Tuesday, November 27, 2007

Sacramento Regional Real Estate Trends for November 24, 2007

The year-end is fully upon the real-estate market in Sacramento, with all the indicators either at or past their peaks for the year. Even the sellers in trouble indicators seem to have topped out, including raw inventory, percent of market, and dollar amount:

About the only thing that hasn't topped is average SIT percent loss:

SIT condition aside, the year-end impact is most evident on the weekly change and four-county inventory data. Guess the Realtors are too focused on the CanTree to do any new listings. :)


patient renter said...

As they say (every year), the market will certainly be better in the Spring. Best to wait it out :)

... said...

Does you graph show a YOY increase or decrease in inventory? - looks very close.

Anonymous said...

Max, this if very interesting news. It indicates we may be seeing the bottom. Now the most important question remains: If the economy falls into a recession, will the housing market take another downturn? It is very hard to tell if the light at the end of the tunnel is the breaking dawn, or an oncoming train. Patient Renter has it right. The results in the spring will tell the story.

That being said, I bought a new house last month. The house I was renting was foreclosed by Wells, so I bought a nicer one in a better area from GMAC's REO inventory. My after tax cost is roughly equivalent to my old rent, except for the $300/mon Mello Roos. The market may drop some more, but I am pleased with a premium lot, nice upgrades and I control my own destiny, with a good job and 24 months of cash reserves.

I suggest the bottom will be long and wide, given the uncertainty in the economy. However, it could bounce back rapidly if interest rates stay low, inmigration continues and there is employment growth. It is a tough call.

I really appreciate all your work here. I almost bought in 2005, but for your and Ben Jones' work. I would have been upside down by $300,000 today.

Josh said...

Does you graph show a YOY increase or decrease in inventory?

Believe it or not, we're actually running about ~4% below last year's levels for the end of November.

Josh said...

I really appreciate all your work here. I almost bought in 2005, but for your and Ben Jones' work. I would have been upside down by $300,000 today.

Congratulations! I try really hard not to give an opinion one way or another on the "should I buy" question; while I've seen no evidence of a bottom (inventory always drops off this time of year, and asking and sales prices are still falling), there are houses priced "ahead of the market" that you can get a good deal on.

Some interesting regional pricing abnormalities are beginning to show themselves in places like Elk Grove and Natomas, where houses are still being priced according to what is owed on them (vs market). Call it the refusal of owners to "mark to market". In these areas, it might be possible to get something on the cheap from a bank (like you did), since the comps are so spread out they're nearly worthless.

Like I said, more on this later.

Anonymous said...

bubble sitter, it isn't hard to tell if we've reached a bottom. We haven't. Not even close. We havn't even reached capitulation yet, much less a bottom. This isn't meant to bash you in any way, as your particular situation sounds decent. I assume you got a regular 30 yr. fixed and not a suicide loan.

CR has some excellent work on the topic of where we're at in the cycle compared to past cycles. The next two years will be the worst for price declines. Then we're looking at another 3-5 years of smaller percentage declines until the bottom has been reached.

I'm sure a lot of people (both buyers and sellers alike in some cases) are just wanting to get all of this mess over with but unfortunately, capitulation takes a long, long time.

When I start seeing houses prices across the board for roughly the same as rent using a traditional 30yr fixed, then I'll know we're close. Then there's the whole issue of mean reversion and collateral damage (recession) which will take the price even below that for a time. Some areas (especially El Dorado County where I live) are still about 50-60% over-valued in terms of the ask prices. Amazing but true.

At least there are a couple of houses in El Dorado Hills for less than $350K. Granted they're dumps and are only worth about $200K based on rents, but it's a start. And no I don't live in that crap-hole of a town, I was just using it as an example.

Anonymous said...

Also, related to the issue of house cash-flow valuation, rents are actually getting lower as well so this is somewhat of a moving target. My landlord just offered me a $300 discount (at no prompting on my part,) citing issues with the economy and wanting to keep a good renter.

Therefore, that crap-pile in Eldo I was referencing that maybe cash-flows at $200K today, may only cash-flow at $150K next year and must be priced accordingly to avoid bubble-pricing dynamics (ie, price above what underlying valuation can support.)

Anonymous said...


I agree with your assessment. The median and the averages will trend much lower. However, there are instances today where specific houses can be purchased for far below the median and the averages. I got my 3200 SF house for just under $400,000, or $125/sf. I was renting a lesser house for $2,100/mon. My fixed rate 80% LTV, 30-year loan with PITI, Bonds, & HOA (club, internet, front yard maint., etc) runs me a total of $2650/mon. My effective tax bracket for fed and state is 25% + 7%, but my top bracket is 35% + 9%. Not all of my PITIBHOA is deductible, but most of it is. calculating a 6% return on my 20% equity, and using my tax bracket, I am equivalent to renting, yet control my own destiny. I also bought the "pick of the litter" in the subdivision with many premium features. I believe I am at or below reproduction cost.

The house sold for approximately $700,000 in late 2005 to a flipper from the bay area, using his aunt's FICO and a liar loan.

There are specific deals out there that are starting to make sense.

I also believe the market may deteriorate further and rents may drop more. Certainly, construction costs are dropping. I invested 2 1/2 years tracking the market and looking for deals that met my goals. It is possible, even probable this purchase could be duplicated in a year for less money. In that case I will dollar cost average into the decline if they make sense. I am looking to buy more houses as a long term investments with positive cash flow. If they don't get there, I will just stay in T-bills and stocks.

It is an interesting time with many challenges and just as many opportunities. Thank heaven for people like you and Max for helping us understand it.

Sold in '05- Bought in '09 said...

I posted this over on Lander's board but would like to see if anyone here has any input. Thanks.

New Construction Homes- Tax Value VS. MLS Sales Prices.

Due to mounting distress in the builder world, we were considering putting some very lowball offers in on some homes in the WestPark area in Roseville, so I did some research to find out what really is "LOW", what I found has really shaken me...

Can anyone explain why the "sold prices" listed on SacBee's MLS would be WAY WAY WAY higher than the assessed values on the Placer County tax bills for new homes being built and sold in the WestPark development in Roseville?

Now, I'm not misreading these tax bills, they are carrying private individuals names, and have values assigned to both the land and the structures. I looked them up because they were all houses that we had seen earlier in the year and I knew that they had been sold and were being lived in.

Some of these MLS selling price vs tax bills are showing more $200000 difference. My examples are in Lennar's Laureate subdivision but I've found similar mismatches in other subs that have updated tax bills available in WestPark.

If you look up properties at 101, 109, and 117 Allimore Ct, Roseville, 95747, the assessed tax values for land plus home are $390,660; $353,940 and $340,680 respectively. MLS shows the sale prices at $683,509; $542,000 and $527,000 also respectively. Two were sold in late April and one in late June this year.

Do the incentives the builders give not show on MLS sales price?

Are the tax bills reflecting the "true" sale prices?

If the tax bills are the actual price the buyers paid, then the builders have cut prices MUCH further than anyone believes and are hiding the true numbers from the MLS as well as all other data miners therefore masking even bigger losses in values.

Anyone help me out on this, is it a tax scam or should I start dropping offers $250k below list?

Anonymous said...

Sold in 05,

The official 2007 property tax records will not be changed until next year to reflect the new purchase price. Each homeowner gets a supplemental tax bill after they close escrow, but before the next year valuation. The 2007/2008 tax bill will reflect the new purchase price.

101 Allimore sold for $683,500 on 4/2007 with two loans: $546,400 & $34,150 from Universal American Mortgage(85% loan). I can not tell how big the house is.

109 sold for $542,000 on 6/2007 with a loan of $433,000 from Universal (80%). The house is 3042 sf for a price of $180/sf.

117 sold for $527,000 on 4/2007 with two loans of $417,000 & $24,900 from Universal(85%). The house is 2659 sf for a price of $200/sf.

In my opinion, all of these transactions are now upside down in the market place. The loans exceed the values. Universal American Mortgage is at huge risk.

On a side note, I was talking to a lender the other day who could not believe the settlement statements she was seeing from the public builders. Many times, the buyer was getting $150,000 cash back from the builder "to use for anything they wanted." So it is hard to tell if the above buyers participated in such a scheme. So you still may be correct in wondering if some real lowball offers will work. The builders net the same $s and eventually all the cash back fraud will end. Right now, the builders are still trying to preserve the high prices in case they still find idiots with "a bucket of money and box of stupid."

... said...

Yes, some buyers and sellers have chosen to explore the bottom ahead of the curve.

The garbage on the market will continue to pull down the averages and medians for a few years until the good stuff is gone and the garbage is gone thru.

The speed of information has increased the ability of sellers and buyers to find those numbers - builders and some private resellers are ahead of the curve, ahead of the bank-owned sales prices.

Heard Armstong and Getty yesterday say - "my home can't get any lower than the price of the 2x4's . . I'll part it out. . " definately some truth to that.

Anonymous said...

bubble sitter,

You waited until the numbers made sense and THEN you dove in. I have no doubt that whatever I wind up with will make sense, just as your deal did. A nice house of 3,200 sf with all the upgrades for under 4 bills sounds like a fair deal to me. Now that same house at $700,000 makes absolutely no sense, if the rent on a similar place is $2,600.

There's a funny thing about mean reversion. Houses may actually drop UNDER their intrinsic value for a time, perhaps even under the cost to build, but this won't last long and I won't pretend that I will be able to exactly time the bottom. This will be around the time that everybody will say stuff like "RE sucks and is a terrible investment." Then I'll know that I should be buying up every house I can get my hands on, LOL!

Where I live right now, I'm paying $1,300 rent, and yet the landlord believes the house is worth $500,000 and would list it at that should he try the market again. He really can't be blamed for this tunnel vision because he sold the house next door for $470K a couple of years ago, and its similar in design, size, and age. Obviously, based on the numbers we're discussing, my house is worth no more than $200K, which would make the deal similar to the one you got. And I'd probably buy it for that. Ultimately, I'd like to pay all cash for a house and not get a loan at all, that's my goal.

Now, if you're talking investment properties, these REALLY have to cash flow properly. I haven't seen any investment-worthy properties in years, at least not single family residence stuff. That's not to say that it won't ever happen again, but it could be a long, long time before you see houses that are a real solid investment. You have to put appreciation out of your mind totally, and just look strictly at the cash-flow.

Anonymous said...

"...I haven't seen any investment-worthy properties in years, at least not single family residence stuff..."

We are getting close. $319,000 for 2900 SF in Placer County. Not a bad location and would rent for $1900/mon. When it gets to the mid $200's, it could cash flow nicely with a 10-year interest only fixed rate loan. It could happen in the next 6 months.

Anonymous said...

"...In my opinion, all of these transactions are now upside down in the market place. The loans exceed the values. Universal American Mortgage is at huge risk...."

Universal American Mortgage: Owned by Lennar!

There seems to be a fox in the home buyer hen house. Now I see how those buyers may have been so willingly over financed!

From Lennar's web site:

When you buy a home from Lennar, you can take comfort in knowing that our Lennar homebuilding, mortgage and title Associates are skilled at working together to ensure ease and security through each step you take toward homeownership.

Universal American Mortgage Company (UAMC)

Universal American Mortgage Company’s dedicated Team of professionals is committed to helping our Lennar Customers achieve their dream of homeownership. UAMC is a full service mortgage banking Company with caring Associates to serve your financing needs. They are there for you from loan application to closing – monitoring the mortgage market and delivering the right product to you at the best possible rate. UAMC offers the understanding, expertise and resources to ensure that your home loan is approved and closes on time.

Wow, if the home builder controls the sale, the financing and the title company, they can do anything they want! I believe this is a formula for disaster.

Anonymous said...

Depending upon how bad credit availability gets, it may become a situation where only the very best borrowers can get a loan at all (FICA 800+ with good down payments, job history, no lates or BK, etc.) In this scenario, RE prices may fall far below rents, as even those that have the money to buy a house from a monthly nut perspective, can't because their credit isn't good enough. That would be an ideal situation for those that have some powder dry and good credit to really mop up - a landlord's paradise because you're holding all the cards. On the flip side, one thing that has to improve is the number of vacant properties and the extreme overbuilding that the HB's have been engaged in. It's hard to imagine very high rents while there are so many unnocupied houses, so we've got a couple of different deflators working against each other here.

This is what I'm waiting to come together in terms of investment properties. I don't have quite as strict requirements for my own personal residence as I wouldn't view that as an investment, just as a place to live. In other words, I see myself buying a house to live in well before I buy any rental properties. Based on current trends, investment properties will really look good in about 4-5 years, assuming the recession doesn't turn into something much worse, which is a real possibility.

Josh said...

Universal American Mortgage: Owned by Lennar!

I think this was common practice among the builders. In fact, the incentives and "discounts" were often only available to buyers who used the in-house lender.

JTS was another abuser of this method.