Sacramento Real Estate Blog

When buying a home, you will be borrowing money from a bank or other lending institution. This kind of loan is called a “secured loan” because it is secured by something else, in this case - a house - an asset with a value attached to it. It is unlike a credit card which is an unsecured loan and hence has higher interest rates.

Unless your relative is lending you the money (in which case, lucky you!) the bank has no way to know whether you will pay the money back and make your mortgage payments on time without checking your financial profile. Along with your income verification and other assets, your credit score is a major factor in assessing the amount of risk you would be to a lender.

Read how scores work at Bankrate.com

A Daily Show host Jon Stewart recently interviewed P.J. O’Rourke, author of a book about Adam Smith’s The Wealth of Nations.  O’Rourke summed up economics in a single sentence for me when he said that “Adam Smith realized that free markets forever vibrate between fear and greed.”

In case you haven’t been paying attention, we were into greed in 2004 — these days we’re into fear.

In classical Wall Street jargon, Bulls are into greed, and Bears are into fear.  I’m not at all sure how each of these animals got picked to be representative of their respective market attitudes, but for our purposes it’s unimportant.  Most folks would agree that we’re in a bear real estate market now in most areas, though I’ve used this blog often to point out that any given neighborhood can swing one way or the other.

Bubble Bloggers can be fun, but their readers sometimes like to portray Realtors® as being bullish to the point of being full of bull.  I’m less concerned about that than I used to be, partly because as time has gone on I’ve become more bearish about the market than I was, and partly because I’m more open to surprises.

Imagine My Surprise

If you don’t like real estate prices in Northern California, wait a minute.

In 2002 or so when I decided to leave the glamorous, he-man world of computer programming for a career in real estate, I previewed a Cameron Park home that was listed at about $300,000, which I thought was unspectacular at best.  About a year or two later, I saw the same home, still unspectacular at best, on the market again for $400,000 and watched it sell not long after.

Imagine my surprise.

Last week in South Sacramento, I was working with a perfectly wonderful buyer on a bank foreclosure.  We’re opening escrow this week on a three bedroom, single family home listed in the low $100,000s.  She’s renting a similar home in the neighborhood, and on an FHA loan she’s going to be paying about as much for her mortgage as she was already paying in rent.

Imagine my surprise.

This one’s not really too horrible.

But the caption reads “Large back yard, imagine the possibilities”. OK, I’ll bite. Did a pillow explode? What’s that white stuff?

You can. But it’s usually cheaper to buy a home that’s already in place. A few years ago, friends of mine decided to buy a piece of land and put a manufactured home on it. They were sick of living in a city and wanted to move to an area with some trees, maybe a few acres - away from neighbors that were too close.

So they decided to look into it. They decided that buying a manufactured home was easy enough! It didn’t take much money and they could have it taken wherever they wanted. What’s more, a lot of these homes were spacious, had about 2000 square feet and excellent floor plans.

Well, what was the problem?

It wasn’t the land, either. There were huge lots available in beautiful woodsy areas, acreage like they wanted and breathtaking views. However, it was putting the two together that was the problem.

You see, my friends had no idea how to test land to see if a house could be put on it. They had no idea what permits cost, didn’t know how to clear the area of trees. An even bigger problem was how to bring water and electricity to the area. They decided it was easier to just look in a woodsy area for a home.

They are now happily settled, have their views and their trees. They believe it cost them less and created less stress in their lives.

I’ve been thinking about all the news about foreclosures.  I work here in the greater Sacramento area.  Though I live in El Dorado County, which (along with Placer County) has experienced relatively few foreclosures, Sacramento County currently has more than fifty per-cent short sales and foreclosures in inventory.  Now granted, that’s not necessarily a huge number compared to all the homes in the area, since obviously being in financial trouble triggers a sale — most folks who own homes aren’t in foreclosure, and aren’t selling at any given time.  Still, it’s enough to get my attention.

A caricature of Realtors® is that we’re always pushing home ownership on unsuspecting victims.  I think the general consensus lies somewhere between the idea that we have hypnotic powers of persuasion to lure our victims into contracts they don’t want (much like the famous Hypnotoad, shown at right) or — less charitably — that we hit people over the head with shovels to get them into our cars, then take it from there.

Those Educated Internet Buyers - What’s a Poor Hypnotoad to Do?

Unfortunately, your standard Jedi / Hypnotoad mind tricks only work on the weak minded.  Most people I meet here on the Internet have too many information resources at their disposal to be an easy mark for these unscrupulous amphibians.  That’s probably why none of my buyers has (to my knowledge) ended up in foreclosure yet. 

Still, there may be some of you out there who are just itching to do it, so for those of you with a real hankering to financially self destruct, here are . . .

Ten Easy Steps to Foreclosure

1. State your income. 
   You may have heard that stated income loans are for the self-employed.  Don’t you believe it!  Full doc loans are harder to do so your lender doesn’t like them, and I know you want things to go smoothly for your lender out of gratitude for the wonderful loan he’s getting you, right?  And you don’t mind paying the extra half point or so to go stated, do you?  While you’re at it, forget about the fact that overstating your income is loan fraud, a federal crime.  A smart buyer like you isn’t afraid of some wimps at the FBI, are you?  The more you say you make, the nicer house you can get.  That’s why they call them “liars’ loans”, after all.
2. Don’t Pay To Run Your Own Credit - Your Lender Will Do It FREE!
   Here’s the thing.  If you run your own credit, you might conceivably talk one or more loan officers into checking into different loan programs for you.  That’s not good.  This might educate you as a consumer, and you might find eventually bump into a lender who’ll explain things to you.  Learning is the first step on the road to making stupid loan payments on a conservative loan package.  How are you going to get foreclosed on if you make loan payments?  Huh?  Plus, running your own credit doesn’t count as an inquiry, and your loan officer is counting on you worrying about making multiple inquiries, so letting them do it free for you locks you in quite nicely, doesn’t it?  So stay away from sites like MyFico.com.  I’m not even going to link to them because you’ll only end up running your credit and getting confused.
3. If your lender tells you you can afford the house, you can afford the house.
   Although most knowledgeable foreclosure-philes generally frown on talking to more than one lender because one or more of them might turn out to be ethical, one thing you should do is get as many opinions as you can about how much house you can afford, and go with the highest amount.  You’ll get a much nicer house that way.  If someone in your family has a calculator or spreadsheet or other budgeting tool and suggests a lower amount, you should argue with her until you get the most house that that nice lender said you could.  In fact, you should probably be looking at homes that cost more than that, because you can always talk the seller down.   And maybe you’ll see something you like even better that way.
4. Always remember:  your lender can refinance you later.
   Remember, the market’s going up! Up!  Up!  Sure, it’s going down now, but it’s going up in a few minutes.  (I think I heard it’ll be fine by Wednesday.)  The reason you don’t need to figure out a conservative loan that you can live with is that the market’s going up, and if you refinance later you can buy more house now!  Wasn’t it nice of that nice lender to tell you that you could refinance later?  He must really be trying to help you by offering to do that extra loan for you.  That stupid lender who said you could afford less house was only going to do one loan, and didn’t even offer to refinance you later.  He must just be lazy.
5. Refinance early, refinance often.
   Now that you have a really killer house, do you really still want to be seen driving that old broken down car of yours?  You have this great big garage, and all you’ve got to show for it is a five year old import.  You have some equity now.  Don’t you deserve a Hummer?  Besides, your equity’s not doing you any good unless you put it to use.  You’ve already by now picked out a hard working lender who generously doesn’t mind refinancing you, so go for the gusto!  You only live once.
6. Remember, the market will go UP!
   And of course, it’ll go up just in time!  So you don’t need a conservative loan.  In fact, come to think of it, hopefully you bought when the market was going up.  You don’t want to buy when prices are low, because good heavens, they may get lower (and what would your friends say to that).  Plus, if the market’s going down, the best way to pay for your house is with some kind of boring loan, and you won’t be able to refinance or get yourself a Hummer.  If you learn how to get foreclosed on, you can buy high when homes are popular, and then you won’t have to sell low, because the nice people at the bank will sell it for you.
7. If you can afford the lowest payment, you can afford the house.
   One of the great financial instruments of the twentieth century was the Option Arm, or “Pick-a-Pay” loan.  You may have heard that they’re appropriate for the self employed too, or for people whose cash flow varies.  But you’re not going to believe that either, are you?  (See “State Your Income”).  With a pick-a-pay loan, you get to pay either a lot of money on the loan, or just a little bit of money on the loan.  You’re not going to be a chump and pick the fully amortized 15 or 30-year fixed payment, are you?  That payment will be huge!  You won’t be able to buy as much house that way!  You might have to settle for a lousy older home or condo or rent for a few more years while you save.  Through the miracle of Negative Amortization, you can own the big brand new mansion you really want now!
8. Never mind what negative amortization means.
   You don’t need to know what negative amortization means.  “Negative” and “mort” — anything that sounds THAT depressing isn’t something an upbeat mansion-owner like you should spend time on.  You shouldn’t worry about it anyway, because the amount of negative amortization on the loan is limited, and you’ll still have the loan when you hit the limit.  I want you all to stop worrying about negative amortization right now, and never, ever, ever, look it up.  Also while you’re not looking things up, don’t look up what happens when you hit the limit.
9. The best thing to do with a document you don’t understand is sign it.
   The quicker you sign, the quicker you’ll get the keys to your new house!  Do you want to move in and throw a party for your friends, or do you want to waste your life reading and asking philosophical questions?
10. While we’re on the subject of reading…
    There are books on Amazon.com and lots of great consumer web sites that talk about loan programs, managing money, etc., but hopefully by now you’ve learned enough about ruining your credit to avoid all that highbrow academic stuff and get down to the real fun of shopping for the absolute most house you can afford, with a big garage for your new SUV!  Besides, reading makes you sleepy.

(This shouldn’t be necessary, but here it is:  You should be afraid of the FBI, and loan fraud is a serious crime.  This article is meant to be humorous and tongue in cheek only, and instructive only in a reverse-psychology sort of way).

Sometime along the process of buying a house (or anything else that requires a loan commitment) you will come across the phrase “credit score.” It’s a three digit number that you are assigned by credit monitoring companies based on your credit risk. The higher your score, the lower the risk associated with lending you money, therefore the higher your score, the lower your interest rate.

Credit scores range between 300 and 850, although most fall between 500 and 700. 620 is usually the minimum score you will require to be able to qualify for a mortgage. Of course, employment and other factors like a down payment are other qualifying factors.

It is important to get prequalified before you start looking for a home. This usually involves getting your credit score and profile. If you’re considering buying a home, call us and get prequalified to know exactly how much home you can afford.

Of course this is a garage, but what does this photo do from a marketing perspective? 

Some photos should stay on the agent’s computer and not be uploaded. 

Okay, I’m going to play devil’s advocate here for a minute and tell you 3 of the biggest instances when renting might just be better for you than buying a home. Ready? Here goes!

1. When you cannot afford to buy a home - If you can only afford a home by paying the minimum on an interest only Adjustable Rate Mortgage or any other weird hybrid, you cannot afford the home. That’s a good time to rent.

2. When you intend living in the house for less than 2 years and the market is unsteady - If the real estate market seems shaky and you know you would only live in the home (or in the area) for less than 2 years, it’s probably a bad idea. Even the IRS gives you a tax break on capital gains on personal residences only if you live there for 2 out of the last 5 years. My recommended time for living in a home is usually 5 - 7 years, but 2 years is the absolute limit, especially in a volatile market.

3. When the purchase is purely speculative and you can’t afford to hold on to it for at least 7 years if things go wrong - We saw this with the flippers in Sacramento who could not afford to hold on to their homes when the market went south just as they were finishing up their flips.

Well, there you go. I’m sure there are other instances when renting might just be the better option. See? And you thought I couldn’t see the other side!

2007 was a year of decreasing real estate prices throughout the greater Sacramento area, with homes in Folsom retaining their value better than the rest of the county, especially later in the year.  For 2007 overall, the median sale price in Folsom was $450,000, down 7.2% from 2006’s median of $485,000.  811 units sold in Folsom in 2007 through the MLS, at an average sale price of $490,588, down 5.3% from 2006’s average of $485,000.  In both years, homes sold for more than 97% of list price.  In Folsom, sold price per square foot fell 8.4% from year to year, and only 8.9% from December to December.  In contrast, Sacramento County’s sold price per square foot fell 11.7% for the whole year 2006-2007, and a much more substantial 21.8% from December to December.

In other words, Folsom’s prices have not dropped as rapidly as in Sacramento County as a whole, and the trend does not seem to be accelerating as it is in other areas.  The number of short sales and foreclosures taken together are also much lower in Folsom than county-wide averages.  Short sales account for 17.1% of active inventory, and REOs only make up 5.8%, for an overall figure of 22.9% — compared to 55.7% for Sacramento County overall.

The other good news in Folsom is continuing low inventory, 5.1 months as of this writing.  In Sacramento County overall, the inventory numbers are more than twice as high at 10.4 months.  Six months is traditionally the cutoff beyond which we’re said to be in a “buyers’ market”, so one can consider Folsom to be in a bit more of a seller’s market than Sacramento County generally.

Our recent Sacramento Real Estate Year in Review article covered condos as well as other residential types like single family homes and halfplexes.  Today we turn to our attention to condos only, to see how they compare to the general category. 

When I looked at the numbers, the results were surprising given the traditional wisdom that condos are the first to fall in a down market and the last to rise in an up market.

Comparing 2006 to 2007 overall for all of Sacramento County, we find that the average condo sold in 2007 for $236,914, down 6.9% from 2006’s average of $254,370.  2007’s median price for a condo was $218,000, down 7.2% from last year’s median of $235,000.  On a sold price per square foot basis, the average condo’s value fell 10.8% during the same period, from $218.16 in 2006 to $194.51 in 2007.

As we saw for residential units overall, the numbers from December to December were more dramatic than the year to year numbers.  Sacramento County Condo values fell some 18.7% on a sold price per square foot basis from 2006 to 2007.  Though of course that’s a non-trivial drop, it’s somewhat smaller than the sold price per square foot drop of 21.8% from December to December for the residential category generally.

I suspect the traditional wisdom that condos are the big losers in a down market fails to take into effect the slight but real differences in the number of foreclosures on condos.  Among all residential categories, the number of bank owned foreclosures (REOs) sold in December was 47.2% of all sales — for condos that number was 28.1%.  Similarly in active inventory, short sales and REOs make up 55.7% of inventory for all residential units, but 46.4% for condos. 

There are two possible reasons for this.  The more obvious one is that condos are cheaper, so buyers were less overextended and therefore slightly less likely to default.  Another possibility — but I haven’t researched it so I only raise it as a conjecture — is that it’s possible more condos were owner occupied and fewer were purchased as investments. 

Whatever the reason, a slightly lower default rate has helped condos retain their value somewhat better than residential properties generally.

I know I’m going to raise a lot of eyebrows with this one. So let’s just add one more to the rent versus buy debate column. No. In my eyes, renting is not cheaper than buying, even if on the face of it, it seems that way.

Sacramento has enjoyed some of the lowest rents in California. But that has changed recently. With more foreclosures on the way (and a lot of these happen to be investment properties) and loss of interest in the case of landlords, there are lesser homes on the rental market, which has driven rents up this last year. I believe they will continue to rise in 2008.

Compare that fact to the mortgage amount - fixed for 30 years. Inflation pretty much ensures that the $1500 or so in payments will be remain the same (which will SEEM like less money in the future) while your rent will keep up with inflation.

Also, at the end of 30 years, that mortgage amount will vanish and in its stead will be an owned asset worth a certain amount, which if you want to sell and downsize, you can do so!

Here’s a good calculator for rent vs. buy you should look at and decide: is renting really cheaper than buying?

If you’re going to be a part time mortgage blog junkie (and believe me, it’s very part time, because I have too much going to turn it into a full time hobby), you’re going to need a few good blogs to get you started. That’s why I’ve compiled this list, and in the wild-eyed, over-the-top enthusiastic tradition of the blogging world, I make bold to declare these blogs the Top Ten Mortgage Blogs in the Entire Galaxy.

It sounds a lot more impressive that Ten Blogs that John Lockwood likes — but it’s that, too!

Mortgage News Daily
This is an excellent mortgage news blog, one of my favorites. As with so many of these mortgage blogs, I wish I knew who the authors were, but that’s probably my only quibble. The quality of my blog makes up for a lot. I just hope they’re not from Tralfamador.

Calculated Risk
Described by its authors as a “hobby blog”, Calculated Risk is written by two anonymous authors who have an unfortunate habit of picking on “relitters” (I think they may need a spell checker). Be that as it may, this blog is an entertaining, opinionated review of recent mortgage and finance news.

LoanWorkout.org
This is a blog that favors and reports on the efforts of borrowers and lenders to come together to work out troubled loans when appropriate. There’s a lot of advocacy here that can sometimes get a bit heated, but this is also a good source of consumer tips for what to do if you’re having trouble making the payments on your loan and are facing foreclosure.

LendingClarity.com
Marc Brinitzer is a local Sacramento area lender who has regular reporting on rate changes and industry news of interest to both borrowers and Realtors®.

Illinois Mortgage Rates and News
In my other life as a web site developer, I helped Peter get his start on his blog, covering rates, industry news, and Illinois specific topics. A lender with many years in the business, Peter does an outstanding job of explaining topics like what factors influence your rate and commenting on the Internet “rate-race”.

Mike’s Mortgage Minute
I highlighted Mike’s blog once before. It’s good stuff. Check it out.

The Great Loan Blog
An anonymous Mortgage Banker in Los Angeles writes about these interesting times.

Blown Mortgage
This blog is written by a team of contributors led by a mortgage broker and direct lender who considers himself an “outsider” because he’s sick of seeing people get ripped off by bad mortgages.

Mortgage Lender Implode-O-Meter
This blog’s stated purpose is “tracking the housing finance breakdown: a saga of corruption, hypocrisy, and government complicity.” This blog consists of only short summaries of other articles, but what’s fun about this blog is that it publishes ten or so article links every day, so if you’re an absolute mortgage news junkie, this blog’s for you.

The Mortgage Fraud Blog
Run by an attorney specializing in mortgage fraud litigation, and highlighting mortgage fraud cases nationwide, the scams on this blog reads like a sort of Real Estate “Darwin Awards”.

Now, I could give you a cheesy answer like, if you have the ability and the willingness to buy a home, any time is a good time.

But I won’t. Here are the Big Three the experts I have read and those that have mentored me look for:

1. Days on market - A very good indicator of the real estate market’s overall health is how long homes stay on the market before they get sold. In the hot market we had about three years ago, houses were on the market about a week at the longest before they sold. Today, the average days on market per listing is about 65. Remember most listings are only 90 days long and homes get listed multiple times, so that number can be higher. Usually, the longer houses stay on the market, the better a bargain you will get as a buyer.

2. Number of months of inventory - Currently, Sacramento county has about 11 months supply of inventory. This means that if no more houses came on the market, it would take about 11 months for every house to sell if the pace of sales continue to be as it is today. Again, the more inventory there is, the higher the possibility of a buyer’s market.

3. Number of REOs - If there is a large inventory of bank-owned homes, it always pushes prices down. Banks are considered wholesale real estate sellers as opposed to the retail sales of real estate by individual sellers. Consider more “real estate owned” homes on the market a sign of a buyer’s market.

Personally, I also look at HUD owned homes just for fun. In a hot market, HUD will only sell homes to owner-occupied buyers, but in times like today, the homes are also available for sale to investors - a strong indicator of a buyer’s market.

There are a few of you out there who don’t like succumbing to the old notion of buy a home, wait for it to appreciate, pull the equity out and buy a bigger home while making the first one a rental and want to jump into homeownership and investment at the same time. Well, I have only three words for you.

Good for you!

A lot of us don’t think about investing in real estate until we have a solid grasp on our own home. Some others live in an apartment all their lives but buy homes to rent out - yes, these people really do exist. I didn’t believe it either, but they do!

However, buying a duplex as a first home/investment is a wise move if you know what you will be in for. For one thing, you must learn to be a homeowner and landlord all in one shot and the learning curve on that can be a bit hard. So make sure not to cut your margin for error too close. Make sure to have more money put aside than you think you will need for repairs and mortgage payments and don’t plan on having the other side of the duplex rented 100% of the time. Even the best landlords don’t get that right and you will still be learning.

The great advantage to buying a duplex over a single family residence is obvious: you get a double residence for one mortgage, so you can rent out the other side and pick up a tax deduction for your side. You subsidize your own mortgage payment and hopefully build enough equity to buy yourself a home (if you so wish) later down the road and still own two rentals.

The flip side however is that you have to live with your tenants next door and share a wall with them! While this might ensure the rent is paid on time every month, it might mean too much information about your tenants as well.

However, I have met people that have made this work. And in today’s market, this might just be your big chance!

Clear the stuff out first. Then shoot the picture.

Then again Santa is a nice touch.

Should you buy a house or a condo? Which one gives you “more bang for your buck?” You should consider a few things with both. As with everything, there are pros and cons for owning a home as well as a condo, short for condominium.

For one thing, there’s the difference of what you actually end up owning when you buy either. When you buy a house, or a single family residence, you own the land underneath, the air above it, and the structure itself. When you own a condo, you only have an ownership interest in the air contained within the walls of your unit and a common interest in the common areas like the clubhouse and what have you. That has always bothered me about condo ownership.

However, there are perks. Because you don’t technically “own” the lawn and the common areas, only an interest in them, they are maintained by the condo association, as are all issues regarding the exterior - like termite damage, flood repair, wear and tear and so on. So if you like the idea of ownership without the headaches, or plan to travel a lot, a condo might be perfect for you.

The condo association will require a certain fee be paid each month for these services, however and you should check around to find out what the fees are. Some fees can be as high as $260 a month or as low as $50 a month.

Some of the drawbacks of condos seem to be that you are required to maintain a certain color on your door, or a certain kind of window covering for example, which drives some people pretty crazy. If you’re one of them, a house might be right for you. In terms of resale, there seem to be more condos on the market at any given moment than houses, which often causes prices on condos to fall faster. There are however exceptions - do your research before you buy.

We’d be happy to help!

One of the most irritating things about real estate is that everyone has an opinion about it! I noticed that the minute we bought our rental property and moved out of our house. And irritating as that might be, it’s usually a good idea to pay attention to the things you hear around you.

As long as you do your own research. And don’t heed them (the comments of people around you) too much.

As anecdotal evidence, when my husband bought a HUD owned home in late 2000, his friends thought he was nuts. But the math worked - he actually paid less in mortgage costs than he did where he was renting. It was a complete no-brainer.

And here we are, sitting on a nice 2 bedroom rental that will continue to build equity over the next 30 years.

I have had various clients make decisions (toward buying or selling) because “someone told me to do so.” I would say, for one thing, check your sources. If the person telling you to buy is one that always chases a “hot tip” and then doesn’t get anywhere, you should not listen to the person. If on the other hand, he happens to be your mentor and successful, by all means, take his advice.

But claim complete responsibility for your decision. After all, it’s your name on the dotted line.

Depending on where you focus your attention, there’s news, there’s good news, and there’s bad news.

We began our look back on Sacramento County real estate in 2007 with a look at the overall “big picture” for the Sacramento County Real Estate Market for the entire year. Later last week, we reported on one area in the county market that’s consistently held it’s value better than others and enjoy’s low inventory and brisk sales, East Sacramento.

This week we turn our attention to an area that may well be the “worst case” in terms of rising inventory and price declines for Sacramento County, Sacramento’s Franklin / Freeport area (95823). I should probably point out before we begin that I have not sampled all the MLS areas, so my sense that Franklin / Freeport may be the worst case comes from the foreclosure numbers. There may be other areas that have fewer foreclosures but more inventory or lower prices, for example.

Franklin’s decline in 2007 has been rapid. Comparing full year numbers first, the average price lost 19.2% of its value from year to year, and dropped 21.1% in terms of sold price per square foot. The median sale price in 2006 was $314,850, in 2007 it fell 20.6% to $250,000. In 2006 one per cent of sales in Franklin were foreclosures. In 2007, that number was 41.6%.

Comparing December of 2007 to December of 2006, we find that by December, the trend of selling more and more foreclosures and deep price drops had continued apace. By the end of 2006 the average sale price was $282,327. A year later the average had fallen 34.9% to $183,914. Another way to say this is that the average home in Franklin lost slightly more than 1/3 of its value in a year. On a sold price per square foot basis, Franklin closed out 2006 at $200.21 per square foot, and had fallen to $126.61 a year later, a decline of 35.8%.

The percentages of short sales and foreclosures available in Franklin / Freeport are staggering. Almost three fourths (73.9%) of inventory in Franklin / Freeport is either a short sale (35.9%) or foreclosure (38.1%). At the same time, if you needed a case study of REOs outselling short sales, Franklin / Freeport is it. Last month no short sales closed, but twenty-five of the twenty-nine closed sales in the area were bank owned properties. That works out to 86.2%, or close to 7/8 of all sales.

The contrast between East Sacramento on the one hand and Franklin / Freeport on the other shows how local real estate markets are. East Sac enjoys less than three months of inventory and a brisk seller’s market where the prices have remained flat while nationwide prices are falling, while Franklin / Freeport currently has almost two years (23.6 months) of inventory, and homes there have lost two thirds of it’s value in a year.

If you’re a buyer or seller, the right question to ask is not “How’s the Market” overall, but “How’s the Market” for your particular area. Is there an area you’re interested in particularly? If so please contact us and we’d be happy to get you specific market data or comparable sales.

What? You’re still asking this question after all the market updates we write for you every month??!?!

Seriously though, we Realtors don’t like answering this question for a number of reasons. First off, we can’t suggest areas for you to buy in, just in case it’s considered “steering” and big fair housing no-no. And secondly, it’s probably only the first or second time we’ve met you - how are we supposed to know that you like to golf but don’t want to stay too close to a golf course because you also like a two hour commute both ways?

What I’m saying is you are the best person to know what area is best for you. Ask yourself if you want to live close to work or you don’t mind driving to live in an area with more room and trees. Consider if you want to live close to family and friends, and - how close is too close? Does the idea of yard work sound appealing or disgusting? Do you need to be close to the freeway? Do you like walking to the grocery store? Do you like riding your bicycle? It’s questions to answers like these which will hint at the area you might consider “the best.” It would also not hurt you to do some research at Sacramento Bee’s Community Page to find out other details like schools, crime, and so on, if that is something of concern to you.

Lastly, be sure to read our market updates, usually out on the first of every month - or somewhere around there if we get terrible busy - to get an idea of how the individual areas are doing. If you are in investor, buying simply to make a profit, these market updates are indispensable.

Algae problem?

Ask your Doctor if chlorine is right for YOU!

I n our year in review article for Sacramento County, we talked about East Sacramento, Midtown and Land Park being exceptions to the general cooling-off trend of Sacramento Real Estate. Regular readers will know that I’m pretty bullish (that’s “bullish” — don’t read it fast, and there’s no “T” in it) on East Sacramento, 95819.

Of course, since this year’s home was slightly smaller (1.8%) than last year’s, average price was down slightly. The average price fell 1.7%, from $511,785 in 2006 to $503,142 in 2007. The median sale price fell 2% during that time, from $443,750 in 2006 to $435,000 in 2007.

Adjusted for square footage, however, things looked quite rosy in East Sac, especially comparing it to the whole county. Looking at the year gone by, while other areas in Sacramento lost 11.7% of their value on a sold price per square foot basis, East Sac’s prices held steady, actually gaining .1% on the sold price per square foot indicator ($350.54 per square foot for 2006 versus $350.87 for 2007).

REOs and Short Sales, which make up more than 50% of inventory county-wide, comprise just 16% of active inventory in East Sac. (7.1% REO and 8.9% short sale). Sold foreclosures in 2007 accounted for 3.1% of sales, versus about 20% on a county-wide basis.

Unit volume is down 5.6% from last year, but inventory is hot-buyers-market low at 2.64 months. Days on market are actually from last year by 24%. In 2006 it took 50 days on average to sell a home in East Sac, whereas in 2007 that number was down to only 38 days. The contrast to Sacramento County is clear: In Sacramento County, Average Days on Market rose 56.4%, from 39 in 2006 to 61 in 2007. This year, moreover, fewer listings expired, and the expired to sold ratio dropped even though unit volume was off slightly. Currently the expired to sold ratio is a low 36.1%.

Thumbs up photo by Joe Telling, licensed under Creative Commons.

I’ve been doing a lot more mortgage reading this week than usual, so I thought I’d share.

Countrywide Watching - The New Gladiator Sport
A lot of the news this week has been about Countrywide.  On Wednesday I was mesmerized on and off by watching its stock explore the depths below $5.00 per share on rumors of bankruptcy and accusations that they forged documents in a bankruptcy case involving one of their borrowers.  By Friday the news was that Bank of America was in talks to purchase Countrywide, so naturally it was time to make up a new rumor, this time that the Fed was behind the deal and the Federal Government is guaranteeing BofA against Countrywide-related losses.  Next week no doubt we’ll be watching “Countrywide, The Movie”, directed by Oliver Stone.

Mortgage Stocks In Trouble
To see how your other favorite lenders and mortgage related companies are doing, “Mortgage Cicerone” Tony Gallegos recently published this article showing about thirty-five troubled mortgage stocks. 

California is Up in ARMs
BusinessWeek recently published this map of the most prevalent Option Arm areas.  Looks like Sacramento’s fairly “light by California standards” — which is another way of saying we have more even in Sacramento than the state averages in other parts of the country.

But With All That BAD News…

Borrowers, Now Is a Good Time To Buy (And Not Just Because I Say So)
For borrowers who might be able to take advantage of a (generally lower cost) conforming loan, Daily Mortgage Reports had this article discussing changes afoot in loan fees, minimum down payment requirements, and credit based based pricing that will go into effect on March 1st, 2008 at Fannie Mae, with Freddie Mac to follow suit soon. 

The net result is that there may be more and better options available now than after March 1st.  However Huck Ferrill recently emailed in to tell us how FHA may fill in the gaps for 100% financing for some borrowers — Maybe we can prevail upon Huck to work that up into a future post.

Yesterday I had the pleasure of meeting Marc Brinitzer, author of the Sacramento mortgage blog, LendingClarity.com. Marc is a Mortgage Consultant and the leader of Big Valley Mortgage’s Team One.

Real estate blogs have been around for some time. Mine was one of the first in this area, but recently a handful of competitors have started blogging about the Sacramento area, and there has been an explosion of new blogs being launched by other Realtors® in other areas. Mortgage blogs are fewer in number. Google returns 12 million results for “Real Estate Blog”, but just under 2 million for “Mortgage Blog”. So you might say with some justice that Realtors are six times more verbose.

I came across Marc’s blog lately and thought it had some really good work — so we’re fortunate that the first mortgage blog I stumbled on for our area is a real keeper. For example, his most recent discussion of Risk Based Pricing talks about how as lenders tighten their underwriting guidelines more and more, it’s more important than ever to keep your payments timely and your credit pristine, since even in A paper world will start to stratify. To paraphrase Orwell, all A paper borrowers will still get the best rates, but some A paper borrowers are more A paper than others.

Marc also drew my attention over coffee to a great article he wrote about these Countrywide Shenanigans (and I’ll let you follow his links from there to learn how to avoid selling your soul to the Devil).

Marc and I may be doing an article swap or two in the near future. I may be doing some more Mortgage reporting of my own going forward, since I am taking a very serious look into creating an in-house lending solution for those buyers who would feel they’d benefit from it. Be that as it may I do think that Marc’s blog has a lot to offer and you should check it out.

I am very pleased to announce that Realtor® Mike Keleshian has joined Elite Properties.  Mike has several years of residential real estate experience, both as a real estate agent and as a loan officer.  Being familiar with both aspects of the transaction means that as a buyer he can provide valuable lending insight — and as a seller, you can count on Mike to have a much better than most agents of whether that offer you received comes from a qualified buyer or someone who’s risky at best.

Back when I was at RE/MAX, Mike was one of the agents who I could count on to pitch in and help me when I got busy.  He was very warmly received by the folks I entrusted to his care, and had a high percentage of repeat customers.

A long term resident of El Dorado Hills with his wife, Lucy and young children, Mike knows about some of our better school districts first hand, and like all our Elite agents he is also very familiar with neighborhoods throughout Sacramento, Placer, and El Dorado County.

Mike can be reached directly at (916) 977-4086.

Anyone that knows me knows I’m very enthusiastic about real estate. I know this sounds absurd to a few and obvious to a few others. Most people really make up their minds when they decide to buy a home, however.

Here are the three most important questions I think everyone should ask themselves before they decide to become a home buyer. The answers should guide you to whether you are ready to join the rest of us.

1. Can you afford to buy a home? Seems obvious, doesn’t it? Yet, when we are in the midst of a real estate frenzy like we had just three years ago not too many people stop to ask themselves that question. There are always unscrupulous people out there wanting to sell you things you can’t afford. Use your own judgment and calculator to figure out if you can afford to listen to them. And just as you will run into people you would not want to do business with, you will also meet good people you can trust. You should be able to tell the difference. And pick the right one.

2. How long do you intend to live in that home? If you only intend to live in a house for 2 years and move somewhere else, perhaps for a job, ask yourself why you’re even considering buying and if it wouldn’t be better for you to rent. You might save on closing costs as well. However, if you’re settled in and intend living in the home for ever, a home is one of the safest investments you can make towards your retirement.

3. WHY are you buying? My mortgage broker asks almost everyone this questions, getting them really puzzled. But it’s imperative you answer this question to yourself to get a good idea of your motivation and then check it against the facts in combination with the above two questions. For example, if you are buying to flip a home, now is probably not a good time.

Answer these three questions and whether you should purchase a home or not should come into perspective!

Well, those of you who are active fans of blogs of all kinds will no doubt find this 2007 Year in Review piece to be about a week late, since by now we’ve already had the “Gazillion Great Blogging Tips of 2007″, “101 Ways to Snip Your Schnauzer”, and gosh knows what other tremendous trips down memory lane.

As for me, I’ve been waiting for the December results to get posted to the MLS so I could have a good idea about what December looked like before beginning to take a look at the numbers.

In 2006, we began to see some price declines from the year before. Interestingly, because the rise in prices was so dramatic for the first half of 2005, and the drop in prices were fairly modest early on, by 2006 homes in Sacramento County had only lost 1% of their median value from 2005, and had actually gained 1.4% in average selling price. Though Land Park, East Sac, and Midtown are exceptions to the rule, the overall trend in Sacramento County in 2007 has been a year of steady decline in prices, and there was no offsetting increase in value in 2006.

In 2006, the average home in Sacramento County sold for $395,238, or $238.10 per square foot. In 2007, the average home sold for $357,851, or $211.12 per square foot. Thus the average price fell by 9.5%, and since this year’s crop was slightly larger on average, the average sold price per square foot drop came in for the whole year at 11.7%. The median price fell 9.3% from 2006 to 2007. In 2006, the median selling price of a home in Sacramento County was $395,238, and that number fell to $357,851 in 2007.

The Year of the Foreclosure

Toward the end of the year, as more and more homes went into foreclosure and there were fewer buyers taking advantage of falling prices, the pace of the decline accelerated as inventory rose. Currently, for example, there are approximately 10.41 months of inventory, whereas by year’s end in 2006 there were only 7.4 months.

Overall for 2006-2007, the number of sold foreclosures rose from less than 1% of all sales for all of 2006 to 20.9% of all sales for all of 2007. That number was significantly higher by the end of the year however, with 47.2% of all sales in December of 2007 versus 2.8% in December of 2008 being REO sales. Short sales continued to sell somewhat poorly, and even in December of 2007 only 4.6% of closed transactions were short sales. Nevertheless, the presence of these short sales in inventory should not be underestimated as a factor in bringing overall prices down. Currently some 55.7% of all active inventory is either a short sale (29.2%) or a bank owned property (26.5%).

As a result, price declines were more dramatic later in the year. For example, the overall year-wide sold price per square foot dropped 11.7%. But if we compare December to December we come up with a more grim 21.8% drop, from $223.84 in December of 2006 to $175.03 on average in December of 2007.

So Where Are We Now?

On the supply side of the equation, I believe we still have a way to go before we’re out of the woods. We have reached a point where short sales and foreclosures account for just over half of all active inventory in Sacramento County, as well as half of all sales.

On the demand side, it appears that for the short term at least we have turned a bit of a corner. I was pretty discouraged in September when we hit a low unit volume of only 709 units county-wide, but since then we’ve been slowly but steadily increasing month by month — which is especially encouraging given the fact that on a strictly seasonal basis, you’d expect December to be worse. 866 units sold in December. This is still not great by last year’s standards, but it suggests that some buyers are finally starting to take advantage of the low prices and still-high inventory.

If this upward trend in demand continues, we could hit equilibrium on prices sooner than expected.

As I mentioned recently, the biggest surprise of all is that interest rates have stayed as low as it has through all of this. Whether we continue to see that as gas prices rise and a new administration is elected in 2008 remains to be seen.

One of the best things about selling real estate is that it’s constantly changing and it forces me to keep up with everything that is different about it.

So much so that I’m going to have to eat my words.

I’ve always maintained that bank-owned homes are the cheapest priced houses in any area. However, I was out in Antelope the other day and was surprised to see that the brokers listing short sales are catching the pricing bug.

Short sales in the Antelope area are now priced more competitively than bank-owned homes. Of course, as always happens with short sales (unless they are already approved by the bank, which is rare), they have to go through the process of getting approved by the seller’s lender, so the listing price is not by any means the selling price, which is more the case with REOs.

Also read Can You Actually Buy a Short Sale?

I recently came across a copy of an article I wrote here that someone had stolen and posted to another blog (on Blogger).

I submitted an Infringement notification to Google within about twenty minutes of discovering this.  Total time from infringement to notification was less than twelve hours.

Please note that all work on this site is copyright(c) 2003-2007 John Lockwood and Associates.  Certain materials may also appear under license or with permission of their copyright holders. 

The company will vigorously defend against infringements of its copyrighted work.

As most of you know if you’ve been reading this blog for a long time, like back in the dark ages when it was just boring old me and Purva had yet to pitch in to help out, for some time now I’ve been publishing certain listings here so people could browse them easily. 

Last year or thereabouts I consolidated how all those listings were imported and displayed, which helped out quite a bit.  The downside is that it’s still a pretty manual process, and sometimes I fall behind a bit.  Remind me to tell you the story some day of the time I called Metrolist to talk to the data import guy.  Oh, that’s the whole story, isn’t it?  He never called me back.  They’re pretty on top of things when it comes to sending out invoices, though, I’ve noticed.

Anyway, enough about me.  The point is, we have freshly picked listings covering the MLS as of today, which updates our:

• Condos in Sacramento, El Dorado, and Placer County
• New Home Listings
• Foreclosures and Short Sales

We’re showing 13,838 homes available in the tri-county area.  Give us a call and let us know which ones you want to see!

Enjoy.

This is the first feature in our long line of questions every Sacramento home buyer is probably going to ask at some point in their home buying experience. So let’s just dive right into it - hey, maybe we need a new category for this.

But for now, let’s consider how bad the Sacramento real estate market really is. Really.

Now I know we’re all reading how bad it is, and how many people have those Options ARMs and other bad loans that will adjust upward, how many people got into homes they cannot afford and so on. As a home buyer, you need to realize that this while other people’s misery shouldn’t make you gleeful, what that unfortunate cause had effected in terms of prices should.

Prices have not been this low in a long time and historically interest rates are at their lower ends. So what’s stopping you? Maybe fear. Buying a home is a little bit like accepting you’re an adult. Maybe it’s a little bit like having a baby. But if you’re ready for it, now is the perfect time. There’s a lot to choose from, interest rates are great and prices are fantastic with sellers willing to negotiate. Bank-owned homes are already priced at rock bottom prices.

Go ahead. Pick one up. If you’ve done the math, jump in. The water’s just fine.