruben, seemed to think the world was my oyster. Unfortunately, this has not been our experience. 20% down, and no contingency (no home to sell first), doesn't seem to make a lick of difference when we present our offers to a bank or builder.
Of course, the "when is bottom" question came up. And while I did give an answer (over a year away with no appreciation for some time...but the price declines will moderate considerably as we approach bottom) there was no time to get into the discussion of how different areas of the city will bottom at different times. This is a finer point, but one that I like to emphasize since it is important for buyers.
In all it was an enjoyable discussion (and that's not just the drugs talking), and as an added bonus we were led on a tour of the newsroom. I'm a bit anxious about reading the comments when the piece comes out, some of the people who comment on Sac Bee stories are super angry mean. So much for "love thy neighbor."
Sunday, December 7, 2008
Short Run Solutions
As Keynes was quoted as saying, "In the long run, we are all dead." With that in mind, lets look at the short run. Right now interest rates are at the lowest level I've seen since I started tracking them. Compared to rates earlier in the year, current rates could lead to almost $300 savings a month given our specifics.
In the short run, low interest rates are great for everyone. Buyers pay less each month, or can afford more house for their money. Home owners with ARMs, who are not already under water, can refinance into a low fixed rate mortgage. Thus low interest rates both increase demand, and help lower the distressed supply.
Lest we forget, low interest rates were one of the culprits fueling the housing bubble. Longer term, we will still have to ween ourselves from our low rate addiction, leading to the economic shakes. (I know some of the hardcore econ folks tackled this issue, but I had a sick kid all week, so no time for reading up).
With all the $$ being thrown around by the fed, inflation is bound to kick in, thus interest rates will inevitably be raised. Once again, we will be faced with housing market problems as demand dries up, but hopefully by then, all the toxic loans will be out of the system (either through refi, modification or foreclosure) leaving us with a slightly less onerous housing downturn.
In the short run, low interest rates are great for everyone. Buyers pay less each month, or can afford more house for their money. Home owners with ARMs, who are not already under water, can refinance into a low fixed rate mortgage. Thus low interest rates both increase demand, and help lower the distressed supply.
Lest we forget, low interest rates were one of the culprits fueling the housing bubble. Longer term, we will still have to ween ourselves from our low rate addiction, leading to the economic shakes. (I know some of the hardcore econ folks tackled this issue, but I had a sick kid all week, so no time for reading up).
With all the $$ being thrown around by the fed, inflation is bound to kick in, thus interest rates will inevitably be raised. Once again, we will be faced with housing market problems as demand dries up, but hopefully by then, all the toxic loans will be out of the system (either through refi, modification or foreclosure) leaving us with a slightly less onerous housing downturn.
Thursday, December 4, 2008
Average Buyer's Crystal Ball
Being the ever opinionated person that I am, I was asked to participate in a year-end forum on the Sacramento housing market. I’m sure one of the big questions on everyone’s mind will be: “What the future holds in store for our metro area.”
With that in mind, I would love to hear everyone’s predictions if they dare*…..for the 1 year mark and 5 year mark. Here are some of mine (I did my best to keep it short):
1 Year – 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).
5 Year –The economy will experience the deepest slump since the Great Depression, as consumers and companies undergo painful deleveraging. The Sacramento market will not be spared. However its housing market will stabilize before the rest of the country, as home prices have dropped the hardest and fastest here. Our local economy will also recover sooner than others, buoyed by relatively stable government employment, and a stabilized and affordable housing market. 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. Finally in year 5, modest appreciation will be possible as the housing market and local economy eventually find their footing.
Unfortunately I see no end in sight to the economic troubles our country is facing. Of course the big wild card in all this is the government’s response, which can drastically change the timeline, but not necessarily the forestall end result. I do however consider myself optimistic on our local housing market. I know of several first time buyers getting into the market now distressed inventory has made select areas of Sac accessible (note that I used the term accessible and not affordable).
*Making public predictions is a pretty tough gambit, as we have been through quite a roller coaster this last year, between wildly fluctuating commodity prices, a change in administration, and the demise of the investment banking industry, it’s hard to imagine what the future has in store for us.
With that in mind, I would love to hear everyone’s predictions if they dare*…..for the 1 year mark and 5 year mark. Here are some of mine (I did my best to keep it short):
1 Year – 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).
5 Year –The economy will experience the deepest slump since the Great Depression, as consumers and companies undergo painful deleveraging. The Sacramento market will not be spared. However its housing market will stabilize before the rest of the country, as home prices have dropped the hardest and fastest here. Our local economy will also recover sooner than others, buoyed by relatively stable government employment, and a stabilized and affordable housing market. 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. Finally in year 5, modest appreciation will be possible as the housing market and local economy eventually find their footing.
Unfortunately I see no end in sight to the economic troubles our country is facing. Of course the big wild card in all this is the government’s response, which can drastically change the timeline, but not necessarily the forestall end result. I do however consider myself optimistic on our local housing market. I know of several first time buyers getting into the market now distressed inventory has made select areas of Sac accessible (note that I used the term accessible and not affordable).
*Making public predictions is a pretty tough gambit, as we have been through quite a roller coaster this last year, between wildly fluctuating commodity prices, a change in administration, and the demise of the investment banking industry, it’s hard to imagine what the future has in store for us.
Monday, December 1, 2008
Tribute to Tanta
I was deeply moved yesterday to read that Tanta had passed away (she is a co-blogger at my favorite non-local blog, Calculated Risk).
So young, smart and witty. I will miss her.
A reminder to us all, to cherish our time with friends and families.
So young, smart and witty. I will miss her.
A reminder to us all, to cherish our time with friends and families.
Wednesday, November 26, 2008
Something to Chew On
As some of you may recall, for the past couple months, there has been very little NOD activity in the markets I track. The NOD count for Folsom, El Dorado Hills and Auburn, has basically been halved.
Prior to today, I attributed this drop-off to the new law that became effective in California, SB1137. But, best I can tell, that law only added 45 days to the process. Thus we would have expected a pick up in NOD activity around late-October, as lenders complied with the law that became effective Sept, 8, 2008.
But here is where my conspiracy minded brain starts to ruminate. It wasn't till this week, 75 days, after SB1137 went into effect, that I began to see a pick up in NOD activity. Hmm, perhaps these lenders were holding their breath, waiting for the government to relieve them of these troubled assets.
When Paulson announced that the TARP funds were no longer going to be used to purchase mortgage-assets, they went back to business as usual. This idea came to mind, primarily because I had heard rumors in the blogosphere that Countrywide was not foreclosing or sending NODs while it was in the process of being bought by BofA. No idea if any of this is true or even possible, but it does seem like a plausible explanation given the timing.
Coincidence or conspiracy......thoughts?
_________________________
So does anyone know what has happened to Housing Tracker? It was one of my favorite sites for historical context and housing statistics.
Prior to today, I attributed this drop-off to the new law that became effective in California, SB1137. But, best I can tell, that law only added 45 days to the process. Thus we would have expected a pick up in NOD activity around late-October, as lenders complied with the law that became effective Sept, 8, 2008.
But here is where my conspiracy minded brain starts to ruminate. It wasn't till this week, 75 days, after SB1137 went into effect, that I began to see a pick up in NOD activity. Hmm, perhaps these lenders were holding their breath, waiting for the government to relieve them of these troubled assets.
When Paulson announced that the TARP funds were no longer going to be used to purchase mortgage-assets, they went back to business as usual. This idea came to mind, primarily because I had heard rumors in the blogosphere that Countrywide was not foreclosing or sending NODs while it was in the process of being bought by BofA. No idea if any of this is true or even possible, but it does seem like a plausible explanation given the timing.
Coincidence or conspiracy......thoughts?
_________________________
So does anyone know what has happened to Housing Tracker? It was one of my favorite sites for historical context and housing statistics.
Monday, November 24, 2008
If you Insist
As many of you know, I am not real keen on the government deciding who wins and who loses in the marketplace. I prefer the government to create a business environment with a level and equitable playing field (through regulation and oversight).
If the government insists on getting involved, I normally prefer to rescue people (providing safety nets, like unemployment and retraining), and not corporations (i.e. the big 3 now begging for a handout).
There seems to be a growing chorus for the government to get to the "root" of the economic problem: the housing market. My earlier recommendations, are still highly relevant, but I have some additional observations, based on recent data.
Today on Calculated Risk, there was an excerpt stating over 50% of modifications are defaulting. This is a rather astonishing number, and makes me wonder if workouts are really worth pursuing. It suggests that workouts only prolong the housing correction, as many of us have suggested. (For the record, I do support workouts for people who bought their home using at least 10% of their own money, paid their own closing costs, and whose income situation has not changed materially.)
Today's WSJ discusses a new tactic, help the buyers, instead of the owners. Of course, given my situation, I am a rather biased in favor demand-side solutions. However I think it has some legitimate merits as well. Offering subsided interest rates to home buyers, basically neutralizes my gripe from last week (home buyers have to pay market rates for mortgages and market value for homes, while workouts "homeowners" receive below market interest and principle).
So if the government insists on meddling in the housing market (which they have already done to a large degree), leveling the playing field so that buyers and owners enjoy the same perks, seems like an entirely reasonable thing to do.
If the government insists on getting involved, I normally prefer to rescue people (providing safety nets, like unemployment and retraining), and not corporations (i.e. the big 3 now begging for a handout).
There seems to be a growing chorus for the government to get to the "root" of the economic problem: the housing market. My earlier recommendations, are still highly relevant, but I have some additional observations, based on recent data.
Today on Calculated Risk, there was an excerpt stating over 50% of modifications are defaulting. This is a rather astonishing number, and makes me wonder if workouts are really worth pursuing. It suggests that workouts only prolong the housing correction, as many of us have suggested. (For the record, I do support workouts for people who bought their home using at least 10% of their own money, paid their own closing costs, and whose income situation has not changed materially.)
Today's WSJ discusses a new tactic, help the buyers, instead of the owners. Of course, given my situation, I am a rather biased in favor demand-side solutions. However I think it has some legitimate merits as well. Offering subsided interest rates to home buyers, basically neutralizes my gripe from last week (home buyers have to pay market rates for mortgages and market value for homes, while workouts "homeowners" receive below market interest and principle).
So if the government insists on meddling in the housing market (which they have already done to a large degree), leveling the playing field so that buyers and owners enjoy the same perks, seems like an entirely reasonable thing to do.
Wednesday, November 19, 2008
November Market Stress Update for 95762, 95630, 95602, 95603
You know you are a nerd, when you are pissed off about work, so you play with housing data to help get you mind off things.
Anyways, here is the latest market stress update for El Dorado Hills, Folsom, and now Auburn. I wanted to include the monthly sales too, but it was just too much data on one slide, so I have attached the sales data separately (that MCB had sent me earlier...thanks again!). Do take the time to compare the monthly sales numbers to the NOD & REO levels.....if I had more time I would have done some combinations, but unfortunately I am really short on time these days.
As you can see, NODs have been stopped in their tracks by the recent CA legislation. Few new NODs are being filed, while old ones are getting resolved or reverting to REO status (notice the steady rise in REOs).
Just noticed I didn't label the data legend very well. It is the sales price bin in thousands of dollars. The data was rounded for ease of aggregating, so the "300" bin, is actually comprised of homes that sold from $250,000 to $350,000.
Anyways, here is the latest market stress update for El Dorado Hills, Folsom, and now Auburn. I wanted to include the monthly sales too, but it was just too much data on one slide, so I have attached the sales data separately (that MCB had sent me earlier...thanks again!). Do take the time to compare the monthly sales numbers to the NOD & REO levels.....if I had more time I would have done some combinations, but unfortunately I am really short on time these days.
As you can see, NODs have been stopped in their tracks by the recent CA legislation. Few new NODs are being filed, while old ones are getting resolved or reverting to REO status (notice the steady rise in REOs).
Just noticed I didn't label the data legend very well. It is the sales price bin in thousands of dollars. The data was rounded for ease of aggregating, so the "300" bin, is actually comprised of homes that sold from $250,000 to $350,000.
Friday, November 14, 2008
Going Public
Not sure I should do this......but I suppose everyone in the RE industry does (with their pictures on their cards).
So if you happen to see me on the street or at an open house, please say "hi", and offer me a smoking deal on your home.
Speaking of homes, there is a foreclosure back on the market I am trying to talk Mr.BT into. Haven't seen the inside yet, but the stats (do-able on one salary) and pics look good.
So if you happen to see me on the street or at an open house, please say "hi", and offer me a smoking deal on your home.
Speaking of homes, there is a foreclosure back on the market I am trying to talk Mr.BT into. Haven't seen the inside yet, but the stats (do-able on one salary) and pics look good.
Thursday, November 13, 2008
Why Punish the Prudent?
Dear Lawmakers –
I have a couple questions I was hoping you could answer. Why is it that people, who put little to no money down on a home, are now eligible for 2.5% interest backed by the government, and principle reductions of 90% to market?
We would love to purchase a home using a 20% down payment, however all we can find are interest rates at 6% or higher, and market home prices? It seems to me that those of us who have excellent credit scores, and down-payments are actually being punished and asked to pay more when compared to others.
I honestly don’t mind the government helping out actual homeowners. However, I don’t consider someone a homeowner unless they put more than 10% down when purchasing their home.
So all this talk about keeping people in “their” homes, seems like rhetoric aimed at people’s heartstrings. How am I, a renter, any different than someone who moved into a home with little to no money down? For a renter, it’s called a deposit, but for these “homeowners” it’s called closing costs. Yet paying closing costs, now entitles them to lots of special government subsidies that I am not eligible for.
As I am sure you are aware, rewriting loans to keep people in “their” homes, will prolong the pain and keep home prices higher than they would otherwise be. If a loan is rewritten, the government /lender should be required to record the new principle balance with the county, so that us home buyers can at least benefit from the lower more affordable comp.
As evidenced in many parts of Sacramento, the housing market is not broke. People will buy homes once they become affordable (using responsible lending products). Right now homes under $250,000 in our area are receiving multiple bids.
Letting the market adjust back to affordable levels has many benefits. If people are spending less on housing, they will have more disposable income to fuel the economy. It also means people can buy homes closer to work, as opposed to distant suburbs. This had a dual benefit because it will cut emissions and energy demand, while allowing people to spend more time with their loved ones and less time commuting.
Best of luck saving the economy,
Your Average Buyer
I have a couple questions I was hoping you could answer. Why is it that people, who put little to no money down on a home, are now eligible for 2.5% interest backed by the government, and principle reductions of 90% to market?
We would love to purchase a home using a 20% down payment, however all we can find are interest rates at 6% or higher, and market home prices? It seems to me that those of us who have excellent credit scores, and down-payments are actually being punished and asked to pay more when compared to others.
I honestly don’t mind the government helping out actual homeowners. However, I don’t consider someone a homeowner unless they put more than 10% down when purchasing their home.
So all this talk about keeping people in “their” homes, seems like rhetoric aimed at people’s heartstrings. How am I, a renter, any different than someone who moved into a home with little to no money down? For a renter, it’s called a deposit, but for these “homeowners” it’s called closing costs. Yet paying closing costs, now entitles them to lots of special government subsidies that I am not eligible for.
As I am sure you are aware, rewriting loans to keep people in “their” homes, will prolong the pain and keep home prices higher than they would otherwise be. If a loan is rewritten, the government /lender should be required to record the new principle balance with the county, so that us home buyers can at least benefit from the lower more affordable comp.
As evidenced in many parts of Sacramento, the housing market is not broke. People will buy homes once they become affordable (using responsible lending products). Right now homes under $250,000 in our area are receiving multiple bids.
Letting the market adjust back to affordable levels has many benefits. If people are spending less on housing, they will have more disposable income to fuel the economy. It also means people can buy homes closer to work, as opposed to distant suburbs. This had a dual benefit because it will cut emissions and energy demand, while allowing people to spend more time with their loved ones and less time commuting.
Best of luck saving the economy,
Your Average Buyer
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