Inventory took a nice jump this week. As for prices, well my averages and medians seem to be holding steady for now, but since inventory in my search has grown so much (it now stands at 137 homes in Folsom & EDH), it masks a lot.
Some interesting price trends.....there are now 19 homes over 2000 sqft priced at or below $400k. Almost half are pending. There are 26 homes at or below $175 a square foot, and almost half of those are pending as well. For a bit of comparison, of all 137 homes, only around 25% are pending.
To pull the trigger on one of these homes I am looking have my fully loaded monthly rent vs. buy calcs within +/- 10%, as well as come within a reasonable range on the inflation adjusted price (from '00 or '01) +/- $20k ........and of course a seller to accept that offer. In other words, first I am looking to figure if the transaction makes financial sense for us, and second, we want to be reasonably heged against further drops in price. I really want to purchase before my oldest starts kindergarten....which means close to bottom will have to be good enough for us.
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If getting your kid to Kindergarten in the school you love is your main goal, why not rent in that school dist..
Buying the house for school this year would really bite you after all the knowledge you had gained through blogging and reading other blogs..
We have recently moved to the area from South (for job reasons) and took a rental in Anatolia in RC.
It is pathetic here with 40-50% off and room for more. This type of discounts will move into Folsom/EDH in a year when the banks need to get out of blood bath...
I'm concerned about being hedged against future price adjustments, too. For one thing, despite my excellent FICO and solid employment and income, I don't think I'll be able to get a loan unless the house is WELL under market value due to not having (currently, anyway -- if prices drop to historic medians I'd be ok) the 20% down.
Spoke with someone yesterday who has retired and his wife (over 70) wants to retire, too. He readily agrees there was a huge bubble in RE in Sacto, and he disparages people who couldn't afford the prices buying McMansions. However (of course)his situation is "different". His part of town is "very desirable". And of course, they want to maximize the money they have for retirement. It was a very peculiar conversation: half ranting about inflation and the lack of increases in middle-income wages for years, and half about expectations that an old house that needs a little sprucing up will still sell for way over median price.
Individual owners are still making very emotional decisions about the value of their house to the resale market. I think banks and builders are probably not so deluded.
My calcs for 2000 inflation adjusted prices, using Radarlogic and 3% annual inflation (compounded) from 2000, worked out to another 25% price decline from Radarlogic's last posted square footage prices for Sacramento MSA. (Last posted price was about 11/27/07 at $187/sqft down from 8/30/05 at $252/sqft.) If we return to the inflation adjusted price/sqft mean, and a bunch more ifs, Radarlogic suggests a return to inflation adjust mean in the early part of 2009. (Before I get flamed by folks, I know there are numerous flaws in this overly- simplistic analysis!) If you haven't been to Radarlogic's Sacramento MSA graph of plummeting square foot prices, it is very sobering. (radarlogic.com)
Cmyst: With the increase in FHA limits and smaller (not 20%, but I'm sure someone more knowledgeable than me can tell you how much) downpayments with FHA, the 20% downpayment should not be a hurdle. Of course, we have to wait until Congress enacts the bill and it is signed, but I think this is one of the least disputed portions of the "Financial Bailout .... er Stimulus Plan.)
What kind of appreciation (depreciation) do you factor into your rent/buy calc and how far out do you project it? That seems to be the make or break factor for my calculations.
PR - Precisely. That's why I go off tax adjusted monthly cash flow.
When you start looking over long time horizions (thinking of your house as an investment), there is too much uncertainty. And there is way too much sensitivity to those two very uncertain assumptions.
You know, at some point you just might want to consider that there's a value to not having to answer to a landlord, watch what you do to the walls, be subject to being notified to vacate, and the like.
Y'all are looking at a house as if it were "just" an investment. It's far more than that, and there's an intangible value to yourself and your family that flat out is yours. Where does that show up in your calculations?
Star, you make a good point about owning versus renting.
However, speaking for myself, my family's future outweighs that immediate "Desire". It's called discipline.Who am I to say we deserve to own that house now, no matter what the financial distress? And if it doesn't make sense for me, I know it doesn't make sense for many in my same demographics.
In other words, my financial "Peace of Mind" is more important than "Answering" to a landlord. Especially when my financial situation is better, than the "Landlord" I am answering too.
So who is really answering to who? Just because they "Own" the home, and I rent it, many a landlords don't care what I do to the walls, as long as I send that rent check on time.
Someone once said, there is no easy way, and I believe this but I also believe the people who pay attention will have windows of opportunity that open, then you make the decision with your partner on which ones to open and which ones to close.
I believe the roles may be reversed in the future, where by prudent financial decisions, I wait out the consequences of not so prudent financial decision makers/AKA "Current Landlords", and I will be the one holding the keys with the lease agreement for them to sign.
Not out of vengance, greed, or consumerism, just out of education, and the ability to read, gather, and analyze the information available to me.
I call it taking care of my family and our future. I don't think this should rub you the wrong way as it apparently has.
P.S. That intangible value to myself and my family does show up in my calculator, ...and it's not getting close yet, although moving in the right direction.
thanks for your blog AB.
Starlite,
There is some intrinsic value to not having a landlord, but you surely cannot be saying that paying twice your monthly rent for the same home can calculate to your level of ‘intangible value’?
Also, an investment is an investment, supply/demand, basically what you can get for it if you had to rent it out. You can reverse engineer the monthly rental market price to a fairly good idea of what price the house should go for given a number of assumptions (30 yr loan, X% interest, conventional loan, 10%-20% down). As a renter the intrinsic value in the particular house I rent, can be found in the rental price and includes the area, schools and ‘features’ (views etc) but not holes in the wall and paint (that is taken out of the deposit once I leave).
Lastly, I believe I do but some intrinsic value into some of my calculations for my low ball, or should I say ‘correct market’ offers. I too get caught up in idea of owning and push the figures too far sometimes, although it still does not make sense given the market, but we are getting there faster than I expected.
There is a psychological value in "owning" a house, and I miss it. However, I would suffer more from the psychological injuries of having not gotten close to the best possible deal on a house. This is counter-weighted by the psychological injury of missing the opportunity of owning the exact kind of house I want, because I was too cautious.
Which is why I read BT's blog, Lander's blog, and Ben's blog daily . I'm hedging.
And my landlord only cares if I put major holes in the walls, and NEWSFLASH: I have actually put rather large holes in walls before and patched them easily, repainted, voila! In my younger days :)
Rainman - We have actually been considering just that.
Starlite - I don't think of a house as an investment...its a place to live... There are many pros and cons to renting as well as buying. Everyone's situation is different.
However I would like to point out that we use the term "owning" rather loosely ...for the vast majority of us...the bank actually owns the majority of the home (as we are being reminded of almost daily now). We just get to keep the appreciation..... which is a very nice feature of owning (assuming the market is appreciating).
Husmanen - I often push my figures as well. Which is where the +/- comes in (or changing my base year =)
Earl - Not saying you have to post insightful comments....but enough with the vulgarity. I will continue to delete them if you don't shape up.
I am tired of being a renter, but I also thank the powers that be that some of the offers I made in 2006 were not consumated! I thought I was being so smart with "low ball" offers, but in retrospect, those offers are 20% above where prices are now. And yes, I factor in something for that intangible of owning vs. renting, but cannot afford to buy at a price that ends up being 20-30% above the market.
Buying time, sorry to offend you with my fun.I will try and clean it up.We all love you!!!!!!!!!!!
Hi, I'm a long time reader and first time poster. Here is a mini screen scrape of pending sales patterns in the Auburn area between 700k and 200k today. Data source is Metrolist.
700 - 600k inventory=23 Pending sales=1
<600 - 500k inv=37 PS=1
<500 - 400k inv=40 PS=3
<400 - 300k inv=46 PS=9
<300 - 200k inv=17 PS=6
Pretty good indication, though just a snapshot, of what price ranges are selling in today's market. It appears to reinforce the concept that to buy a house now, you actually need to be able to afford to pay for it, along with an indication of what buyers in this market can afford.
Welcome and nice work MCB44! I was thinking the same thing while looking at my data.
I think this trend also shows the fallacy of the "I can't sell my house" routine. If you drop the price low enough...there will always be buyers.
Only exception would be if there was a toxic spill (or some other disaster) that will cost more to clean up than the property is worth.
Interesting analysis, mcb. I'm looking at buying in the 600-800 range, and based on my experiences, I think sellers are under the impression that there are more qualified buyers out there than there really are. I think the jumbo loan range above 5 or 600 is extremely slow right now due to higher loan rates and significantly stricter underwriting.
It appears to reinforce the concept that to buy a house now, you actually need to be able to afford to pay for it
WHAT??! That's crazy...
It is true you can lower the price enough and it will sell, but a lot of people can't do that cause they bought at the peak or heloc'ed all the money out. And short sales rarely go through.
So we will have to wait for the banks to take back a lot of the homes.
But I am seeing more and more homes for sale in my target areas.
About a year ago there were only 60 or so homes with my criteria, not there are 140 today and that has been steadily rising.
I would like to buy now, but will definitely wait for the huge wave of resets to hit this year. In 09 I will reasses what is going on and hopefully it will make sense to buy.
With respect to resets, keep in mind that the Fed is aggressively lowering rates, and LIBOR, etc. (what the ARMs are tied to) is tracking down with them. The great reset calamity isn't going to happen, and I suspect the Fed specifically is intending, among other things, to orchestrate the wave of resets into a non-event.
At current rates, many ARMs would reset to around 6 to 6.5%. That's immaterial in the scheme of things and isn't going to hurt the ARM borrowers.
Yes but the Heloc spigot is being closed off (if not already gone) and The LTVs make it almost impossible to get a refi.
Honestly, I still think the only way people can get out from under these houses is if they walk away. There is simply not much else they can do.
Everyone seems to think I'm cold hearted when I say these things but I just look at the numbers and I don't see a way to reverse the prevailing trend.
As to Alt-A and their resets in 2008, it is true that Libor is coming down, but my limited exposure to recent ARM's (Alt-A and subprime), had initial resets at Libor +6%, but a new interest rate of "no less than 9%." If my limited exposure is way off base, someone with more experience, please correct me. You might also want to check out today's Business Week article (which I haven't had a chance to read yet but appears to touch on the subject) on Yahoo Finance.
1) Many people couldn't afford the house even at the low introductory interest rate.
2) Even if the majority of "owners" can hang on, where do the new buyers come from? Standards have tightened.
3) Many people don't care if the interest rate comes down; they care that the house is no longer a money machine. They resent owing more than the current market value, and they will walk.
"The great reset calamity isn't going to happen"
Yes, it is. You forget that most of these people have not paid down their loan principal, or sometimes not even been paying the full interest due per month.
Any reset, once they are forced to pay full PITI, will cause great financial hardship regardless of the interest rate.
And even if they can pay with the reset why bother. No more refi hummers so might as well walk.
We'll see.
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