Sacramento Real Estate Blog

There are a few generalizations that I go by in real estate. They’re not universal laws or anything like that, and you’ll find the odd zip code or month where the rules don’t apply. Nevertheless, I find that as a rule:

• The more foreclosures there are in a given area, the more prices have fallen recently.
• The more prices have fallen for any given greater Sacrament area, the more we’re seeing a huge demand this year as compared to last year.

One area where these generalizations hold true to a great degree is the area of East Florin, on either side of the Champion Golf Links, which is to say, the areas 95828 and 95829, which includes Churchill Downs Community Park.

There certainly are plenty of foreclosures in this area. At present some 31.5% of the 679 homes in this area are bank foreclosures (REOs), and another 46.5% are short sales. In April, 2008, 81.7% of sold properties in this area were bank foreclosures, but only 3.7% were short sales.

As you’d expect, then, prices in this area have fallen dramatically. This April the average sold price for a home in East Florin was $209,507, down 35.9% from last year’s average of $326,916. The median has fallen 39.8% during this time, from $302,500 in April of 2007 to $182,000 in April of 2008. Finally, sold price per square foot has dropped 40.3%, from $213.11 in April of 2007 to $127.28 in April of 2008, on average.

With these huge decrease in price, we see a resulting huge increase in demand. From a paltry 40 homes sold in April of 2007, unit volume has increased 172%, to 109 units sold this April.

It will be interesting to see if the demand keeps up. I found a great many good looking REOs available, so I imagine that as most of those short sales continue to turn into REOs we’ll continue to see a strong demand for homes in East Florin.

Related Links

Are Short Sales Fake Listings?  Part 1

Are Short Sales Fake Listings?  Part 2

Part 3 of our series “Are Short Sales Fake Listings” deals with the problems that buyers encounter because short sales are fake listings and the steps that buyers can take to find listings that are not short sales.

How This Works Out for Buyers

Buyers often feel like they should spend some time looking at Short Sales.  They’re often tempted by the low prices into ignoring the fact that these listings hardly ever close successfully.  Sometimes buyers hear about the long closing time (3 months and more to get the offer accepted in many cases, plus another month to close) and feel that they may not be in such a hurry so the long time frame may work.

What buyers often don’t realize, however, is that there’s a big difference between waiting three months for something good to happen that you know is coming, and waiting three months while having no earthly idea of what’s going on with your offer.

So what happens?

Rarely, the best case happens, and a buyer who was interested in a short sale gets their offer approved by the lender and is still interested in the property when it’s ready to close four months later.   Unfortunately this intermittent reinforcement leads more buyers and sellers to hope that maybe they’ll be the next American Idol winner.  (Intermittent reinforcement is also the principle behind the lottery and Russian roulette).

The most common case is one we see happen time and time and time again.  The buyers who were excited about their offer and thought that they’d be happy to wait end up frustrated as can be, while the unresponsive lender drags his feet for months and months.  Most people overestimate their own patience because they haven’t met loan workout managers, who are the undisputed masters at testing peoples’ patience.

In the worst case, as we point out above, the buyers wait patiently as detailed above.  Finally, their offer approved, they go through the inspection process and get their loan ready, but then the lender pulls the rug out at the last minute.  So these buyers - who’ve told their landlords they’re leaving — find their patience rewarded by being out of pocket by about $800 or $900 for inspections and appraisals.  All dressed up with no place to go.

How Can Buyers Get Listings That Don’t Have Short Sales?

Most real estate web sites are fed by the Multiple Listing Service, or MLS.  Unfortunately, web site providers don’t always give us the option of weeding out the short sales from the general listings.

Here, however, are three ways that you can filter out the short sales and only get the real listings, those that have a good chance of closing in the face of a reasonable offer.

1. Use our foreclosures only search page
   http://www.sacramento-home.com/foreclosures/
   The properties listed here include only bank owned foreclosures, and not short sales or non-distressed sales.  Bank owned foreclosures are enormously popular, because the low prices are just as real as they are on short sales, but bank foreclosures actually sell and close escrow!  (See the table on page
2. Checking if a listing is a short sale
   Our main search pages do not allow you to exclude Short Sales (unfortunately), but you can test to see if a given listing is a short sale by re-running your search and including only short sales.  The advanced options feature of the search page (see detail, below) allows you to do this.  To search only short sales, check the Short Sale box.  As you can see, you can also do a foreclosures only search here by checking the REO box only.
   
    
3. Ask your agent. 
   We’re always happy to do any custom search for you from the MLS, and we can set up you up for custom email updates excluding the short sales (and using almost any other search parameters you can think of).  Just give us a call at (877) 735-5657, and let your agent know that you want to get all the listings (for whatever area, size, etc. you’re interested in) except the short sales.

Related Links:

Are Short Sales Fake Listings?  Part 1

Why Short Sales Don’t Sell

Imagine a banker foreclosing on people.  Did you picture in your mind a damsel tied to railroad tracks and a guy in a black hat twirling his moustache? 

That’s just about right.

The Lender’s Stake in a Short Sale

Frank Llosa brilliantly documents two games that lenders will play when asked to accept a short sale.

Game #1 - Drag Your Feet and Continue Making Money
Tell the owner that you’ll accept their short sale, as long as they keep making payments.  This way you continue to get paid whatever the mortgage was or whatever you allow the buyer to negotiate.  The longer you drag your feet, the longer you get paid.

Game #2 - Drag Your Feet, Continue Making Money, and Foreclose Anyway
Another reason the lender may not want to accept a short sale is that if there is Private Mortgage Insurance on the loan, they’ll be able to get the loan paid off if they foreclose.  Expecting the bank to “cut its losses” only works if it’s not the case that they can have the loss covered in full if they foreclose and have to cover the loss themselves if they don’t.

While we’re on the subject of foreclosing anyway, don’t think the fact that you (as the buyer of the home) are in contract with the seller will deter the bank from foreclosing.  We even had one buyer who got to the end and had a loan ready to fund, (and yes, this buyer had paid for home inspections and an appraisal out of pocket) when at the last minute the bank decided they’d foreclose anyway.

Buying a Fake Listing?  Then You’ll Need A Fake Agreement.

Do you feel uncomfortable with short sales yet?  Take a look at the following language from the California Association of Realtors® Short Sale Addendum:

“Buyer, Seller, and Brokers do not have any control over whether Short-Sale Lenders will consent to a short sale, or any act, omission, or decision by any Short-Sale Lender in the short-sale process.”  In the next paragraph on buyer and seller costs, this addendum goes on:  “Such costs will be the sole responsibility of the party incurring them, if Short-Sale Lenders do not consent to the transaction or either party cancels pursuant to this agreement.”  [My emphasis both times].

Nice, huh?  You are on the hook for your costs if either party cancels “pursuant to this agreement”, but you just got done “agreeing” that nobody who has anything to do with the agreement can control what the bank’s going to do.

More About Lenders

Even if they don’t play the games we talked about above, think about the position the lender is in, and you’ll realize that lenders are not chomping at the bit to make your short sale work.

In the long run, the threat of foreclosure is the main stick that lenders wield.  It keeps everyone from doing a short sale when they get in trouble or just want to move and can’t afford it.  (It’s not called a MORT-gage for nothing).  Making the short sale process easy and convenient flies directly in the face of the lender’s overall financial interest.

In the short term, if they have short sales and foreclosures on the books, the bank is paying the taxes and other carrying costs on the foreclosures, while the seller is still paying those costs on short sales. To be sure, maybe in many cases the seller isn’t keeping up on these payments either - but at least in this case the costs are deferred to the future.  Foreclosures are bleeding bank funds now, so it stands to reason the bank will spend most if its resources on those.

Not only is a foreclosure a present liability and a short sale a future liability, but there’s still a chance that the lender won’t end up owning the home on a short sale.  The only reason a bank will accept a short sale is that the bank is convinced that the buyer will go through the whole foreclosure process if they don’t and the bank will lose.  Documenting this means spending further resources, but there’s a cheaper way to find out who’ll cure the default and who won’t.  Send everything to foreclosure and only take a bath on the sellers who don’t cure the default.   No wonder that we met with one major lender who told us that their policy was simply not to do short sales and go forward with the foreclosure process.

If Short Sales Are This Bad, Why Do Agents List Them?

There are several reasons that listing agents accept short sales, even though the success rate for such listings is dismal at best.

• Altruism
  Listing agents naturally want to help sellers if they can.  Even though the number of short sales that get approved and close escrow is dismally low, sellers who need to do a short sale may in some cases receive some benefit from the sale in the unlikely event that they’re successful.   It’s hard to say no when a seller is in trouble and asks you for help.
• Business Benefit to the Listing Agent
  Most agents meet buyers primarily through their own listings. (Elite Properties is a bit of an exception, since so many buyers find us through our web sites).  The traditional approach to a successful real estate career is to have well priced listings, because such listings attract buyers.  Having a sign in front of an attractively priced short sale will bring many calls, and there’s a benefit to meeting those buyers even if they end up buying another property from you down the street.  In other words, from a listing agent’s perspective, whether a given listing sells is less important than whether a given listing can generate other business.

To add insult to injury, listing agents know that other buyers and other agents are familiar with how bad short sales are.  So in order to tease buyers into viewing their listings, prices are often dropped below anything that’s at all reasonable for the area, to a point where there’s no chance at all the lender will accept the offer.  We know of one case where a Broker Price Opinion (essentially an appraisal on the basis of which the lender will accept or reject the short sale) was done and the home was worth $350,000.   Nevertheless, it was listed at $330,000, and the agent told us that it was listed that way because she wasn’t getting any showings at $350,000.

Welcome to the world of short sale logic!

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(Please note that I hope this information is intended to be used before you’re in contract, and should not be taken as any sort of inducement to cancel an existing purchase agreement, listing agreement, or other contract you may have.)

Come visit this beautiful 3 bedroom 2 bath home on a quiet cul de sac in Cameron Park.

Vicki Agregado-Babcock is holding 3262 Sandhurst Court open on Sunday, May 18th, from 1PM to 4PM. 

Check out this lovely home — I got a chance to preview it this past week and it should definitely be on anyone’s short list of homes to preview.

For more information about this, check out the following links:

• 3262 Sandhurst Court Web Site (with photo gallery)
• Map to Property 
• School Information
• Schedule a Showing

It’s no secret that I hate short sales.  As I wrote in Short Sales are Neither Short Nor Sales, I think they’re bad news from a buyer’s perspective.  Furthermore, in Three Things Your Agent Should Tell You About a Short Sale, I shared my belief that they’re often oversold to sellers as false hope as a “way out” of foreclosure.  Though there may be some advantages for the seller, in terms of credit damage most sources I’ve consulted with feel they’re just as bad a foreclosure.

To further point out some of the problems with short sales, I recently write a white paper that I’m making available as a PDF file, The Short Sale Fake Listing Fiasco (How to Avoid a Colossal Waste of Your Time and Money).

Since I think this is important information for buyers to have, I’m also republishing a version of this article beginning today as a blog series.

Buyer Beware — Not Everything That’s Listed Is Really For Sale

With the rising number of foreclosures in recent years, we’ve started to have a real problem with a type of listing that Virginia Real Estate Broker Frank Llosa calls a “Fake Listing” - the Short Sale.  I agree with Frank that that’s just what they are. 

Why do we say short sales are fake listings?  Quite simply, a real listing is one where a qualified buyer can expect that if they made a full priced offer with no other buyers bidding, they would be able to close escrow and own the home. 

Reasonable as it is, this expectation simply doesn’t hold water on a Short Sale.  In Arlington, Virginia, for example, Frank Llosa documented that only 5% of short sale listings successfully sold.  As we’ll see below for one local market, traditional sales outsell short sales by four to one even though they’re much, much more expensive.  (But the good news is that bank foreclosures are listed cheaper than both and sell like crazy!)

If you can’t write a full priced offer on a listing and get your offer accepted with no competition, that’s a fake listing.

What Is A Short Sale?

A short sale is a listing where 1) the proceeds from the sale is less than the value of the loans on the property, and 2) the seller can’t bring in the difference to close, so they’re asking one or more lenders to approve the sale and accept a reduced payoff. 

For example:

$350,000 Amount seller owes to lender(s)
$279,000 Proceeds from sale
________________________________

$71,000 Amount lender is asked to write off.

Why would the lender agree to such a write-off?  Well, in principle the idea is that the lender will lose less by taking a reduced payoff now compared to how much it will cost them to foreclose on the property and sell it that way.

That Sounds Great - A Lot Of Them Should Sell, Right?

Wrong.

To give you an idea about how poorly short sales sell, let’s take one of our local areas that has a lot of listings, Elk Grove, and do a quick case study based on active homes available in early May of 2008 versus those that sold in April.  

Active Listings as of May 7, 2008

As you can see, bank owned properties (also known as foreclosures, REOs, or “bank repos”) listed for slightly less than short sales, but both fell in the range of 62%-65% of the price that non-distressed homes were selling for.  (By non-distressed, we mean a regular sale where the owner owns the home outright or owes little enough so they can pay off the loans). 

Based on the numbers above, for example, a 2000 square foot home might list for $438,840 as a non-distressed sale,  $276,180 as a bank owned property, or $284,740 as a short sale.  Short sales are discounted almost as much as foreclosures, and there are almost twice as many short sales available as bank owned properties.

Based on price and availability, we would expect the number one seller the month before to have been either short sales or bank owned properties, and the number three seller to be non-distressed sales, right?

Let’s look at what we actually find for April.

Listings that Sold in April, 2008 

In Part’s 2 and 3 of this series we’ll discuss why short sales don’t sell and what you can do as a buyer to find listings that aren’t short sales.

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(Please note that I hope this information is intended to be used before you’re in contract, and should not be taken as any sort of inducement to cancel an existing purchase agreement.)

I’ve been doing a lot of reading lately about how weak the dollar is compared to other currencies.

The chart below shows you how many Euros you could get for a buck over the last ten years, for example.

As you can see, the dollar’s value has been sliding now since about the year 2000, since about the time the Supreme Court appointed George Bush president. (Darn, are my politics showing again?)

One of the things that happens when the dollar is weak is that the price of things like gold and oil go up.  Steve Forbes recently estimated that “more than $50 of the per-barrel price of oil today comes from inflation and the speculation that inflation induces.”  So it’s not simply that Arab Sheiks and oil companies are fat cats, sitting around reaping huge profits — though I’m sure some of that goes on as well.  The high price of oil is a largely a reflection of the low value of the currency used to price it — the dollar.

OK, so why is the dollar low?  Well, remember that war we’re fighting in Iraq?  That cost about a half trillion dollars so far (and you thought real estate commissions were expensive)!  The Bush tax cuts to rich people like the oil fat cats we mentioned earlier will lose us about 1.7 trillion dollars in revenue based on what’s already been passed into law.

Partly as a result of these reckless policies, we have these huge budget deficits, so we borrow money to the tune of about $2 billion per day to finance a national debt of about nine trillion dollars (more or less). 

Aren’t big numbers fun?  To give you an idea of what nine trillion dollars is, if you spent a dollar every second, it would take you over 285,000 years to spend nine trillion dollars.  Nine trillion dollars laid end to end would easily make it well past Jupiter — almost as far as Saturn.

And to think some people are worried about Social Security.

Now you’d think that having nine trillion dollars in debt is problem enough, but meantime, there’s another problem.  The government borrows money largely by selling government securities such as Treasury Bills.  High interest rates on such instruments relative to securities available from other governments typically strengthen the dollar, while low interest rates weaken it.   This stands to reason.  Investors want a high return on their investment.  So low interest rates here mean more people can buy homes or refinance their existing homes, but it weakens the dollar, which in turn pushes the price of gas up.

With this in mind, here are some scenarios for 2008-2012:

• Catastrophic collapse in US currency.   I don’t really know if that’s a likely scenario or not.  I’m not an economist, but I play one on the Internet.
• Continued non-catastrophic decline in the value of our currency, pushing gas prices up higher while interest remains low.  This is probably “good” from a real estate perspective but bad from any other measure you can think of.
• Rising interest rates coupled with falling home prices, followed by a gradual return increase in the value of the dollar over time.

Wishing Upon William Shatner’s Ninja Star

Probably the number one question that buyers and other people with keyboards ask me is this:  Is the price negotiable?

This week I had about one person-with-keyboard per day ask me this, one way or another.

A lot of these people with keyboards have phone numbers like 916-999-9999, so I know they don’t want me to call them.  But boy, they sure want to know if the price is negotiable.

It’s as if they’re sending me an email that says:  “If I like how you lie to me, I might do business with you.”

So far my lying skills are pretty pathetic.

The Short and Legalistic Answer

The short answer to the question of whether price is negotiable is this:  of course it is.

If you read the Buyer Representation Agreement — which most of us don’t use because we don’t want to scare you into sending your fake phone number to another agent — it says that the buyer agrees that the Broker “does not decide what price a Buyer should pay or Seller should accept”.

Asking price is exactly what it sounds like, it’s the price the seller is asking.  It may not be the same as selling price.

The selling price may be less.  Buyers love hearing that.

The selling price may be more.  Buyers don’t like hearing that.

Life’s Pricing Mysteries Revealed

• At any given time around here, in any given neighborhood, homes are selling for 94% to 102% of list price, on average.  Why isn’t there more of a discount in this “tough market”?  It’s because the homes are already discounted relative to what has been selling, and (in general) only the homes that are already listed at a discount are selling.
• Bank owned properties tend to be in the higher end of that range, selling closer to list price, than non bank-owned properties.  This is because they’re already offered at a better price, so there’s more competition on them.
• Are prices on short sales negotiable?  Sure, why not.  They’re fake listings anyway, which are neither short nor sales.  Once you believe the myth that you can really own one, you might as well play William Shatner on it.  My recommendation for those who are serious about owning, however, is to go look at bank foreclosures, which are real listings.  (I’ll have more about short sales in a few days). 
• At any given time around here, in any given neighborhood, homes are selling this month for 0% to 3% less than what they sold for last month.  Let’s call it 1.25%, since that’s probably a decent average.
• A home that’s discounted today for 1.25% of last month’s sold price has a good chance of selling for about that, on average.
• The home that’s listed at 20% less than last month’s sold price probably already has twenty-five offers on it.  Some buyers will say “I don’t want to get in a bidding war”, but to me that objection doesn’t always make sense.  I’d rather end up owning at 10% below market after offering 10% above asking price than negotiate 20% above market down to 10% above market just so I could feel like William Shatner.  What will feeling like William Shatner do for me, anyway?  Nichelle Nichols won’t kiss me.
• A bargain is not how much you negotiate off of list price.  A bargain is how much you paid relative to how much others paid in the same market.  The proof is that an appraiser would evaluate your home relative to other sold comparables.  List prices are irrelevant for appraisal purposes.

Unlike areas like Antelope and Elk Grove, the Rosemont area of Sacramento (95826 and 95827) is still in a buyer’s market, with fairly high inventory and declining unit volume.  The average home sold in Rosemont in April of 2008 for $216,135, down 27.1% from last April’s average of $296,360.  The median price fell 31.2% during the same period, from $305,000 to $209,900.  Average sold price per square foot is down 26.7%, from $202.57 last April to $148.44 this April.

As we mentioned earlier, Rosemont has yet to turn the corner into a recovery.  Unit volume is down 8.1% from last year, and the expired to sold ratio has risen from 54.1% in April of 2007 to 70.6% in April of 2008.  Average days on market are also up, from 48 last year to 56 this year.  There are 9.1 months of unsold inventory in Rosemont.

67.6% — approximately two thirds — of the homes that sold in April in Rosemont were bank foreclosures.  Of the thirty-four homes that sold, only one was a short sale (2.9%), in spite of the fact that 38.8% of the homes in active inventory are short sales.

Elk Grove is one of at least two greater Sacramento markets (the other being Antelope) that are on the verge of becoming sellers’ markets due to high demand for bank foreclosures.  Prices have fallen 31.8% on a sold price per square foot basis from April of 2007 to April of 2008.  This April’s average home sold for $285,131, while the median was $270,000.  Apparently a lot of folks thought that price was pretty good for an (average) 2,039 square foot home, because more than twice as many homes sold this April in Elk Grove compared to last April.  (Unit sales were 124 units and 251 units for April 2007 and April 2008, a 102.4% increase).

Nor was a doubling in unit volume the only indicator showing a high demand for homes in Elk Grove.  For the first time in recent memory, the ratio of sold price to list price rose above 100% for a non-trivial sample size of local homes.  To put that in non-statistics speak:  buyers are bidding more for homes than they’re listed at in Elk Grove.  The 251 homes that sold in Elk Grove in April fetched an average of $285,131, or about .8% more than their $282,915 list price.  In April of 2007, in contrast, homes fetched an average of 1.7% less than list price.

Likewise, the expired to sold ratio was low in Elk Grove this April at only 27.1%.  Contrast this with an expired to sold ratio last year of 85.5%.

We can’t officially call Elk Grove a seller’s market yet, since Inventory is currently at 8.3% if you use the absorption rate of the last 12 months.  Inventory of REOs, however, which made up 69.3% of all sales in October, is only at 1.7 months.  Currently active inventory is made up of 24% foreclosures, 46.4% short sales, and 29.6% non-distressed sales.

Two areas in Sacramento County hold some special fascination for me — Elk Grove and Antelope.  In both areas, a large number of foreclosures have fueled steep drops in prices, and the fall in prices has created hot markets for bank foreclosures. 

Antelope is on the verge of transitioning from a buyer’s market into a seller’s market.  To be sure, the “sellers” are banks, and there are still a lot of foreclosures to get through.  Fully 84.1% of all homes in Antelope that are currently for sale in the MLS are either in foreclosure (22.1%) or being sold short (62%).

In spite of the number of foreclosures — which would lead one to suspect that further price cuts are in the cards — all indicators in Antelope are showing that the price decreases have already hit a sweet spot where demand is turning up sharply:

• At 72 units sold last month, unit volume is up 71.4% over last year (compared to 46% overall for Sacramento County).
• The expired to sold ratio has fallen to only 18.1% in April, compared to 73.8% last year.
• Days on market are down 25%, from an average of 60 in April of 2007 to an average of 45 in 2008.
• The ratio of the sold price to the list price has risen from 98.5% last year to 99.3% this year. 
• Current inventory is down to 6.79 months.  Anything under six months is traditionally considered a seller’s market.

No doubt many of the 199 short sales that are currently available will go to foreclosure soon, and as they do, they’ll be purchased by eager buyers.  In April, 9.7% of the homes that sold were short sales, even though they make up 62% of inventory.  In contrast, 76.4% of the homes that sold in Antelope were bank foreclosures, though only foreclosures make up only 22.1% of inventory.

The market for condos in Sacramento County in April was different from the overall residential market.  Though prices dropped faster than the overall market, unit volume rose less, rising only 11.6% over last year compared to 46% for the market overall.   The average condo sold in Sacramento County in April for $139,758, down 39.9% from last year’s average of $232,540.  Price per square foot fell 37.8% during this time, while the median price dropped 38.1% — from $218,000 in April of 2007 to $135,000 in April of 2008.

59.4% of the condos that sold in April were bank foreclosures (versus 11.6% in April of 2007).  If the rise in sales of REOs was dramatic, however, the rise in the sale of short sales was flat.  Short sales accounted for 4.7% of all sales in 2007, and 5.2% of all sales in 2008.

With the number of listings expiring dropping, and the number of listings selling on the rise, the expired to sold ratio for Sacramento County Condos has dropped over the last year, from 95.3% in April of 2007 to 65.6% in April of 2008.  Currently there are 9.77 months of unsold inventory overall.  Of that number, some 25.7% are bank foreclosures, and 23.9% are short sales.

In Part I of this article I talked about the sharp decline in average prices over the last year in Sacramento County, and how demand has risen dramatically in April in response.

In this article I want to revisit a theme that I first wrote about in March, that the different types of properties for sale effectively constitute Sacramento’s Two Real Estate Markets.

A Seller’s Market In Sacramento?

One of the Sacramento County real estate markets is the foreclosure market, and this market is behaving like a hot seller’s market.  Because the price of foreclosures is low compared to other homes, we very commonly see multiple offers, and offers over asking price.  The average discount for foreclosures is 2.3 % off of list price, while for non-foreclosures the average discount is 3.8% off of list price.  (Note that closing costs and other “non-price” concessions do not appear in these figures).

In April, 63.3% of all homes that sold were bank owned foreclosures.  Looking at the number of foreclosures now in inventory, there are only 2.7 months of inventory — which is extremely low.  By comparison, for homes that are not in foreclosure at all, there are eight months of inventory, and for Short Sales, (which I hate because they’re neither short nor sales), there are 38.8 months of inventory.

The Market Overall

I would characterize the real estate market in Sacramento as follows:

• Overall
  The overall market in Sacramento County is behaving like a buyer’s market.  Overall inventory is about 9.2 months.
• Non-Distressed Homes
  The market for homes that are neither being sold short nor being sold by banks (privately owned homes that aren’t in foreclosure) is a buyer’s market, with eight months of inventory.
• Short Sales
  The market for short sales is weak and tenuous at best.   There is an absurdly fat 38.8 months of inventory, meaning there’s a less than 5% chance that any given short sale will close in a given month.  Calling it a buyer’s market is charitable.  Since you don’t know if a given short sale will even get approved, it’s probably more appropriate to characterize the short sale market as a pseudo-market.
• Foreclosures
  The foreclosure market in Sacramento County is a hot seller’s market.  At 2.7 months of inventory, the inventory figures are comfortably below the 6-month demarcation line that traditionally separates a buyer’s market from a seller’s market.  Multiple offers are common, and the discounts from list price are typically quite low (because the discounts from the “average” (including non-REO) market value are already quite high).

As prices continue to fall and REOs continue to constitute more and more of what’s selling, several key indicators are showing that we are reaching a point of equilibrium in Sacramento County, where demand for homes has already turned a corner and where any additional decreases in price will only further fuel this demand.

Comparing residential properties from April of 2007 to April of 2008, the first thing one notices are that homes have lost about a third of their value in a year.  Average sold price per square foot declined 33.9% during this time, from $226.61 in April of 2007 to $149.84 in April of 2008.  This April the average home sold for $247,238, a 34.2% decline from last year’s average of $375,716. 

As we wrote about earlier, probably some 20% of this decline is a real drop in the value of any given home, while the remainder represents a statistical shift in what’s selling.  The markets that are hottest right now are those with the most foreclosures, where buyers are taking advantage of the bargains.  As a result, the more inexpensive markets are typically over-represented.

The Demand Curve in Action

The demand curve shows the relationship between the price of an item and the quantity of it that will sell.  As the price goes up, the number of units that sell goes down.

It also predicts what we see happening in fact over the last few months.  For each of the last three months in Sacramento County, unit volume was up not only from the previous month (which to some extent you’d expect because we’re moving further into Spring), but also compared to the unit volume last year.

By April this trend was particularly pronounced. In April of 2008, 1456 units sold in Sacramento County, a 46% increase over the 997 that sold in April of 2007.  In fact, you have to go back to June of 2006 to see unit volume this high.

Partly because of the increase in unit sales, but also combined with an absolute decline in the number of listings that expired, in April the expired to sold ratio was 42.2%, down from 78.7% the previous year.

Using the average “absorption rate” (unit sales volume) of the last twelve months, we have 9.24 months of inventory in Sacramento County. 

In Part II of this article we’ll discuss what’s selling and how the inventory breaks down according to category.

Those of you who read the recent “article” (more of a table really) about where the foreclosures are have probably already surmised that I have become one with Structured Query Language and Excel. Be afraid, be very afraid: nothing resembling an essay is slipping by these days, just a lot of good wholesome database results.

With this in mind, the table below lists average sold price per square foot for several areas in Sacramento County, El Dorado County, and Placer County.  Averages are based on sales from March 1st, 2008 through approximately April 28th, 2008.

I hadn’t realized until running the numbers how the combination of high prices and small home size in the downtown area had done so much to keep this figure so high for downtown.  I had expected Granite Bay to be the highest value, but it comes in at #8.   There were a few other surprises as well, probably the result of a small sample size.

Sold price per square foot can sometimes be thrown off as well by the old “Garbage In / Garbage Out” method.  Sometimes I’ll see listings where an agent enters “99999″ in the square foot field, for example.  I do try to filter that out when I query the database for you, but you never know, there may still be some red herrings in the data. 

For all of that, this should be a fairly good thumbnail guide — you’ll of course want your Realtor® to run comps on specific properties that are like the one you’re interested in and not make a buying decision based on this table.

Here is a table that shows the areas (zip codes) that have the most bank foreclosures (REOs) currently listed in the MLS.

For each area, it lists the number of REOs available, the number of all listings available, and the percentage of REOs. 

It’s sorted beginning with the areas that have the most foreclosures as a percentage of overall active homes available.

If you have identified a certain neighborhood as an area you are interested in, I would strongly recommend you do research into it before you make an offer on a house there or even go house shopping just yet, the reason being that once you find a house and fall in love with it, you will tend to look at the area with rose-tinted glasses. So, if you have identified a neighborhood, definitely look up its community profile in the local newspaper’s website, and on City Data.

Another thing you can do that is immensely helpful is to drive by the area many times, at different times of the day and get a feel for the place. Try first thing in the morning, sometime in the afternoon, later at night and definitely at least once on the weekends. Be critical. Roll down your windows. Can you tolerate loud music coming from some houses? What speed are cars driving? How do the lawns look? How do the houses look? Does it seem like the people that live there care about their properties? How many cars on the road? What kind? Are there junk cars in driveways? Oil stains on driveways?

The best thing of course is to knock on a few doors and talk to the people there. Ask them how long they’ve lived there and what they think. Tell them you’re considering buying in their neighborhood. Trust me, people love to talk about their homes and neighborhoods. And, if they don’t, take a cue.

A FSBO (pronounced fizz-boh) is a house that is on the market “For Sale by Owner.” This means that the owner has decided not to hire a Realtor to sell it for him - he intends handling the entire sale of the home by himself. Be forewarned - he also intends to do all the paperwork himself.

Sometimes, FSBOs happen to be retired Realtors wanting to save themselves the home selling fee - typically 6% divided amongst two Realtors - the buyer’s agent and the seller’s agent.

As a buyer going into a FSBO however you should remember that most FSBOs are overpriced. Because the seller has usually not spoken with a Realtor, he has not had the conversation of comps in the neighborhood and is probably asking more than the home is worth. Secondly, since he does not have an agent guiding him regarding the legality of certain structural issues, he might not be revealing things about the house he knows to be an issue. These might come back to bite you later.

Obviously, my recommendation is to stay away from FSBOs, but if you must buy one, get a good property inspector, an independent general contractor to examine the property (yes, both!) a pest inspection and hire your title company to make sure the paperwork is processed correctly. Take no chances and put in writing every assurance the seller gives you about the home.

credit: ishrona

Readers of this blog and Purva Brown’s Sacramento Real Estate Gal probably know that Purva is more of a real estate market optimist than I am. So she’s more likely to say something like this:

“Hey, you bubble blogger guys slept through the recovery!”

Sometimes I feel like such a coward, to tell you the truth, sending out a poor pregnant woman out to do the company’s rhetorical bear hunting.

On reflection, though,it’s probably not a bad thing to have a real estate company where the agents are optimists and the broker is a pessimist. While the agents are all out selling (a tough job where sometimes only optimism stands between you and despair), it’s the broker who’s supposed to be in the office fretting over getting sued.

We don’t say “pessimist” on the resume; we say “risk manager.”

What Do You Want To Prove?

Ouch, prices have come down 29.9% in Antelope, from the first quarter of 2007 to the first quarter of 2008 (sold price per square foot). The median sale price fell 26.2% during this period, from $325,000 in the first quarter of 2007 to $240,000 in the first quarter of 2008. The average home sold for $238,829 in first quarter of ‘08, down 28.1% from last year’s average selling price of $331,995.

If you’re Chicken Little, of course that proves that the sky is falling.

Meantime, a group of ungrateful home buyers in Antelope — heedless of the Naderesque altruism of these tireless geniuses who selflessly risk their anonymous reputations by toiling at their keyboards to warn buyers about the dangers of home ownership — these ungrateful buyers, I say, have refused to do the sensible thing and stay home and duck the falling pieces of Sacramento’s market.

In Antelope, in the first quarter of 2008, unit volume was up 44.5% from last year.

Damn it, ungwateful buyers. Wun away! Wun away!

Chicken Little was on such a winning streak last year in Antelope. Unit volume was down to 110 units for the first quarter of 2007. By August of last year, inventory in Antelope had topped twelve months.

Following the sell-off in the first quarter, we’re now looking at inventory numbers of 7.1 months.

Ingwates, that’s what you are.

Chicken Little FAQ

Q. How can you tell if Chicken Little is on your blog?
A. Your delete key finger is getting tired.

Q. What’s the difference between Ralph Nader and Chicken Little?
A. Ralph Nader has a job, and some people voted for him for President.

Q. Why does Chicken little tell you not to buy when prices are falling?
A. Because the bubble is bursting.

Q. Why does Chicken little tell you not to buy when prices are rising?
A. Because the bubble is going to burst.

Q. How do you make Chicken Little Soup?
A. Put Chicken Little in a pot. Boil vigorously. Then go out for Chinese.

Officially. I like that.

According to me, the official home search starts when you are pre-approved for a mortgage, have a number in mind and are actively searching for a home, that is, going out with some regularity with your Realtor to look at houses in a specific area you have selected as wanting to live in which has homes that fit your criteria.

This search should begin approximately two - four months before you want to love in to the house. Why so long? Escrow lasts about 30 - 45 days. And unless you are going to devote every waking minute to heading out looking at homes (most clients go out once a week) you will take on an average two to three times of going out before you make an offer. If that offer does not work out for some reason you will want to begin the search again.

Depending on how fast inventory is moving and what area you are looking in, it will take you about two months to find the right home and then another month to close on it. So plan accordingly. Traditionally, the summer months see the most activity because people like to move school children out to another school before the year begins again.

Just call the number to the upper right! No, just kidding.

This is a question I’ve been wanting to write about for a long time because it seems to me that clients end up frustrated when they don’t spend enough time looking for a Realtor, just a house. Here’s the scoop: all Realtors use the same tools, they all use the same MLS, follow the same rules and every Realtor knows how to do a basic search to find the home you are looking for. The difference lies in whether this Realtor’s style and way of doing business fits what you want.

So there, you are actually doing two searches at once - one for a Realtor and then for the house. And the second gets a lot easier if you do the first one right. Here’s what most people do: they see a house they like on the outside and call the number on the sign. That is the listing agent’s phone number. And chances are the listing agents (at least in today’s market) have no interest in driving buyers around and showing them homes. Buyers however call every number on every sign until someone answers and shows them a few homes.

While there’s nothing wrong with this approach, it wastes a lot of time. Instead, what I recommend buyers do is find a few Realtors they think they can work with and try calling them to talk with them. Better yet, search for them online. Many Realtors today have more than a website - they have a blog, where they publish information about topics that interest them and houses in general. Read their blogs, get a feel for whether you would get along with them and how competent they seem in their field.

Then call them, tell them what you’re looking for and go shopping!

Oh boy! Hold on to your hats. Buying a home is probably one of the most exciting and emotionally draining things you will ever do in your life. In my experience there are three types of home buyers:

1. The Fear Before the Process Starts Kind - This group of people feels an intense grip of fear/anxiety/dread when they first realize they are buying a house. They might walk around in a kind of stupor, bump into things and walls, and want to skip meals because their stomach is queasy. Then, they get over it and sail calmly through the home buying process. Their Realtors love them because they never show any worry or give them trouble calling incessantly. Their Realtors also wonder if they’re human, not having met them in the days these buyers refused to eat, got dark circles under their eyes and walked right out into traffic, scaring everyone around them.

2. The Anxious Home Buyer that Might not Make It - This is the worst group to belong to, so if you’re here, consider yourself warned: I will know you belong here. This is the home buyer who just cannot let go of her anxiety long enough to come into possession of a house. The home inspector almost gives up on her, the termite company swears they will never deal with her again and the Realtor is seeing red because this client has dragged her out of bed early on Sunday mornings and just when she is almost in escrow every calamity on earth has hit to help the cancelation of escrow. This home buyer might just not make it to the final signing and might not ever buy a home, so if you do see yourself here, ask yourself why you are buying a house or wanting to buy one. The answer might surprise you.

3. The Home Buyer’s Remorse Club - This is probably the largest community out there, so if you find yourself in the middle of an escrow wondering if you’re doing the right thing, or lying in your new bedroom of the house you just bought heart palpitating wildly, be reassured you’re in good company. Almost every home buyer claims to have some buyer’s remorse about spending too much, buying in the wrong neighborhood, and so on. Usually they get over it by the time of the housewarming and live happily ever after.

So which kind of home buyer are you? The group you fall into should give you a pretty good idea of how stressful this process will be for you!

As a first-time home buyer, you’re probably looking at this turmoil in the real estate market, the dropping values and think to yourself, “I could buy a home now.” You’re probably right. Here’s another reason why you should be considering this thought very seriously in this market - there is a lot of inventory to look at, interest rates are still near historic lows and, what’s more, there are some unbelievable deals in REOs out there.

But where should you start?

I recommend taking a good hard look at your finances and talking with a mortgage consultant to see how much you can afford to pay toward your mortgage every month. Make sure this amount includes taxes and insurance along with principal and interest on the home. The next step would be, working backwards from this number, to see how much of a home you can afford.

When you have that number in your head, see what’s available in an area you would like to buy in. Some people prefer to live where they have rented in the past but sometimes this is not always possible. Consider bedrooms, baths, and how close you are to work or if you would consider commuting.

Then, check how much you have in savings for a down payment. If you have about 10% down, in today’s market you should be fine. If you don’t, ask your mortgage broker what you need as a minimum down payment. Many programs today allow gifts from parents and other relatives for down payments as low as 6% so ask about those.

Then, get a Realtor. You can ask your mortgage consultant for a referral or just search online. Pick one you can trust.

Remember that first-time buyer homes are not always the dream homes people would like to own, but if you start somewhere near the bottom of the market (like today’s) you are likely to trade up in the not too far future to something that very nearly resembles your dream house!

Glad you asked. Usually, a good Realtor will find a way to ask you this question, but it’s a good idea if you have thought about it first by yourself. The first thing to consider is if you will be involving anyone in the financial aspect of buying this house. It amazes me when someone calls me to see a house and then tells me that their brother, or sister or uncle is paying for the home. When I tell them to contact the said relative, I never hear back from them. Bad communication!

So if someone is paying for the home, or putting a down payment on the home, realize they will probably want to be involved in the process, be it parents, or whoever. It is usually a good idea to find a time to go looking for a house with them. Also please understand that if they are going to buy the home for you, the lender will consider it an investment property, since they will not be living in it by themselves.

Even if no one else is contributing to the financial aspect of buying the house, if you need a second opinion, be sure to pick your “critic” wisely. Pick someone you know whose house you like and someone you see as having had some success in buying and maintaining a good property. Also be very clear on what you intend the do with the house (will it be a rental later?) and pick your critic accordingly.

One other person besides you (and your spouse) seems to be the consensus. Like with many other things, too many cooks spoil the escrow along with the broth.

In the big booming real estate market, banks were willing to loan to investors 100% of the purchase price of non-owner occupied residences for whatever reason. With a 680 FICO score, a buyer could come into possession of a house he could flip or rent out. These were called 80 - 20 loans, where the buyer would get a first mortgage for 80% of the purchase price and a second mortgage for the 20% rest of the purchase price. Since property values were headed up, most people thought they could refinance easily in the future against the increased value of the home into a fixed mortgage for 80% of the value.

Unfortunately, we now know that the dream of refinancing for a lot of people never quite worked out because property values began to fall. So today, if you’re looking for a zero down investor loan, you’re not going to find it.

Banks have stopped loaning 100% purchase price mortgages even to some owner-occupied borrowers. So buying a rental with the bank’s money alone is impossible. Your best bet is to come up with at least 15% down, although 20% to 25% is better because you can avoid private mortgage insurance and, possibly, get a better cash flow on your investment.

For those of you who aren’t familiar with it, Fair Oaks is a beautiful, established community in Sacramento County, east of the city of Sacramento. In the first quarter of 2008, the average home sold in Fair Oaks for $358,999, down 24.9% from the first quarter of 2007. A portion of this drop reflected a smaller crop of homes, with this year’s average footprint being 1930 square feet versus 2086 square feet last year. As a result, the sold price per square foot of a home in Fair Oaks dropped more moderately, 18.9%, from $229.25 on average in the first quarter of 2007 to $186.01 on average in the first quarter of 2008.

Unit volume has declined markedly in Fair Oaks, 38.1% over the year. Of the 60 units that sold in the first quarter, 30 were bank foreclosures but only two were short sales. Currently there are 6.8 months worth of unsold inventory, but at the rate foreclosures have sold over the last quarter, there are less than two months of foreclosure inventory.

When you start shopping for a home, especially when you are new to the area, it seems natural to ask your Realtor if it is an area that is “safe,” school information, information about the neighborhood and neighbors and so on. Many clients however do not realize that Realtors have to be very careful in handing out such information due to the Fair Housing Act to avoid allegations of steering. So while we might be able to give you school information, we cannot tell you the average size of families in the neighborhood. Information about crime seems to be another sensitive topic.

So where does a person go for such information? Here are a few resources. You can go to a title company and request neighborhood information. Chances are however they might be bound by similar rules. Online resources are best. If searching in the Sacramento area, go to Sacramento Bee’s community information page under “Homes.” For other areas, you can search their local newspapers or even go to City Data.

Personally, I find City Data quite fascinating, with their average temperatures and most common professions amongst residents. Especially when it comes to relocation, it helps to get a general idea of the place as well as the residents!

Though local residents no doubt break the area down a little differently, the Multiple Listing Service includes three zip codes in the area it considers “Land Park”.  These include 95818 (Land Park / Curtis Park), 95822 (Land Park and the Executive Airport area), and 95831 (the “Pocket Area”).  In this market update, we’ll compare the performance for homes in all three areas for the first quarter of 2007 against the first quarter of 2008.

In 2008, the average home sold in Land Park for $317,410, down 23% from last year’s average of $412,426.  Some of this price drop is an artifact of the fact that this year’s group of homes was smaller than last year.  Sold price per square foot dropped more moderately, 18.4%, from an average of about $256 per square foot last year to an average of $209 per square foot this year.  The median price fell more dramatically, reflecting both a real price drop and the focus on smaller homes.  In the first quarter of 2007 the median selling price was $377,500.  In the first quarter of 2008 it had fallen to $282,500, a 25.2% drop.

In current active inventory, about a quarter of the homes are short sales, and another quarter are foreclosures (more precisely, the numbers are 23.4% and 24.8%, respectively).  Reflecting the continued unpopularity and difficulty of short sales, however, only 3.9% of first quarter sales were short sales, while 35.6% of the sales were foreclosures.

Unit volume is up 4.1% this year for Land Park, with 205 residential units selling in the first quarter of 2008 compared to 197 units in the first quarter of 2007.

In inventory now, the average foreclosure lists for approximately $134 per square foot, versus $154 for short sales and $244 for non-distressed homes.  Homes in Land Park have been selling for approximately 94.9% of their listed price, on average.

Many first-time (and subsequent-time) homebuyers are faced with this question today: what’s the best home loan for them? Sure, they’ve heard about interest only loans and hybrid loans and a very popular refinance loan of 15 year fixed instead of the 30 year fixed because they get to pay lesser interest and pay off the mortgage sooner. But deciding the right one for their situation is tough.

For instance, consider the person who has been transferred and wants to live there for about 7 years. He knows for certain, he will not live in the place for more than ten years. Should he still get a thirty year fixed rate, just because these are uncertain times for rates? Or should he do something else?

I think a good mortgage broker should be able to sit down with you and work the numbers depending on your situation. Take a look at this post in the Mortgage Reports which talks about how only after half the loan is paid off does the 30 year fixed revert to making more payments on principal rather than interest. In this case, wouldn’t it make sense for the person who is buying a home to live in it for only 7 - 10 years get a hybrid loan, fixed for 10 years? Shouldn’t he at least consider it, instead of reverting to the knee-jerk 30 year fixed?

Here’s a Short Version of This Article

At least part of the dramatic drop in price that we reported for Sacramento County for first quarter of 2008 is a result of the fact that the cheaper homes are selling better, not the fact that individual homes have fallen as much as the overall average.

Here’s the Long Version

The nice thing about being an surly old bastard is that at some point you begin to care a lot less what people think of you, unless it’s someone with a gun pointed at you, or someone who might make you dinner. 

And so it is that I know that there’ll be those in the Chicken Little Subculture who’ll see this article as an attempt to minimize the bad news coming out of Sacramento County, and I am blissfully indifferent.

Let me be clear:  the real drops in value that we’ve seen in Sacramento County, Placer County, and El Dorado County have been fairly substantial.  Ask anyone who bought a home in 2005 and is selling one in 2008 — that’s not a great position to be in.  Of course, if you bought in 1996 and are selling in 2008, you’re probably kicking yourself for not moving in 2005, but other than that you’re sitting pretty.

So accuse me of minimizing the drops if you want, but I want to re-examine the numbers that came out in my last Sacramento County real estate market update in light of this other update that I did for Placer County.

The Problem With Averages

There’s always a problem when you aggregate data about a population.  On the one hand, you can’t analyze statistical data at all without more than one data point.  But the fact that the average man in America is 5′ 10″ tall (or whatever the average is this year) doesn’t mean that YOU are 5′10″ tall.  This much is obvious.

One of the interesting things I found out in looking at the Placer County numbers was that part of the reason for the roughly 30% price drop in the county was that the places where prices had fallen the most were selling more, so the higher priced homes were underrepresented.  In Lincoln, for example, home prices fell by 35%, and made up a bigger percentage of the total sales Placer County in 2008 than in 2007.  Meantime, Granite Bay, where prices fell only 9.2%, made up 8.8% of the total sales in Placer County in 2007 but only 4.1% of the total in 2008.

Looking at some of the areas we’ve considered in Sacramento County, the same sort of thing appears to be happening.  In Elk Grove, sold price per square foot fell 32.3% from year to year;  volume went up in Elk Grove by 19.8%.  In Folsom, in contrast, sold price per square foot fell more moderately (11.7%); unit volume went down in Folsom by 38.1%.

So what we’re seeing in Sacramento County is the same sort of thing I talked about in Placer County.  Prices have fallen dramatically, but only part of that drama comes from actual drops in the value of individual houses, and the rest is made up of the fact that the homes that have fallen more dramatically are selling better than those where the value has held on better.

Yes, I’ve been sick. No, I don’t hate the Sacramento real estate market.

While I was gone, I wrote an offer, got into escrow, celebrated, realized we weren’t in escrow when the listing agent called and said the asset manager had changed his mind about our offer, tracked down the deposit check, sent it back, felt very bad for my client, showed about ten homes to another client, wrote about five offers more, and worried about having infected my new client with the flu I had. (Although I really, truly was past it then.) Whew!

So what’s new here at Sacramento-Home? We are hearing from more investors and home buyers. Relocation buyers have been our specialty and we’re I think beginning to see them more and more now that it’s spring.

There are some incredible buys out there for people with 20% down. So let’s head out and shop! I have about 16 weeks left before the baby gets here. The countdown has begun!