Sac Bee Editorial on El Dorado County BOS

Below is an editorial from the Sacramento Bee related to rehabilitating housing in El Dorado County. Thought it might be interesting to the blog's readership.

I really don't understand why the BOS rejected the money. It's not like they would be saving the Federal government money. The money has been budgeted and will be spent regardless. I would rather seem my federal tax dollars spent here as opposed to somwhere else.

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Editorial: El Dorado should take federal money

Published: Tuesday, Jun. 23, 2009 - 12:00 am
Page 10A Last Modified: Tuesday, Jun. 23, 2009 - 8:05 am

It's rare that the left and the right find common ground in El Dorado County, but that's what happened the other day.
A conservative Republican real estate agent and an activist Democrat affordable-housing advocate both urged El Dorado County supervisors to accept $1.6 million in federal stimulus funds to rehabilitate foreclosed homes.
The supervisors refused, arguing that stimulus money would lead to more government intrusion into society.
Initially, the supervisors rejected the federal grant 4-1 without even bothering to schedule a staff presentation on the proposal. When local contractors and real estate industry representatives raised a fuss, they reconsidered.
But the board majority of Jack Sweeney, Ron Briggs and John Knight voted "no" a second time. Supervisor Norma Santiago favored taking the funds all along. Ray Nutting, who'd voted with the majority the first time, wisely switched sides after listening to his constituents.
The $1.6 million would have allowed El Dorado to rehabilitate and resell between eight and 18 homes to families with low and moderate incomes.
Workers would have been paid the prevailing wage, supervisors noted, which in California means the union rate, which makes projects more expensive. But anything built with government funds in El Dorado, including roads, dams, overpasses and schools, requires union wage rates. Why get squeamish about that now?
Judy Mathat, a real estate agent and activist Republican, told the supervisors she agrees that government intrusion into the economy is dangerous. Nonetheless, she urged them to accept the funds. Her industry has been devastated by the housing collapse. The funds would have helped contractors, plumbers, painters and others in her industry keep their own homes from sliding into foreclosure.
To spurn federal help now, with the county in an economic slump, was just foolish.

Unexpected Dis-Utility

By far, the worst thing about moving has been dealing with all the utilities. The only utility that seemed to get it right was our trash bill.

I didn't account for any additional savings or expenses from utilities into our rent/buy decision. Unfortunately, so far there have been several unanticipated expenses, and hours of wasted time.

1) El Dorado Irrigation - We didn't receive our first bill, then when the second notice came, it had a late fee that they wouldn't waive (over 2 years of prompt payment at the other house meant nothing to them). Apparently it's my fault if I don't get the bill. To top it off, the bill was much more expensive. If a house has no record from which to base the sewer charge, they just charge the area average.....again, our over two years of below average use at the other house meant nothing. Incredibly frustrating.

2) Comcast (Internet, TV, Phone) - I don't even know where to begin....Comcast has been an absolute nightmare to deal with. At the rental, we had the AT&T U-verse set up which was considerably less expensive compared to Comcast.

• The original installer was so anxious to get to his next appointment he closed out the ticket before I had phone service....which then took me 2.5 days and multiple phone calls to get settled. This was a major issue for me as I work out of the house.
• They have yet to cap all the lines in the front of our house, even after several calls.
• They won't list their bundled services separately on their bill (so I can be reimbursed by my work), so we have to pay extra for that privilege (ridiculous).
• To top it all off, their service is very spotty, phone calls get dropped, Internet goes out for long periods of time during the workweek.

I have about had it with them, and plan to switch to AT&T & Dish service next month. Unfortunately their U-verse is not offered here, otherwise we would have started with that.

3) PG&E - For some reason, the lady on the phone changed the service into our name the day I called, as opposed to the day we closed escrow. Major inconvenience trying to get that straightened out, but at least it didn't cost us extra.

A lesson in frustration to say the least.

Is High End Relative?

There has been much emphasis in the bloggosphere about the fact that subprime was only the beginning of our troubles. With warnings of huge defaults of Alt-A, Option ARM , and even Prime loans soon to come (yes I am mixing products and types).

We are now seeing big increases in the defaults of these products and types of loans. There seems to be a general consensus that the lower price ranges have more or less bottomed....but the mid to high end are still to take a big hit.

However what I want to know, is what exactly is mid to high end? Is it relative to all the homes in a metro area?.....say 350k for Sac. Or is it relative to the entire stock of housing in California?...say an 650k home in one of the coastal cities.

I wonder about this, because what might be considered a high end price range in the Sac Metro area, is probably just a starter home in many of the Coastal cities (LA, SF, San Diego, Orange County, Santa Barbara, etc.).

Basically I want to know how much of the forecasted doom and gloom applies to Sacramento and other cities in the valley (i.e. Stocton, Merced, Fresno, Bakersfield), versus the cities along the Coast of our financially doomed state.

A Failed Friendship - Hurt by Housing?

This post has been removed....I needed to write about a very hurtful experience I recently went through...but have realized, it was probably not a good idea to post it.

Sorry all.

Friday Forecasting Fun

Back in March (Friday the 13th to be specific) shortly after the DOW hit new lows....our department started a "pool party" on when and at what point the DOW hits bottom.

I will be out of the money here shortly as I had guessed July 8th at 6394. Thinking CRE was still to hit the fan as well as inflation.

I'd like to get everyone's thoughts on our macroeconomic situation here.....in particular the answers to some of the questions below.....

In theory the stock market is a foreword looking indicator (not sure I agree). Curious to know what others think, was March 9th bottom, or is this another false rally...yet to plumb the depths of the market?

Opinion on the recession..... are we really past bottom...bumping along bottom? If so, long recovery (L) or short recovery (V)? If not, why not?

I've also heard a lot of conflicting thoughts on inflation. Some think we are in a liquidity trap, others think inflation is going to take off very shortly here. What do you think?

Will market volitility ever abate?...in particular I am refering to commodities like oil. Steep swings in prices are really tough for industries like aviation to digest and will be a huge drag on recovery. Is it speculators driving the wild swings or legitimate concerns about the dollar and inflation?

Frustrating Foreclosure Findings

Last year my father bought a foreclosure in Stockton. It wasn't an easy process. The bank was slow to capitulate, the realtor was pushing a lower offer that she was double ending etc.

With many other homes for sale on his street, my father is now attempting to purchase another foreclosed home for his mother (my grandma) so she can be nearby, but still feel independent. After much wrangling with my grandmother, he still had the bank to contend with. When he went to sign the papers on this modest home, he was in for a nasty surprise. The bank (BofA)included an addendum, which was over 15 pages, and was downright atrocious about it (giving a 2 hour window to sign etc.). As much as this home made for the ideal situation for my grandmother, I was pleased to hear that he walked away. In my mind, no home is worth signing away all rights and releasing all liability (and then some), the way they require in their addendum (especially on a home priced less than 100k).

We were in a very similiar situation and eventually walked as well. Our take away from the process, when bidding on a foreclosure, ask for the addendum up front.

Quieting the Cold Calls

I can almost sympathize with the individuals mentioned in the media who received so many pestering calls they eventually relented, and refinanced or took out equity. I have heard that when there is a NOD, owners receive a flood of calls and offers of services.

In the last week or so, we have received numerous calls fishing for loan or credit card problems. We don't have trouble with either, hence I assume they are fishing. But if they are fishing, then that means they are violating the Do Not Call registry rules, since they aren't calling related to a company we do business with.

One time I humored them and got connected to a series of people offering to help. Of course they wanted all kinds of personal information. It's hard to believe people would actually give this type of information to a cold caller, but I supposed when you are desperate, emotion tends to win out over reason.

If you resent getting telemarketing calls at 6am the way I do, you can sign up for the do not call registry here. To be fair, we disconnected our number and reconnected the same number at the new house, so it could be our number was taken off the registry.

Join the Club?

As long time readers know, I am a big fan of the master planned community concept where the centerpiece is a community clubhouse (complete with swimming pools, fitness centers, gathering rooms, etc). They offer a nice setting for meeting neighbors (which builds community) and also provide activities for kids that don’t involve a TV or computer.

I recently had the occasion to visit two of the more popular developments in the Sacramento Region, the Whitney Ranch House, in Rocklin, as well as the Anatolia Clubhouse, in Rancho Cordova. Both were very nicely done, and made me wistful that we passed up on Blackstone in El Dorado Hills.

I especially liked the wading pools for the little ones that can’t swim. The Clubhouse at Anatolia even has theirs gated, so moms don’t have to worry about the little ones wandering off near the big pools. However the Clubhouse’s lack of bathrooms for people in the swimming area was a huge inconvenience for my 5 year old who makes frequent trips.

Regarding the Whitney Ranch House, the kids loved the “magic” water spray area, and we really liked the personal cabanas. However, the amount of surgical enhancements on display, made even the EDH Sports Club look tame.

Regarding Blackstone in EDH, we seriously considered purchasing there, primarily for the location and clubhouse. In the end, we didn’t want to risk purchasing early in the 900 acre development (due to the greater economic troubles etc.), and weren’t real keen on the home layouts we could afford.

In my early quest for a clubhouse like setting, my previous land lord mistakenly thought that the Serrano Country Club was a part of the package with the HOA (like it is with his development down in Elk Grove). However, when my husband and his mom when to check out the Country Club, they were in for disappointing news, as it’s for members only. To add insult to injury, someone actually asked my mother-in-law to leave while she was looking around because she was wearing….gasp…..black Jeans (no jeans allowed). So we obviously got off to a bad start with the whole Serrano experience (not to mention the snotty assistant when I went to get my car sticker).

Yet Another Sign of the Times

In doing my usual weekly scan of NODs & foreclosures in EDH and Folsom, I was saddened to see that our old landlord is now on the list of NODs.

He was a really great landlord, and a funny guy, with a nice family. When we met him, his story seemed the epitome of the American dream. He and his wife came to this country, started a successful business (that was expanding when we met him), and had amassed a modest empire in local real estate.

Not sure if it was for our rental home, or the one two doors down from us that he owned as well. I know he had found tenants shortly after we left. In any case, I am really quite distressed at this news.....even though I figured the day may come.

Speaking of the foreclosure & NOD listings.... www.foreclosure.com, where I gather my data, has changed their free format. There seem to be many listings for land and commercial properties now. Not sure if I am only noticing because of the format change, or if their listings have expanded to include more listings.

Facts from Our First

I looked up our old place (in the D.C. suburbs) on Zillow today. According to their site, our first home has depreciated 21% since we sold it in the fall of 2006. Not near as bad as the market here in Sacramento. If we hadn't sold it, we would still have substantial equity, as the home has appreciated at an annual pace of 4.8% since our initial purchase in 2002 (a 41% CAGR).

Public Facts from Zillow:

Condo (actually a townhouse, attached on both sides, but we owned the land)
3 beds
2.5 bath
1,070 sqft
Lot 1,727 sqft
Built in 1979

Mixed Messages

Using some slightly non-scientific methods (the ZipRealty interactive map), I took a look to see how the different Sacramento housing market price levels are faring this spring. On March 4th of 2009 inventory was around 9000 SFH units. Today its now down to around 8400 units, a drop of 8.2%.

This is very misleading if you look at total inventory. Luxury inventory, over 500k, actually went up by 5.3% (at approximately 18% of total SFH inventory). In the mid-priced homes, 250k to 500k, inventory is down by 10.6%, and in the starter-home category (below 250k), inventory is down by 12%.

This may account for some of the trends we have seen in the Sacramento Housing Tracker weekly/monthly numbers. As lower end inventory dries up, and higher end inventory grows as a percentage of total inventory, thus driving the asking prices higher.

Side note.......While I really like Housing Tracker because it tracks multiple asking price percentiles (25th, 50th, 75th) as well as inventory, I have never understood where their inventory numbers come from. When I look at the greater Sacramento area on the ZipRealty interactive map, (from Davis to the West, Auburn to the North, Cameron Park to the East, and Elk Grove/Franklin to the South), I only come up with inventory at around 9,200, whereas HT is currently listing around 14,500. If I include land listings, it only bumps my number up to around 10,500.

P.S. We went to our first River Cats game on Sunday. The weather was perfect, the stadium is really nice (not to big). But I was surprised at how empty it was and wondering if it's the economy or normal attendance (not complaining...cause I usually stay away from venues like that cause I don't like huge crowds). The announcer made a comment of how the River Cats have the best attendance of all minor league teams. Perhaps I am just used to big city crowds (but very grateful to get away from them!!!).

Investment vs. Shelter

Adjusted for inflation, a home is not a very good investment, especially if you consider transaction costs and maintenance. So if you are looking for long term gains on investment, there are many other relatively safe alternatives that offer higher returns.

This is why I have never been very concerned with when the bottom of the cycle occurs. If I were looking at a home as an investment, the buy low, sell high, would be the rule to follow.

So if it's not an investment (as many were led to believe during the boom), then what exactly is it?

• As long as you don't have a neg-am loan, a home is a forced savings account. With each payment, your equity grows (in a normal market).
• If you do have equity, a home can also be a source of emergency cash in times of crisis (medical bills etc.).
• It could also be a hedge against inflation should it spiral out of control as it did several decades ago.
• And of course most importantly, buying is an alternative to renting.

Hence, I always get a chuckle out of the "now is a great time to buy," which I have heard countless times since we bought our home in Feb. This is part of an investment mindset. When I meet people who are thinking of buying a home because "now is a great time to buy," I always bring up the analogy that they aren't stocking up on gas, since it is now half off what it cost last summer. Why is a home any different?

3 Month Mark

Well it has now been a little over three months since we moved into our new home. Several have inquired, so I thought I would post an update on our life as happy homeowners.

So far, we really adore our neighborhood. We have a community e-mail chain, which is helpful for getting the word out on different events and issues. At the Easter Egg hunt the neighborhood organized, we met at least 6 other families who will have kids starting kindergarten next year along our daughter. There was even an impromptu block party this weekend which was very enjoyable.

To be fair, I am not sure if our neighborhood is that much more friendly, or if we are just more apt to participate and get to know the neighbors now that we own, compared to when we rented. In general we are rather outgoing. I crave human interaction, being couped up all by myself for my day job, so I am inclined to believe that former rather than the later.

As for our house itself, we have done our part to boost the economy. Pier 1 has been a big recipient of our funds, as we have purchased (okay, let's be honest, I have purchased) drapes and some decor. Surprisingly, I have not had the urge to paint just yet. Instead, I prefer to put my efforts into the yard for now. I am pretty new at gardening (except for the container garden we started last year), and have purchased some books on landscape design and irrigation systems. Speaking of the yard, we went to the home and garden show in Placerville last month. Our magnificent valley oak tree has had all the mistletoe trimmed out, and we spend lots of time watching the many critters that call it home.

The builder has been very responsive regarding our concerns and issues (they even patched the hole Mr. BT drilled in the wall when trying to install wiring).

As a planner, its been a huge mental relieve for me. No more, putting life on hold in case our offer goes through, no more wondering if we will have to move the kids out of their preschool or find a new doctor/dentist etc. if we moved a distance from the rental. These benefits are sometimes overshadowed by my concern that our neighborhood could be awash in foreclosures in the near future (homes in our development started selling in early 2006....these loans are just starting to go bad).


However, all in all, things are going well so far.

You can see the kids and I in the June edition of Sacramento Magazine. Speaking of the media, the NYT contacted me for their Sacramento housing story a couple weeks back. As much as I would love to do something important enough to land on the front page of the NYT, not sure buying a house should qualify =) I also don't think I have thick enough skin for national scrutiny.

Housing Market Stress Indicators - Folsom & El Dorado Hills

As many had predicted, homes in more desirable areas are now defaulting at an increasing pace. All three markets have surpassed previous highs. However the number of foreclosures has diminished as a result of the legislation passed last year (moratorium on NODs....so the pipeline dried up).

We haven't been in our new neighborhood long, but already we are hearing some of the stories (Bay Area lawyers abandoning their home etc.) and seeing some of the fallout it creates (tensions among otherwise very friendly neighbors).

Note: I have removed the period where foreclosures in Folsom shot up, by approximately 100 units, then just as suddenly went back down. I believe it was a data issue, and not a big bank purchase.

Folsom & El Dorado Hills Historical Sale Data

At long last, below is the historical sales number and price data from two separate sources. Astute observers may notice that the name of the second data source name has been omitted as the actual source of the data has changed. Note that all four charts have the same scale for sales number and price for easy comparison between the markets and data sources.

Hard to tell if we are on a elongated spring ledge or if the market is starting to level itself out a bit. Only time will tell. Last I checked pending sales were at one of the highest levels I have ever seen. Now that more homes meet my criteria, this is much more indicative of the broader market.

Random Acts of Kindness

It's been a very stressful couple weeks lately. Lots of travel and late nights getting home. So I was tickled pink this evening, when crossing the Benicia Bridge, I learned, to my wonder and amazement, that the car in front of me paid my toll.

This random act of kindness really touched me. In these economic times, few are feeling generous. So this small, selfless, and completely anonymous act, gave me a glimmer of hope, as I often despair that service and community have been lost to selfishness and indifference.

For all their theories and equations, economists can't explain this seemingly irrational behavior. But isn't that the true beauty of it? Against all odds, these random acts of kindness still occur.

Pulse Check: The Good, Bad and Ugly

There has been a lot of speculation as of late, in both the media and on the blogs, that some sort of bottom is in sight. To paraphrase Calculated Risk, there are actually two housing bottoms, sales and price. I think Sacramento hit the sales bottom a while ago, with a fimly established year-over-year increase in sales trend.

So the real question is, "When do we hit a price bottom?" I can see why the debate has been lively. There are good arguments to be made for both sides.

Personally, I think we are seeing some seasonal firming, due to usual spring activity, coupled with a reduction in downward pressure from foreclosures (not as many foreclosures due to the effects of earlier legislation), BUT come this fall, we will see additional price declines as the backlog of NODs turns to foreclosures.

So now for the summary:

Good -

• Inventory is way down compared to the last couple years.
• Sales are up (which also helps bring inventory down).
• Pending sales in my (now monthly) screen scrape are close to a high.
• Interest rates have been hovering at an all time low making homes more affordable in monthly payment terms.
• Anecdotally, in some lower priced areas bidding wars are becoming common again.
• There are fewer foreclosures on the market (at least where I had been looking), due to the legislation that was enacted last Fall.
• People are saving money again and using less credit.
• Homeowners who are able (i.e. enough equity), have taken advantage of low interest rates and refinanced out of ARMs and into fixed rate loans.

Bad -

• Rents are falling, increasing the bar for the rent/buy break even calculation.
• Fewer people qualify for financing due to underwriting standards and lack of down payment.
• People are afraid to commit to such a large purchase in times of economic instability.
• Interest rates are likely to rise, which will reduce affordability and lead to stagnation.
• Tax credits (both Federal and State) artificially inflate demand.

Ugly -

• For the markets I track, NODs are reaching all time highs, now that the foreclosure moratoriums have been lifted.
• Alt-A and Prime loans are now starting to go bad. This is especially true for certain products like Option ARM and Neg_Am loans, as well as homes with a 2006 & 2007 vintage.
• Sacramento unemployment is in the double digits, with no reason to believe will abate any time soon.
• The state of California is in a massive budget crisis, which means cutbacks and furloughs, disproportionately affecting the Sacramento region.
• The full impact of the commercial real estate bubble are yet to be felt by the economy.

Hoping I will have time to put up the latest numbers in the coming days (things have been a little hectic for me lately on the day job...but I figure it's good that my skills are in demand).

Changing Horizons

Times have changed. Homes are no longer thought of as a sure fire "flip to get rich quick" investment, they are back to being a place to actually live and perhaps a store of wealth for retirement.

A lot can happen in the 20+ years someone plans to live in a home. Nearby fields are developed, secondary roads are turned into main thoroughfares, infrastructure can deteriorate etc. These are things, humans have control over.

But there are also many things we can't control. One of my early posts examined how parts of Sacramento would fare against some of the the woes mother nature can cause. In those cases, people can try to avoid high risk areas in the first place, or build to resist these problems (i.e. the wood we are considering for our deck has a very high fire rating).

I somehow forgot to mention drought in that post, which is one of the most common of our woes here in California, and is becoming more and more serious this cycle. Living in Northern California, I don't worry about this as much as I would if I were in down south, but I have been increasingly concerned about its impact on our already weakened economy.

I digress...back to long term changes that affect where your chose to live. What I am wondering about.....is this drought, and all the odd weather patterns we are seeing across the U.S., just a part of our regular climate cycle, or are they the result of a larger shift due in part to climate change? Not sure anyone has the answer...but the thought of Sacramento getting hotter and drier is not a reality I want to face over the next 20+ years.

Heal Thyself?

Today's WSJ Developments blog suggests Sacramento (where we moved to), and Washington D.C. (where we moved from), will be among the first housing markets in the U.S. to recover.

They use the term rebound in the post, which I think may be a bit strong for what is in store for us. But their observation regarding inventory is still valid. Based on Max's most recent inventory stats over at SacRealStats there is no spring in inventory numbers this year.

Oddly enough, the analyst mentioned employment as a potential spoiler, but not foreclosure activity (which the blog just noted in an earlier post, is set to soar in California).

Obession Pays

I was recently asked about why I obsessed about the housing market. In a nutshell, it makes financial sense to do the research.

People spend time on Sunday's clipping coupons to save $5 - $10 dollars at the grocery store the following week (not to mention the time it takes to find the items on sale). People drive to out of the way gas stations to save 5 cents a gallon (even at 20 gallons, that's only $1). People will go from store to store, and spend countless hours online to save $20 or so on a purchase.

In those cases, the return for the extra time invested is very very small. Not so with housing.

Given my obsession which has lasted approximately 2.5 years, assuming I spent 1.5 hours a day on housing related research during the work week, and also assuming we saved $150,000 on our purchase price (what homes our size sold for 2.5 years ago), I saved approximately $256 for ever hour of my time invested. Totally worth the time if you ask me.

Conventional wisdom encourages people to do independent research on their financial investments (like stocks and bonds). Relying on a commission based broker for all investment advise creates a conflict of interest. This same wisdom should apply to home purchases as well.

Top 25 to Bottom 35 in just 3 years

Well, the data gods must have been listening to my earlier laments......just yesterday I got wind, via the WSJ, that the Global Insight / National City (now PNC Financial Services Group) housing valuation study is still being published.

While I greatly respect the methodology, the current valuation results don't quite seem credible. In Q4 of 2005 Sacramento was in the top 25 in the nation (ranked from overvalued to undervalued, out of 330 markets), at an overvaluation of 53.3 and a home price of 391.2. That I believe.

Fast forward three years, we are now in the bottom 35 in the nation, with an undervaluation of 22.4, and home price of 216.5 (the price seems right, but the undervaluation does not).

In fact they are showing that much of California is undervalued or fairly valued.

If I had to guess why their valuation seems off , it's because they take into account interest rates in their affordability calculation. Yes, interest rates are historically low, but not everyone can get a loan with today's more rational underwriting requirements especially at the higher end.

Reference Check

The media tends to throw around percentage statistics without giving a point of reference. I myself have been guilty of this on occasion. But it makes a world of difference. Economist and analyst predictions of another 20% drop in prices can mean two very different things, depending on where you start from.

To give an example, I pulled Sacramento housing tracker data, from May 2006 and Feb of 2009....Depending on the percentile, we have seen anywhere from a 37% drop to a 57% drop.

Below that are two separate calculations, one is 20% off the 2006 number, and the other is 20% off the 2009 number. The difference between the results in all three cases is around 40k. Certainly nothing to sneeze at.

If I were the cynical type, I might suggest that they are leaving the reference point out on purpose, that way they can easily revise history depending on how things turn out.

Average Buyer Turns 2

Hard to believe its been two years since my first blog post. In some ways, that first post doesn't really seem all that long ago....but at the same time, a lot has happened since then. When I started blogging, I didn't realize people could actually "find you" if you linked to their site. I figured I would type away in complete obscurity, till I eventually found a home to call my own.

But that was not what fate had in store for me (well Lander actually). With that link, my obscurity vanished, and I soon realized I wasn't alone in my frustrations.

While it may seem cheesy or cliche to thank those who read and comment on the blog, I am still going to do it. Thank you, thank you, thank you. I am truly grateful for the community we have developed. I have learned a tremendous amount over the last two years, you all have given me great comfort, and most importantly, I managed to wait (not always patiently) for our dream home to come along.

Also thanks to those who filled out the survey. From the results, I gather staying focused on Sac Metro RE, with a smattering of posts on national econ, and some buyer/seller issues thrown in is the way to go.

Springing to Life?

I couldn't help but notice, that Housing Tracker is showing price increases for the last couple periods, since Feb 2009....the first increase since May 2006 (at least for the bottom 25th and median).

It is rather shocking to see that the 25th percentile, back in Apr 2006, at 344k, isn't all that far from what the 75th percentile is now...389k. Kinda puts it all in perspective.

Inventory continues to fall, even in the face of the higher asking prices. This is a very good sign.

And for all you perma-bears out there, yes there are caveats, these are only asking prices, individual zips will bottom at different times, and once interest rates start to creep up the market is likely to stagnate.

Sex, Politics, Religion, and House Prices?

I've never really been one to conform to social norms..... My upbringing never taught me that some topics are off limits....of course my mom left out some other important details, like the fact that I am not supposed to double dip at parties....so I guess that's not saying much.

I have had to learn the hard way what topics are amenable to polite society. I never understood this taboo. It also makes for very boring conversation (and I hate small talk).

So my question is this....Is it okay to ask someone how much they paid for their home?

It's publicly available information if you are even the least bit internet savvy.

One time I was listening to some moms, and they seemed horrified that someone asked one of the other moms. In general, I try not to pry too much, but as a numbers gal shopping for a house, I didn't think this question was that offensive. Now that I own, I don't mind people asking, but I no longer see any need to ask others.

San Francisco Here We Come, Right Back Where we Started From

There has been a lot of speculation that the desirable zip codes have not fallen near as much as their less desirable counterparts. I saw a very interesting graphic on Calculated Risk last week that broke the San Francisco Case-Shiller into tiered price points. According to the chart, after tracking in lock-step for two decades, the three price points diverged during the boom. The low end shot up like a rocket, with the other two tiers lagging behind somewhat. In this context, I suppose it makes sense that the higher end homes have not fallen as much, because they also didn't rise as much.

As pointed out on CR, the higher end does have farther to fall, to be back in line with the dramatic decline of the lower end, but it is not near as steep a drop as some have suggested. Of course the Bay Area is not Sacramento....but I still think some parallels can be drawn.

If I had to hazard a guess, the higher end hasn't fallen as much as the lower end, because there were fewer sub-prime loans (i.e. foreclosures) at the higher price points. The "affordability products" for these pricier homes, Alt-A and Option ARM, are just now beginning to hit the skids.

Market Stress Update - April Fools?

The timing seems rather appropriate. If you will notice, the blue line with the black circle around it for Folsom REOs...... right around September it shot up, then mid March, it dropped back down. I don't have enough info to say if this is real or not. I would guess it's not, as I haven't been seeing the REOs show up in the MLS. The only semi-plausible answer would be a massive (over 100 homes) sale to an investor.

Just last month, I was expecting Folsom to see some serious downward pricing pressure (mainly based on this data), but it looks like, the shadow inventory is really a shadow and nothing more. With this turn of events, Folsom no longer looks like it will tip into the abyss as many have expected.

In any case, NODs for all three zip codes have now surpassed their previous legislation levels. I even had to adjust the scale to accommodate the number of NODs for Folsom (but El Dorado Hills is not far behind).

Diminishing Data

So I was just lamenting the fact that DQ data by zip code is no longer publicly available via the SacBee. It then occurred to me that I hadn't seen a story on another one of my favorite data sets, the Global Insight/National City housing valuation study. I checked some of the old links to their studies, and it seems National City merged, and the links and studies are no longer available.

While I didn't really agree with some of their recent model results (showing Sac as fairly valued back in Q1 of 2007), I really liked their more comprehensive methodology. Their methodology, while perhaps not tuned properly, took into consideration multiple variables. From what I remember inputs included: income, population density, and interest rates.

Of course I am partial to this type of modeling based valuation methodology as I do this kinda stuff for a living (just related to air transportation). Too bad I can't make a living playing with RE data =(

In any case, this is a very disturbing trend.

Tempt the Fate of Average Buyer

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.

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.

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.

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 =)

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.

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.

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 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."

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.

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.

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.
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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.
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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.

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?

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.

• "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.

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.

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).

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.

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.

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.

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.)

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……

“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.