Sacramento Real Estate Blog

Here’s a Short Version of This Article

At least part of the dramatic drop in price that we reported for Sacramento County for first quarter of 2008 is a result of the fact that the cheaper homes are selling better, not the fact that individual homes have fallen as much as the overall average.

Here’s the Long Version

The nice thing about being an surly old bastard is that at some point you begin to care a lot less what people think of you, unless it’s someone with a gun pointed at you, or someone who might make you dinner. 

And so it is that I know that there’ll be those in the Chicken Little Subculture who’ll see this article as an attempt to minimize the bad news coming out of Sacramento County, and I am blissfully indifferent.

Let me be clear:  the real drops in value that we’ve seen in Sacramento County, Placer County, and El Dorado County have been fairly substantial.  Ask anyone who bought a home in 2005 and is selling one in 2008 — that’s not a great position to be in.  Of course, if you bought in 1996 and are selling in 2008, you’re probably kicking yourself for not moving in 2005, but other than that you’re sitting pretty.

So accuse me of minimizing the drops if you want, but I want to re-examine the numbers that came out in my last Sacramento County real estate market update in light of this other update that I did for Placer County.

The Problem With Averages

There’s always a problem when you aggregate data about a population.  On the one hand, you can’t analyze statistical data at all without more than one data point.  But the fact that the average man in America is 5′ 10″ tall (or whatever the average is this year) doesn’t mean that YOU are 5′10″ tall.  This much is obvious.

One of the interesting things I found out in looking at the Placer County numbers was that part of the reason for the roughly 30% price drop in the county was that the places where prices had fallen the most were selling more, so the higher priced homes were underrepresented.  In Lincoln, for example, home prices fell by 35%, and made up a bigger percentage of the total sales Placer County in 2008 than in 2007.  Meantime, Granite Bay, where prices fell only 9.2%, made up 8.8% of the total sales in Placer County in 2007 but only 4.1% of the total in 2008.

Looking at some of the areas we’ve considered in Sacramento County, the same sort of thing appears to be happening.  In Elk Grove, sold price per square foot fell 32.3% from year to year;  volume went up in Elk Grove by 19.8%.  In Folsom, in contrast, sold price per square foot fell more moderately (11.7%); unit volume went down in Folsom by 38.1%.

So what we’re seeing in Sacramento County is the same sort of thing I talked about in Placer County.  Prices have fallen dramatically, but only part of that drama comes from actual drops in the value of individual houses, and the rest is made up of the fact that the homes that have fallen more dramatically are selling better than those where the value has held on better.

It’s the fourth of the month, and that means that all good real estate brokers who don’t want to get fined $100 by the MLS have entered their sales data for the month of March into Metrolist.  This means we can start digging into the data for the first quarter in earnest now.

In the first quarter of 2008, 3,011 homes sold through the MLS in Sacramento County, a 4.6% increase in unit volume from the first quarter of 2007’s 2,879 units.  No doubt this reflects buyers taking advantage of the bargains that have happened as more and more foreclosed homes come on the market. 

Prices have fallen substantially over the last year.  Here’s a table that breaks the numbers down:

Indicator	Q1 2007	Q1 2008	Decline
Average Sale Price	$381,143	$268,867	29.5%
Median Sale Price	$345,000	$250,000	27.5%
Average Sold Price Per Square Foot	$224.86	$159.47	29.1%

What’s Selling, And What’s Available

I’ll be publishing an article shortly where we analyze the data from one community, Elk Grove, in terms of how many non-distressed homes are selling versus short sales and foreclosures.  If you want to see that when it comes out, please subscribe now.

We’ll probably do a similar analysis for all of Sacramento County, but to whet your appetite and show the numbers a slightly different way, let’s show how many months of inventory there are for short sales, foreclosures, and non-distressed sales, based on the absorption rate for the last three months.

Sacramento County Real Estate Inventory By Type

Here’s a table that breaks it down, but you can read the text below to see how we got the numbers:

Type of Home	Unsold Inventory
Bank Foreclosures	4.4 months
Overall Inventory	9.6 months
Non-distressed (Neither short sale nor foreclosures)	10.5 months
Short Sales	52.8 months

There are 9,661 homes in inventory (for sale) right now, and 1,004 homes sold per month for the last three months.  Overall, then, there are 9.6 months worth of inventory (i.e., 9,661 divided by 1,004).

Of course, how much inventory there is varies widely by type of sale.

3,494 non-distressed homes are currently available in Sacramento County.  (I use “non-distressed” to mean sales that are neither short sales nor bank owned foreclosures).  333 non-distressed homes per month sold in Sacramento County over the last three months.  Inventory for non-distressed sales, then, is 3,494 / 333, or 10.5 months. 

For foreclosures, which are selling like foreclosed hot cakes, the inventory numbers are much lower.  Some 605 foreclosures sold each month during the last quarter, so the 2,633 foreclosures currently available represents 4.4 months of inventory.

Short sales are just the opposite of foreclosures, because they sell like crusty old hot cakes that nobody wants to eat, because the bank may or may not approve your syrup.  Currently there are 3,535 short sales in inventory, and a whopping sixty-seven of such homes sell each month in Sacramento County.  Dividing again, we get 52.8 months of inventory.  Yes, short sale fans, that’s about 4.4 years.

A reader recently emailed and asked: “Hi, I was wondering if your web page ‘New Houses In Sacramento’ is up to date since I saw them pretty much the same for more than a month.”

OK, busted.  Actually those of you who’ve been reading the blog probably know the answer to this question because periodically I talk about it, but there are actually two sources of listings on this web site.  If you go to the search page, you’re going to have access to listings that are updated once each day, so it’s almost as current as what we Realtors have access to in the MLS.

If you look at some of the other pages where we just have page after page of listings, such as the new homes pages, the condo pages, or the foreclosure pages, you’re looking at listings that are also from the Metrolist MLS, but that are updated manually, so they sometimes get a bit stale.

One thing I would take issue with this reader on length of time involved in this particular case, which has “only” been two weeks.  Yes, I realize, in Internet dog-year time that’s “more than a month” — it’s practically an eternity. 

Time for me to do another round of updating, it looks like.

Greetings, market statistics fans!  Straighten up those pocket protectors and hang on to your slide rules, because it’s time once again for us to catch up on our REM sleep with yet another thrilling installment of our never-ending saga:  Sacramento (County) Real Estate Market Updates!

And the crowds went wild.

The good news:  905 units sold in February, up some ten per cent from January.  Unit volume was even up marginally from last February — and, yes, this still holds true when you adjust for the leap year.  February’s unit volume was the highest since last July, when 977 units sold.

The average home sold for $273,603 in February, up slightly over January’s average of $269,301, but down 29.9% from last February’s average sale price of $390,043.  The median sale price of $249,000 was down 29.2% from last February’s median of $353,000.  Sold price per square foot is down 28.8% from February to February, at $162.76 this year versus $228.63 last year.

The 905 units that sold in February is not bad for a late winter month where the average over the preceding twelve months was 968 units per month.  Currently there are 9,866 homes on the market, which works out to be 10.2 months of inventory.  33.9% of the homes in active inventory are short sales, but as we’ve reported earlier and a variety of our colleagues in other markets have reported since, the closing rate for short sales is much lower, at 6.6% in February.  Bank foreclosures (REOs), in contrast, make up 28% of the current active inventory (2,763 of the 9,866 available units), but in February they accounted for 59.2% of the homes that sold in Sacramento County (542 out of 905 total sales).

Short answer for the median priced home in Sacramento County:  $8,150 up front, plus $1,835 per month.

Read on for the longer answer.

If you’re buying a home (in Sacramento or anywhere — even, God help you, Boise), naturally you want to know what it’s going to cost.

In this article, I’ve taken the median priced Sacramento home and worked out how much it would cost you to buy it, and when you’d be paying what.  We’re going to be buying a $255,000 home, which as of a few weeks ago was our median selling price.

What I’ve tried to do in this article is put together a scenario that is:

• Accurate given current rates and information.
• Doable.  By doable I mean you won’t have to pitch lowballs all day in the hope that someone will bat your home out of the park, or write an offer using a program that wouldn’t work on a bank foreclosure.  (Most of our buyers are interested in foreclosures because of the savings).  In other words, I’m presenting you with what I believe is a reasonable scenario for an offer that stands a fair chance of getting accepted and that will actually close.

I’ve also tried to estimate high on some of these costs such as inspections, which may be $25.00 or so cheaper in some instances than I’m quoting here.  In any case all numbers are estimates, so actual numbers may differ.

For our scenario, I’ve assumed you’re going to get the seller to pay  your closing costs, but you’re going to be bringing in a 3% deposit for an 30-year, fixed rate, FHA loan at 5.875%.  Actual rates and APRs vary, but that’s approximately what we’ve been seeing lately.*  The 3% can be gifted, so if you don’t have savings, you can purchase a home using that perennial favorite — the same program my wife and I used — PDPMAP.  (Parental Down Payment Mooching Assistance Program).

OK, so what will you need in the way of cash, and when?

When you write your offer:   First, you’ll usually need $1,000 for a good faith deposit.  This amount is not set by law, but rather by local tradition.  Some bank owned properties require a 1% deposit (i.e. $2,550), but unless that’s the case, I usually recommend a $1,000 deposit.  Whatever the amount, you’re going to write a check to the title company when you write your offer and give it to your Realtor® — we send a photocopy of the check to the listing agent when we submit your offer.  The check itself is held in the file uncashed until your offer is accepted, then it is cashed by the escrow company.  When you close escrow, it’s credited toward either your down payment or closing costs.  If you cancel the escrow during your inspection period, you get your deposit back. 

While you’re in escrow:  Once your offer is accepted, there are a few more costs, including an appraisal ($400), a pest inspection ($100), and a whole house inspection ($400).  For all of these, you’ll typically need a check up front, but the cost of the appraisal will be credited back to you in escrow.

Closing Escrow:  Remember our scenario. There are a number of closing costs, but we’ve asked the seller to pay those.  We need a 3% down payment, but we’re getting a credit for the good faith deposit and the appraisal that we’ve already paid.  Three per cent of $255,000 is $7,650, but with the $1,400 credit, our remaining cash to close is $6,250. 

In other words, between the point when you wrote your offer and when you got the keys to your house, your total cost was your $7,650 down payment plus your pest inspection and whole house, for a total of $8,150.

Monthly Payment:   

Because you’re financing a fairly high percentage of the cost of the home, your lender is going to want you to use an impound account to pay your tax and insurance.  You’ll also be paying principle and interest, plus MIP.  MIP, or Mortgage Insurance Premium, is the FHA equivalent of PMI — it’s insurance you pay because you’re borrowing a large percentage of the cost of your home.  (Once you’ve paid down your mortgage to 78%, the MIP is canceled).  Your total estimated monthly payment for all of these (Principle, Interest, Tax, Insurance, and MIP) will be $1,835.

So there’s how we got to our answer.  The median priced home in Sacramento costs $8,150 up front and $1,835 per month.

For those of you who would like a bit more detail on what we mean by closing costs, the following is a somewhat more detailed version of what we just went over:

Purchase Price		$255,000.00
Costs needed prior to close
Good Faith Deposit	$1,000.00
Whole House Inspection	$400.00
Pest Inspection	$100.00
FHA Appraisal	$400.00
Total needed prior to escrow		$1,900.00
Loan Related Charges
Tax Service Fee	$70.00
Wire Transfer Fee	$50.00
Processing Fee	$495.00
Underwriting Fee	$795.00
Flood certificate	$13.00
Total Loan Related Charges		$1,423.00
Title Related Charges
Recording Fee	$75.00
Escrow Fee	$328.75
Documentation Fee	$50.00
Notary	$60.00
Courier	$50.00
Email docs	$75.00
Alta Title Policy	$475.00
Total Title Related Charges		$1,113.75
Pre-paid Reserves
Tax (6 months)	$1,593.75
MIP (12 months)	$618.38
Hazard Insurance (12 months)	$865.73
Total Pre-paid Reserves		$3,077.86
Subtotal Closing Costs		$5,614.61
Credits to buyer for costs paid already
Credit ($1000 good faith deposit)	($1,000.00)
Credit (Appraisal fee)	($400.00)
Total credits to buyer		($1,400.00)
Total Closing Costs		$4,214.61
Closing Costs Credited by Seller		($4,214.61)
Total Closing Costs		$0.00
Paid Prior to escrow and not credited
Whole House plus Pest Inspection		$500.00
Down Payment (3% of purchase price)		$7,650.00
TOTAL CASH NEEDED BY BUYER		$8,150.00
(May be gift from relative etc.)

 

* This is an estimate from a Realtor — not an offer to lend.  We use independent lenders.  Please consult a lender for accurate APR information.

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

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

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

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

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

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

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

It Pays to Subscribe

We’ve started to write about the valuable discounts we provide on our real estate services that are available only by subscription to our blog / newsletter.  In the future we may also be offering additional discounts and prizes that other merchants may provide, and other incentives to subscribe.

The point here is to develop a stronger readership of local people who may be interested in real estate, not to trick you into giving up your email address.  I don’t sell email addresses, and no one so far has found themselves stuck in a home because I spent my days emailing “buy a house, buy a house, buy a house” to my unsuspecting victim.  These discounts and other incentives will also be available to those who subscribe to the feed in an RSS reader.  (What the heck is that?  We’ll have a tutorial coming soon).

Today we’re taking our first step toward implementing this by installing the software that will show you these discounts if you are subscribed.  At the moment we’re still in a testing mode to see if the plugin is on and putting together our first discount offer(s), but if all goes as expected (he said, crossing his fingers) we should be able to announce that our subscribers-only discounts are live within a post or two.  Meantime if you subscribe now you’ll get these discounts when they’re ready. 

No, that’s not shamelessness.  It’s “transparency”.

Related Articles

New Subscribe By Email Feature

I am pleased to announce that we are now offering you two ways to subscribe to the Sacramento Real Estate Blog (see the form at the left).

The subscription form says “Weekly” but please note that for subscriptions processed before October 15th, you may receive messages more often. We’re in a testing and roll-out mode, so we have it set to send messages more often.

For those of you who don’t want to mess around with RSS readers, or don’t know what one is, or don’t care what one is, you can now subscribe via email to get the latest Sacramento real estate news, including market updates, tutorials, the latest real estate bargains, and many new features that we’ll be rolling out in the weeks ahead.

After that, I think weekly is a good schedule. Leave me a comment and let me know if you prefer weekly, daily, monthly, what have you.

After all, we think most buyers and sellers will benefit from a more email-friendly approach, since RSS stands for “Realtors Sure Subscribe”.

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