Sacramento Real Estate Blog

Sacramento County’s market continued to be characterized by strong demand for bank owned properties and falling prices as banks continue to discount homes to move them off the books.  Once again, prices are down sharply from last year, but sales are up sharply. 

The average home sold in Sacramento County in July for $228,656, down 38.3% from last year’s average price of $370,770.  On a sold price per square foot basis, homes lost 35.5% of their value county-wide, averaging $217.74 per square foot in July of 2007 versus $140.53 in July of 2008.

Compared to last July, sales have more than doubled in Sacramento County.  996 units sold in July in 2007, versus 2024 (reported so far) for July of 2008, an increase of 103.2%. 

This is the sixth month in a row that our unit volume has increased substantially over last year.  Indeed, with today only August 4th, Metrolist affiliated agents and brokers have already reported 10,338 sales for Sacramento County this year, so we’re on track in the first couple of weeks of August to have sold more homes than we sold in the whole calendar year of 2007 (10,698 homes).

Inventory in Sacramento County is currently at 7.1 months (or 5.5 months if you use the more recent sales for the last six months as representative).

Some of the data on which this report is based is in the tables below.

Unit Volume Data

Price Data

Inventory (Based on 12 months of prior sales)

Inventory (Based on 6 months of prior sales)

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

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

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

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

Some Background

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

June was a good month for Sacramento’s Pocket Area (95831), with a combination of strong sales volume and low inventory.  Of course there’s the usual background of a declining market to talk about, but the Pocket’s June numbers compare favorably with the county as a whole.

In June, the average home sold in the Pocket area for $355,027, down 8.8% from last year’s average of $389,110.  Sold price per square foot fell more sharply, down 16.3% from last year’s $221.95, to an average of $185.82 per square foot this year.  Some 54.3% of all sales in the Pocket area were non-distressed in June, compared to 25% for the county at large.

Even though the Pocket area has held its value well from June to June, it still posted a respectable 59.1% increase in sales volume from year to year.  Of course, the Pocket area is not all that huge, so statistical significance is low.

The other good news for the Pocket area is that there are only 3.9 months of non-distressed inventory, and only 3.7 months of inventory overall.

The tables below give more information on the Pocket area.

Unit Volume Data

Price Data

Inventory (Based on 12 months of prior sales)

Inventory (Based on 6 months of prior sales)

With slightly fewer foreclosures than Sacramento County overall, Fair Oaks has seen prices erode somewhat less swiftly.  In that respect, it’s behaving much like Folsom or many areas in Placer County or El Dorado County.

In June, volume rose just slightly (3.1%) from last year.  This June, 42.4% of sales were non-distressed sales, versus 12.1% short sales and 45.5% REOs.  The average home sold for $345,991 in June, down 19.5% from last year’s average of $429,625.  On a sold price per square foot basis, Fair Oaks homes lost 18.6% of their value during this time, selling for $230.91 per square foot on average in June of 2007 versus $187.93 on average in June of 2008.

Inventory in Fair Oaks is rising over the last few months, and currently there are 7.5 months of inventory overall.

The real estate market in East Sacramento rallied somewhat in June.  The average home sold in East Sac in June for $574,158, up 8.2% over last year’s average of $530,568.  Sold price per square foot was down 10.3%, however, from $373.14 in June of 2007 to $334.79 in June of 2008.   The news is not all grim, however, since June’s figure has increased since May, when sold price per square foot came in at $299.79.

Non-distressed sales continued to predominate in East Sac, accounting for 77.8% of all sales in June.  In active inventory, short sales and foreclosures make up about 11% of the 97 available homes in East Sacramento.

East Sacramento is not a huge area, so few homes sell in the best of times.  However, unit sales are definitely down this year, with eighteen homes selling in June versus 19 the year before.  Moreover, average sales over the last six months have been more sluggish than over the last year, at thirteen units on average versus sixteen, respectively.  Inventory, which was low when we reported on it last year, is now up to about 7.1 months.

Related Articles:

East Sacramento Real Estate Market (Update for May 2008)

First Quarter 2008 East Sacramento Real Estate Market

North Sacramento and Del Paso Heights (95815 and 95838) are areas hit hard by foreclosures, which have experienced huge price declines over the last year.  Sold price per square foot fell fully 44.4%,  from $184.73 in June of 2007 to 102.74 in June of 2008.  This year’s average home sold for $122,860, down 48% in a from last year’s average of $236,061.

With the huge drop in prices, unit volume has increased 213.9% over last year’s figure, with 113 units selling this June versus only 36 last June.  Nevertheless, inventory is still high at 8.2 months, so with short sales and foreclosures making up some 81% of outstanding inventory, I expect to see additional price cuts going forward.

REOs (bank foreclosures) made up 85% of all sales in June, with short sales comprising an additional 3.5%.

Along with Natomas and Antelope, Elk Grove is one of the areas that has been hard hit by foreclosures, and where prices have dropped dramatically in response.  Paradoxically (or maybe not), it’s also one of the areas I expect to see on the leading edge of the market recovery. 

Sold price per square foot has fallen 29.4% over the last year, from $193.70 in June of 2007 to $136.68 in June of 2008.  The average home sold for $283,840 in June of 2008, down 32% from last June’s average of $418,937.

With the huge price cuts, demand is up 88.5%, with 139 units selling in June of 2007 versus 262 in June of 2008.  With the increase in demand (especially on the better priced REOs), homes are selling quite close to list price, with the average discount from list price being only about $900 (or 1/3 of 1%).

Distressed sales, which accounted for less than 20% of sales in 2007, now account for 81.7% of all sales.  There are 1.6 months of foreclosure “inventory”, and enough short sales to support sales for about another three months.

Related Articles:

Calling The Bottom

Antelope Stampede — Are Prices Bottoming Out?

Natomas Real Estate — Sales Up 130% with Heavy Competition

I’m not much of an ungulate expert.  Do Antelope stampede?

Either way, stampede is an apt metaphor for the demand for homes in Antelope in recent months.

Consider:

• Based on the last twelve months of sales, there are 5.7 months of inventory (into the seller’s market category).  Based on high absorption rate of the last six months, that number is even lower, at 4.5 months of total inventory.  Of course, this is a “seller’s market” if you’re a bank — some 85.5% of the sales in July were distressed sales.
• Unit volume has more than doubled over the last year.  It is up 143%, from 37 units sold in June of 2007 to 90 units sold in July of 2008.
• The average home that sold in Antelope in June listed for $221,566 and sold for $224,261, i.e., 1.2% over full price.
• There are only seventy-one bank owned homes in inventory now, slightly more than the sixty-seven that sold in June.
• To date, July’s sold price per square foot has increased from the number in June.  June’s sold price per square foot was $136.68, while in July the number so far is $139.80. 

We will have to wait until August to see if prices have indeed started to climb, and it will take several months longer to prove it.  However, much as I would love to call the bottom, I think we may see a more decreases in Antelope as Sacramento County’s overall prices fall.

However, with 1.4 months of foreclosure inventory and only enough distressed sales overall to feed less than four months of demand, it’s possible we may see prices fluctuate for several months before starting to rise in earnest.

Related Posts

Natomas Real Estate — Sales Up 130% With Heavy Competition

Real estate in Downtown Sacramento (95814 and 95816) continued to command top dollar in May, with sold price per square foot running more than twice as high as the county-wide average, though this year’s crop of homes was much smaller overall than last year’s.  Sold price per square foot was at $319.09 in June, down only .4% from last year’s average of $320.50.  On average, however, this year’s crop of homes was much smaller, with the result that the average selling price fell some 21.5%, from $488,553 last year to $383,732 this year.

70% of the homes that sold in downtown were non-distressed sales.  No short sales sold in either year, but this June, six of the twenty sales were bank foreclosures.  In active inventory, 78% of homes are non-distressed, 5% are REOs, and 17% are being offered as short sales.

Unit Volume in Downtown Sacramento

Home Prices in Downtown Sacramento

Inventory (Based on 12 months of prior sales)

Inventory (Based on 6 months of prior sales)

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

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

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

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

There he is again.  Hello!

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

Fiscal Responsibility

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

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

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

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

Mom And Dad Financing

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

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

Oh yes, Kathy’s mom and dad.

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

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

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

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

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

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

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

What We Really Want The Market To Do

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

I’ve been writing a lot here about how demand for homes is up substantially from last year in Sacramento County, especially in the areas where there the large numbers of foreclosures have caused the biggest price declines.  Watching the demand start to pick up is fairly exciting, but as I’ve written, prices have not yet caught up.  Moreover, just looking at demand is not enough to understand where things are heading in the future.  To get a better understanding of when we might expect to see a recovery, we’d need to understand several other important factors:

• Is the supply continuing to grow?  Are more homes being foreclosed on?  Do we see any sign that this part of the equation is turning the corner?
• Granted that the demand for homes — especially foreclosed homes — has increased dramatically.  But has it increased enough to significantly outpace supply?  In other words, it’s no help to say 100 people bought foreclosures if at the same time 200 new foreclosures were listed. 

Because of the way the Metrolist database works, it’s easier to look at homes that have sold than it is to follow all the homes that have listed to see what became of them.  However, it’s possible to get a rough idea.

The table below shows in an approximate way the number of short sales and bank foreclosures that were listed since the beginning of 2007, for Sacramento County only.  I say “in an approximate way” because this data includes only those properties that sold or are still active — those that were withdrawn from the MLS or expired are not represented.

Since we’re in July, the numbers for July are projected.  As you can see, during May and June it looked like we’d turned the corner and had started to see a decline in foreclosures, but the number of foreclosures and short sales picked up again in July.  So the answer to our first question above is that it looks like supply is continuing to increase.  (Having said that, I’m encouraged somewhat by the dip in short sales in July compared to June — short sales are the “leading indicator” here, while foreclosures are the trailing indicator).
 

The answer to our second question appears to be that we’ve already reached a point where demand for foreclosures is outstripping supply.  Looking at a recent snapshot of the period July 9 - July 16th, for example, 314 foreclosures sold through the MLS while 288 more were listed. 

This optimistic figure breaks down somewhat if we include Short Sales, where 223 properties were listed to 33 sold.

Still, there are good reasons to focus on the absorption rate of foreclosures.  First, there are many difficulties with getting short sales approved.  Moreover, sometimes today’s short sale listings are actually tomorrow’s foreclosure listings, and at other times the seller goes on to cure the default, and we have no statistics about that. 

What we need above all for the market to turn around is to see demand for the end result of the process — the REO — to continue to stay strong, while we see the number for short sales go down.  I for one will be keeping my eye on that 716 short sales projected for July, to see what the actual number turns out to be and what it looks like for August and into the future. 

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

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

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

Some more statistics for Natomas are below.

Natomas Real Estate Unit Volume Data

Natomas Price Data

Residential Inventory (Based on 12 months of prior sales)

Residential Inventory (Based on 6 months of prior sales)

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

You’re welcome.

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

Oops.

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

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

  Twitter evolved as the written equivalent of the Bush Presidency.

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

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

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

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

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

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

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

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

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

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

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

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

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

Unit Volume Data

Price Data

Inventory (Based on 12 months of prior sales)

Inventory (Based on 6 months of prior sales)

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

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

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

Unit Volume Data

Price Data

Inventory (Based on 12 months of prior sales)

Inventory (Based on 6 months of prior sales)

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

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

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

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

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

Sacramento County

Placer County

El Dorado County

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

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

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

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

Selling Whale Harpoons to Eskimos

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

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

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

Here then are some tips for buying more conservatively.

Six Tips for a More Conservative Purchase

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

Common Sense + Up Front Number Crunching = Success!

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

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

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

Read more.

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

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

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

Irrational Hatred

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

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

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

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

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

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

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

My High School Friend

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

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

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

This Other Guy

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

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

No Free Lunch

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

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

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

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

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

Where I’d Like To Leave This

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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