Sacramento Real Estate Blog

Elk Grove’s sales continued strong in August, though like the rest of Sacramento County, unit volume was off slightly from the high we reached in July.  In August, 323 homes sold in Elk Grove, more than doubling last August’s total of 127 homes.

Prices in Elk Grove have fallen 30.3% from last year, with the average home selling in August, 2007 for $187.96 versus $130.97 in August of 2008.  Prices were up slightly in August from the previous month both in price per square foot and average selling price, but much of the gain seems to be a result of a possibly temporary upsurge in the number of non-distressed properties selling.

The average selling price in August was $281,994, down 26.7% from last year, while the median selling price of $265,000 was down 26.4% from last August’s median of $360,000.    

67.5% of homes sold in Elk Grove in August of 2008 were bank foreclosures, and 13% were short sales, leaving 19.5% in the non-distressed category.

Currently inventory in Elk Grove is low at 4.1 months (based on the six-month absorption rate of 277 homes sold per month), or 5.6 months if you use the twelve month average of 204 homes selling per month.

The raw data for Elk Grove is below.

Unit Volume Data

Price Data

Inventory (Based on 12 months of prior sales)

Inventory (Based on 6 months of prior sales)

Hard on the heels of taking over Freddie Mac and Fannie Mae, and the bailouts of Bear Stearns and now AIG, this week the Federal Government announced that it would try to bail out the entire economy — adding some (big) number in the hundreds of billions of dollars to what’s probably a half trillion or so commitment already.  The total price total price tag a half billion to a trillion dollars (or more).

Basically the idea here is that the Federal Government is going to buy up a lot of "bad debt", i.e., things like worthless mortgage backed securities, but details of the plan are still sketchy, and I certainly don’t pretend to understand how it’s all likely to unfold, other than to say I know people will lie about it.  Take the United Press International, which included this ridiculous assessment:

Obviously, conservative Republicans do not like using this amount of public money to bail out private companies: They understandably ask why the U.S. taxpayer should pick up the tab for others’ bad choices.

No, obviously conservative Republicans like to say they don’t like to use public money to bail out private companies, but it was conservative Republicans along with the Democrats who rolled over ten years ago, repealing the New Deal legislation that has protected us from just such a fiasco since the Great Depression.

How will this affect the housing market?

As I mentioned, details of the plan are still sketchy, but to me, this is the least well understood aspect of the unfolding story.  Will the government get into directly writing down the principle for people in foreclosure?  Will they be auctioning off foreclosures directly?

I don’t even want to hazard a guess at this point, but I suspect the government’s actions will do more to simply keep more banks from folding in the short term and make Wall Street happy.  I’m less convinced that it will significantly shorten the time to home price recovery, but that won’t stop politicians from hinting that it will to deflect public outrage.

You would think I would write more about El Dorado County real estate than I do.  I live here, after all, and the homes here are (on average) more expensive than they are in Sacramento County — well, if you can sell them, they are, anyway. 

Right now in El Dorado County there are thirteen months of inventory that we have to get through, though the good news is that we’ve been selling more homes recently, so you can call it 11.4 months if you want the optimistic estimate.  That’s still a lot of inventory.  Six months of inventory is the traditional demarcation that distinguishes a buyer’s market from a seller’s market.  Six months is about what we’re seeing in East Sac and Fair Oaks.  Less expensive areas in Sac County are down around four to five months. 

152 homes sold in all of El Dorado County in August, down 9% from last year’s volume of 167 units.  Average sold price per square foot fell 18.6% from year to year, from $226.19 last August to $184.21 in August of 2008.  Together with a slight size drop from year to year, the average sale price fell 24.1% from year to year, from $524,693 in August of 2007 to $398,320 in August of 2008.  The median price county-wide fell from $430,000 to $354,950, a 17.5% drop.

One thing I’ve noticed about El Dorado County as we’ve gone along is that because El Dorado County started out more pricey to begin with, and because Sacramento County’s prices fell off more sharply, the difference in price between the two areas has intensified.  In 2007, the average difference in price per square foot was $18.53.  So far this year, that average difference has risen to $44.91.  Combine this with higher gas prices making commuting less affordable and the higher number of foreclosures that buyers have to choose from in Sacramento County and I think it becomes fairly easy to account for the sluggishness of sales here.  Add in unrealistic seller expectations and the idea that there’s always tomorrow for dreams to come true and you have a the makings of a perfect storm of market sluggishness in El Dorado County.

Sacramento’s Arden / Arcade Creek Area continued to enjoy above average prices for Sacramento County in August, but area homes have lost value from last year as the number of foreclosures has risen.  With 102 homes selling in August, sales volume is up 54.5% over last August’s numbers.  Sales in August also bested the average over the last six months of 86 sales per month.

At 1387 square feet, this year’s average home was 12.7% smaller than last year’s average of 1589 square feet.  Coupled with a 17.0% decline in value in sold price per square foot (to $193.86 in August, 2008), the average sale price dropped 27.5% from August to August.  Last August, the average sale price was $370,984, while this August the average was $268,955.

Compared to other areas in Sacramento County, inventory in Arden / Arcade Creek is somewhat high — but in absolute terms it’s considered low at 5.4 months. 

Sacramento’s Arden / Arcade Creek Area is the area with the zip codes 95841, 95821, 95864, and 95825.

Fair Oaks continued to enjoy strong demand in August, yet with homeowners losing less of the value of their homes than in other areas of Sacramento County.  Fifty-four homes sold in Fair Oaks in August, besting last August’s volume of forty-one units by 31.7%.  Bank foreclosures and short sales made up 59.3% of all sales in August, and comprise 41% of active inventory. 

The average home that sold in Fair Oaks in August was 1831 square feet in size, and sold for $333,816.  This sale price is down 12.2% from last year’s average of $380,000.  Sold price per square foot fell 16.5% from August to August, from $218.27 in August of 2007 to $182.30 in August of 2008.  The median selling price in Fair Oaks fell 12.6% from year to year, from $334,000 in August of 2007 to $292,000 in August of 2008.

Inventory in Fair Oaks is slightly higher than other areas of Sacramento at 6 months, but is much lower than last year.

I recently predicted that some time soon the FED would disclaim that they were actually going to start buying bankrupt companies with their newfound policy of accepting equities as collateral, but I thought it would be weeks before we’d hear about the first one. 

No, it turns out it took them less than twenty-four hours to buy AIG.

So, what do you do if you’re 9.6 trillion dollars in debt?  Let’s start buying up companies that have failed, and stick the taxpayer with the bill.

Brilliant!

I wonder who the government will buy next.  Elite Properties is probably still too liquid.

Real Estate

I got into real estate at a time when the boom in real estate was well underway.  One of the things that surprised me at the time was how high prices were going.  I remember showing one not so great house in Cameron Park and thinking it was priced too high, then seeing the same house on the market the following year for $100,000 more and actually sell.

Because of this experience of being surprised by how high the market could go, I realized as the market decline accelerated that I should not be surprised if prices got really low — though naturally as a homeowner and as someone who’s income is tied to the real estate market, I hoped they wouldn’t.  So for the most part, the decline in prices has not surprised me too much.  It actually took place more slowly than my critics predicted (those who predicted I’d be out of business by 2006) — but to give my critics their due, the decline in value from 2006-2008 has justified much of their pessimism.

The Economy

If the decline in home values is not that surprising, what has surprised me has been the extent to which the rest of the economy is diving off the cliff with it.  Last week we learned of the federal takeover of Freddie Mac and Fannie Mae.  This week brought the sale of Merrill Lynch to Bank of America.  It also brought the failure of Lehman Brothers, which the Fed did not step in to prevent.

So the Fed’s gotten smart and is trying to minimize the risk to the taxpayers and the currency, right?

Wrong. 

I’m not an economist, so maybe the wrong things scare me, but to me one of the more frightening developments in recent weeks has been the Federal Reserve’s announcement that it will now accept "equities" (stocks) as collateral for loans. 

Here’s a prediction for you.  Remember a few weeks ago when we started to hear that the federal government might loan Fannie Mae and Freddie Mac some money, but would only do so as a last resort?  Within a few weeks we heard that the government had placed Fannie and Freddie in conservatorship. 

My prediction for the week ahead is that a spokesman for someone in the Federal Government (most likely someone at the Fed) will go on record that the change in the collateral allowed for Fed loans is only intended to give the Fed leeway in case it’s needed.  That said, the Fed will proceed to accept securities as collateral for several loans, and we’ll begin to hear about some of these companies falling within about six months.

Politics

It seems to me the only people who think the present economy is doing well are insane John McCain campaign advisors, who tell us we’re on the brink not of recession, but of accelerating prosperity.

You can’t make this stuff up.

I’m getting exposed to a lot of the economic news in the reading I’m doing for a new liberal politics blog I’ve been working on.

What It Means for You

In general, the failure of financial institutions all by itself shouldn’t put you off buying a home.  If your mortgage is current, you won’t be foreclosed on no matter who holds the note.  However, if your situation is such that your income is uncertain, then naturally you’ll want to think twice about home ownership (or any other major purchase).  In general, your personal "economy" and prospects are more important in this decision than the overall economy, unless you have to move soon.

Will home prices fall some more?  Yes, I believe they will.  How much?  I don’t know.  Will loans get harder to get?  Yes, to some extent that’s already happened, with 100% financing an absolute rarity already (though great FHA loans are still available at 3.5% down).

We’ve already seen a lot of increased demand based on the price decreases of 2006-2008.  The last week or two of inquiries has been pretty slow, however, so October may be an exception to the rule.

If you’re selling, what all this means is that you’ll have a longer wait than you thought if you’re not going to get realistic about your price and instead want to "wait to see what happens".  We may reach equilibrium in certain areas within the next year or two, but I don’t see recovery taking place that quickly.

August was another off month for East Sacramento, which the last few months had seemed immune to the price drops that were happening elsewhere in the area.  What’s happened more recently is that East Sac’s prices have started to drop slowly.  At the same time, while the rest of Sacramento County has had a huge upsurge in demand in response to the deep price cuts and large number of foreclosures, demand in East Sacramento has been flat.

In August, for example, 17 homes sold in East Sac, down 45.2% from last year’s unit volume of 31 homes.  The average price per square foot in East Sac in August was $308.20, down 9.5% from last year’s average of $340.54.  At the same time, at 1671 square feet, believe it or not, this year crop of homes was 27.6% bigger than last year.  As a result, the average sale price increased 15.5% from August to August, averaging $514,994 this year.  The median sale price increased 2.5% from last year’s $405,000, with this August’s median selling price in East Sac working out to $415,000.

Foreclosures accounted for 11.8% of all sales (two units) in August, with no short sales closing.  Foreclosures and short sales together make up 12.8% of active inventory.

With inventory in many areas of Sac County being about four-five months, East Sac’s inventory is comparatively high at present with about 6.3 months of inventory to get through.

Foreclosure sales continued to drive high buyer demand for homes in Citrus Heights in August.  102 units sold in August, somewhat more than the six month running average of 98 units per month, and 54.5% more than the 66 units that sold in August of 2007.

Sold price per square foot dropped 23.5% from August to August, with the average home fetching $190.91 per square foot in August of 2007 versus $146.05 in August of 2008.  At 1352 square feet, this year’s home was 7.6% smaller than last year’s home, so sale prices fell more sharply, 29.3%, from $279,468 in August of 2007 to $197,579 in August of 2008.

Demand for foreclosures was strong, with only 1.5 months of foreclosure inventory at present and bank foreclosures making up 72.5% of sales in August in Citrus Heights.  Buyers are routinely bidding over full price in order to be successful, with the result that the average sale price of $197,579 was 2.9% over full price, i.e., the average listing price of $192,058.

With 392 active listings, at present there are four months of inventory overall in Citrus Heights.

Below is the raw data for Citrus Heights for August, 2008.

Unit Volume Data

Price Data

Inventory (Based on 12 months of prior sales)

Inventory (Based on 6 months of prior sales)

Everyone else is talking about this cosmetically advanced porcine this week, so I thought I’d work it in to the conversation somehow.

Welcome to my job.  I’m fortunate because — if you ignore my broker / management duties — I pretty much get to blog for a living.  Given the blog that’s turned out to be successful and the way I choose to feed it, this entails a lot of sifting through Sacramento market data.

Blogging.  About data.  I have achieved nerdvana. 

As many of you know, the usual schedule for talking about the market is one month behind.  So in October, I’ll write about September systematically and tell you want happened, zip code by relentless zip code. 

However, having achieved nerdvana, and therefore being overly excited about the data, of course I have to peek ahead sometimes.  Such was the case today when I peeked ahead to see how September is shaping up so far, even though we’re only a few days into it.

Wake Me Up When September Ends

Oh, all right, it’s not all that bad — but I do hate to see such a bigger-than-average price drop in a single month.  August’s average sold price per square foot was $140.87, and September’s average (so far) is $130.61. 

To be sure, some of this is simply that some of the foreclosures that didn’t sell in August finally closed in September, and August’s prices were higher than July’s, so you can look at this larger price drop as catching up on our bad news.

And to be sure, averaging the whole county is always a bit misleading, since part of the drop in prices when you do this is actually a shift in what areas are selling large volumes of home.  For many months now, overall the biggest gains have been in the most inexpensive areas.  (In fact, a good future article would be to look at total average price change county-wide versus an average of price changes by area).

Still, I hate ten-dollar-per-square foot price drops in one month.  I honestly do.  To be sure, we largely enjoy representing buyers, so the news is not necessarily bad from our clients’ point of view.  But still there’s a point at which my optimism for first time buyers runs smack into my sympathy for existing owners.

Like many other areas in Sacramento County, the last few months have seen a healthy inventory sell-off in Carmichael, with sales volume up considerably over last year.  For example, in August of 2008, 43 homes sold in Carmichael, up 59.3% from the 27 homes that sold in August of 2007.  Over the last six months, an average of 44 homes have sold every month, up from the running twelve month average of 36 homes per month.

Size Matters

This year’s average Carmichael buyer purchased a substantially larger home than last year, with the August crop measuring in at 1967 square feet, 27.4% larger than last August’s average of 1544 square feet.  During this time, sold price per square foot fell 26.8%, from $240.50 on average in August of 2007 to $176.05 in August of 2008, but because this year’s average home was so much larger, the average sale price fell only 6.7% during the year, from $371,385 in August of 2007 to $346,409 in August of 2008.  Meantime the Median price didn’t know what to do, and fell $17.2%, from $355,000 in 2007 to $294,000 in August of 2008.

Short sales and foreclosures make up about 35% of active inventory in Carmichael, versus 46.5% of the sales in August.

This day brings up nothing but sadness, for those who lost their lives that day, and how we felt.

9/11/2001 is one of those days where everyone remembers where they were and what they were doing when they found out.  Like the day Kennedy was shot (so I’m told, though I’m too young to have a vivid memory of that day — being about four at the time).

This is also a day of sadness for me for the stupidness and abuse of power that came in its wake, when the American press assumed that government was a choice between freedom and safety, and our government decided that invading a country who had nothing to do with attacking us was low hanging fruit. 

If George Bush had been our President for Pearl Harbor, World War II would have been waged against Venezuela.

Being political doesn’t help relieve the sadness of this day, though.

Sometimes this day is so sad I don’t write anything.  This year I thought I would.

Tomorrow will be September 12th, and I’ll return to what some find to be the more chronically depressing subject of the erosion of our home values.  But look:  for the most part, people aren’t leaping out of skyscrapers over the real estate market.

Besides, if you want to be cheered up, what are you reading me for? 

Might I recommend a movie?

Prices changed very little over the year in Sacramento’s desirable Land Park area, with the sold price per square foot falling only one half of one per cent from August to August.  In August of 2007, twenty-four homes sold at an average of $312.15 per square foot, while this August, 19 homes sold, averaging $310.57 per square foot.  To be sure, this year the average home was  slightly smaller than last year, a fact which pushed the average sale price down 8.8% over the year, from $524,625 in August of 2007 to $478,689.  Similarly, the median sale price fell 10.4%, from $524,500 in August of 2007 to $470,000 in August of 2008.

Foreclosures and short sales make up about 19.7% of available homes at present in Land Park, a number that’s large by 2005 standards but far less than the average in Sacramento County.  In terms of August sales, they accounted for 26.3% of all sales.

One thing we’re seeing in Land Park that’s unusual for Sacramento County is that the average number of sales has actually gone down in recent months, rather than up.  Be that as it may, Land Park still enjoys fairly low inventory at 4.0 months.

Sacramento’s Rosemont Area (95826 and 95827) continued to see improved unit volume compared to last year.  This year 64 homes sold in August in Rosemont compared to 40 homes in August of 2007, a 60% increase. 

Rosemont’s foreclosure numbers were higher than the Sacramento County average, with 73.4% of all sales being bank foreclosures, and another 10.9% being short sales, leaving the non-distressed sales at only 15.6% of the total in Rosemont.

As you might expect, with this many foreclosures, prices fell substantially from year to year.  Last year’s average home sold for $267,802 in Rosemont, while this year the average sale price was $181,313, a drop of 32.3%.  Since this year’s home was slightly smaller than last, however, the sold price per square foot fell sharply but a little less dramatically than the average sale price, falling 28.7% from $195.13 in August of 2007 to $139.15 in August of 2008.  The median selling price of a home in Rosemont was $264,000 in August of 2007 and fell 33.7% to $175,000 in August of 2008.

Low Foreclosure Inventory Leads to Over Full Price Offers

Inventory in Rosemont is very low at 3.5 months.  There are as many foreclosures in inventory (47) as there were sold foreclosures in August, and enough short sales for another two months of sales.

It’s not surprising, therefore, that homes are selling above list price.  The average sale price in Rosemont in August ($181,313) was 1.1% above the average list price of $179,295.

The real estate market in August in Folsom was characterized by low inventory and a low number of foreclosures compared to other areas. 

Homes in Folsom retained more of their value than in other nearby areas.  The average home sold for 13% less on a sold price per square foot basis than last year, with this year’s average sold price per square foot being $197.65 versus $227.07 in August of 2007.   This year the average home buyers paid just about as much for their home, $481,075 on average as opposed to $492,654 on average in 2007, but their money bought a home that was 11.8% larger, on average, with this year’s average home footprint being 2,355 square feet.  The median price fell one tenth of one per cent from year to year, from $439,450 to $439,000.

With only 1.6 months of foreclosure inventory at present, the total number of non-distressed sales was comparatively high in August, at 73.8% of all sales.  Another 12.3% of sales were short sales, and 13.8% of sales were bank owned foreclosures.

Based on sales for the last twelve months (61 sales per month), inventory in Folsom overall is a low 4.6 months.  If you use the higher absorption rate of the last six months (74 sales per month), there are only 3.8 months of inventory in Folsom.  Sales in August split the difference at 65 sales, up 8.3% from last August.

Elite Properties agents have been representing buyers on lots of foreclosure sales this year.  What’s more, we’re not alone — some 65% of the more than 12,000 homes that sold this year through the MLS were bank owned properties.  With a typical selling price of about 20% less than a comparable non-distressed home, it’s no wonder that most buyers opt for an bank foreclosure if they can find one that suits their needs.

Though we think the rewards of a foreclosure purchase generally far outweigh whatever minor difficulties we help our buyers overcome in the foreclosure buying process, there are nevertheless a few differences from a traditional sale that we think buyers should know about when they buy a foreclosure.  This is not to scare you away from foreclosures, which we think are great opportunities.  However, as always, the more you know up front, the more likely you are to have a transaction that runs smoothly and successfully.

How Foreclosure Transactions Differ From Non-Foreclosure Transactions

1. The sale will almost always be an "As Is" Sale
   Bank foreclosures are typically sold As Is, meaning the bank will not generally agree to make any repairs.  You still have an inspection period where you will have your inspectors examine the property and give you written reports on its condition, and you have the right to cancel the agreement if anything alarming shows up.  What you don’t generally have is any leverage to have the seller fix conditions for you. 

   Of course, every rule has an exception, and the exception in this case is that banks will sometimes agree to fix items required by an FHA lender, if you’re getting FHA financing.  We’ve negotiated this successfully many times.  To be sure, banks prefer conventional financing because conventional loans don’t generally have such prior-to-close conditions, but if you need FHA financing, it’s doable in many cases and we have a lot of experience with it.

2. The banks will counter our standard California Association of Realtors® (CAR) Offer With Their Own Addendum
   You should read over the addendum the bank sends back carefully, and go over any questions you may have with your Realtor®.  In almost all cases, the addendum will include:

1. A shortening of the escrow period.
   We often use 30 days as a "typical" escrow period when writing the offer.  Expect the bank to counter with a shorter period, often 21 days or thereabouts.
2. A shortening of your inspection period.
   The "default" inspection period in the CAR purchase agreement is 17 days.  The banks will often want to shorten this to something like 7-12 days.  Our main concern is that you have enough time to perform your inspections, so your agent’s job becomes getting all your appointments scheduled quickly and getting you the reports you need.  We have a lot of experience getting this done.
3. A per-diem penalty if the buyer fails to close on time (due to buyer’s default).
   The bank addendums typically include a clause where the buyer will pay a daily fee to the bank if they fail to close on time.  Often this daily fee runs somewhat higher than typical rents, with $100 to $150 per day being common. 

   Because the seller has both shortened your time to close and will charge you if you don’t get it done on time, it’s very important to get your financing in place if you’re buying a foreclosure before you write an offer.  At minimum, you should have a completed loan application with credit check submitted to your lender before you write a foreclosure offer.  This is not only important so you’re able to close on time and therefore avoid per diem charges, but many banks require direct lender approval for the offers they’ll consider.  This means approval from an underwriter working for the person with the money, not a mortgage broker loan pre-qualification letter.  Getting to this stage means getting with your lender before you shop, not while you’re in escrow!

In spite of the issues above, we believe the major discounts of bank owned properties represent a great opportunity for our buyers.  Our job is to inform you about the differences and minimize the negative impact of those issues that seem to be endemic to foreclosure transactions, so you get the benefit of the price without having to give up too much in the way of convenience.

Demand for homes in Sacramento County has finally slowed somewhat for the first time in the last seven months, but even though fewer homes sold in August (1,929 units) than July (2,153 units), August’s sales volume figure in Sacramento County was still up a respectable 82.6% over last August’s sales volume of 1,056 units.

In contrast, the average county-wide price per square foot figure was down substantially (32.4%) from last year’s figure of $208.32, but at $140.84, it was up a few pennies from July’s number of $140.48.

Foreclosure Sales Slowed in August

The main thing accounting for both changes in August was primarily a slight slow-down in the number of foreclosure purchases.  Non-distressed sales were even at 478 units each month, while Short Sales were up only slightly, from 176 sales in July to 183 in August.  Foreclosure sales, in contrast, fell 15.5% from July to August, with 1499 foreclosures selling in July versus only 1267 in August.  Even so, the number of bank owned foreclosures that sold in August was still higher than the average of the last six months (1183 per month), and using 1183 as the absorption rate, there are only two months worth of foreclosures in inventory. 

Inventory Down From Last Year

If all the short sales went to foreclosure, current short sales would make up another 3.2 months of inventory.  Another way to say this is that we have about 5.2 months of “distressed sales” in inventory, which is just about how many non-distressed sales we have in inventory as well.  Although there’s a chance that this number will increase seasonally as we get into fall and Winter, it’s good to see it so low right now. Overall for all categories there are 4.8 months of inventory if you use the last six months absorption rate, otherwise 6.4 months.

We don’t have an exact one-year-ago-today figure, but to give you an idea what good news this is, by contrast, in our early August market update report in 2007, thirteen months ago, we reported that there were 10.7 months of inventory — so currently Sacramento County is looking at roughly half that number today.

Prices Down From Last Year — A Typical Payment on a Median Priced Home drops about $600

The average home that sold in Sacramento County this August fetched $235,367, down 33.1% from last year’s average price of $348,698.  The median sale price was down 33%, from $313,500 in August of 2007 to $210,000 in August of 2008. 

Assuming you got an FHA loan with 3.5% down, and a .5% monthly mortgage insurance premium at 6.45% (roughly the same both years depending on which week you look at), your estimated mortgage payment (PITI) for a median priced home if you bought last year would have been $1,953, while this year the payment on a median priced home would be approximately $1,318.50.  No wonder demand is up from last year!

Freddie Mac’s latest Mortgage Market Survey reported that interest fell again last week.  After reaching a high of 6.63% (with the borrower paying .6 points) on July 24th, the national average for a 30 year fixed mortgage, for example, has fallen to last Thursday’s average number of 6.4% at .6 points.

Freddie Mac also reported some good overall news about that strangest of abstractions, the "national" housing market.

The housing front is providing some encouraging signs. The pace of home price declines slowed down for the fourth straight month in June and the number of metro areas exhibiting monthly gains rose from seven to nine, according to the S&P/Case-Shiller® 20-city composite index. There are also signs more buyers may be getting ready to return to the market. The Conference Board says the share of households planning to buy a home within six months is now at its highest level since March. At the same time, the supply for unsold new homes is down to 10.1 months, the lowest since February, as single-family existing homes (excluding condos and co-ops) start to sell more quickly. Although, when condos and co-ops are included, the resale inventory did edge up."

Here in Sacramento, the big news over the last several months has not been a slowing of price declines (although it looks like we’ll have a slight price increase from July-August), but a huge increase in buyer demand.  We’ve been writing about this for several months now, and in a few days we will publish our August report on Sacramento County’s real estate statistics.

Do you need a new web browser?  Probably most people are doing just fine with the one they have.  I happen to love Firefox 3.0, especially what they’ve done with the address bar and with being able to tag bookmarks, so I’m one of those people.  Others are using Internet Explorer version whatever-comes-with-the-computer and are none the sadder for it.

Then again, there are those of us who have to try every new thing that comes along, so with you in mind I’ll make an honorable mention of Google’s new Chrome Browser, that was just released today.  Although I don’t imagine I’ll switch from FireFox, Chrome has a few features worth noting. 

For one thing, the interface is very minimalist, giving you as much window space as possible for the site you’re viewing.  Like Firefox, the address bar integrates search so you can enter either a web address or a search phrase.  If you enter a search phrase you’ll go to your default Search engine — Google by default but it can be set to Yahoo or another engine.

One feature that’s gotten a lot of press and is somewhat interesting is the "Application Window" feature.  The idea is that — for web applications that you use all the time like gmail.com or other such sites — you can create an icon on the desktop that launches a super-minimalist window for that application.

For example, to create an icon to search Sacramento area real estate, first browse in Chrome to:

http://www.sacramento-home.com/Search.php

Then open up the page menu by clicking on the page icon in the upper right corner of Chrome:

Select "Create Application Shortcuts", then leave the default of "Desktop" selected:

When you click ok you’ll get neat icon on the desktop that brings you right to the search page every time!

Sweet, isn’t it?

Be the first one on your block!

Realtors® and home buyers approach the issue of home prices very differently.

It’s not that we’re not trying to do what the buyer wants us to do, which is get the home for the buyer at a good price.  It’s just that we tend to think different things have an impact on price than buyers do.  Because of this, we tend to ask different questions.  Certain questions come up again and again, and while you’re asking one question about price, your Realtor® is often asking himself very different questions.

First, let’s look at the mother of all buyer price questions.

How Motivated Is The Seller?

Buyers ask us this a lot.  This question is problematic on several levels.  First of all, every listing agent will tell you his sellers are motivated.    Certainly the listing agent is motivated to sell the house.  But the word gets thrown around a lot, and it’s hard to get at what "motivated" really means.  So what does the question really mean? 

To a buyer, the question seems to mean: "How much less than the listing price can I get the house for?"  Well, OK, that’s a fair question.  The answer has a couple of different parts.

Part of the answer is that you never really know until you write up the offer.   On television, real estate agents are always calling each other up and negotiating prices on the phone.  In real life, you’re better off actually writing the offer up.  This is partly because it shows the seller that you’re not just kicking the tires, that your offer is a serious one.  It’s also better to have the offer in writing because it shows the seller all the details of your offer.  For example, banks selling foreclosures are notoriously interested in cash buyers and buyers with very strong financing, so they know they can close the transaction and move on.  Writing up the offer out is a way to get all the terms on paper so the offer can be evaluated fairly.

The other part of the answer brings us straight back to the question:   How motivated is the seller?   Is motivation simply an abstract concept used by hungry real estate listing agents (and method actors)? 

What would be helpful is if we had a way to find out how motivated the seller is without having to rely on the listing agent.  And in fact, there’s an excellent way to tell how motivated a seller is, and this brings us to the mother of all questions that Realtors® ask themselves when they look at price.

How Does the List Price Compare to "The Comps"?

Let’s make up a neighborhood, and a house and a seller.  Let’s say it’s a 3 bedroom, 2 bath home, single story, 1700 square feet, built in 1980, and in the last three months homes built between 1975 and 1985 between about 1600 and 1800 square feet have been selling in this same neighborhood for $145.00 per square foot.  So on the basis of $145.00 per square foot, we expect this 1700 square foot home to be listed for around $246,500.  (i.e., 1700 x $145).

How motivated is the seller?  Bear with me.  We’re about to get to The Weird Result.

Remember we said that when the buyer asks "How motivated is the seller", she’s asking "How much less than list can I get this for?"   The Weird Result is this: the more motivated the seller is, the less you can knock off the price.

Why?

You see, a seller who’s really motivated lists the home worth $246,500 for $180,000 (for example).  Now if you were the only buyer in the world, that’d be fantastic news for you because you could just swoop down and grab it!  Unfortunately for you as a buyer, a seller who’s really motivated attracts a hoard of buyers because he prices the home according to his high motivation.  A seller who’s not motivated lists the same home at $285,000 and has a listing agent who writes "motivated seller" in the listing.

If the seller’s not motivated, you stand a better chance of knocking something off the price.  The seller with the listing at $285,000 may still be thinking $265,000, which is too high, but at least he’s willing to negotiate.  Chances are pretty good that that listing at $180,000 is on its way to selling for $200,000 (or some other arbitrary, higher than list price figure). 

So, How Motivated Is the Seller?

Psychology is fun, and trying to psych out your adversary in a negotiation has a lot of appeal.  And I do understand that it can feel like you’re not getting a good buy if you don’t knock $30,000 off of "the price".  If the seller motivation is a psychological rocket science, running the comps to come up with a market value is as simple as can be — and often tells you far more about what’s realistic in a given transaction.  The fact that a built in low price attracts more buyers is the reason behind the observation that there’s more "swing" (difference between list price and sale price) on non-bank-owned properties than on bank owned.  It’s also why we often see prices selling on average above list price, but this only tends to happen in areas where there are many foreclosures.

One of the hot spots for buyers in Sacramento is the Rosemont area (95826 and 95827).  More than twice as many homes sold this July (80 total) as a year ago in July (38 total).  Bank foreclosures accounted for 70% of all sales in July, with non-distressed homes making up 23.8% of sales.  As in most areas, the dismal bank acceptance rate of short sales meant that short sales came in dead last at 6.3% of sales even though they’re often priced very competitively indeed.

Sold price per square foot averaged $142.93 in July in Rosemont, down 33.1% from last July.  The average sale price was $206,844, down 34.6% from last year’s average of $316,313.

Needless to say, huge sales numbers help to fuel low inventory numbers.  Rosemont currently enjoys only four months of inventory, most of which are short sales.  There are currently 58 foreclosures, two foreclosures more than the 56 that sold last month.

Sacramento’s Franklin / Freeport area (95823) is one of the areas that’s been hit hardest by foreclosures in all of Sacramento County.  Like a poster child for mood swings, I remember once running comps on condos in 95823 and watching them double in value in six months during the height of the market in 2005.  Today the area is declining in value almost as fast.

From July to July, sold price per square foot fell a dizzying 43.4% in 95823, from $176.66 to $99.98.  Needless to say this is not just low compared to last year, it’s significantly less than the county average in July of $140.08.  At the same time, while demand in Sacramento County has increased some 116.2% from July to July, demand in 95823 has jumped 315.2% from 33 units in July of 2007 to 137 units in July of 2008– yet even with the huge unit volume increase of the past several months, the inventory sell off lags behind Sacramento County at 6.7 months (versus 5.3 months county-wide).

90.5% of the homes that sold in July in 95823 were bank owned, and another 5.1% were short sales.  Privately owned, non-distressed sales made up only 4.4% of the total and about 9.1% of active inventory.

Sacramento’s Churchill Downs Area, 95829, is an area where you can find good values on relatively newer homes.  Many of the homes here were built in the late 80s and through the 1990s, so the neighborhoods are established yet the homes don’t really feel dated.

Prices here have been hit hard, and the average sold price per square foot is running somewhat lower than the county average.  This July the average home sold for $133.59 per square foot, down 36% from last July’s average of $208.70.  With many foreclosures selling (only 12.2% of homes selling in this area were non-distressed), the ratio of selling price to listing price this July was 100.5%.  In other words, homes are selling on average for about $1,350 more than they’re listed for.  We’ve seen similar results for Antelope — another area with many recently built foreclosures and large numbers of recently built homes.

Though the absolute numbers look small since this is only one zip code with not all of the land devoted to high density use, demand this year has climbed 192.9% compared to last year, with 41 units selling this July versus 14 last July.

Sacramento’s Pocket Area (95831) has held its value better than the Sacramento County average, with fewer foreclosures.  That said, the area has still declined in value in the 2007-2008 period.

In July, the average home sold in the Pocket area for $388,500, up 4.5% from last year’s average sale price of $371,716.  This increase reflected a larger average sized home, however, so the net result in terms of price per square foot was a decline of 16.9% over the same period, from an average of $231.25 in July of 2007 to $192.13 in July of 2008.

Short sales and foreclosures together make up only about enough inventory for 1.5 months of sales in the Pocket area.  Overall, there are only 3.3 months of inventory in this area.

Non-distressed sales accounted for 65.5% of all the sales in July, with the one closed short sale accounting for a measly 3.4% of the 29 total units that sold, and foreclosures making up the remaining 31%.

The Natomas area of Sacramento includes the following zip codes:  95833, 95834, 95835, 95836 and 95837.  Like many areas, Natomas has been experiencing falling prices and increasing demand compared to last year, with the result that inventory is now fairly low by recent standards at about six months worth.  (6.8 months if you use the last 12 months absorption rate, or — because sales have picked up so much this year — 5.2 months if you use the past six months to get the absorption rate).

Last July, only 21.5% of all sales were either short sales or foreclosures in Natomas.  This July, that number has risen to 82.6% of all sales.   Approval and closing of short sales continue to be sluggish in Natomas, with only 6.8% of all sales closing in July being short sales — even though they currently make up 51% of active listings.  In contrast, REOs (bank owned foreclosures) accounted for 75.8% of all sales in July, yet make up only 25% of active listings.

In July, the average Natomas home sold for $132.93 per square foot, down 31.4% from last year’s average of $193.63.  The average sale price was down 28.8% from the July 2007 figure of $340,676, with the average home in selling for $242,496 in July of 2008.

The number of buyers for homes in Natomas has increased dramatically, almost tripling from the 73 homes sold in July of 2007 to a figure of 207 homes sold in July of 2008.

Related Links:

Homes Available Now in Natomas

Last Month’s (June’s) Market Report for Natomas

Property Listing Email Updates

About once per week I update the listings from Metrolist to my web site database.  This database serves several web site features such as my foreclosure listings, condo listings, and investment properties listings.

As time goes on, I’ve also started to write a number of proprietary reports to this database that help me publish my market updates periodically.

I write these reports month to month, but whenever I update the database I can’t help but wonder how we’re doing now.  This morning when I took my usual sneak peak, some of the numbers surprised me.

Prices Are Up, Non-Distressed Sales Are Up

First of all, average sold price per square foot rose slightly (1.7%) between July and August.  In July it was $140.48 per square foot, and so far in August it’s $142.98 per square foot.  We may see it dip again later in August (for some reason I’ve noticed the entries posted later in the month sometimes do this), but so far, so good.

The other interesting fact about August so far is that the number of non-distressed homes (as a percentage of all sales) was 22.2% in July, but rose to 26.6% in August.  Of course, if you know about the price increase, a shift away from foreclosures makes sense, because non-distressed homes are listed and sell higher.  The more interesting question is:  why is this happening?

Yes, I Do Feign Hypotheses (But I’ll Let You Pick Your Own)

I don’t really know why the data did what it did in August, but here are some possible explanations:

1. It’s a Fluke
   All the data’s not in for August, and by the end of August the data won’t look like it does now.  Much as I’d like to see prices turn around soon, this wouldn’t surprise me too much, since I’ve often seen the end-of-month data surprise me.  Most real estate bears will probably want to opt for this one more wholeheartedly.
2. The Market Recovery is Well Underway, and Prices Will Rise Steadily From Now On
   I don’t really believe this, but I do believe the next one.
3. The Market Is Close To Reaching Price Equilibrium
   I don’t expect the market to suddenly start rising after falling for so long.  What I do expect is several months where the market just sort of sits there and behaves ambiguously — rising in one month and falling in the next.  So, for example, declining foreclosure sales in August means more foreclosure inventory available in September, so we may see prices fall again in September.Moreover, we’ll probably also see some more seasonal drops in the winter months even if we have already entered a more or less steady increase in prices.
4. Foreclosure Inventory Got Low After the huge sell-off in March to July.
   I think this partially accounts for the increase in sales of non-distressed homes, but only when coupled with the next point.
5. The Most Motivated Non-Distressed Home Sellers Are Starting to “Get It”
   The market has now been down enough, long enough, that more and more sellers are starting to understand that they need to get pretty competitive on their prices or their home is just going to sit there.

To some people who aren’t in the business, this talk of real estate inventory can sound a little weird at times.  It’s not as if we have shelves with houses on them and we can order new ones from the factory, and I can personally guarantee you that no temporary workers are running around the streets with little handheld barcode scanners looking at the open house signs.

Still, real estate inventory is a key concept that helps us to understand how the market is doing.

What is Inventory

Inventory is simply the number of homes that are for sale now, expressed in terms of the average number of homes that sell every month.  Sometimes we call the number of homes that sell every month the absorption rate.  To get the absorption rate, simply pick a time period (the last six months, for example, or the last year), and divide.  If 120 homes sold in the last year, then the absorption rate is 120 divided by twelve, or ten homes per month.  So, in that same market, if there are 30 homes for sale, then the inventory is 30/10, or "three months of inventory".

By now you may be thinking, ok, that’s fine, number of homes for sale divided by the number of homes that sell every month.  That’s great, but why should I care?

In the first place, inventory gives you a snapshot into the state of the market.  For example, did you know that the traditional definition of a seller’s market is one that has less than six months of inventory, whereas the traditional definition of a buyer’s market is one that has more than six months of inventory. 

More concretely, inventory is also an expression of how much competition there is with you when you’re buying or selling.  Let’s say you’re selling, and you’re looking at homes that sold like yours and trying to see where your home should be compared to the average.  In that case you can generally get a higher price for your home if there are two months of inventory than if there are twelve months of inventory.  Conversely, if you’re buying, twelve months of inventory gives you more leverage with your price, but if there are two months of inventory, be prepared to be in a bidding war.

Finally, looking at the inventory numbers can tell you which way the market is moving.  For example, in Sacramento County, generally inventory is falling at present, which is partly seasonal and partly the result of the huge upsurge in demand in 2008 over 2007.

So knowing the inventory numbers can help you understand not only where the market is now, but where it’s going!

Carmichael and Fair Oaks are established Sacramento County communities to the east of the City of Sacramento.  Both typically demand slightly better than average prices, and have lower than average foreclosure rates.

Of course, in this market, lower than average doesn’t work out to be low in absolute terms.  39.6% of the sales in Carmichael in July were bank foreclosures, and 9.4% were short sales.

The average home that sold in July in Carmichael fetched $305,353, down 26.7% from last July’s average selling price of $416,588.  Sold price per square foot is down 23.3% during the same period, with the average home sold in July, 2007 working out to $241.69 per square foot, versus $185.40 per square foot in July of 2008.

Demand for Carmichael homes is up from last year, with unit volume rising 47.2% from July to July.  There are approximately six months of inventory in Carmichael.

Along with East Sacramento (95818) and downtown (95814, 95816), Sacramento’s Land Park area commands prices over $300 per square foot.  Until recently, the low foreclosure numbers in these areas had kept prices high.  What we’re seeing now (for the most part — Downtown being an exception this month) is that these areas have slowly falling prices and somewhat sluggish sales compared to last year.  In the case of Land Park, however, the declining sales have not yet seriously hurt the inventory figures, which are a comfortably low 4.2 months.  This is true even though the figure for unit sales in July (13 homes) is only half that of last year’s 26 units sold.

This year’s average home sold for far less than last year’s but because it was (on average) much smaller, most of that drop is an artifact of the difference in size.  Thus, average sold price fell 29.1%, while average sold price per square foot only fell 5.6%.  The average home sold this July in Land Park fetched $402,146, or $313.20 per square foot.

Bank foreclosures made up only about 8% of the sales in July.  Along with short sales they comprise about 20% of the active inventory in Land Park.

Does real estate have “fun facts” — or is it just arcane trivia?   Well, either way:  did you know that — along with downtown — East Sacramento boasts the highest sold price per square foot of any local area, including Granite Bay and El Dorado Hills?

Up until recently, this fairly pricey community seemed immune to the price erosion in the rest of the area.  In the last few months, however, we’ve sometimes had to report price drops for East Sac.

In July, for example, the average sold price per square foot in East Sac was $324.61, down 12.5% from last July’s average of $370.84.  This year’s average East Sac home was about 1557 square feet in size and sold for $505,656.  This average selling price was down 7.3% from last July’s average of $545,422.

With homes in East Sacramento selling for more than twice the price of homes in surrounding communities, demand for homes in East Sac has slackened from last year, with unit volume down 33.3%.  While most areas have seen huge demand and falling inventory fueled by bargain foreclosure prices, East Sac’s inventory has actually risen over time.