Sacramento Real Estate Blog

Sacramento’s Natomas area — which consists of the areas 95833, 95844, 95835, 95836, and 95837 — is one area that’s experienced a large number of foreclosures, and where as a result, prices have fallen hard and buyer interest is now very high.  “On paper”, from June of 2007 to June of 2008, prices in the Natomas area fell only slightly more than in Sacramento County as a whole, losing 34.% on a sold price per square foot basis, versus a county-wide 33.4%.  However, as we’ve written about before, county-wide price drops tend to be somewhat inflated because lower priced areas are over-represented.  So when you discuss a smaller area like Natomas, these large double digit price drops are more meaningful than they are over the whole county.

Therefore it’s not surprising that even though the paper difference in price drop is small, the unit volume boost in Natomas has been great even by Sacramento County standards.  Eighty-eight homes sold in Natomas in June of 2007, whereas 203 homes sold in June of 2008, an increase of 130.7%!

The average home sold in Natomas in June for $251,122, down 35.4% from last year’s average of $386,666.   With the bargains to be had, there is some degree of competition taking place.  Buyers paid an average of 99.26% of the list price for their Natomas home in June, and almost half the homes that sold (42.9%), sold for a selling price that was higher than the list price.

Some more statistics for Natomas are below.

Natomas Real Estate Unit Volume Data

Natomas Price Data

Residential Inventory (Based on 12 months of prior sales)

Residential Inventory (Based on 6 months of prior sales)

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!

The other day I got an email from a colleague, Rebekah Schroeder, who has a nice blog about real estate in Truckee that she launched this year.  I went over and checked it out.  Her blog features a lot of market data for Truckee and a lot of the surrounding ski resort communities, but one of the articles that caught my eye was one that was more general in nature, about Jim Weichert calling the bottom in real estate.

Weichert’s article got a lot of airplay, including one astute reader who observed that his prediction of a market turnaround in 2008 was nothing less than boldly going where he’d already gone last year. 

I’m always a bit uncomfortable with market predictions, unlike my alter-ego, Johnstradamus, for whom predicting the exact hour of the market’s turnaround is child’s play.  There are several problems with such predictions.

• Nobody knows when “the market” is going to hit the bottom.
• There is no “the market”.  Weichert’s press release waffles on this somewhat.  “Weichert acknowledges that the recovery will happen at slightly different times and at different rates throughout the country because real estate remains a local business.”  If you’re going to make a substantive claim that the market’s on the rise, you should say which one is on the rise.  Empire Ranch?  Folsom?  Sacramento County?  Otherwise you’re just talking through your hat.  (Which is fine in one respect, I suppose, since it lets you talk through your hat again and again!).
• In Sacramento County at least, there are plenty of buyers out now, though we’re not at the bottom.  I’ve been writing about this for several months.  Sacramento County’s year on year demand has gone up for the past five months in a row.  With about 95% of last July’s volume already sold by now (July 21st), it’s a pretty safe bet that July will make six months in a row — though I think July’s unit volume will be down from June.  There’s already huge competition going on for foreclosures.  It certainly doesn’t strike me that I need to be boldly predicting the bottom to get buyers, since the buyers who are creating the bottom are already there to work with.
• Prices have not yet responded to increased buyer demand, and nobody but Johnstradamus knows just when they will, but I can almost guarantee it will be a surprise.  Currently 68.4% of the homes that have sold in July so far have been bank foreclosures.  69% of current inventory is either a short sale or foreclosure.  In order to continue to move their inventory quickly, I believe that banks will continue to cut their prices.  If the last year was any guide, they’ll be especially aggressive about this in the winter months.  However last year the demand was awful to begin with, so how much this year will be a repeat of last year’s cuts is anyone’s guess.
• Two $64,000 questions are as follows:

• How much will the money supply tighten?  So far this happened later and less than I expected.
• At what point will cash investors start to rush into the foreclosure market?  So far it seems to me that much of the early recovery has been fueled by people who will owner-occupy.

I believe you should no more try to time the bottom (though I’m sure a lot of people will) than you should have bought based on appreciation back in 2004 (though a lot of people did).  More important in either case is your own situation relative to what you’re buying, but then it boils down to sound individual decision-making, and what fun is talking about that?

Sacramento’s Arden / Arcade Creek area consists of the zip codes 95821, 95825, 95841, and 958864.  Although this area has certainly been hit hard by the downturn, Arden / Arcade Creek has fewer foreclosures than the countywide average, and thus has experienced a less dramatic price decline.  As we’ve seen in most areas we’ve studied, the flip side of that fact is that Arden / Arcade has seen a more moderate recovery in unit volume. 

Getting into the specifics, the average home sold in Arden / Arcade Creek for $287,475 in June, down 28.1% from last year’s average of $399,847.  On a sold price per square foot basis, prices fell less sharply (21.3%), and averaging $195.77 in June of 2008.  Bank foreclosures currently make up 22.8% of active inventory, but accounted for 48.6% of all sales in June.  Short sales, which make up 27.3% of inventory, accounted for only 3.8% of June sales.  Non-distressed sales made up 47.6% of sales in June, and comprise 49.9% of inventory.

The twelve month running average for sales in Arden / Arcade Creek is 64 homes per month.  June is usually a heavy sales month.  105 homes sold this month, up 16.7% from last June’s sales.  There are 6.8 months of inventory in Arden / Arcade Creek.

Unit Volume Data

Price Data

Inventory (Based on 12 months of prior sales)

Inventory (Based on 6 months of prior sales)

In May we were able to report — based on inventory at least — that Folsom had entered seller’s market territory, with inventory of only about four months of non-distressed sales, and 3.8 months overall.  This month’s inventory is up somewhat but still healthy, at 5.1 months for non-distressed sales and 4.9 months overall.  Eighty homes sold in Folsom in June, one unit more than during the same time last year.

This June, the average home sold in Folsom for $415,797, 19.6% less than last year’s average of $517,470.  Sold price per square foot fell 16.4% during this time, from $237.09 in June of 2007 to $198.30 in June of 2008. 

Non-distressed sales accounted for 58.8% of all sales in Folsom in June.  Bank owned properties accounted for 28.7% of sales, with short sales bringing up the rear at 12.5%.

Unit Volume Data

Price Data

Inventory (Based on 12 months of prior sales)

Inventory (Based on 6 months of prior sales)

Traditional real estate wisdom (or possibly, “myth”)  has it that condos are the first properties to fall when the market turns down, and the last to rise when the market turns up.  I’m not sure about that, but I thought it would be interesting to take a brief look at how condos are doing compared to single family homes in the recent unit volume recovery we’ve been seeing. 

In case you came in late and haven’t had a chance to yell at me for saying this yet, for the last five months in a row, unit sales have been higher in Sacramento County than the month before and higher than the previous year.  In June, for example, 2022 homes sold county wide, up 86.2% from last year.

Of all the “property subtypes” (as they’re called), single family homes is the one that has experienced the most growth, with unit sales increasing 92.4% in that category from June to June.  By comparison, Year on Year increase for sales of condos has been sluggish, at only 28.91%.  This June 107 condos sold, versus 83 last June.

Another way to say this is that as prices fall, sales of all categories of homes have increased to some extent, except those categories that are so small that it’s impossible to get statistically significant results.  But the big winner in the unit sales recovery of 2007-2008 has been single family homes.

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!

Well, if you’re tired of the bad news in the Housing Market — can you say Freddie Mac and Fannie Mae taxpayer bailout — following on the heels of the earlier bad news in the Tech sector, and living in a sort of grim Coca-Cola harmony with bad news of Global Warming, gas prices, and whatever else we’re scared witless about this week, you might enjoy The Onion’s recent parody, “Recession-Plagued Nation Demands New Bubble To Invest In”:

“What America needs right now is not more talk and long-term strategy, but a concrete way to create more imaginary wealth in the very immediate future,” said Thomas Jenkins, CFO of the Boston-area Jenkins Financial Group, a bubble-based investment firm. “We are in a crisis, and that crisis demands an unviable short-term solution.”

Read more.

My own favorites from the article are Carbides and Post-Modernism, but I wanted to plug my own pet project:  Bad News Futures.

It’s easy to get hate mail in real estate.  Being in the business is often sufficient cause in itself, though perhaps not necessary cause.

Every few days I sit down at my desk and have to get past some anonymous hate mail.  If I write anything positive, I’m bound to get some.  I try not to read it — I can usually tell by glancing at it that it’s hate mail, then delete it.  But the substance gets through.  Your mind is full of hate, and you sent some mail.  I get it.

Irrational Hatred

Like most hate mail, you won’t find much rational thought behind it.  It’s just that lately, people feel they need someone to hate, because home values went up quickly, then went down quickly.  Realtors® are a handy object of hatred in this case.

One of the irrational charges that gets leveled seems to be that we don’t spread enough doom and gloom.  The argument seems to be that people have been terribly hurt by the drop in prices, and that we should therefore talk about the negatives in the market to the exclusion of all else.  The irrationality in this is multi-fold. 

Implicit in my hate mail is the idea that the real estate downturn is precarious enough that we need to exclude part of the data.  My own feeling is that if you’re going to make a case for something, you should publish the data as it is and see if that dog of yours can wag its tail rather than the reverse.

As an example, I publish frequent market updates, including a monthly one for Sacramento County.  As part of this, I generally publish the year-on-year loss in price per square foot.  In Sacramento County, for example, that figure is currently running about 35% for a single year.  I publish those numbers if that’s what the numbers are, and if unit volume goes up dramatically in response (an uncontroversial expectation for most people given the demand curve) I publish that too.  So, for example, for June 2007 to June 2008 for Sac County — given the data in Metrolist as of today –average sold price per square foot is down 35.1%, and unit volume is up 86.1%.

If I stuck to publishing the 35.1% decrease, I could probably cut down slightly on my hate mail, but the 35.1% decrease in value is just as real as the 86.1% increase in volume.

Those who focus on the negative to the exclusion of all else feed the very phenomenon that they’re blaming their opponents for.  Such people frequently advise people to wait until the market recovers to buy, for example.  Of course, if no one bought until the market were “recovered”, there’d be no buyers to cause the recovery.  We would somehow skip ahead to an instantaneous recovery where declining prices did not first lead to increased demand, and then the market would somehow behave in an orderly fashion that was not wracked by turns by greed and fear.

But yet the market does what it’s going to do, and so far it hasn’t seen fit to behave according to any particular agenda.

My High School Friend

I had a friend in high school whose blog I bumped into online here recently.  When I left a comment there to say hello, her first comment back said, “So, what have you been up to [i.e., in the last twenty-plus years]?  Oh, real estate.  I hate Realtors®.”

Now it wasn’t like I poked this gal in the eye with a sharp stick when we were in high school, and if I did, the stick apparently wasn’t much of a big deal to her.  What mattered was that I was a Realtor®, and she hated Realtors®.

“Irrational hatred” is redundant, isn’t it?

This Other Guy

One of my hate mail senders recently submitted a contact form not less than nine or ten times, each time with the same message, that I was wasting his time. 

I absolve myself of that.  Anyone with time to read blogs they don’t like and to send ten emails in a row with the same message have a pretty low bar set when it comes to personal time management, it seems to me.

No Free Lunch

I think if you scratch beneath the surface, people are really mad at Realtors® because they see us as somehow responsible for the fact that their free lunch is gone. 

You remember free lunch:  buy a home you can’t really afford using an Option ARM, because you can afford the minimum payment, counting on the free lunch of the increase in home values to bail you out later.

I’m not sure if more people are mad at us today because they think 1) we aggressively sold the free lunch, or because 2) now that it’s gone we’re still serving lunch anyway to those people who want lunch until the free lunch returns.

Someone recently made the comment that Californians have this tendency to think that God ordained rising home values as their birthright.

You may quote Blood Sweat and Tears or Sir Isaac Newton for “What comes up, must come down”, according to taste.

Where I’d Like To Leave This

One of the teachers I take to be important in my spiritual life once said that “Even if bandits should cut you in half with a two handed saw, if you think of them with a mind of hate, you’re not following my teaching.”  

With that in mind, but realizing that I’m not advanced enough to always respond skillfully, where am I leaving this?  I certainly don’t want to spend a lot of time on my hate mail, either being upset by it or responding to it.  Every so often if it gets bad, I may acknowledge it as I’m doing now, but those of you who are sending it probably shouldn’t hold out too much hope that I’ll begin reading it through word by word without glancing and deleting it, or that I’ll start publishing it or responding in any regular and systematic way.  (And by the way, if it’s for Purva, she probably won’t see it).

My main goal in all of this is not to treat hate mail as an invitation to join in.  I have sympathy for those for whom the real estate market is important enough to invest huge amounts of psychological energy.  I’m tempted sometimes to go there myself, since obviously my income isn’t as good in recent years as it was at the peak.  But praise and blame are ultimately just vicissitudes, and though they may make up the heart of most blogs, I find them to be a bit distracting.

I wish I knew. All I know is that having moved four times in the last eight years of my life and bought three homes in a relatively short period, stress is a necessary evil part of buying a home.

Here’s an interesting scale developed by some psychologists regarding stressful events in one’s life. Note that change is a residence and a mortgage above $10,000 (dates this list, doesn’t it?) are both listed as pretty strong stressors, very close to change in careers and a death of a friend!

Now throw in escrows and deadlines and inspections! Really, I’d be surprised if it’s not stressful!

There are not too many buyers these days - or ever, I guess - looking for fixers or fixer-uppers as they are called by the not verbally lazy. Typically fixers are homes that need more than just carpet and paint. These are the truly sweat-equity homes where entire walls needs replacing, have mold problems, termite problems or the foundation or floor is not level. Sometimes the homes needing just carpet and paint are labeled “cosmetic fixers” and you can get these at discounted prices as well, just not as deeply discounted as the “real” fixers.

So what are the conditions under which you may be able to buy these deeply discounted big fixers? For one, they are usually bank-owned. The property owners have probably had a history of non-payment of their mortgage due to financial problems and the property will reflect that. Keep in mind however that the bank has no legal requirements to tell you all that is wrong with the home - they might not know. So get your inspections done thoroughly.

Another deterrent most buyers have (hence the low price) is that it is almost impossible to get a mortgage to buy one of these fixers, unless it is a construction loan. So it is imperative that you have cash to complete the purchase.

Big fixers have some pretty good potential for the savvy investor, but you must research them well and make sure you are getting a good deal and also plan your escape route. If they are deeply discounted, you could buy one, fix it up and sell it or rent it out. But do your homework!

I’m guessing you’ve watched some movies - perhaps the older ones - where the Realtor® walks into a home chatting up his clients and telling them everything about the house before they arrive there. The truth is your experience is likely to be very different. Chances are good that your Realtor® has not seen the home before you enter it and may be surprised himself at what he sees there.

If you did choose the neighborhood expert, you might hear a lot about the neighborhood before you get to the property. Also, if the Realtor® has shown the house before to someone else, he might know more about it. But otherwise, you shouldn’t expect that the Realtor® has previewed every house he is showing you. (Also, we have been expressly told not to walk from room to room saying “here’s the kitchen, here’s the bedroom, etc” by most trainings.)

However, this by no means implies that you cannot get the answers you want. Make sure to ask questions regarding matters that are important to you. The Realtor® should have an MLS printout of the house with all the details. And if the information you need is not contained in the printout, he will have the necessary phone numbers to get the details.

I wanted to take a minute to talk about how grateful I am to have such a great team of agents.

One of the things I didn’t expect when I became a broker was how many times someone somewhere would try to slip something by someone.  Perhaps I just hadn’t done enough transactions in my career to that point, or perhaps the declining market in the last couple of years has brought out the worst in some people, but it often amazes me the types of things people try to get away with.

Less amazing, but still very, very gratifying, is how often and how well my agents have caught the smell of something that just doesn’t seem right, told me about it, and worked with me to make sure our clients’ interest are protected. 

It’s not that we’re do-gooders, who are setting out to revolutionize a systematically corrupt industry.  There are many fine agents out there who don’t work for Elite Properties.  And of course as a businessman I think it would be great if everyone chose to work with us, since then I’d be wildly successful and have to hire zillions of people and have more money than I can spend.  But failing that, let me just express my wish that even if you don’t have an Elite Properties agent, may you get an agent who’s good and ethical and careful enough to be one.  Being around folks who do such a great job makes being in the real estate business worthwhile.

When you find the right home and decide to make an offer, usually the Realtor® will get you a competitive market analysis of the area. The market analysis - or CMA as we like to call it - will be a list of homes that are similar in square footage and style usually in a one mile radius around the subject property with the price they have sold for, or the price they are asking. Solds are important to your appraiser, while actives will tell you if you picked the best deal on the market.

If you are satisfied by the CMA, you can go ahead and make an offer. The Realtor® will write the offer up based on your instructions regarding what you are offering (you can use the CMA to determine the best price), the down payment, the earnest money deposit paid by check, how long you want escrow to be and other instructions and contingencies you may have.

The offer is then sent over to the listing agent who conveys it to seller. That’s when negotiations begin regarding everything in the offer. Once an agreement is reached in writing, escrow officially begins and you are between 30 - 60 days of moving in to your home.

Sacramento’s Rosemont area (95826 and 95827) is an area that’s priced well compared to Sacramento County’s overall average.  The average home in Rosemont sold for $139.48 per square foot in June, down 31.4% from last June’s average of $203.44.  (Sacramento County’s overall average price per square foot is $145.77, down 33.4% from last year).  The average home sold for $197,254 in June in Rosemont, down 30% from last year’s average of $281,760.

Unit volume in Rosemont has increased 37.8% from June of 2007 to June of 2008.  Bank foreclosures made up 62.9% of all sales in Rosemont in June, compared to 24.4% a year ago.

Inventory in Rosemont is currently lower than the greater Sacramento average, with 6.1 months of active inventory based on the sales for the last year.  If you look at the absorption rate for the last six months, however, then our inventory number is even lower, at 5.3 months.

Fair Oaks is a beautiful, established community in Sacramento, commanding higher than average prices.  The foreclosure rate here, though not trivial, is lower than the Sacramento County average.  As a result, though prices have taken less of a dive here than elsewhere in Sacramento County, inventory is somewhat high.

This June, the average home sold in Fair Oaks for $187.93 per square foot, down 18.6% from the average of $230.91 in June of 2006.  The average home that sold in Fair Oaks in June listed for $345,991, and sold for $335,736.  The selling price average was down 19.7% from last year’s $418,091.

Though the county-wide combined average for the sale of short sales and foreclosures was 75% in June, in Fair Oaks that figure was only 57.6% (45.5% REOs and 12.1% Short Sales).

With prices falling less dramatically in Fair Oaks, inventory is somewhat higher than average at 7.4 months.

The purchase contract, especially when signed by both parties - the buyer and seller - counts as a legal contract and binds both parties to the instructions set forth in it. As a buyer however, there are various contingencies written into the contract that allow you to walk out of the purchase without losing any of your deposit.

These contingencies are:
1. Inspections - if you find anything wrong with the house during inspections, you can back out;
2. Appraisal - if the house doesn’t appraise for the price in the contract, you can back out;
3. Loan - if you can’t get a loan for the house, you can back out.

As a seller, if the buyer is expected to do something, like remove the above contingencies in writing at day 14 for example and does not, you can send them a notice to perform. If after the notice, the buyer still does not perform, you can back out of the escrow.

Disclaimer time! Please don’t take this as legal advice. I’m a Realtor®, not a lawyer. Contact your lawyer for more details.

Typically, offers are responded to within three days of receipt. That is the default on the actual residential purchase agreement in California (the RPA-CA) unless it is changed by your Realtor®, based on the circumstances. But especially in today’s market, it is a good idea not to get too caught up in the dates and deadlines, especially when dealing with banks. Most banks will respond within a week, especially if the property is an REO. But they might not and at that point it is up to you to decide if you are willing to wait longer than the date on the contract, and if so, how long.

If you are waiting on a short sale, besides wishing you good luck, I’d also say that you get your Realtor® to write a short sale addendum along with the offer. This will limit the time you wait legally to get the short sale accepted. The short sale addendum sets a date for the bank to come up with an approval date. If you don’t receive approval by that date, you are free to look elsewhere.

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!

I generally write my first real estate market update of the month on the fourth, since our MLS, Metrolist, gives us three days to enter any sales results.  So by the fourth the data is usually about as good as it’s going to get.

However, I don’t want to be in the position of writing a market update on Fourth of July.  I may have no life, but I know where to draw the line so that I at least look like I have one!

Unit Volume Continues Strong

Of course there’s the usual bad news about prices and the high foreclosure rate in Sacramento County.  We’ll get to that in a minute.  On the plus side, unit volume continued its rally.  Unit volume was not only a smidgeon higher than May’s (with 1900 units sold reported to date for June, versus 1879 for May).  Year on year, however, unit volume is up 75% from last June’s figure of 1086 units.  So June was the fifth month in a row where unit volume was up compared to both the year before and the month before.

Prices Down Substantially

Two thirds of the homes that sold in Sacramento County in June were bank foreclosures.  With another 8.4% of June’s sales being short sales, distressed sales accounted for 75% of the total sales in June.  Not surprisingly with this many foreclosures on the market, prices have been dropping quickly. Homes lost a third (33.3%) of their sold  price per square foot value from June to June, going from $218.98 in June of 2007 to 146.07 in June of 2008.  The average home sold for $237,900 in June of 2008, down 35.8% from last June’s value of $370,787.

Strong Competition for Better Priced Homes

With foreclosures priced as low as they are, competition for individual properties is fierce.  Most of the successful offers I’ve seen come through lately have been over full price, and the average discount on bank foreclosures is growing more razor thin each time I look at it.  In June the average bank owned property sold for 99.93% of list price, meaning there was less than $150.00 difference between the asking price and the offered price.   (Note, however, that price alone does not include any concessions such as having the seller pay buyer’s closing costs). 

As usual, foreclosures account for the bulk of the sales, with non-distressed sales in second and short sales a poor third.  Making up only 28% of the active listings, foreclosures accounted for 66.6% of sales in June.  In contrast, short sales currently make up 40.3% of the listings, but only accounted for 8.4% of the closed sales in June.  Non distressed sales account for 31.8% of the active listings, and 25% of June sales.

The report below shows foreclosure sales for the past two months for the Greater Sacramento area, broken down by zip code.   To see how things are changing, compare to the June 16th Foreclosure Report.

Sacramento County

Placer County

El Dorado County

Like many established neighborhoods, Sacramento’s Pocket Area is a one that has been less hard hit by foreclosures than other areas in Sacramento County.  As a result, price declines have been moderate in this area, but we’ve yet to see a recovery from last year’s sales numbers in terms of the number of units sold.

This year’s average home in the Pocket area fetched $352,207, down 12.8% from last year’s average of $403,729.  Sold price per square foot fell just slightly more, 14.2%, from $231.39 in May of 2007 to $198.47 in May of 2008.  While short sales and foreclosures comprised 72% of sales overall in Sacramento County, in the pocket area these sales made up only 43% of sales.  Unlike the rest of the county, where unit volume rose more than 70% in May, in the Pocket area unit volume fell by 36% from May to May, with 33 units selling last May compared to only 21 this May.  Nevertheless, active inventory in the Pocket area is currently low at 4.4 months, compared to 8.3 months overall for Sacramento County.

Several months ago the East Sacramento (95819) market was holding its own quite nicely compared to the rest of Sacramento County.  In April and May, however, East Sac started to take a share in some of the depressing news, with prices falling and inventory rising to almost the six month mark.

The average home sold in East Sac in May for $299.79 per square foot, down 16.3% from last year’s average of $358.29.  The average sale price fell less sharply, 6.1%, from $488,908 in May of 2007 to $458,834 in May of 2008.

In both years, total distressed sales (REOs plus short sales) were one sale — less than 10% of the total.

Unit volume is down this year 38.5% in East Sac, from 26 units last May to 16 units in May of 2008.  Inventory has been creeping up, but is still fairly low at only 5.8 months.

Sales picked up somewhat in the Rosemont area of Sacramento in May.  Fifty units sold in this area, up 19% from last year’s unit volume of 42 units.  On a sold price per square foot basis, homes lost 25% of their value from May to May, with the average home fetching $204.55 in May of 2007 versus $153.38 in May of 2008.

This year’s average home sold for $205,083, down 31% from last year’s average of $296,469.  Of the fifty homes that sold in the Rosemont area in May, 21 of them (42%) were non-distressed, 14% were short sales, and 44% were bank foreclosures.

Compared to Sacramento County as a whole, Rosemont experienced less sharp price declines and a lower rate of foreclosures.  Also, Rosemont currently has 6.5 months of inventory, compared to a county-wide average of 8.3 months.

Our Market Data summary for Rosemont (95826, 95827) for May is below:

Unit Volume Data

Price Data

Inventory

The area made up of North Sacramento and Del Paso Heights (95815 and 95838) is an one that has been clobbered hard by the market downturn.  Homes in these areas have lost about a half of their value in a single year, with foreclosures making up almost all the sales.

The flip side of that?  Buyers are seeing bargains, bargains, bargains, pushing unit volume up to more than twice last year’s figure.

This May’s average sold price per square foot of $99.77 in North Sacramento / Del Paso Heights is down 48.9% from last year’s average of $195.40.  The average sale price has fallen 55.9% during this time, from $271,082 in May of 2007 to $119,104 in May of 2008.

Unit volume has cranked up dramatically in May, with 97 units selling this may versus 40 last may, an increase of 142%.  However, this development is too recent to make a serious dent in the inventory.  With only 44 units per month selling over the last year, inventory is currently very high at 13.3 months.

This market update covers the zip codes 95841, 95821, 95864, and 95825.  This area saw much fewer foreclosures than the Sacramento County average, yet still experienced steep price drops.  94 units sold in Arden Arcade in 2008, up 10.6% from last year’s volume of 85 units.  37.2% of this year’s crop were REOs, 6.4% were short sales, and 56.4% were non-distressed — comparing favorably to Sacramento County, where only 28.6% of the properties sold were non-distressed.

The average home sold in Arden / Arcade Creek for $299,109 in May, down 32.3% from last year’s average of $422,108.  Sold price per square foot fell 27.9% over the period, from $246.71 in May of 2007 to $177.90 in May of 2008.

Inventory in Arden/Arcade is slightly better than the county-wide average, at 7.5 months.

Well, it’s almost the end of the month.  As most of you know, sometime around the third of July or thereabouts, it’ll be time to take a look back at June and give you a bunch of Average this and Days-on-the-Market that.

However, I know there are a few dedicated Sith Lords who like to read me so they can catch me making a mistake about the future, and I hate to see anyone want for entertainment, so I thought I’d tell you how the Summer’s going to go. 

Here then are some predictions:

1) June unit volume is going to be higher than it was in 2007.  Oh, alright, I cheated.  This is an easy one, because June’s unit volume as of now is already higher than last year’s, and we have several days left to go.  Last June 1,086 units sold all month — so far this June 1,105 units have sold.

2) The year-on-year unit volume increases for June, July, and August won’t be as high as they were for May, but they’ll be substantial — let’s say more than 25% in each month.

3) We won’t see big drops in inventory for Sacramento County for the next few months.  I’m thinking we’ll stay pretty even in the Summer, and then start rising a bit in the fall.  I hope I’m wrong about that and we get down to about six months by late Summer, but I don’t think it will happen.

4) Real Estate prices will continue to fall, though not as fast as at the beginning of the year.

5) Gas will reach $5.00 per gallon.  Sorry.

6) Purva Brown, the Sacramento Real Estate Gal, will have a baby girl.   She will be 7lbs 12 ounces at birth.

7) Hungry Parisians, tired of the Johnstradamus gag and out of bread, will riot in the streets.

Homes in Sacramento’s Northern Land Park / Curtis Park area (95818) enjoyed a fairly high price tag of $311.37 per square foot, down only 5.6% from last year’s average of $329.82. With this year’s buyers also picking off the smaller homes, however, the average sold price drop appeared more dramatic. Last May’s average home in 95818 sold for $547,833, while this May the average was $385,126, a 29.7% drop.

With price per square foot still above $300, this area also enjoys a high rate of non-distressed sales 73.7%. Unit volume this year is down about 10%, from 21 units last May to 19 this May. However, inventory is still low in this area at 3.8 months.

The Natomas area of Sacramento encompasses 95833, 95844, 95835, 95836 and 95837.  This is an area of Sacramento that has seen a dramatic rise in the number of foreclosures over the last year, with correspondingly steep price drops.  As a result, demand is now quite strong in Natomas.

This year the average home sold in Natomas for 272,810, down 29.8% from last year’s average of $388,821.  Sold price per square foot fell 29%, from $201.59 in May of 2007 to $143.08 in May of 2008.  In May of 2007, only 15.4% of the homes sold were either short sales or foreclosures.  By May of 2008, that number had risen to 79%.  As a result, unit volume more than doubled during this period, from 65 units in May of 2007 to 138 units in May of 2008.

Even with all that activity, however, there remain 8.4 months of inventory in Natomas.  Another strong month or two could easily put a dent in that, however.

The tables below have the numbers for May 2007 and May 2008 and the change during this period.

Unit Volume Data

Price Data

Inventory