Friday, May 02, 2008

April Sac County Stats

April had a big surprise for us in terms of the number of sales. We're closing in on 2,000 sales and will undoubtedly be there by Monday once all the procrastination is finished. Still plenty of short sale and REO action though. Inventory is holding steady as well, even with the uptick in sales.


27 comments :

Deflationary Jane said...

Could anyone look up 2304 Halsey Circle in Davis 95618 in the MLS or on Freclosures.com? Did it sell recently or is there a big tax lien on it?

Sippn said...

Thanks for pointing it out!

# months inventory stands at

Short Sales.........25 months
REOs................2.6 months
Non distressed......4.7 months

Real working numbers are probably shorter than this as REO pendings are higher than number of REO listings, etc.

I imagine that legitimate short sales ... the ones that really have bank approval, are actually moving quickly, but that may be only 10% of the 3600 short sale listings. Even if all those SS became REOs today, it would only increase the REO # months to about 6 months inventory, fairly balanced.

DJ - tax liens can go for 1-2 years before the lender gets nasty and in this market, the lender would probably wait until they weren't getting paid.

AgentBubble said...

2304 Halsey - Withdrawn on 12/18/07 @ $389,900.

Anonymous said...

Sippn, question for you. It seems like you are a glass is half full type of guy with regards to the real estate market. How do you arrive at a reasonable price for something you pay? Do you have a rate of return you are trying to meet when computing your return on cash? In looking at a number of properties I am still not finding cash on cash returns of say 7% when putting 20% down. I don't see any other way of validating an investment other than "hoping" for price appreciation only. Which I don't view as a viable investment strategy. Most resedential and commerical real estate returns come from the cash flow, which is why I'm struggling with the cap rates on Sac. comm. and very little if any cash on cash return for resedential.

Sippn said...

Ah but they do rely partly on appreciation. In commercial (which I am not involved) if not appreciation of the property, then rent increases. Look at the long term history, its always there.

I knew a guy in res rentals about 8 years ago (pre-bubble) kinda hippyish spent his day tending his rentals and smoken' pot. When the rates dropped, he refied' everything and gave himself a $6K per month raise. Not bad for 2000!

Nothings guaranteed. If you want safety, put your money in a 1.25% CD.

Most of the blog crowd keeps looking at 1-2 year outlooks. The home I bought in '97 had a payment of $870. Would rent today for $2500. The appreciation was great but look at the rent increase shield.

Many of the rental investors you are competing against are going in all cash, financing later. WHy? They're looking at a stock market that lost 8% in the past 6 months and is predicted to continue losing for awhile. 0% is better than that.

Anonymous said...

Sippn, I'm curious as to the median priced home in 1997 in the area you invested in relative to the median income. If in sacramento, it seems as if you bought at nearly the bottom. If we use the metric, median priced home/median income, or the percentage of the population for a given area that can buy the median priced home given conventional financing we are not near the bottom. Obviously, a perfectly normal market would be where 50% of the population could afford the median priced home.

Might you shed some light on why we are near 1997 valuations. I am using the data from this site for my information.

http://www.nahb.org/fileUpload_details.aspx?contentID=34325

Perfect Storm said...

No one knows for sure when the Alt-A implosion will happen, or how much damage it will ultimately cause. But the experts do agree on one thing: The Alt-A fallout will make the subprime situation seem like a minor chimney fire.

Oh if it were that easy to just gobble the existing foreclosures and everything can get back to business as usual. Were headed for the Alt-A perfect storm and it will be nasty.

Were right on track for a 50% decline by 2009.

Perfect Storm said...
This comment has been removed by the author.
Sippn said...

PS - the opinions vary wether alt a will be worse than subprime.... the first one I clicked on said it wasn't as bad...lead me to a credible non blogger(non anonymous) source?

Anony - I'm not doing all the in depth analysis - looking at gut feel as you cannot possibly figure out all the variables...looking at the luck our PhED has had, etc. (I'm an MBA, done a lot of IRR and econometric forecasting)

Held my prior 3 homes 5-10 years each, sold 2 post peak and left 20-30% of peak gain on the table, but each doubled from purchase to sale. Each fairly close into town, 15-20 minutes commute today. First one in a mature tract, the other non tract - none subject to areas of rapid growth and overbuilding. Last 2 between the freeways, the north east area wedge.

One economist I've found here is Paul Krugman on the two Americas.

RE follows those trends you allude to, but are you going to spread your risk around the market? Like and S&P index - Hell no. If you're only going to buy one, why not look where its closer to better stable employment, good schools, etc. instead at the end of the road, school 1/2 funded....just my thoughts.

Why are there professional gamblers if the house always wins "on average"??? because they study the game and don't place fools bets.... normally.

PS - I have to credit you with some accuracy - I did not see how overvalued some homes were everywhere..... homes in Antelope with $700K loans, Anatolia over $1 mil.... wow!

Sippn said...

Bubble - After someone fed me the stats, I noticed your "active inventory" includes "pending bring back up" ... at least that would explain the difference between your numbers (matching housing tracker II) and MLS. I understand and do not have much argument with that. THat will make your "pendings" number a higher quality number as the "bring back up" is likely where the high cancellation rates are.

Anonymous said...

Sippn, I have done some regression analysis myself on the sacramento market using the numbers from the link I noted earlier. If we take those numbers as gosepel, the Sacramento market was at a 3 stadard deviation event in Q4 05. I think a portion is gut feel when you are 10%+- on either side of norm. As an MBA and CFA I also have experience with IRR, NPV and econmetrics. I have been actively looking at where rents are in different areas. Looking for rents that are slightly below market in order to fill rentals quickly. Rates of return on cash just don't measure up yet. What parts of greater sac area are you finding 7% or < cash on cash using NOI for calculation?

Perfect Storm said...

Report: Alt-A Delinquency Rate Nearing 18 Percent
Comments • ShareThisBy PAUL JACKSON

Published: March 20, 2008 Both subprime and Alt-A borrower delinquencies continued to rise during February, with Alt-A delinquencies rising from 15.94 percent in January to 17.40 percent. According to a report released Thursday by risk management and due diligence provider Clayton Holdings, Inc., subprime delinquences now represent an eye-opening 33.14 percent of loans on a UPB basis, as well.

Delinquencies going up are one thing; but the continued drop in housing prices is having a more ominous effect on many investors, lenders, and insurers, as loss severity creeps upward. Alt-A loss severity, in fact, is now even approaching average severity numbers for subprime across all collateral. Clayton reported that subprime first lien average loss severity increased to 45.80 percent in February, up from 42.56 percent in January; Alt-A first lien average severity rose to 36.66 percent, in contrast

Were right on track for a 50% decline by 2009.

Sippn said...

Anony - like I said, save the heavy analysis for something else, like the commercial stuff.

Residential rental investors are very simple - looking at cash flow to be close right now and appreciation over 5-10 years. Rents will increase here during that time also.

Met several over the past few months, all had $300-600K to invest, making cash offers on homes in the $200K range. Successful, hardworking, most were self employed and 1-2 a state employee. Most trusted their own instincts on real estate investing, most didn't trust Wall Street and the stock market. Most didn't have college educations and didn't get confused with IRR's etc. Its cash in less cash out = profit. By the amount of cash they had, I'd say its working.

Read some Robert Fountain regarding Sacramento area futures and put that in to the equation.

Speaking of commercial stuff, I knew problems were coming when my commercial friends were making decisions solely on the "cap rate" which is the summary of all the bean counting. You still have to walk the real estate. You have to put some $$ aside for risk. Somebody with gray hair has to give it the gut feel. Otherwise, when the music stops, its your chair that's missing.

smf said...

Sippn:

Let me remind you of fact:

We are closing on a house hopefully soon.

This is in a very nice and desirable area.

Even with our income in the top 10%, we will be the 'poor' people of this section.

With the price we are paying, the new comp is up to (verified with prior sale prices) $250K LESS than 3 years ago. (Priced paid were up to $825K)

That is what I call 'pain'. And I bet several of these buyers were alt-A.

As to those wonderful 'cashflow' rentals...

...will only make money IF you can rent them.

With the known excess in both for sale and rental, it is very difficult to get them to cashflow right now.

And those 'cheap' prices are relative. They are not cheap when the area than they are in is...crappy.

Sippn said...

Why are we assuming all the foreclosures and short sales were subprime? any data? I'll bet many were already alt-a.

SMF - what I'm saying on the rental investors is many are 100% cash - and that rental cash flows better than a CD any day, any better than the stock market last year.

The oversupply of housing in our region is dwindling... new built rates are down over 50% and will stay there awhile. REOs are not new housing supply on the market, they are the homes of displaced occupants (with some exceptions) who have to find rentals.

Sacramento region still gained 4,100 jobs YOY in a very low growth year.

smf said...

"REOs are not new housing supply on the market, they are the homes of displaced occupants (with some exceptions) who have to find rentals."

A good chunk of these REOs NEVER had occupants to begin with.

It is anywhere from 30-50%, depending on area.

I suspect that since so many speculative homes used 'owner-occupied' loans, the actual #s are simply unknown.

And since during the bubble plenty of rental housing was built, for those who were 'priced out', the rental situation will become a problem soon.

DrDoom said...

Agentbubble:

Thanks for keeping us informed. Something is changing. You even see it in the comments here as the investor prespective is getting more attention.



sippn:

How you calculating months of inventory? From agentbubble's data REO's would be 2403 available divided by 1112 sold or 2.16 months. How'd you get 2.6? Also do you think the REO market is decoupled from the rest of the market? At a 2-3 month supply of inventory you traditionally would expect prices to rise. Are REO prices rising as the general market falls?

Darth Toll said...

sippn said: "appreciation over 5-10 years. Rents will increase here during that time also."

How do you figure either of these two things are true? If the answer is because that's what they've been doing for the last 30 years, may I suggest that you broaden your time horizon to maybe 80 years or so? There's a reason that we're hearing a lot of stories about things not having been this bad since the Great Depression.

"Pinched by credit crunch, banks dust off a Depression-era relic"

http://www.iht.com/articles/2007/10/30/bloomberg/bxloans.php

"The move marks a historic expansion of the role of the FHA, a Depression-era agency that has traditionally served low- and moderate-income families and first-time buyers"

http://www.usatoday.com/money/economy/housing/2007-08-30-fha-subprime_N.htm

smf said...

sippn said: "appreciation over 5-10 years. Rents will increase here during that time also.

Of course it will!!

But this is the way it will happen:

Home prices at bottom will be (SWAG) 50% off peak. Then appreciation will be 10% total at the end of 5 years.

Did you see that?

Appreciation could occur and STILL leave plenty of people underwater.

Did anyone forget that just a few years ago you built up equity by PAYING YOUR MORTAGE???

Sippn said...

SMF - the 50% you seek has already occurred in the REO areas, just not recognized yet by the arcane median price measurement as it mixes quantities sold at different prices.

10% over 10 years - yea if we all start moving away, the state shrinks payroll and we start reducing public safety salaries...oops!

Hey, did you see the growth plans for all the hospitals this weekend?

Perfect Storm said...

Hey, did you see the growth plans for all the hospitals this weekend?

Have you ever heard of socialized medicine? Were getting closer than most people are aware of.

smf said...

10% over 10 years - yea if we all start moving away, the state shrinks payroll and we start reducing public safety salaries...oops!

Basic research is a wonderful thing, sippn, it allows us to look smart at times.

Let me show you a quick link:

http://quickfacts.census.gov/qfd/states/06/06075.html

San Francisco population

2000 = 776,733
2006 = 744,041

Oops!

Now, how do we get RISING home prices in an area with a DECLINING population?

Mull that one over, OK?

Now, don't think that we are about to escape the same fate here in Sacramento.

The only reason California has population growth in thru immigration. And plenty of those will go back soon as the construction jobs dry up.

Wadin' In said...

SMF, There are only 346,000 housing units in San Francisco (city/county). The changing household size could account for the slightly declining population.

SF is an supported by a growing bay area market. The demand for housing in SF is high due to external factors like job growth.

smf said...

"SF is an supported by a growing bay area market. The demand for housing in SF is high due to external factors like job growth."

Housing demand is ultimately driven by population demands. I used San Francisco as an example, but if we look at the overall Bay Area, I could guarantee that population growth there is at the most stagnant.

Nowhere near reason enough to have built all the housing they did.

Real said...

Housing demand is ultimately driven by population demands. I used San Francisco as an example, but if we look at the overall Bay Area, I could guarantee that population growth there is at the most stagnant."

If you actually look at San Fran, what you will see is the disappearance of children because it is not an affordable city for families with children. You will see this fact play out in the shrinking school enrollment. What impact does this have – well, it decreases population but it INCREASES disposable income. As a result, housing prices can increase as disposable income is increasing which is more important than even median income increases, etc. Further, the median income might not change, but the % of people actually earning an income is increasing as children are replaced with wage earners in the total population numbers. Next, the average family size is decreasing - meaning more housing units overall will be required (assuming families want their own dwelling). I think your example of San Fran is a very poor one for the point you are trying to make.

smf said...

Real:

It all sounds logical the way you say it, but facts still remain.

From the link above:

"Private nonfarm employment, percent change 2000-2005"

-12.5%

The stats speak for themselves.

I would bet that if we then take a look at all the construction that went on, that it has also overshot its target by far.

STOP ROSEVILLE CRIME said...

Drove around Rosevile last weekend. Saw many neighborhoods I hadn't driven by in a long time. Stopped counting at 70 the number of homes with 2 foot high weeks growing w/o a repo of for sale sign. Those will all be hitting the market soon and this was only a fraction of the homes going up in flames in 2008.
Any of you seriously listening to Sippin's advice on RE might as well just born you're money b/c you'll get burned at some point. Just relax, enjoy life and let the prices come to you, they'll get there eventually. As they say, a fool and his money are soon parted, and that's what's happening to the foolish middle class and the lower classes which should have never been able to get the home loans there were given in the past 8 years. When the produce clerk at Safeway is giving RE advice, you better be running to the hills with your cash.