Here are the numbers for various types of sales for the last 30 days in the greater Sacramento County (including Placer County and El Dorado County). Note that because of the lag in reporting sales, numbers for “Total Units” are typically slightly lower than the real totals.  After more than a year of hearing banks would start moving on short sales, it does look as though we’re seeing a little movement on them now compared to previous months, but the numbers are still pretty low in that category.

Sacramento County

Placer County

El Dorado County

The Boy Who Cried Wolf

When I was a child I had a book of Aesop’s fables, a book full of great children’s stories. Each story not only included a moral lesson, it explicitly told you at the end what the moral lesson was.

A lot of our idioms in English come from Aesop’s fables. "Sour grapes" for example.

Another example that’s relevant to our purposes is a story called "The boy who cried wolf." We all know the idiom, and probably most of you had the same book I did, where the shepherd boy cried wolf so often that the villagers no longer believed him, and one day they didn’t come running, and a real wolf came and scattered all the sheep.

If you didn’t have the book, no worries. You have a computer. So here, you can read the story, and learn the explicit moral at the end:

Nobody believes a liar…even when he’s telling the truth.

Fast Forward to The Daily Show

More than two and a half millennia after Aesop wrote his little stories, Jon Stewart aired a segment about how eerily similar the fear-mongering of the Iraq War was to the fear-mongering of the Paulson bailout.

If you’re mad at me for going on and on about the Paulson bailout: I apologize.

But here’s the thing. There weren’t any weapons of mass destruction in Iraq, and nobody believes a liar, even when he’s telling the truth.

The Credit Crisis So Far

I don’t want there to be a credit crisis, because as I said yesterday, it would hurt my business. So if it turns out there is one, I hope you won’t say I encouraged it to happen by saying "Bring it on", because I never said that.

Still, at the risk of seeming to taunt the credit crisis that everyone has been told to be so afraid of, here’s how the credit crisis is playing out as of Thursday. According to Freddie Mac:

McLean, VA – Freddie Mac (NYSE:FRE) today released the results of its Primary Mortgage Market Survey® (PMMS®) in which the 30-year fixed-rate mortgage (FRM) averaged 6.10 percent with an average 0.6 point for the week ending October 2, 2008, up from last week when it averaged 6.09 percent. Last year at this time, the 30-year FRM averaged 6.37 percent.

The 15-year FRM this week averaged 5.78 percent with an average 0.6 point, up from last week when it averaged 5.77 percent. A year ago at this time, the 15-year FRM averaged 6.03 percent.

So let me see if I understand this correctly: we’re in the middle of the biggest life-threatening credit crunch since the Great Depression, and mortgage interest rates are lower than the (historically somewhat low) rate they were at last year. During the worst finance news week in recent memory, the 30 year fixed loan went up a whopping 1/100th of 1% from the previous week.

No, John, You Don’t Get It — It’s Short Term Loans That Are In Trouble

Yes, it’s quite possible I don’t get it.  I’m not an economist.

But let’s look at some short term rates.

Everyone’s talking about short term loans and the LIBOR. That must be really in the crapper compared to last year, right?

Bloomberg warns: "Libor Soars, Commercial Paper Slumps as Credit Freeze Deepens". Pretty scary. OK, I’ll bite, what are the numbers?

Per Bankrate.com, again as of Thursday:

Soaring, is it? Down over a point from last year on the 1 month, 3 month, and 6 month figure is "soaring"? If that’s soaring, I’m an eagle.

But still, we’re told we need to be scared.  If it’s not the Libor, it’s the "Libor-OIS spread" we need to worry about.   Well, maybe we do, but I have a sort of knee jerk reaction whenever someone tells me I need to be scared:  I think they’re trying to manipulate me.  Naomi Klein gets it.

Be Afraid.  Be Very Afraid.  Drop Dead NOW from Fear (After You Sign This Check).

In the thirties, Roosevelt told people a lot worse off than we are now:  The only thing we have to fear is fear itself. 

Today we’re told we need to be petrified. Anderson Cooper has taken to interviewing Suze Orman. We’re told that any minute now we’re going to have a flood of biblical proportions. Meantime it’s not raining, it’s not cloudy, barometric pressure is high, but trust me, they say: we’re going to have a flood of biblical proportions.

Trust me. Iraq has weapons of mass destruction.

Trust me. The check’s in the mail.

Trust me. Of course that dress doesn’t make you look fat.

Trust me. Congress will still respect me in the morning.

Update:

Well, it looks like at least one Congressman gets what Jon Stewart and I have been saying:

Well, here it is October, and we have a few days to wait before the real estate sales statistics for September are robust enough to publish.  So that leaves me with a day or two to reflect on the bailout, and try to flesh out what I think it all means from the perspective of those buying and selling homes.  I’ve made no secret of my opposition to the bailout — indeed, calling it a bailout just now instead of an “economic rescue plan” should have pretty much given my position away. 

You’d think I’d be pretty excited about the bailout’s defeat, though as a Democrat I found it surreal in the extreme that we’d finally get an opposition party to the anti-constitutional mayhem of George W Bush — and that the opposition party would be (largely) his own Republican colleagues.  More encouraging, perhaps, was the analysis done by Nate Silver of FiveThirtyEight.com that shows that the people who killed this thing were — you’re not going to guess this one — the people of the United States, acting through their representatives!

Wow.  Surprise, surprise.

Predictably, Time Magazine spun the events of the last few days not as an unusual triumph of representative government, but as a failure of Congress to lead.

And when they needed it most, our nation’s leaders found they had squandered their ability to exert influence over the people who chose them to lead.

No, we didn’t choose them to lead, you corporate mouthpiece jerk — we chose them to follow!  House of “Representatives” – get it?  Of the people, by the people, FOR the people.  Get it?

But Enough About Politics?  What About the Impact on Real Estate?

To give the people calling the bailout an “economic rescue plan” their due, there really are several issues afoot here, and we can discuss them separately.

1. Does the economy need rescuing?
2. Is it the role of government to rescue the economy?
3. Would the Paulson plan have succeeded in rescuing the economy?

I believe the answer to question one is that the economy in particularly bad shape, so yes, someone with better ideas than me should do some intelligent things to it.  My answer to question two is that the question itself is miserable, being on a par with this one:  Is it the role of a husband to help his wife up after he beats her?  No, no, no!  The role of the husband is not to beat her to begin with, but to do things that will render her prosperous.  Government broke the economy by deregulating it (in concert with other ill considered policies like not fixing our trade deficit and cutting taxes while having a war).  Having broken it, they then proceeded to try to minimize the negative impact on the same rich people they were helping out when they deregulated it.  If Paulson’s bill had repealed one or two acts passed in the late 1990s that rolled back the New Deal protections that would have prevented this fiasco, I would have been for it.  Throwing money at a broken, deregulated economy without fixing it is like helping your wife up just so you can hit her again.  This is the core of my opposition to the Paulson Plan — that it needed to solve the problem in the long term while fixing it in the short term.

As for my answer to question three, my honest answer is “I don’t know”, but with that, I’m in good (or at least:  wealthy) company.  Paulson doesn’t know either.  Neither does anyone else.  I do think it’s result would have been to artificially inflate the price of mortgage backed securities, credit default swaps, and (to a lesser extent, but ultimately) real estate.

So Now What?

Well, if credit completely dries up, it’s an understatement to say that that’s not good for my business.  Nor is it good for anyone buying or selling a home  (unless you mean by anybody the guy with plenty of cash).  Over the last two years, there has been a gradual shift toward programs like FHA, as well as a tightening of lending standards that, in my opinion, has been mostly healthy.  Writing reasonable loans to people who have the means to make the payments should have been what lenders were doing all along.

On the other hand, turning off the spigot entirely would sure be a bad thing for a lot of people.  Personally, as the market has declined, I’ve been less personally frightened by (actual) falling prices than by the (potential) specter of an extremely tight money supply. 

I don’t need to tell you how bad a large scale stoppage of credit would be.  The government’s been scaring you for two weeks with that, and the details are well known.  The government saying this possibility is immanent is not that frightening — because they lie so much I don’t trust them.  What scares me is that guys like Robert Kuttner are saying it, too, and I trust him.

Meantime, I think the effect of a Paulson bailout or one like it would be that it would work or it wouldn’t, but all it would do would be to prevent a worst-case scenario of credit drying up.  Short of preventing the worst results of that, I don’t think it would have had much effect on prices.  The help for those already in foreclosure might have done some good, but preventing the next wave of foreclosures means reforming the system at all levels:  from the mortgage broker, to the banks, to the credit agencies rating the paper, to Wall Street. 

It also means educating consumers.  I’m happy to say I’ve tried to do this all along with my standard buyer speech:   “There are two prices — the one you’re comfortable with and the one the lender will give you.”  (Of course, those of you who hate Realtors® can blame me, too, if you want, for all the good it will do.  Let me know if you can move the DOW by hating me, and I’ll invest and then start hating me, too).

Ultimately, having an economy that relies solely on the real estate market is completely unsustainable.  People need to buy the houses, after all, and they need to have a job to buy one — at least in most years except 2004!

Update:  After writing this I learned that the Senate is voting on an awful version of this bill today, so calling it defeated may be premature.  Having repeatedly waged war on behalf of the top 1% of the wealthy against the American people, it was probably naive to think Congress would let us off this easily.

I don’t know how much you’re following the news of the bailout of wall street banks who repackaged bad loans, but if you’re not, now is a great time to get involved and please, please call your elected representative and tell everyone you can about this incredible fiasco.

Hank Paulson, Secretary of the Treasury, and George Bush are asking Congress for the authority to spend up to $700 billion at a time (that’s a balance sheet maximum, not a maximum on the total the government can spend).  That’s more than the total cost of the War in Iraq so far.  The Treasury will spend it buying bad loans, and get no equity stake in the firms they’re buying them from — leading some to call it "cash for trash".

Section eight of the proposed legislation gives Paulson an oversight-free blank check as to how to spend that much of your money.

Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.

You can read the full text here.

Although as you might expect, public opposition to the plan is strongest among Democrats, several prominent conservatives have also gone on record as being opposed to the plan.  This legislation is so bad that even CNN gets it.

Please look up and either write to or phone your Senator and House Representative right away.  You can learn more about the proposal by clicking through on the articles current on Digg for Business and Finance.

Congress is in a HUGE RUSH to get this done, so those of us who think it’s expensive, ill conceived and leaves us stuck holding the bill need to MOVE NOW to express our concerns to Congress.

UPDATE:

Here is the latest draft the bill, which I must admit I think is substantially better than Paulson’s original proposal.  I wouldn’t go so far as to say this makes me for the bill, but at least it’s moving in the right direction.

I recently predicted that some time soon the FED would disclaim that they were actually going to start buying bankrupt companies with their newfound policy of accepting equities as collateral, but I thought it would be weeks before we’d hear about the first one. 

No, it turns out it took them less than twenty-four hours to buy AIG.

So, what do you do if you’re 9.6 trillion dollars in debt?  Let’s start buying up companies that have failed, and stick the taxpayer with the bill.

Brilliant!

I wonder who the government will buy next.  Elite Properties is probably still too liquid.

Real Estate

I got into real estate at a time when the boom in real estate was well underway.  One of the things that surprised me at the time was how high prices were going.  I remember showing one not so great house in Cameron Park and thinking it was priced too high, then seeing the same house on the market the following year for $100,000 more and actually sell.

Because of this experience of being surprised by how high the market could go, I realized as the market decline accelerated that I should not be surprised if prices got really low — though naturally as a homeowner and as someone who’s income is tied to the real estate market, I hoped they wouldn’t.  So for the most part, the decline in prices has not surprised me too much.  It actually took place more slowly than my critics predicted (those who predicted I’d be out of business by 2006) — but to give my critics their due, the decline in value from 2006-2008 has justified much of their pessimism.

The Economy

If the decline in home values is not that surprising, what has surprised me has been the extent to which the rest of the economy is diving off the cliff with it.  Last week we learned of the federal takeover of Freddie Mac and Fannie Mae.  This week brought the sale of Merrill Lynch to Bank of America.  It also brought the failure of Lehman Brothers, which the Fed did not step in to prevent.

So the Fed’s gotten smart and is trying to minimize the risk to the taxpayers and the currency, right?

Wrong. 

I’m not an economist, so maybe the wrong things scare me, but to me one of the more frightening developments in recent weeks has been the Federal Reserve’s announcement that it will now accept "equities" (stocks) as collateral for loans. 

Here’s a prediction for you.  Remember a few weeks ago when we started to hear that the federal government might loan Fannie Mae and Freddie Mac some money, but would only do so as a last resort?  Within a few weeks we heard that the government had placed Fannie and Freddie in conservatorship. 

My prediction for the week ahead is that a spokesman for someone in the Federal Government (most likely someone at the Fed) will go on record that the change in the collateral allowed for Fed loans is only intended to give the Fed leeway in case it’s needed.  That said, the Fed will proceed to accept securities as collateral for several loans, and we’ll begin to hear about some of these companies falling within about six months.

Politics

It seems to me the only people who think the present economy is doing well are insane John McCain campaign advisors, who tell us we’re on the brink not of recession, but of accelerating prosperity.

You can’t make this stuff up.

I’m getting exposed to a lot of the economic news in the reading I’m doing for a new liberal politics blog I’ve been working on.

What It Means for You

In general, the failure of financial institutions all by itself shouldn’t put you off buying a home.  If your mortgage is current, you won’t be foreclosed on no matter who holds the note.  However, if your situation is such that your income is uncertain, then naturally you’ll want to think twice about home ownership (or any other major purchase).  In general, your personal "economy" and prospects are more important in this decision than the overall economy, unless you have to move soon.

Will home prices fall some more?  Yes, I believe they will.  How much?  I don’t know.  Will loans get harder to get?  Yes, to some extent that’s already happened, with 100% financing an absolute rarity already (though great FHA loans are still available at 3.5% down).

We’ve already seen a lot of increased demand based on the price decreases of 2006-2008.  The last week or two of inquiries has been pretty slow, however, so October may be an exception to the rule.

If you’re selling, what all this means is that you’ll have a longer wait than you thought if you’re not going to get realistic about your price and instead want to "wait to see what happens".  We may reach equilibrium in certain areas within the next year or two, but I don’t see recovery taking place that quickly.

This day brings up nothing but sadness, for those who lost their lives that day, and how we felt.

9/11/2001 is one of those days where everyone remembers where they were and what they were doing when they found out.  Like the day Kennedy was shot (so I’m told, though I’m too young to have a vivid memory of that day — being about four at the time).

This is also a day of sadness for me for the stupidness and abuse of power that came in its wake, when the American press assumed that government was a choice between freedom and safety, and our government decided that invading a country who had nothing to do with attacking us was low hanging fruit. 

If George Bush had been our President for Pearl Harbor, World War II would have been waged against Venezuela.

Being political doesn’t help relieve the sadness of this day, though.

Sometimes this day is so sad I don’t write anything.  This year I thought I would.

Tomorrow will be September 12th, and I’ll return to what some find to be the more chronically depressing subject of the erosion of our home values.  But look:  for the most part, people aren’t leaping out of skyscrapers over the real estate market.

Besides, if you want to be cheered up, what are you reading me for? 

Might I recommend a movie?

Like many Sacramento area residents, my wife and I are Bay Area transplants.  We moved here from Cupertino in 1996, and for the most part, I haven’t regretted that decision.  At the time, homes cost less than the do now — believe it or not — and they cost a LOT less than in the Bay Area.  Since then, homes have gone up enough to become unaffordable here, and they’ve since come down quite a bit, though they haven’t reached 1996 standards.

Our decision to move to Sacramento because we could afford a home out here led to owning a couple of dogs.  I like that.  Man’s best friend and all.

The thing I don’t like about Sacramento, though, is the weather in July and August.  As I write this, for example, Weather Underground tells me that it’s 97.5 degrees in Sacramento (95.5 degrees where I live in Cameron Park).  Today’s forecast tells us that we’ll get up to 101 to 107.

Note for you folks out of the country:  We use Fahrenheit here.  101 to 107 is pretty darned hot, but it’s not over the boiling point of water here.  Honest.

Sacramento’s average high temperatures for July and August are a bit balmier than that — 94 degrees in July and 93 degrees in August.

Those of you who’ve lived on the humid east coast may find those numbers alarmingly high, but they’re not too bad given the dryness out here.

In contrast, 107 degrees pretty much is too darned hot either way.

The bright side:

• I don’t live in Phoenix.
• August is almost half over.

I haven’t written much in the last few days, but today is the day I get my groove back, such as it is.

There have been a few reasons why I’ve been off my usual Elite Properties web site thing of beauty feed lately.  The first reason is that recently all my blogs got hacked (read more here).

Don’t we all just love Internet criminals?  Sure we do — we love them every bit as much as regular criminals.

At around the same time that these ne’er-do-wells were making up two days of security-related work for me to do, I was disabling the comments here.  Partly I got tired of the noise-to-signal ratio, and partly I was inspired to react to the smug hyperbole of the article, Without Comments Your Blog is a Web 1.0 Website.

No, without comments my blog is an efficient content management system.  Or better yet, it’s a better blog, because now it’s a place where someone who takes credit or blame for his work writes something that may or may not be credit-worthy or blame-worthy.  Indeed, as we learn from Joel on Software, a blog is very much a blog without comments, at least according to the guy who invented them.

The most disheartening development over the past few weeks, however, has not been the prevention of anonymous drivel, but the seasonal downturn in the number of web site inquiries from real people.  Over the last week or two it seems that the number of serious inquiries has slowed to something of a trickle, so if other companies are slowing as well, I expect to see a downturn in the September numbers.  (July’s volume figures bested June’s, which I didn’t expect — the jury’s still out on how August will shape up).

It’s time to get another part time job as a Chippendales model to tide me over until next year!

Sacramento’s Arden / Arcade Creek area posted deep losses in value from July to July, with only a moderate increase in volume to show for it.  This July the average home sold for $234,387, down 45.8% from last year’s average of $432,437.  Since this year’s home was substantially smaller than last year, some of that drop is an artifact of smaller homes being sold.  On a sold price per square foot basis, Arden Arcade lost 35.4% of it’s value from July to July, starting at $264.50 per square foot last July and coming in at $170.97 this July.

60.4% of the homes that sold in July were foreclosures, while short sales accounted for another 8.8% of sales.  Unit volume is up 4.6% from last year in July.

The past few weeks have not been kind to many of my friends at  title companies.  Last week I learned that a friend of mine — the office manager for a Placer Title Branch near me who’d been there twenty years or more — had just been laid off.

This morning I met with a sales rep for another Placer Title service area who wanted to meet me after a very successful escrow one of my agents and I had done with one of her escrow officers.   This was an escrow with some real title problems that needed to be addressed — and the escrow officer did a great job on it. 

In an ironic twist, the new sales rep I met from Placer Title and the escrow officer who’d done such a good job had recently moved to Placer Title after having been laid off by Commerce Title.

To add insult to irony, while I was waiting to meet with the new Placer Title rep, I learned from another real estate broker that another company I’d worked with in the past — Citrus Heights based Financial Title — had just closed its doors in California.  You can read more about that closure here.

Some Background

As the greater Sacramento market has contracted, at least two factors have combined to make area title companies particularly vulnerable.  First, one of the mainstays of title company revenue — home refinances — have declined sharply as declining property values have eroded the equity that so many homeowners traditionally tapped.   Secondly, many of the escrows we’re doing now are REO escrows, and many of the banks with REOs to sell are sending all their escrows through a single (often out-of-state) title company.  We’ll have more on the legality of this and the impact on the buyer in a future article.

Many of the folks who are on the long-haired hippie side of the political spectrum like me will tell you that they’re pretty angry like this guy at Phil Graham for calling us a “Nation of Whiners”.

In my case, at the same time that I notice that we’re becoming a nation of poorer people than we were, I find myself trying to find some ways to “tighten my belt” and live a bit more frugally.  I’ve ordered Vonage, and I’m working on paring down my electric bill, for example.  If you’re interested in doing likewise, you might find reading Mr. Electricity to be very informative and an entertaining read, as I did.

So you might say I’m getting in touch with my inner poor person.

I remember him from back in the days when my wife and I were newly married and I’d just left grad school.

There he is again.  Hello!

Actually truth to tell I’m doing better now than I did then (market downturn notwithstanding), but now I’m more fussy.

Fiscal Responsibility

Beneath my lovable liberal exterior, I sometimes think I have the makings of a true conservative.  While I recognize that on one level, artificially low interest and an unregulated banking system are behind the housing crisis (i.e., blame it on the Chimp in the White House), on another level I see how often we as individuals cause our own suffering, and recognize a lot of the rhetoric on either side of any real estate related issue as rather bizarre.

Take, for example, Jim Wasserman’s recent article on the likely impending ban on Nehemiah.  Wasserman quotes people who believe that ending the program will “harm prospects for recovery in the housing market”.

Yet why does the housing market need a recovery?  Remember 2004?  The atmosphere then was reminiscent of an episode of Oprah with a car giveaway, only instead of cars, everyone in the national “audience” got a loan.  “You get a loan!  Yes and you get a loan!  And you’re getting a loan!”  Now with Nehemiah going away, there goes our most recent incarnation of NO MONEY DOWN.

Is that a bad thing?  Are we saying it will harm the market to not be able to provide 100% LTV?  (That’s Realtor® talk for “Loan To Value” — 100% LTV means NO MONEY DOWN).

Mom And Dad Financing

How did people buy homes in the 1990s?  That’s when my wife and I bought our house.

Wherever did we get that chunk of money to afford the down payment or closing costs we needed?

Oh yes, Kathy’s mom and dad.

We were fortunate to buy in a time of expanding prices, but we also had the good sense to buy below the upper limit of our comfort zone and to get a fixed rate loan.  (See Buying a Home? Be Conservative!)  Even if we’d had an adjustable rate mortgage in a time of declining prices, however, what would having some of mom and dad’s money in the mix have done to our willingness to default?  I’m guessing it would have made it harder to walk away from the home than if our ownership of the home was 100% based on the kindness of strangers.

Here’s an underwriting quiz:  Why are interest rates generally lower when the down payment is higher?  Did you say because there’s less risk of default?  Go to the head of the class!

Oh, Market, Won’t You Please Recover By An Amount That’s Just Right?

Everyone — especially Realtors® — would like the market to “recover”.  But what we really want is to have our cake and eat it, too!  Wasserman quotes one supporter of Nehemiah as saying “Without programs such as this, it will put the American dream of homeownership in jeopardy for a lot of first-time lower-income home buyers.”

So we want to keep Nehemiah because we want lower-income home buyers to be able to buy, and so the market will recover.  But wait a minute.  If the market recovers, doesn’t that mean that prices will go up again?  Won’t fewer lower-income home buyers be able to buy if that happens?  Nobody bought a single family home from me in 2004 for $121,000, but someone bought a single family home from me this year for $121,000.  Doesn’t the market recovery “put the American dream of home ownership in jeopardy for a lot of first-time lower-income home buyers”?

If we want poor people to buy houses, isn’t it better if prices go down even more?  That way more poor people can buy them!  As a side benefit, more people will be poor, so my inner poor person will have more playmates!

No, clearly that’s not exactly what we had in mind.

What We Really Want The Market To Do

• We want high loan-to-value loans so everyone can buy a house with NO MONEY DOWN, but we don’t want people to default on their mortgages.
• We don’t want to increase government spending, but we want NO MONEY DOWN available in combination with federally guaranteed mortgages.
• We want NO MONEY DOWN so poor people can afford houses, so that prices will go up for the rest of us, because having poor people buy houses with NO MONEY DOWN won’t impact the default rate later.  Honest.  The check’s in the mail.
• The poor people who don’t buy today while we want the poor people to buy houses will just have to wait another twenty years for the market to go up and then come down again, because we really want the market to go up, up, up.
• Why do we want the market to go up, up, up?  Well, Realtors® like me want it because the commissions are bigger!  But everyone else who’s a Good American and Not a Terrorist wants it because the chances are pretty good that we’re living beyond our means, and rising home equity is the theatrical mist on which the illusion of our standard of living is projected.
• Oh, yes, and let’s not forget.  While the market is going up, up, up, we want homes to stay affordable for first-time lower-income home buyers.

I thought I’d start reflecting a bit on the forthcoming birthday of this blog.  On July 27th, this blog will turn five years old, making it the oldest real estate blog in Sacramento, and one of the older (but not the oldest) real estate blogs, period.  This site and blog officially launched on July 27th, 2003.

You’re welcome.

Such longevity is a partially a testament to my ability to endure my own tedium, since for much of that time — since about 2005 or so — a lot of what this blog has been about has been real estate market data.  I’ve posted some 287 market updates.  It’s my second most popular category next to “The Open Sac” (another word for miscellaneous — the default category).  In fact, I’m sure if I looked through the Open Sac I’d find several market update posts where I simply neglected to check the Market Updates box.

Oops.

Here are some of the things that have happened since I’ve been blogging:

• The Market Cycle
  Homes got more expensive, then quickly got a lot more expensive, then slowly got cheaper, then quickly got a lot cheaper.  We’re still in the getting cheaper phase.  We have gotten to the point where demand is rising because of it (in Sacramento County — we’re not there yet in Placer or El Dorado County).
• The Rise of the Bubble Blogs
  Once homes started getting less expensive, people started putting up blogs to make fun of those who were hurt by the downturn, bag on Realtors® and/or blame them for the market cycle, and otherwise encourage anonymous commenters to paint a coat of semi-gloss I-told-you-so (though as it happens, they didn’t) over the rotted structure of schadenfreude.
• Two Failures By Democrats
  OK, so George Bush stole the 2000 election, but how could you let him beat you again in 2004?  The American people, no doubt feeling the need to reward the underachievement of losing to an underachiever, elected a Democratic congress in 2006 to end the war in Iraq, which they didn’t do.  This fulfilled the 1974 prophecy of Stevie Wonder:  You Haven’t Done Nothin’.
• Irreplaceable
  Beyonce Knowles released this hit single on December 5, 2006.
• The Bigdealification of Real Estate Blogging
  Somewhere around time that Beyonce Knowles was releasing Irreplaceable, give or take a Thanksgiving turkey, an increasingly large group of real estate bloggers and their vendors started making a huge fuss about real estate blogging and how something called social networking was going to create — well, something — where people would all be doing — well, something. 

  Twitter evolved as the written equivalent of the Bush Presidency.

• I Become The Anti-Blogging Blogger
  In response to the hype, and no doubt because of thoughts like those in the last bullet point, no less a luminary than Mr. Bad MLS Photo of the Day himself once declared me the anti-blogging blogger.  Or words to that effect.  I think he nailed it.

  It’s only a web site.  It’s only a web site.  It’s only a web site.

• Getting a Contributor
  Purva Brown was nice enough to start pitching in, hooray!  Actually, really early on I had a contributor, too, since my wife, Kathy, used to help out quite a bit on the Sacramento Things To Do blog that launched at the same time as the real estate blog.  

  That other effort has since petered out, but this Sacramento Real Estate Blog lives on in the Sprit of Christmas and the Hearts of Children Everywhere!

I just finished a new report that I can publish from time to time showing how much people are paying for their homes.  This report is based on Metrolist data for the last 45 days, and covers Sacramento County, Placer County, and El Dorado County.   For each area in each county we show the number of homes that sold, and then show their average list price when they sold, their average selling price, average size, and average selling price per square foot.  The last column shows the average discount from list price that buyers paid.  Negative discounts mean that in that area, homes were selling for the indicated percentage more than full price. 

Sacramento County

Placer County

El Dorado County

When the word “conservative” is used, people don’t usually think of old Johnnie Lockwood.  Politically I’m somewhere to the left of the Democratic Party and somewhere to the right of the Communists.

Picture a 1960s folk singer without the pot and with a haircut, and you’ve nailed it.

Nevertheless, even if you’re more of a radical hippie freak than I am, you should be as conservative as heck when it comes time to buy a home!

For most of us who own homes, our mortgages are the biggest payment we make every month, so keeping one’s emotions in check and buying conservatively can make a huge difference in whether we’re overextended or not.

Selling Whale Harpoons to Eskimos

There’s a cliche in selling about the salesperson who’s so good that he can sell “ice cubes to Eskimos”.  Fortunately, those of us who sell homes don’t need to be anywhere near that accomplished.  People really want to own their own homes, so really our job is less about selling the idea of ownership than it is getting in front of someone who already wants a home and then providing them with access, expertise, and information to help them make an informed decision.

Indeed, as we’ve seen in recent years, the combination of the lure of home ownership with the high cost of area homes has created huge market swings from unsustainably high prices to rapid crashes in value.  So part of our job as ethical Realtors® is sometimes to talk our Eskimo clients out of the automated ruby-studded platinum whale harpoon they’re looking at and try to interest them in the solid oak whale harpoon that better fits their budget.

The recent housing crisis is an economic phenomenon of huge proportions, of course, but on the micro level what happened were that thousands of individual buyers overextended themselves.

Here then are some tips for buying more conservatively.

Six Tips for a More Conservative Purchase

1. How Long Do You Need to Be Here?
   Your first task is to consider how long you’ll be in the home.  Is your situation fairly stable and established?   Can you see yourself in the same job, with the same spouse, in the same area, for several years?   Home prices fluctuate according to a long market cycle, so for most of us, wanderlust is the enemy.  Of course, no one’s situation is ever guaranteed, but in general, if you know in advance that there’s a good chance that you’re moving next year, in general you should be renting.  Is this more true now that the market is going down?  No, it’s AS true.  It was true when the market was going up, too, but unfortunately many people lost sight of that truth when the market was going up.
2. Prequalify First, then Shop
   If you feel you’ll be in one place long enough to make buying worthwhile, an important next step is to get prequalified for a loan.  It’s hard to overstress how important it is to do this before you go shopping.   Working with the lender first lets you crunch the numbers first, independently of looking at homes you might want.  Can you get a conservative loan at a payment you can afford?  If so, what does the lender say you’re qualified for?  That’s a starting point (but it’s not the end of the story — see below).
3. Shop for a Conservative Loan Before you Conservatively Shop for a House
   Almost always — certainly always when Interest is still as low as it is now — you should insist on getting a fixed rate loan.  Can you get a lower initial rate if you don’t?  Of course you can.  But adjustable rates adjust, and remember our goal is to shop conservatively.  If you need the adjustable rate to get your $350,000 home, maybe you should be looking at $310,000 homes instead.  When you see “Adjustable Rate”, you should think “Increasable Rate”.
4. No, You CAN’T Always Refinance
   I sometimes think that if there was a single phrase that could be blamed for most of our current market troubles, it’s the phrase  “You can always refinance.”  Refinancing was not free in the best of times, and when prices are declining as they are now, it’s not always even possible.  Generally, if you need to refinance later to afford that home now, you can’t afford it now.  If a lender tells you “you can always refinance later”, you may want to emphasize that you’re trying to buy a home, not signing on to support your lender full time.  Be careful to use the appropriate level of force when you emphasize this.  The use of firearms or sharp-edged weapons, though providing temporary emotional satisfaction, may involve you in legal difficulties.
5. How Much Can You COMFORTABLY Afford?
   Once upon a time, buyers were advised that they could comfortably afford to spend 25% of their income on housing.  In California, especially, most folks wouldn’t qualify for a home at that number, so it got revised upward constantly.  Another way to look at this issue is to look at the total amount of money you have to service all your debts, including your car payments, student loans, credit card bills, and your mortgage.  Called your “back end ratio”, a conservative number is 36%, but in the market “heyday”, lenders were often using back end ratios of 50% or higher.Even more important than the ratios the lenders use, however, is your own common sense.  Does the number feel high to you?  If so, it is.  If the number the lender will lend people was the same in all cases as what people could comfortably afford, 75% of July’s sales in Sacramento wouldn’t have been short sales and foreclosures.
6. Shop Only For What You Can Comfortably Afford, If At All
   Once you’ve seriously dwelled on the questions in 1-5, NOW you’re ready to make a decision about whether you can and should go shopping for homes.  Now for the hardest step of all:  you should plan on shopping for homes that are actually in this price range.  Oh, but John, it’s a buyer’s market!  Surely I can get that $1.15 million dollar beauty for 75 cents and a pocket full of cheese, right?  Well, no.  In the first place, the difference between list price and selling price is not that great in real estate on average even in this market, and the better the home is already priced, the less difference there is.  Learn more.Even more importantly, however, the absolute cardinal rule of buying conservatively is to adjust your expectations to reality, not to adjust reality to your expectations.  Can you comfortably afford something up to $280,000?  If so, then you have no business looking at homes in the $400,000 price range.  The home that’s worth $400,000 but is listed for $280,000 is going to go for $320,000.   Besides, for $280,000, you might easily find the home that should be listed for $310,000 without much competition.  Moreover, as a conservative buyer, you know that if you’re comfortable up to $280,000 and look at homes up to that price, you may find something you like at $240,000.  Now you’re $40,000 more comfortable!

Common Sense + Up Front Number Crunching = Success!

With these six tips in mind, you should be well on your way either to making a purchase that won’t leave you overextended, or walking away before you even shop.  Learn all you can before you shop, keep your eyes open, and you’ll be fine!

One of the most important indicators that real estate market junkies like me look at is inventory.  If you’re not familiar with “inventory” in a real estate sense, it’s a pretty simple concept.  You look at how many homes sell every month.  Usually we like to use an average going several months back.  Then you simply divide the number of available homes by the number of homes that sell every month.  So if there are fifty homes on the market in a given area, and five homes sell every month, then there are ten months of inventory.

Why do we care?

Well, first of all, whether we’re in a “buyer’s market” or a “seller’s market” is traditionally determined by looking at months of inventory.  Most authors use the traditional cut-off of six months of inventory.  Less than that, and we’re dealing with a scarcity of homes — so we’re in a seller’s market.   More than that is considered a glut of homes, so we’re in a buyer’s market.  Of course, in reality the distinction is not so cut and dried, but when you get into the extremes it becomes more obvious.  If there are two months of houses to sell, that market is HOT.  If there are eighteen months, on the other hand, something is wrong.

This is definitely important information for sellers, because the number of months of inventory serves as a rough guide to how aggressive you should be when you price your home.  In a buyer’s market, homes priced near recent average sold prices will often do well.  A really hot buyers market is one where the prices are going up, and the mechanism for that of course is pricing homes above the average sold prices.  In a seller’s market, in contrast, prices are declining, so your target needs to be lower than the sold comps.  (I know, Mr. and Mrs. seller, you don’t want to hear that.  Sorry).

Type of Sale Matters

Today I spent some time working on my in-house real estate statistics engine, which lets me print out thumbnail market data by city, zip code, or county.  I added a feature to break inventory down by type of sale.

One of the ideas we have to constantly educate buyers about is that different types of sales behave differently.  Buyers of course like to think it’s a buyer’s market (hey, man, that’s MY market)!  And it is a buyer’s market — overall.  But what are most buyers buying?  Foreclosures, of course.  So how are foreclosures alone acting?  Like a sellers’ market!

Here for example is a printout of how Elk Grove has been behaving recently:

Inventory (Based on 12 months of prior sales)

Inventory (Based on 6 months of prior sales)

What does this show us?  Well, first of all it shows that Elk Grove has been moving into a more of a seller’s market situation in the last few months, since current inventory is lower if we take the last six months of sales as an average.

Looking at just non-distressed sales, however, over time we see that sellers who aren’t in foreclosure are experiencing the “buyer’s market” getting worse — with the average number of non-distressed sales falling over time.

Foreclosure sales are behaving like a very, very strong seller’s market, with less than two months of inventory especially if we look at recent sales.  We see this not only in the inventory numbers but also in our business every day.  Buyers are more often than not in multiple offer situations on foreclosures.  Full price and higher-than-full-price offers are not uncommon, as foreclosure buyers are often discovering that their first few low offers result in the home being sold to someone else.

The number of short sales that are closing, though improving slightly over time, is still abysmal enough that we have almost four years of inventory.  Today’s short sales are not tomorrow’s sales.  Today’s short sales are tomorrow’s REO, and the day after tomorrow’s sale!