What a Difference a Zip Makes

Since its the slow season, thought I would do a status check to see where we are in relation historical data. The SacBee has monthly data by zip all the way back to August 2002. So I compared the median price from December 2007 to the August 2002 data. I threw out any zips that didn't have more than 5 sales in either period. There is also an inflation adjusted column (this time I got true inflation data from www.inflationdata.com), as well as a change from peak column to see what ground we have covered so far. I spot checked the data, for the zips I know, to make sure things look right, but this is by no means a professional job.

The table below is ranked by the Nominal change since August of 2002. Of course its not always wise to make comparisons based on medians (since its a quirky little stat) and the mix of home in some of these zip codes has changed considerably over the last 6 years.

I was rather surprised at how few zips have escaped the downturn. Only a handful showed drops less than 20% from peak.

Not that I am one to have regrets in life, but I should have invested in RE in the South Lake Tahoe area instead of spending all my hard earned $$ (and some of Sallie Mae's) on graduate school.

December/January Month's Inventory

Below is month's inventory for the Sacramento area. As most know, this time of year tends to be the slowest when it comes to real estate, so its no surprise that inventory and sales have declined. Sales come from the SacBee via DataQuick (SFH resales), and inventory is gathered from ZipRealty for resale SFHs.

In Folsom month's inventory took a big jump up, but in EDH it dropped.
Some have postulated that once credit started to thaw that home sales would gain momentum, but I think the momentum is from distressed inventory and not buyers with new credit. I did some checking into this, because EDH sales were actually higher in December compared to November, but distressed sales doubled (short or REO) in El Dorado County in that time (from 20% to 40%). Currently distressed sales now make up 23% of all listings in El Dorado Hills, Cameron Park, and Folsom.

From here on out, I think sales stats are going to be up and down, since last year was so bad.
This month communities are ranked by total sales (from high to low).

Special Taxes without Special Privileges?

At a dinner party on Friday I came to find out that you have to register your child for kindergarten. I also learned that if you don't get in line early enough, your child may not make it into the local elementary school, and they will have to go to a school where there is room.

This turned my whole world upside down, since I just assumed my kids will go to the district we are in. Isn't that what the whole, school maps are for? At least it was where I grew up (in California).

So basically people paying the special impact fees for the local school, may not end up enjoying the services they are being asked to pay for! To me this is rather outrageous.

I was not opposed to Mello Roos under most circumstances. It made sense to assess the newer developments for the new roads and schools. But my major assumption was that the people in the new development would be the one who most heavily use the infrastructure the Mello Roos is paying for. Apparently there is no guarantee. With that in mine, I am not nearly as willing to sign up for a home with those additional taxes.

So for all you who have school aged children around here.....if your kids don't get into the local elementary school, are the parents expected to provide transportation to the assigned alternate school? If so EDH, Folsom and CP have just lost a lot of their luster in my eyes.

A Paradoxical Median

Speaking of the SacBee, the same article mentioned in the earlier post had the DataQuick December stats by county.

For El Dorado, the median resale was down -7.3%, the median new home was down 17.3%, but the total was only down -2.8% (147, 18, and 165 sales repsectively). A weighted average of the two drops would be -8.4%.

I know medians can be a bit wacky to work with, but it still seems odd that both the components show stronger drops than the whole. I'm sure its possible, but if anyone has access to some real data, I would love to see how this happened. I never work with medians in my line of business....so I am not as familiar with their quirks and perterbations.

A Good Start

Kudos to the Sac Bee for putting a nice spin on the recent DQ news. They featured a couple that had been patiently renting till they could afford a house. She is a consultant and he is a lawyer. They recently bought a home at the end of 2007 for half of what it was listed at previously.

When professional DINKs (Dual Income No Kids) can afford a home in Sacramento, that is a good start. However I think it will be a little bit longer till its DITO's turn (Dual Income Two Offspring).

The same article noted that previously only 2% of homes were under $200,000, but now 12% are. Using a somewhat generous 3x income estimate.....first time home buyer's will have to have an income of $66,000 and a savings of $40,000 to purchase a home at that amount without overextending themselves. When entry level homes are priced at $150,000 on average, I think we will start seeing some market stabilization.

If future generations are going to be able to afford a home here in California, we need to see additional price drops. Otherwise we will be visiting all of them somewhere in the Midwest.

The Weekly Screen Scrape - How its Done

Wow, I can't believe it. There are 14 homes over 2000sqft and under $400,000 in Folsom and El Dorado Hills now (okay 4 are pending sale, but that's still 10 homes).

As promised, below is a description of the process....I'm sure it's way more detail than desired....and a firsthand look at how crazy obsessive I am.

Each week, around Thursday, I enter my criteria into www.metrolistmls.com I actually have to do two queries since I am looking at two different counties. I use Metrolist, because they show homes that are Pending Sale (a key leading indicator if you ask me). I also use my true price range, not my browsing range (I browse higher to see what is in the pipeline =)

I copy the tables, and paste them into a new Excel file. Then reformat listings into single rows (price, address, city, beds, bath, sqft, and status). If you don’t know Excel very well, this could be really difficult.

I open my Excel screen scrape data file in a separate sheet and paste in the results from above. I compare the new week’s listings to the previous week’s listings using the “match” function on the address field. Once I have old and new listings lined up I can tell what the delta is. Homes that were PS but were not in the new list go onto my “escrow” sheet. Homes that just disappeared go onto my “unsold” sheet. And I also have a “stats” sheet to keep track of weekly totals; since my main list gets updated. I also do a comparison of the prices (using the “if” function), to see if there were price changes (increases are more common than you think).

At first it took quite a while to do this, but I now have it down to 20-30 minutes or so, and that’s only because the listings have increased so much. To look for trends you have to keep the same exact search criteria from week to week.

Basically I look at inventory and Pending Sales ratio. When inventory consistently starts going down and Pending Sales steadily going up….to me that’s a sign the market is finding its equilibrium. Note: This may not be a good indicator if you have a lower limit to your price range, because homes may fall off the bottom.

One additional thing to look for, people withdrawing their listings. To me that’s a sign that there is pent up demand to sell (which no one really talks about, although some become rentals).

Nothing fancy….just very tedious….but it’s not that different from my day job =)

Unconventional Thinking: Finding Help

As many observed in an earlier post, a good realtor is worth every penny (or close to it depending on the price of your house). So if you are new to an area, like we essentially were…..how do you go about finding a great realtor?

It’s not easy. Apparently our approach was highly unconventional (and unfortunately it didn’t yield any results).

By January of last year we had three Realtors in mind that we meet by various means: one via a mom’s group I had just joined, one via a recommendation from a recommendation, and another from an open house.

Because our buying experience in D.C. was so bad, we were determined not to make the same mistakes twice (we used a Realtor a friend had used to sell their house). So we decided to interview the agents, instead of wasting their time and ours going to several homes….only to figure out we didn’t really see eye to eye on things. We found out at the interviews that this was incredibly uncommon, and they hadn’t ever really been on an interview to be a buyer’s agent (only sellers). As a side note, we interviewed almost five agents till we found one we liked to sell our house in D.C.

I told all three of them (some brought in their partners) I like numbers and data. Show me samples of the data you can provide. I don’t remember any of them bringing analysis of the local market. They mostly provided local demographic info, most of which is easily found on the internet.

The Interviews:

I mentioned some neighborhoods to try and see how much local information they knew (like about the inadequate wind standards in Stonebriar etc).

We more or less asked the same questions in all three interviews…below are some samples:
---Will they double end a deal? (Mr. BT takes it as a sign that they don’t have the buyers interest truly at heart if they will double end a deal)
---What is their market outlook? (As if in harmony…..they replied, great time to buy …do it now before the market takes off again)
---What did they know of building, construction and architecture? (To find out if they could provide insight on a homes construction or potential problems down the road)
---Given our interests, what neighborhoods would be worth checking out? (To find out if they really listening to us and what we are looking for?)

All three had some local knowledge which was a plus in my book. But in the end, none of them really seemed to offer any insight or factual analysis would lead me to believe their market predictions, let alone want to pay them thousands of dollars to open doors of 10 or so homes. I highly doubt any of them read anything other than what the NAR fed them.

By the time it was all done, I was feeling increasingly uneasy about jumping into the Sacramento market, despite what all the pundits and RE professionals were saying (the rent/buy spread was just too big for comfort). I prayed about what to do. I searched the internet, and lucky for me, I stumbled across Lander and Max’s blogs (which made much more sense, in terms of fundamental economics, than what the “professionals” were saying).

Mr. BT wasn't excited about any of the agents, but he was interested in purchasing sooner than later. Thus we struck the deal that I would closely monitor the market (the weekly screen scrape) to determine if the market really was on its way up again. Eventually I decided to start sharing all the data I was collecting, and thus another bubble blogger was born.

Making Apples to Apples Price Comparisons

Many of the new developments in the foothill communities tack on additional monthly fees for HOA and have special tax assessments (Mello Roos). These can add up very quickly. Here in Serrano for instance, according to their website, the two fees typically come to $296 a month.

I believe this is why we are seeing so many home priced “below market” in this Serrano now. Once you include the present value of these additional fees and taxes, the homes are at or slightly above market value.

Below is a quick chart I use help determine the tradeoff between extra fees and home purchase prices. The monthly fee/tax value is on the left, and the present value of those fees/taxes over 30 years is at the intersection with the interest rate. So for example in Serrano, the $296 a month at 6% interest could have bought you around $50,000 more home elsewhere, or adds $50,000 to the home price if you are looking at in Serrano. Of course you do get something for the HOA, like front yard maintenance, so you might want to use a slightly lower figure, but this may be offset by future increases in the HOA.

If you use excel you can estimate this easily using the PV function (but don’t forget to divide the interest rate by 12 or multiply your payments by 12 so that your interest rate and your payments are in the same increment).

On a side note, recently spoke with a mom who lives in Serrano. She actually works in an RE related field, but the developer was not upfront with them, and they didn't find out about all the extra fees unitl it was too late. Developers hold all the cards and all the information.....so be very very carful when purchasing a new home!

Care and Feeding of My Obsession

There is soo much information on the Internet.......the major limitation in my life is time.

I have been attempting to keep my obsession in check by limiting my blog habit the local Sacramento sites......but based on several recommendations, I recently started following Calculated Risk. Wow, amazing stuff....CR and Tanta wrap up all my favorite things, economics, housing, tons of data, and current events!

Anyways, are there other gems out there like Calculated Risk that offer insight and analysis? If so let me know (new aggregation doesn't count).

Asking Price Distribution

I needed a reality check. Looking at Folsom, Cameron Park and El Dorado Hills real estate prices can get rather depressing. So I used ZipRealty's map to look at the distribution of asking prices in the entire metro area. It gave me some nice perspective. Contrary to what they try and have you believe (in all the local adds), 800k is uncommon.

Results are below. It might be a bit confusing at first because it shows the percent of prices that are above a certain price point. Its a nice compliment to the inventory graph, and I may try and update it each month. But due to the nature of how I gathered the data, I don't think it will be directly comparable each time. The hope is that the distribution will become more concentrated, with a long skinny tail. Total inventory in the sample was 12488.

January Change in Inventory

Inventory data was collected from ZipRealty for single family homes. While homes might be dropping their prices and thus adding to my screen scrape inventory, overall inventory is down 8% from December.

Food for Thought

Went to the Towne Center in El Dorado Hills last night. Businesses seem to be leaving just as fast as they are coming in.

My 2 cents on what we desperately need around here - Healthy, relatively inexpensive (under 20$ for a meal), take out. Examples would be, Baja Fresh, Panera, Dos Coyotes etc.

With two working parents, lots of families around here (especially mine) are looking for food that is fast and fresh that doesn't break the bank. Basically something between fast food (we have 3 of those) and sit down. Currently we have Stix, and Beach Hut which more or less fit the bill but I like a little variety.

Ohh I have an idea...how bout drive through sushi? How yuppie is that! Although sushi is usually a splurge for us. Rolls seem to start at 5$ each around here.

The Weekly Screen Scrape Gets a Makeover

Last January was when Mr. BT and I got serious about our home search. We interviewed agents and started to troll the real estate listings. For a bit more history, see my earlier post.

I was rather disappointed, once I realized how little home our $$ would buy us here. So I started the weekly screen scrape to keep an eye on things in our price range. There was very little of interest, since most of the homes in our price range were smaller dilapidated fixers.....and so I couldn't justify moving out of our spacious rental.

Over the course of the year I have seen a huge growth in listings that meet our criteria, and many of them are fairly new tract homes in good condition.

So with the new year, I decided to change my search criteria to reflect what we really want. January is the time for new beginnings, and an especially slow RE market, so it seemed like the ideal time to make the change.

In a nutshell, my search criteria now has a higher sqft minimum, and a lower bedroom minimum (since bigger homes tend to have offices). The number of homes in my criteria actually took a substantial jump with this change.

As for trends, inventory is already rising, as I had several more homes this week than last week.

News n Notes

Bit short on time lately....so here are some links and news.

All about Sacramento Weather from NOAA

Find out if the neighborhood your are considering has any obnoxious neighbors nearby: Rotten Neighbor
(I was very surprised at how many listings there were for this area.....the RE section in one of the local papers recently discouraged people from reporting since it would drive their home value down...tsk tsk...seems like rather selfish advise).

And lastly the big breaking new for our area courtesy of the Sac Bee....looks like Doolitte is set to retire. What caught my eye was this quote from the article "in one of the most conservative districts in California." Mr. BT tried to make me feel better by noting that conservative for CA is different than conservative elsewhere (cause he is on Doolittle's side). Sigh, its a shame that Davis is completely unaffordable.

About this Site (Boring Disclaimer)

I maintain this blog for my own personal use as an online journal in my home buying process. I report on what I have learned in my conversations with others, so the conclusions and comments based on those conversations are my own. For example, information presented in the “good buys” section does not constitute a recommendation to others. It is merely my personal assessment based on information I have gathered. I am not a professional in the real estate field, so my comments should not be construed as professional advice.

Material posted on this blog is for informational purposes only, and no warranty is made as to its accuracy. You should never rely solely on the information posted at this blog to make serious financial decisions, e.g. obtaining a mortgage, purchasing a home, and filing for bankruptcy or any other serious financial decision that has long-term consequences and affects your income, standard of living and financial health. Using the information, tips and sample language is at your own risk.

I advise you to discuss important financial matters with an accountant, attorney, real estate agent or other industry professional before making major decisions. The information contained on this blog may not be applicable to your individual situation and may be in conflict with the laws and standard business practices in the particular state in which you reside. In addition, new federal and state laws may be enacted or revised that render the information at this website obsolete or invalid.

In no event shall Average Buyer be liable to any user or any third party for any damages whatsoever resulting from the use of information on this blog. If you are dissatisfied with any blog content or with these terms and conditions, your sole remedy is to discontinue use of the blog.

Through this blog you are able to link to other websites which are not under the control of Average Buyer. I have no control over the nature, content and availability of those sites. The inclusion of any links does not necessarily imply a recommendation or endorsement of the views expressed within them.

Black n Blue and Red All Over?

Incredibly interesting unconfirmed rumor posted on Lander's site yesterday. Wanted to repost since it involves the Blackstone development which I have been keenly interested in. I tried to look the info up on the web but was not able to find anything to support the claim. However I believe he is an industry insider and has posted fairly reliable material in the past.

UPDATE: I called the county and the woman I spoke with said that Lennar was current with all their permits. So I have deleted the rumor (if you want to see it, go to Lander's Water Cooler for January). I'm not a very good investigative reporter, so if someone knows who else I should call to check on this please let me know. I called the EDH permit office across from the development.

Personally I am very glad. Its a really nice development, and I would like to buy there one day if they could just reduce their fees or their home prices by another 50K-100k.

December Melissa Data for Folsom and El Dorado Hills

Things seem to be more or less on track as forecasted earlier. Neither Folsom or EDH are seeing the 30% from peak declines for the Sac Metro area.....but there is no doubt they are still experiencing the effects of the housing market slowdown.

As you can see from the graphs, sales have cratered in both zips. According to the MelissaData average prices in Folsom have responded, down 21% from the MelissaData Peak of Nov 2005. Surprisingly, EDH seems much less affected (down 12% from the MD peak of May 2007) even though the months inventory is much greater than Folsom.

While these declines might seem substantial to some folks, keep in mind Folsom's average price is still up 64% from January of 2002, with EDH up 68% over the same time frame (41% and 45% adjusting for 3% annual inflation).

House Swap?

Looks like desperate times call for desperate measures. I spoke with my dad over the holidays (who doesn’t know about my secret life as a RE blogger), and he was telling me how they were trying to work out a “house swap” with someone in El Dorado Hills.

Background: Dad sold his home in Stockton, and moved to Puerto Vallarta to retire about 6 years ago. They have been trying to sell their home in PV for the last 2.5 years. With the proceeds, they want to buy a cheep home in the states for summers (they were looking in Pollock Pines) and one in Mexico for the winters. If they were to do the swap, they would simply move back to the States.

Luckily, my dad has found some of the online tools like Zillow, and has realized that these people are still asking 2005 prices for their home. All of the folks he has been in contact with are underwater on their homes and looking for a way out.

Scoring a Better Mortgage

How quickly time flies. January means its time to look up my free annual credit report. I try to remember to do it every January once all the holiday bills have been paid off.

Monitoring your credit, and improving your FICO gives us something do do while we wait out the downturn in housing (not to mention its just plain smart in this day and age of rampant identity theft).

In the end you will be glad you did, and so will your wallet. In case you don't have the link.....Free Annual Credit Report

I'm hoping to break 800 this year.

Hiring Help

The pros and cons of different Realtor types, as I see it:

Specialist:
Knows the area well, and has seen the inside of many local homes, so has a better idea what to expect in terms of local comps. Knows or has network to find out any special circumstances about a home (such as Paul mentioned in yesterday’s comments….eeeewwww). May be too narrowly focused to realize there are other neighborhoods that fit a buyer’s needs which are less pricey. Likely biased toward particular developments.

Generalist:
If you aren’t tied to a particular area (i.e with kids in a school district) a generalist might be able to give you a broader view of the market. Generalists tend to have a better idea of overall market trends, and can likely spot signs of good vs. troubled neighborhoods more easily. Because they know what money can buy in various parts of the region, they know a good deal when they see one.
Side note: I’ve never really understood why a specialist couldn’t help someone looking in a different area. When we first moved here a friend had referred us to their family friend who specializes in East and Midtown Sac. What exactly is so specialized about the process that they can’t unlock doors in a different neighborhood?

Discount:
For folks who are tech savvy go-getters and have a strong sense of what they are looking for (probably not first time buyers), this option is great.

Go it Alone:
Not sure there is any incentive to do this. A buyer’s agent’s commission is written into the seller’s contract. In this case, hiring a discount broker would be better, since they would return some of the commission to you.
Only time this might be a good strategy, is if the seller is not working with an agent. Then both parties can save money by cutting out the middle man (i.e. if we were to purchase our rental from my landlord, we know the home and the area well so an agent would be of minimal assistance….but an RE lawyer would still be a good idea).

Braving the Elements

With a big winter storm heading our way, this topic seemed relevant.

Things I pay particular attention to when looking at a houses in the foothills:

1) If house is on the down slope, is there sufficient drainage so that it won't get localized flooding? 2) Is the hill the house is built on stable, or has it shifted so that the foundation needs attention? 3) Is the house built to sustain wind damage (I know the Stonebriar development south of 50 has had to do massive retrofitting due to faulty standards)?

I haven't heard much about items 1 or 2 since I have been here.

Where I grew up on the Central Coast, my grandmas driveway was on a slight down slope, and when it rained really hard, she would get flooding where here garage was. I would imagine this must happen, at least with some of the older homes here in the hills.

I have heard that in CA the sellers must disclose all problems.....so this should help (they don't do it that way in VA, much to our chagrin. We found a totally rotten wall in our townhouse that the owner must have known about, caused by the neighbors drainage and soil level).

A brief look back

Time for the obligatory year in review.

Almost a year and 231 posts later, Average Buyer has had over 25,500 visits (approximately 1/4 of them unique), and over 44,400 pageviews (not including my visits and views =). Two thirds of my traffic comes from Lander's site. He "outed" my obsession pretty early on.

I often speak in slightly hushed tones when I tell my close friends, that I have a secret online life as a local blogger. Its both embarrassing and exhilarating at the same time. Some look at me like I just told them I am from outer space, and other more tech savvy friends pop in for a visit every once in a while. Mr. BT has gotten used to me sneaking off when household chaos is contained, to check and see if there are any new blog comments. In all honesty, I don't see this obsession as all that different from my little brother's fantasy football obsession (instead of sports scores, I check the housing blogs).

In general the blog has made it very tough to talk real estate with local friends, especially ones that are involved in the business somehow. When it comes to real estate, everyone thinks they are an expert if they have ever bought or sold a home. So telling people I run a local real estate blog is like telling them I can touch my tongue to my nose (i.e. it has absolutely no impact on my credibility or expertise).

Of course, now that the market is playing out more, or less, how many of us BBs had expected, the initial thrill is somewhat diminished, and has been replaced with the disgruntled resignation that this situation will take a long time to fully unfold.

A Year of Unrequited Offers?

I should have something wonderful and prophetic to say today....but to tell you the truth....I am kinda bummed out.

We found a wonderful home in my favorite neighborhood.......and the response we got back from the agent when we put in a verbal offer.....they would be better off letting it go back to the bank. (I think they are bluffing....but will keep my eye out just in case it they aren't.)

Sigh. Is that a sign of things to come for the New Year? I guess we will have to wait and see.

January 2008 Good Buys & Offers

Please post homes you think are a good buy or any offers you know of that were accepted, especially to builders. It will help give others negotiating leverage when they are ready to buy.

Even just letting people know what type of builder incentives they can expect would be helpful since its hard to tell if they give everyone the same incentives.

Pieces of data to include: Zip Code, MLS or Development Name, List Price, Incentives, Offer (if any), house details (sq ft, garage size, lots size etc).

Feel free to post info for homes anywhere in the Sacramento Metro area. Just cause I tend to confine my search to the Gold River, Folsom, El Dorado Hills, Cameron Park areas doesn't mean others have to.

A new twist

Okay, so the following story is not about Sacramento, but I thought it was a rather ingenious way to easily transport their product....and is a new twist to a problem we have had in the area. (Of couse this was particularly entertaining for me cause I am in the aviation field.)

FLORIDA HANGAR USED AS MARIJUANA FARM
In rural Sarasota County, Florida, police have been on the lookout for "grow houses," secluded properties where barns and even homes are used as factories to grow large amounts of marijuana. This week, their investigations led to an airplane hangar at an 11-acre property in a
neighborhood with a private airstrip. The home and a hangar had been sold to new owners in February.

November/December Month's Inventory

November sales are from DataQuick via the Sacramento Bee. Inventory is from ZipRealty for single family homes.

Holiday Cheer: What's your type?

This time of year is one of the best for checking out potential neighborhoods. The way people decorate the outside of their home, can also give you a great clue as to what they might be like as neighbors.

I see homes falling into the following types, with my guess as to possible characteristics of the inhabitants as well:

• No decorations: too busy for stop and celebrate the holidays, away for the holidays, hermits, or possibly Grinch's who don't want to pay the higher electricity bills.
• Single color light string across eves and roof: Type A, likes everything in its place, or perhaps not Christian but interested in showing some holiday spirit.
• Many types of lights and no particular pattern: Pack rats, kids helping put up the lights.
• Lawn ornaments: People who like to collect things (stamps, baseball cards, china, dolls, cars, boats etc).

Where I grew up on the Central Coast, there were more homes decorated than not. Here in Serrano, we seem to be in the minority. My daughter is just old enough to enjoy all the decorations, so it anyone knows of some good streets around here....please let me know.

Looking for Signs

Thanks to Paul for the following thoughts on knowing when bottom is near:

I've been reading Contrarian Investing by Anthony Gallea and William Patalon. For those unfamiliar with the concept of contrarian investing, the idea is to buy when others are selling (at market troughs), and sell when others are buying (at market peaks). (It is one of the strategies utilized by Warren Buffett in his investment decisions.) One of the principles of contrarian investing requires the identification of market peaks or market bottoms, by sometimes subjective evidence. For example, when the likes of supermodel Gisele Bundchen demands to be paid in Euros and not dollars because of the declining dollar, this is an indication that its time to buy dollars and sell Euros, because the dollar has reached a bottom. Another measure of a market reversal is when the most bullish of bulls in the market, capitulates and admits the market is going south.

So the question came to me, "What will signal capitulation and the bottom of the decline in real estate prices?"

Saturday's Wall Street Journal gave me the answer. In a page 2 story talking about real estate price indexes and the scheduled December 26th release of the latest Case Shiller home price index, the writer mentioned the forthcoming NAR release of existing home sales data on December 31st. While not rendering a prediction as to the actual content of the December 31st NAR release, the author opined, "One prediction is safe: The Realtors will see signs of hope on the horizon."

Which, of course, led me to the answer of what will signal the bottom of the decline in real estate prices. When the NAR stops telling us "there has never been a better time to buy real estate" or "real estate is picking up," I will know that we are at the market bottom!

The Weekly Screen Scrape - Pulse Check

Not much time for numbers this week (and I didn't bring my spreadsheets), but a quick screen scrape confirms we are still on track. Average price per square foot dropped another dollar. And while total listings within my criteria have dropped from the peak, they are only down by a couple listings.

Hopefully Sac Bee will post the DQ numbers soon.

Happy Holidays to all........

Help for the Holidays

I am in D.C. this week, and will be busy helping Santa next week.....so if anyone has material or ideas for posts please let me know.

I am without my WSJ this week, and don't have any spare time to formulate new ideas (well except for when sitting in the ridiculous traffic here!).

Please e-mail to average_buyer@yahoo.com

Global Insight/National City Q3 2007 Home Valuation Data

According to my favorite housing study by Global Insight/National City Sacramento has gone from over 50% overvalued in Q3 of 2005 to 15.9% overvalued in Q3 of 2007!

I am not sure I completely agree with their assessment. Likely because they account for interest rates, so perhaps with low interest rates, it makes their overall valuations look better at higher median prices. Excerpt on what their study covers:

"Our approach to determining statistically normal house values1 considers not only house prices and interest rates, but household incomes, population densities and any historical premiums or discounts metropolitan areas have exhibited over time."

Don't know exactly when this was released...usually it makes the news...just happened to stumble on it when showing a friend in D.C. the stats. Apparently declining home value studies don't even make the major news outlets anymore!

Strategies for Living within your Means

In many ways we are a very average family: 2 kids, 2 jobs, 2 political parties. But I am beginning to think we are not so average because we actually live within our means. My personal strategies include:

• 30 year fixed interest loan (or shorter…we refinanced our first home into a 20 year loan when the rates dropped).
• Pay off credit cards every month.
• Put away the maximum in 401ks each month.
• Check my receipts (especially the grocery store) for mistakes. I tend to find at least one every other week.
• Count my change. Its amazing how often people give you the wrong change. And being the honest gal that I am, I give back the money if they make the mistake in my favor.
• Keep our books. I use Quicken and update it every 3 months to keep a fairly updated picture of our financial situation (I did it more often before kids…but making the time is tough these days).
• Don’t sweat the small stuff. I try and keep saving money in perspective. Its not worth driving 10 miles to a cheaper grocery store to save $4. The time and gas isn’t worth it. It is worth shopping interest rates for your car and mortgage payment, your two biggest monthly expenses. (Most of us don’t have much choice when it comes to health care so that doesn’t make the list.)
• Time is money. As a working mom, my free time is valuable, so I tend to shop at places where they have good prices on average (Costco, Target). For me, getting a great deal on one item out of the 20 that you need isn’t worth an extra trip. I would rather go to one store and buy all the items I need and reasonably low prices than shop the sales (I liken it to dollar cost averaging).
• Payoff you student loans before saving for your kids education.
• No expensive personal care. No $100 highlights, no massages, no facials, no manicures or pedicures (I dont' even know how much these things cost, but I know they aren't cheap, especially if you do it every month). But we don't skimp on health related items. We belong to a gym and get flu shots. If you don't have your health, its hard to enjoy your wealth =)
• Know where quality counts. The quality of an item I purchase depends largely on how often and how intensely I will use a product. For example, my wedding dress was only $200 (including some extras)…..after all, you only wear it for a couple of hours. But I don’t mind spending $$$ on a quality pair of shoes I will wear twice a week.
• Try not to eat out more than once a week.
• Don't forget to splurge every once in a while (we do on our date night).

I'm sure there are many more...but so much of this is unconscious behavior. I have been doing it so long, I don't even notice it much anymore. Other suggestions are welcome......

Do I feel sorry for educated folks (especially second time buyers) who bought into a lifestyle instead of their budget, or didn’t read their mortgage documents? Not really. Your home is by far the biggest purchase you will ever make. While I can understand not reading the terms of use for a software product, or the privacy policy on a website, I can’t understand how people can be so negligent about mortgage papers. I find this situation strangely similar to one occurring in the financial world. (Special thanks to Paul for the following write up):

“There is a parade of banks and other financial institutions in the news taking financial write-downs. In each instance, they have reported that there may be more write-downs in the future because they are not able to accurately value the subprime loans and CDO's in their portfolios. In other words, the banks and financial institutions have huge exposure to investments that even they do not understand and cannot value. If these so-called investments are so difficult to understand and value, what were they thinking when they bought them?”

The Weekly Screen Scrape - Home for the Holidays

Some interesting items of note in the weekly screen scrape. First and most important to me....inventory is still at record highs, as prices get lowered to combat the winter doldrums it keeps my price range filled with lots of choices!

Second, contract activity is up significantly, perhaps in response the some of the huge price cuts I saw last week.

Hoping SacBee will post their Dataquick stats tomorrow, as I head out to D.C. next week and won't have much time for my RE obsession.

A little schadenfreude

Some of you may remember my excitment when a home came on the market with the following description: "bring all offers." My agent called on the home, apparently it should have read "bring all offers above $400,000."

They are now listed at $399,000 (down from $439,000)! And in my opinion, still have a long way to go.

Mr. BT might get annoyed with me....but I will post details on this one. Its not a secret, that we have been looking at homes that back to the American River, south of 50 (I rented a room on Twin Falls out of college, and loved it). This home is one of the few 4 bedroom 2000 sqft+ homes in the area. From the drive by, it looked well maintained. But now we know why they don't have more pictures......really bad add on and poorly done DIY upgrades.

MLS 70108202

Where is the mortgage insurance in this mess?

What ever happened to mortgage insurance? We paid it until we had 20% equity in our old place.

I wonder if there has been an increase in claims? I don't seem to hear much about it, except for some excerpts that the insurers started refusing to do business with some lenders. If a person takes out an equity line of credit, can the 1st lien holder then require them to pay mortgage insurance, if the borrower no longer has 20% equity?

I'm sure this has been covered somewhere....but I don't read the national housing blogs. Anyone know of a link that covers this subject?

Marketing tip of the day: If the home is worth 520k - 530k, then price your home at $521,000, which is $417,000 plus 20% down so the buyer doesn't have to take out a jumbo loan.

Midtown Sacramento Historical Data

Sample size is small so the data is rather jumpy. Although I do detect a bit of a downward price trend.

Not sure how much I buy the "land scarcity" leads to appreciation argument, as nice suburbs tend to hold up better in many metro areas, and blighted inner cities neighborhoods tend to stay that way.

I think the land scarcity is one small piece of the puzzle. Home values are highly dependent on many factors. Hence East Sac does better than West Sac, even though they are somewhat equidistant to downtown. There is a lot more in play than just the land.

Can't Stop the Bleeding

I have noticed an up tick in rental offerings around here. Seems folks know that the market is slow in winter so they are trying to rent instead.

I call this the bleed slowly strategy. Many owners would much rather bleed $500 a month below carrying costs, than sell for $10,000-$100,000 less than it would have fetched in 2005.

Now if I had paid more attention in finance class, I would have been able to present a nice options model to value these two choices over time with market condition assumptions. Instead I have just prepared some simple numbers to show how costly the bleed slowly strategy is in a down market.

If someone rents out their home for a $500 monthly loss, that's $6,000 a year they are in the hole. However, if you add onto that, the longer they wait to sell, the more their home will have depreciated from its peak value....its a double whammy.

If they decide to "wait till the market comes back," then they have tied up their cash for 10 plus years. Thus they still have the opportunity cost of the cash (foregone investment returns elsewhere) they put into the deal, as well as the loss they have taken on the rent.

December Change in Inventory By Zip Code

Sacramento saw a 6% drop in inventory overall. Not sure exactly how this compares to the typical seasonal levels. From at least one measure,inventory is still unusually high for this time of year. To mix things up, I sorted by December inventory levels.

Depressing technical note: Typically I name my graphics by the month and type of graph. I have started adding the year, as it seems I may be at this for longer than I planned.


Inventory was gathered from ZipRealty for single family homes on the date indicated.

The Problem with Modern Architecture

A little holiday fun at the expense of those with more modern tastes. (I'm a bit old school....I tend to like the rustic look).

Sacramento Schools that Make the Grade

U.S. New just came out with their latest rankings of High Schools.....our 4 county area schools that placed are listed below.

Silver
Oak Ridge, High El Dorado County, El Dorado Hills, CA
Ponderosa High, El Dorado County, Shingle Springs, CA
Rocklin High, Placer County, Rocklin, CA
West Campus, Sacramento County, Sacramento, CA
Davis Senior High, Yolo County, Davis, CA
Folsom High, Sacramento County, Folsom, CA

Bronze
Galt High, Sacramento County, Galt, CA
Natomas Charter #19, Sacramento County, Sacramento, CA
County Special Education, Sacramento County, Mather, CA

I don't know much about Granite Bay, but from what I have heard, I was surprised they didn't show up in the rankings. A methodology issue perhaps?

As discussed earlier many of the best schools are in the least affordable areas.

Lack of Affordability in Sacramento

The WSJ Developments Blog features Sacramento today, telling us what we already know...that homes here aren't affordable!

"Median household income in the Sacramento metropolitan area, measured earlier in 2007 by the American Communities Survey, is $56,950. Realistically, if you don’t want to spend more than 33% of your take-home pay on a mortgage and you earn the median, you should pay no more than about $1,570 towards your mortgage and taxes. That caps your mortgage loan at $240,000 (which still leaves you a modest $150 a month to put toward taxes) at a 5.85% interest rate (this week’s going rate for a 30-year fixed). But the median single-family home price in the third quarter was $375,400 in Sacramento. That’s a $135,000 gap. What’s more, the median income to sales price ratio balloons to 6.6 in this equation. There’s nothing affordable about that.

You’d need to have a median income of at least $70,000 — or nearly 25% more than the median — and a 20% down payment to buy the same home in the Sacramento area. This situation plays out in dozens of pockets of the country every day, even as housing prices soften."

Sample Contract Language

Attached is some sample contract language that helps buyers gain a bit more leverage when making an offer. I make no claims that this will stand up legally or otherwise....so please use at your own discretion....(I suggest you have your agent carefully look it over). Another twist on this theme is to have the offer expire within a certain time frame.

"Buyer is concurrently making offers to purchase other real property. This offer is only one of the offers being made by Buyer. Notwithstanding the submission of multiple offers, Buyer intends to only purchase one property at this time. Therefore, Buyer’s receipt of a duly signed acceptance of another offer before Buyer personally (not Buyer’s agent, if any) receives Seller’s written Acceptance of this offer, shall be deemed as a withdrawal of this offer and Buyer’s deposit will be returned to Buyer. In such event, Buyer will attempt to inform Seller of said withdrawal as soon as reasonably practicable."

Average Buyer is Moving!!!!

A new overpriced home you ask? A new rental perhaps? A new city/state where the cost of living is cheaper?

No…..A much worse fate in fact. I am making the much dreaded move into an older demographic group.

This week I transition from the young hip coveted 25-34 year old demographic, into the scorned and stodgy 35-55 group. According to our youth obsessed culture, this is a sad time for me. At least I will get a nice sushi dinner out of it.

However Big n Rich just reminded me of the upside of this move, I qualify to run for president now!
_________________

In case I am being too coy, this isn’t meant to offend anyone….its meant to be a social commentary on how marketing executives covet the younger demographic when it’s the 35-55 year olds (and up) with the disposable income.

For example, I went to Sunrise Mall, and couldn’t find a place to buy clothes. The only two choices seem to be teeny bopper shops and matronly department stores. I desperately wanted to get some new clothes, but couldn't find any place to shop. I left without purchasing a thing.

Perverse Incentives

Is it just me, or does it seem really stupid that the stock market actually goes up when news of record foreclosures hits Wall Street. Yes I realize they are doing it on the hope that a rate cut is more likely....but it still seems pretty ironic and short sighted.

The Weekly Screen Scrape - Holiday Discounts

Well this week was one for the record books. Saw more price drops than ever before, and we have hit a new low in terms of price per square foot for the homes in my search criteria. Contract activity is back down, and total listings is still higher than spring or summer (since many listing have now dropped in price into my range).

Seems whenever I start to get really discouraged that prices are starting to bottom out in 95762 & 95630, I see some nice movement. Thanks Santa!

Help Me be a Better Bargainer

One of the main reasons I am so addicted to housing data, is because I am terrible at bargaining. I am a softy, which means I typically play good cop (getting very excited and emotional about an item, pointing out its attributes), while Mr. BT plays hard ball on the negotiations. These roles also tend to play out in our parenting styles as well =).

The best negotiating tactic, given my personality inclinations, is to play the innocent intellectual role, using data as my weapon of choice (I really love it, but I can't figure out why its priced 10% over comps). Hence the only suggestion I have been able to offer is to use publicly reported builder data as a basis for negotiations.

Yes I have time and a relatively low rent payment on my side….but becasue I don't bargain well, it just means I am likely to walk away, as opposed to trying to negotiate a better price or contract terms for the house I want.

All this to say, I would love to gather input on tactics that have worked for others. I will compile suggestions and put them in a separate post on the sidebar since I know many of you are finding homes that are now within range.

For example, a previous commenter suggested changing the standard contract text to allow the buyer to make multiple contingent offers, which I thought was pretty brilliant because it prevented sellers from shopping the offer.

If your Average Buyer could Legislate

Not sure if I am ready to handle any more drama. But here goes…...

Below are my suggestions for addressing (notice I didn’t use the word “fixing”) the housing mess. Many of these good ideas have come from commenters….I am merely trying to put them all together in a framework. Of course the best solution for us buyers is to let the market fully correct so that housing is affordable once again, but at least right now, that option is not on the table politically.

How to address the current situation:

1) Exempt first time homebuyers from the tax hit if they sell at a loss. If they end up foreclosing, give them a “free walk on their credit”. More flexibility should be given to first time homebuyers in terms of negotiating rate freezes and longer loan periods. A little more on the rationale behind this can be found here and here. We should not try and keep people in homes unless it actually makes financial sense to do so (financial sense for the borrowers, not the investors).

2) Second time home buyers, should only be eligible for loan period extensions since, in theory, they have a better understanding of the process and cannot claim ingnorance.

3) If a person took out a Home Equity Line of Credit on their house over $5000, (or refinanced for a larger balance) for anything other than vital home repairs (a leaky roof, or broken water heater) or other documented emergency (medical or funeral bills) they should not qualify.

4) Any Realtors or Mortgage industry folks, not allowed to qualify since they cannot claim ignorance.

5) Investors or persons with more than one home are not allowed to qualify as they are not losing their primary residence, or if they are, they have another home they can sell to make the payments on their current home.

How to prevent this from happening again:

1) Get rid of all the fancy mortgage products (not sure how to do this exactly). Or at least require the borrower be shown a worksheet of their income and how the fully loaded monthly payment (taxes, principal, interest, and insurance) compares at both the teaser rate and the reset rate. This documentation should clearly list out any fees and penalties associated with the mortgage product such as prepayment penalties. Have HUD collect statistics and create a web page, where buyers can enter their closing costs and financing terms. The website will compare their individual data to national, state, and local trends to see how their loan product stacks up.

2) Require borrowers to be sent all mortgage related documentation 2 weeks in advance. (I hated how closing is scheduled for 1 hour, and they make you sign all these docs you are seeing for the first time that are several pages long…Its obvious they don’t want you to actually read them. We had requested them in advance).

3) Restructure compensation so that RE professionals, like Agents and Mortagage brokers are not commission based (only fee for service) to help avoid conflict of interest as well as brokers peddling products they get higher fees for. I was once told that there is actual legislation related to Realtor commissions which is why they are so hard to get rid of.

________________________________
Separately, but related from the Washington Post (emphasis is mine)

“Until now, President Bush favored government restraint. But with investors losing millions as Wall Street banks write down billions of dollars in bad home-loan investments amid mounting concerns about economic stability, the White House is pressuring the mortgage industry to offer a sweeping fix for the problem.”

Commentary: I see, so he’s getting involved to save the investors. I guess those pesky homeowners are threatening his economy.

Record Lows - MelissaData for November

According to MelissaData, both Folsom and El Dorado Hills hit record sales lows this month. EDH has been steadily declining over the past year, so it was not unexpected. But Folsom seems to have hit a brick wall all of a sudden. Their stats tend to be a bit jumpy, so perhaps December will be stronger (since they don't seem to report in exact monthly increments). Of course the data only goes back to 2001 so a record low doesn't imply an all time low.

We're selling homes!!!

I always like to have a safety home (think safety school when applying to college) in mind just in case something catastrophic happens and we needed to buy right away (or if I just can't take the beige rental wall any longer).

Up until yesterday, that safety home was in the new Blackstone development in EDH. With incentives the Lennar homes were priced well under resales and I could justify the outrageous HOA & Mello-Roos with comparisons to gym fees and the solar energy discount.

Bit of background.....bit of rant.

When we first visited the development shortly after opening (mid summer), we initially spoke with Peter (he was very condescending with us). After that experience we were pretty turned off. The homes were at least 50K over priced.

But decided to check back a couple months later since we were in the neighborhood, which was when we met Patti, who seemed much more open and honest, and was really trying to help us find a place we liked. We were glad we checked back cause the list price had taken a haircut of around 20K - 50K (in just 2 or so months of opening).

So I had stopped in on Friday talk to Patti again and see if they had any year end specials going. But she was gone and Peter wouldn't give out any details. He remembered us, not sure if it was from the initial visit or not. He insisted several time that they were selling houses, and then asked my price range. I replied under 500k. He then motioned to the list prices, basically telling me there wasn't much that fits that description (they do have a couple list under 500k). I left, rather disgusted.

Did he really have to do that? Who the hell believes that the list price is actually what they are selling for? I think they might have sold 2-3 homes a month since they opened....that doesn't seem like much to me. But perhaps its enough so jerks like Peter feel free to treat folks as if they aren't worthy of living in his development. So that is why Lennar at Blackstone has been removed from my safety list.

There are now some nice resales, under 500k going in the 150s a square foot around here. They are a bit bigger than we are looking for, but seems the mid sized homes aren't budging as much in price. So I am off to find a new safety house.

Update: So about an hour and a half after this posted, I got a call from...wait for it.......Peter! Very suspicious timing if you ask me. Not going to post the details of the call, till we make a decision either way......cause its tempting. Quite a bit bigger than we were looking for...but I have gotten rather used to our rental that's about the same size.

December Good Buys & Offers to Sellers/Builders

Please post homes you think are a good buy or any offers you know of that were accepted, especially to builders. It will help give others negotiating leverage when they are ready to buy. Even just letting people know what type of builder incentives they can expect would be helpful since its hard to tell if they give everyone the same incentives.

Pieces of data to include: Zip Code, MLS or Development Name, List Price, Incentives, Offer (if any), house details (sq ft, garage size, lots size etc).

Feel free to post info for homes anywhere in the Sacramento Metro area. Just cause I tend to confine my search to the Gold River, Folsom, El Dorado Hills, Cameron Park areas doesn't mean others have to.