Sacramento Real Estate Blog

Finishing up this month’s look at local area markets, we turn now to El Dorado Hills.  An upscale community in El Dorado County, El Dorado Hills has suffered from fewer foreclosures than in Sacramento County, yet has nevertheless seen deep price reductions in 2007-2008.  At $194.28, the average sold price per square foot in April was down 21.8% from last April’s value of $248.44.  Similarly the average selling price fell 24.3% over the year, from $757,008 in April of 2007 to $573,114 in April of 2008.  The median price fell only 4.9% during this time, showing that El Dorado Hills buyers in general were purchasing the larger ticket homes.

Inventory in El Dorado Hills remains fairly high at 8.5 months, and the expired to sold ratio has moved from year to year but not by much, coming in at 69.8% for April of 2007 and 51% for April of 2008.  Unit volume has increased though not as dramatically as it has in Sacramento County.  This April 49 units sold, up 14% from last April’s 43 units, and better than the 42 unit 12-month average.

REOs made up 30.6% of sold sales in April, while short sales made up 4.1% — two closed listings.  In active inventory there are 64 short sales doing their short sale thing (that is to say, sitting there), and 39 REOs.  At 415 units overall, this Short Sales and REOs represent 9.4% and 15.4% of the total.

It’s not (always) what you think.

I came across this beauty in the MLS that was sold last year in El Dorado Hills.

5364 square feet, 4 bedroom, 7 bath.

Selling price? $1.16 million. Including an 800 Square Foot Racquetball Court.

Nifty.

The transaction history is fascinating.

The owners purchased the home in 1998 for $550,000, and took out a $100,00 line of credit within a month of that. In 2001 they obtained another line of credit for $200,000, refinancing the whole shooting match in 2002 for a $750,000 first and another $150,000 line of credit. Three years later, in 2005, they took out an adjustable rate first at $1,267,500 getting another line of credit a couple of months later for $292,500.

El Dorado Hills — That’s Where I Want to Be!

As was true of most areas in in Sacramento County, unit sales for Citrus Heights (95610 and 95621) in April showed a considerable improvement over sales last year.  102 units sold in April, a 73% increase over last year’s volume of 59 units.  Of course, this upsurge in volume comes as a result of substantial price declines.  At $148.61, this April’s average sold price pre square foot is down 28.6% from last year’s average of $208.15.  The median price of $207,250 is down 26% from last year’s median of $280,000, and the average price has fallen 28.9%, to $208,495 in April of 2008.

Bank foreclosures accounted for 54.9% of all sales in April, while short sales accounted for only 3.9% of closed sales (even though they make up 46.5% of current inventory).  There are currently 7.4 months of inventory in Citrus Heights, with less than two months of REO inventory.  The expired to sold ratio is down to a very low 24.5%, compared to 72.9% last year.

Today I took my daughter out to lunch and passed a Sacramento Bee newspaper box, which bore a headline blaming the housing market for a decline in car sales. The idea is that buyers can’t take equity out of their houses any more to buy cars, and now with rising gas prices banks are starting to repossess more gas guzzlers.

Soon after I passed the Bee paper box, I heard the song “Nowhere to Run”, which is how Martha Reeves fits into all this. Here she is on YouTube.

That seemed apt.

The Blame Game

Let’s back up and look at the logic, which if I understand it goes like this: people can’t afford to buy new cars. They can no longer afford to use their houses as piggy banks to buy the cars they can’t afford (which runs on the gas they can’t afford), so the declining housing market is now behind the declining auto sales market.

Am I the only one who looks at that and thinks the logic is utterly surreal?

Here’s the thing: do you make enough money to support you buying and paying for that forty-eight cylinder GMC Suburban or whatever it is you’re driving?

I drive a Honda Accord myself. It’s a four cylinder, with over 100,000 miles on it. It could have a bumper sticker that says: Don’t laugh, it’s paid for.

Don’t worry, though. If you’re a Republican, almost all my agents have bigger cars.

Don’t Tax And Spend, Borrow And Spend

To my naive way of thinking, if you can’t afford to buy a new car, you shouldn’t buy one.

Even more to the point, if a lot of people can’t afford to buy cars without tapping the equity on their homes, and now they can’t do so, to me this begs the question of whether they could afford the car back when they could tap their equity.

The host of the 91st Carnival of Real Estate rejected my article on the relationship between expensive gas, cheap dollars, and the real estate market because of my partisan politics.

That’s OK, I’ll link to him. Liberal, adj. definition 9: “characterized by generosity and willingness to give in large amounts.”

Doublespeak

What always cracks me up about right-wingers is that they characterize Democrats as “tax and spend”, when it’s always the Republicans who have the huge deficits. Their attitude and behavior is “borrow like hell and keep spending anyway”.

Tax and spend actually makes sense. The analog at an individual or household level would be “earn and spend”. That’s what you’re supposed to do.

Am I Saying You Shouldn’t Borrow?

Don’t be silly. Not many people have $150,000 or $300,000 or $1.4 million or what have you lying around to buy a house, so if no one ever borrowed, I’d be out of business. And yes, indeed, I took out a loan for my four cylinder Accord back when it didn’t have 100,000+ miles on it.

I’m just saying this: whether you’re buying a house or a car or dinner on the town, you should ask yourself whether or not the debt you’re using to buy it will get you in over your head. Use some common sense.

On the other hand, if you really need that 72-cylinder Hummer to make your day special and you have to take out your fourth mortgage to do it, let me be the first to congratulate you for making sure the terrorists don’t win. And if you can’t do it now because you spent all your equity on toys, that’s no problem.   You can always blame “the housing market” for putting the cramp in your consumerism.

See, you have somewhere to run, after all.

I must admit, I tend to track the “trailing indicators” of the foreclosure process. A sold REO is nothing if not a property that has been well and truly through the whole nine yards of the process. If instead you look at short sales or track Notices of Default, you’re looking at the leading edge of foreclosures.

One encouraging bit of news I read about recently was the possibility that foreclosure numbers were down for April. Carol Lloyd suggested this in her article, Making Sense of Contradictory Foreclosure Numbers.

Of course, as you can guess from the title of that article, the jury’s still out on whether there really was a decline in foreclosure filings in April or whether we’re still well and truly on a path to inevitable destruction, combining the $4.00 home with the $250,000 gallon of gas.

Oh the humanity.

But meantime, check out this tidbit from Foreclosures.com, the rosier of the contradictory numbers:

“In most of our areas it’s getting better or staying the same and in some of our areas, there were huge drops in foreclosures ,” she told me. “In California, we went from 47,000 in March to 39,000 in April. That’s huge.”

I’ll take my good news where I can get it.

It helps, but no. This actually reminds me of a client I had last year. She was looking for an inexpensive home to buy - and this was back when you could still buy homes with zero down - and she kept shying away from bank-owned houses. I didn’t understand why. Finally, when I asked her, she said it was because she thought you had to buy them cash! Thank God that’s not true or we’d be in real trouble!

You can buy bank-owned homes today with approximately 3% down which can be a gift from a relative if you are a first-time homebuyer. Keep in mind however that bank-owned houses more often than not are in need of repair and need work. The ones that do not require as much work and look good typically have a lot of competition from investors who - you guessed it - usually pay all cash.

Year on year real estate prices in Folsom were down only about half as much as Sacramento County as whole in April of 2008, with the upshot that Folsom has yet to see the turnaround in unit volume that other areas have experienced. In addition, Folsom has fewer foreclosures than Sacramento County as a whole. In all these respects, Folsom more nearly resembles nearby El Dorado and Placer Counties (both of which it borders).

The average home sold for $426,840 in Folsom in April, down 13.4% from last April’s average of $492,821. Sold price per square foot fell 17.7% during this time to rest at 196.16 this April, while the median price dropped only 7.4%, from $455,000 in April of 2007 to $421,250 in April of 2008.

The relatively low price declines has their roots in the relatively low foreclosure numbers. Only 28.3% of homes in active inventory are short sales or foreclosures. REOs accounted for 17.2% of sales in April, while short sales made up 8.6% of sales (though they account for 22.7% of inventory).

Unit volume fell 31% from April to April, so again, we’ve yet to see the demand pick up due to sharp price drops as we’re seeing in other areas. Nevertheless, demand is strong enough that inventory is quite low in Folsom. At 5.23 months, it’s officially in the “buyer’s market” category. Days on market (49) and the low expired to sold ratio (41.4%) also are strong indicators of a market that’s fundamentally sound, though down from last year.

Textbook question. I’m pretty sure every test we have ever taken asks this question: A Realtor® is simply a real estate agent (whether broker or salesperson) who is affiliated with the National Association of Realtors®. Realtors® follow a code of ethics and typically receive many helpful tools from the Association including a legal hotline and official contracts to write offers.

When you hire a real estate agent you are essentially hiring the brokerage. The broker is your agent and his salespersons are his agents. So when you go out looking at homes with a salesperson, you are essentially dealing with your agent’s agent. However, usually everyone down the line is a Realtor® because every agent in that company is a member of the Association of Realtors®.

South Sacramento’s Franklin / Freeport area (95823) is one of the areas that’s been hardest hit by foreclosures in greater Sacramento.  In fact, it currently has the largest number of Active REOs (bank foreclosures), though in terms of sold REOs, it ranks only second, with Elk Grove’s 95758 area code coming in first place.

Those of you who read me religiously (thank, mom!) will already know what I’m about to say next.  With all those foreclosures, prices have dropped dramatically, and April unit sales figures are doing quite well indeed as buyers take advantage of the bargains. 

263 bank foreclosures are listed in 95823, accounting for 41.1% of the available inventory of 640 homes.  Short sales make up another 44.5% of active inventory.  The short sale “fake listings” accounted for only 6.1% of the sales in April (down from 11.1% last April — so much for one critic’s theory that we’ll sell more of these as we go along because they take time).  Foreclosures, on the other hand, made up 82.9% of all sales in April.

The average home in Franklin / Freeport sold for $152,628 in April, down 43% from last April’s average of $267,663.  Sold price per square foot is down 43.6% and is currently $107.03, while the median price fell has fallen 44.2%, from $269,000 in April of 2007 to $150,000 in April of 2008.

Meantime, unit volume has more than tripled, rising 203.7% from 27 units in April of 2007 to 82 units in April of 2008.  There’s still a lot of unsold inventory left to get through, however.  Based on the last year’s absorption rate there are 17.14 months in inventory, however that figure is only 7.8 months if you use April’s absorption rate.  Based on the absorption rate by category, REOs have only 3.9 months of inventory, but short sales have 57 months (almost five years).

As I mentioned the other day, I’ve been working on a new database for residential income properties, so I can offer you the ability to browse such properties.

Here then is the revised Sacramento Investments Properties home page, which has plenty of links to the listing pages.  As good a starting point as any for that is the list of all multi-unit properties for Sacramento, El Dorado, and Placer County.  From there you can click the links on top to drill down by county or by the number of units available.

I realize that a better approach to this data would be to display financial information and let you sort by things like income, expenses, Cap Rate, or the like.  I would have loved to have provided this, but unfortunately many of my colleagues feel they have better things to do than to list their properties correctly.  36% of the 856 listings in the database so far include no gross income information, and 813 of these listings ( 95% !!!) contain no information about Total Operating Expenses.

Oh, I’m sorry, am I not supposed to make “unsolicited comments” about other practitioners because I’m a Realtor®?  Be that as it may, having a 5% success rate entering data into a field that’s essential for a buyer to make an informed decision about a property is pretty darned pathetic.  Don’t you think anyone’s looking?  Do you really need the other agent to call and ask you that badly?  What, are you lonely, is that it?

For investors who haven’t yet selected one of these underachievers, if you want your multi-unit property listed right, call me at (530) 672-9160.  We’ll go over what information needs to be in the MLS to help you get your property sold, and I’ll personally review the listing to make sure it’s entered correctly, and send you a copy so you can double check it as well.

Working.  What a concept.

I just updated the listings in our foreclosures section (and elsewhere).

I also just prepared a new report on Sacramento County Real Estate Sales that I’ll publish from time to time. This report shows county-wide figures for active listings and general sales statistics for the last 30 days. (I’ll probably tweak and reuse the same report for other local counties as well).

In the Are Short Sales Fake Listings article and White Paper (PDF), I use the numbers for Elk Grove as an example of how dismal the short sale closing rates are compared to both REOs and non-distressed sales.

The chart below shows that the same thing holds true county-wide.  (Click on the chart for a larger view).

Although short sales are discounted 24% from non-distressed sales, and although in active inventory they are more numerous than both short sales and REOs (bank foreclosures), only 8% of all homes that closed in the last thirty days were short sales. So in other words, non-distressed sales outsold short sales by almost 2 to 1 even though on average they cost some $81,000 more!

Fortunately, the overwhelming majority of buyers end up focusing at some point on REOs, which are the most heavily discounted (40%) and have the best sale rate (71% of all sales in the last month).

One cautionary note: the discounts we’re quoting here are overall county-wide discounts, so part of these numbers reflects the fact that in more inexpensive areas there are more foreclosures. In other words, I wouldn’t expect in any given neighborhood to see a discount of 40%. Naturally we’re always willing to get our buyers current data and listings for the neighborhoods and homes they’re interested in!

Once upon a time, there was no real estate blogosphere for me to occasionally fit in with. There were about ten real estate bloggers, and I was the eleventh.

Or heck, I don’t know. I didn’t run a survey. Maybe I was twelfth — darn, that eleventh guy is so touchy I have to watch everything I say!

I do know that at the time my web site was pretty cobbled together. I was running RadioUserLand to blog. Also, I’d yet to create a database of listings of my own to play with, so when I wanted to publish listings, I used to upload custom CSV files for every type of listing, and instead of importing them into a database, I’d just parse the CSV files and display them.

Looking back on it now, it’s a wonder I didn’t stir coconuts for electricity and close my car doors with duct tape.

Later on I created a listing database, and naturally that made things a lot easier.  This database became the core of such features as the maps and listing lists on SacramentoHomeShopper (see for example the listings-by-zip-code lists for Sacramento County, Placer County, and El Dorado County). The same database also feeds the condo listings section, the new homes section, and the foreclosure search page.  Etc. etc.

Now all that was well and good, but one thing that I never did get around to until this week was creating a database table for the original duplex listings. The table’s in place now, as code to import the data from Metrolist, so it shouldn’t be long before the completely old and long-in-the-tooth duplex page gets finally fixed (no, I’m NOT linking to it until it is) and gets a few new siblings, the triplex, fourplex, and everybody-plex pages.

Give me another couple of days to code it or so and I should have an announcement.

Is Chicken Little in for a hard landing or a soft landing?

This is a question that really boils my blood, so I’m going to have to try and tone down the venom that might otherwise spew here. The simple answer is no. Instead of hiring more than one Realtor®, how about you interview a few Realtors® to see if they’re the right match for you? That might satisfy your curiosity of what’s out there.

The truth is, all Realtors® - when you call them - will look up the MLS to find you a property that matches the criteria you selected. Unless they have a listing or their company has a listing that matches your criteria, they’re consulting the MLS. Even if they do have a listing that they think you might be interested in, the other Realtors® also have access to that same listing, thanks to the MLS.

The only thing you’re assuring by hiring more than one Realtor® is making sure that one of them (or more) is not getting paid for the work they’re doing for you. Since Realtors® work purely on commission fees, they don’t get paid unless you buy a house with them. And why would you want to be as heartless as put someone to work and then not pay them?

Now that we all know how much we hate short sales, I thought I would drop in my two cents with regards to what I’m hearing from other Realtors I talk to. (Yes, I do have a short sale listing. And yes, it’s getting a lot of attention from everyone but the bank.)

But from what other Realtors tell me, there are multiple offers on almost all well-priced bank owned homes. There are also multiple offers on short sales, especially if they are approved short sales.

What does this point to? I may venture a guess to say pent up buyer demand. I recently wrote an article on my other blog Sacramento Real Estate Gal about how the real investors are beginning to jump into the Sacramento real estate market. Historically, the investors jump first followed by the first-time homebuyers and then the rest.

So if you’re making an offer on an REO and your Realtor tells you there are multiple offers on the property already, don’t assume she’s lying just because you’re full of bad housing news. The good news is coming.

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

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

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

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

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

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

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

Related Links

Are Short Sales Fake Listings?  Part 1

Are Short Sales Fake Listings?  Part 2

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

How This Works Out for Buyers

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

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

So what happens?

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

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

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

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

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

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

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

Related Links:

Are Short Sales Fake Listings?  Part 1

Why Short Sales Don’t Sell

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

That’s just about right.

The Lender’s Stake in a Short Sale

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

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

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

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

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

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

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

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

More About Lenders

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

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

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

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

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

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

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

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

Welcome to the world of short sale logic!

_____________________________

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

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

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

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

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

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

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

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

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

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

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

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

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

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

What Is A Short Sale?

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

For example:

$350,000 Amount seller owes to lender(s)
$279,000 Proceeds from sale
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$71,000 Amount lender is asked to write off.

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

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

Wrong.

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

Active Listings as of May 7, 2008

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

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

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

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

Listings that Sold in April, 2008

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

Related Links:

Are Short Sales Fake Listings Part 2

Are Short Sales Fake Listings Part 3

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

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

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

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

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

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

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

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

And to think some people are worried about Social Security.

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

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

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

Wishing Upon William Shatner’s Ninja Star

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

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

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

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

So far my lying skills are pretty pathetic.

The Short and Legalistic Answer

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

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

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

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

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

Life’s Pricing Mysteries Revealed

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

A Seller’s Market In Sacramento?

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

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

The Market Overall

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

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

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

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

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

The Demand Curve in Action

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

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

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

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

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

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

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

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

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

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

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