Monday, August 01, 2011

Sacramento Real Estate Market - August 2011 Water Cooler

Post off-topic links, observations, and stories about the Sacramento real estate market. Please read the comment policy before posting.


Boba the IX said...

Neighbor is selling his house after owning for 5-years. Original purchase price in 2006: $985,000. Sale price today: Asking $579,000. Has three offers, on in the $4's, two all cash in the mid $550,000 range after 3 days on the market.

Short sale lender must approve, but I will say there seem to be some very well heeled buyers out there circling high end properties. Well, what used to be high FHA financed homes!

California Dreamin'.....

husmanen said...

My neighbor just completed a short-sale, a drop from mid 5s in 2005 to mid 3s in 2011. The buyers are at/just below rental parity.

Roy said...

Hi Boba the IX, do you mind to let me know which city/area are you in? Interested to find out which area has this kind of price drop.

patient renter said...
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Husmanen said...

Well, we didn't make the bottom 10 list this time.

10 housing markets that will collapse this year

Roy said...

I heard Wallstreet Journal covered Folsom house price last week. Folsom is the last in SAC region to see falling of house price. It is getting down.

Terracina street of EDH also sees 4800+ sqft house price (with open view and pool) below $600k.

In Anatolia of Rancho Cordova, price per sqft is less than $90 for 3000+ sqft house.

Boba the IX said...

Hi Roy, the area is South Placer County.

husmanen said...

Terracina Dr in EDH has nearly $200/month HOAs, that is excluding the Mello Roos which have to be at least $100/month.

So add $300/month to the cost for Terracina Dr and that hurts a little.

Roy said...

Boba the IX, thanks for info.

Husmanen, I don't mean Serrano is a good place to live. I don't like HOA too. I just mean, house price is getting down, now.

husmanen said...

Roy I agree about Serrano and yes the prices are continuing to fall. But weird stuff is happening.

Rents are increasing, not just for homes but apartments. Two friends of mine at work have had their rents increased 15%. Those were two bedroom apartments.

One said, I am not paying this rent I am going to buy since buying something will reduce my costs. Hmmm I said. Just be careful and check rental parity.

The saga continues...

Jim Crandall and Nancy Phillips said...
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Giacomo said...

It's a mistake to use rent parity as a buying cue in this market, period. Take a lesson from others here and on the the (now dead?) Average Buyer blog who used that metric to rationalize purchases and have now surely lost huge amounts of net worth as home values have continued to drop.

Renters don't lose money when home values fall. In each of the past 4 years, my landlords have lost equity in excess of my total rent payments!

If rents are up in certain areas, a likely factor is that there is an increased demand from families who are walking away from their upside-down mortgages -- but can't move out of the area because they need access to their jobs and their kids' school.

Housing is still a disaster, don't be fooled.

husmanen said...

Giacamo. I agree that house rents may be up because of families walking way from homes, having bad credit and lots of cash. Not so sure if apartments are appropriate substitutes though.

If rental parity was used during the bubble years as a metric for purchase there would have been a strong incentive to question the bubble early, but it got drowned out by ‘it always goes up’, its CA we’re different etc.

I will have to disagree about using rental parity as a buying cue. The example you provide of your landlord losing equity is true and comparative. If your LL would purchase the home today with a 20% down, conventional loan for 30 years, would it still be ‘under-water’ as you describe? If the starting point is moved, i.e. the price point for the purchase to a recent price there may be no equity to lose at rental parity. If the current price does not support the rents, it is too high.

Case in point. The equivalent to my old rental is selling on the market for less than it would cost to rent the home with the above criteria. My old LL is still underwater by several hundred thousand dollars, but if a person bought today, no problem with equity. Also, the home prices are about 1% higher than the spring, for this model and area and the rental costs have gone up.

We don’t expect homes to be valued at zero in the near future in our area. So taken the example of the LL losing more equity in 4 years than your rent would put many homes at <$100k and in some areas negative (you would get paid to take them).

There are a number of different metrics to use to value the market.

Anyone have any more?

Giacomo said...

"but if a person bought today, no problem with equity."
You're assuming values can't go lower? I'm assuming they will go significantly lower, given unemployment rates, the number of houses still in the foreclosure pipeline, and the levels of private and public debt.

If I bought today, I suppose there would be a chance that I'd never be "underwater" with a 20% DP, but that's not the right question. The question is, considering PITI plus anticipated devaluation, aren't I still better off renting and preserving that DP cash? Or renting and having the DP cash invested in something that has a good chance at actually increasing in value?

Given all this, I still consider that buying a house is still a very expensive proposition.
And if you find yourself wanting this luxury and having to make awkward rationalizations to justify the purchase, you're probably in dangerous territory. These are extraordinary times we're living in, not a good environment for taking on more debt.

husmanen said...

Giacomo. Yes on that example I assumed a house would not go lower, but this is not true of all houses in all areas at all current prices. I should have been more specific.

Even houses currently having a monthly cost under rental parity can go lower, but market forces will correct this over time. How much time, I don’t know, overcorrection has occurred in all the last bubbles. Leaving money on the table will not last forever.

Renting and preserving cash when buying with a monthly cost under rental parity becomes a personal opportunity cost choice. Either buying or renting is not for everyone, but some type of housing is.

Currently the rates of return for safe cash investments are pretty bad, but housing is very static or illiquid, maintenance costs and high transaction costs. So, a situation where a person has a lot of cash and are not feeling secure in their employment would not lend itself to buying.

On the other hand, sufficient cash, secure (relative I guess) employment, family & friends in area, enjoy local environment etc can lead a person to choose buying versus renting. Especially if rents are increasing.

Buying a home is expensive, but so are all alternatives just with different risks and leverage, when the numbers line up it is about opportunity costs.

On the macro-economic front there are sectors that are doing worse than others in CA/Sacto. I don’t have any numbers but I guess non-bubble related sectors (construction, finance, retail and government) are doing poorly and others better. Sadly, Sacto has a large portion of their employment associated with these sectors. But there are others.

Anyone have any numbers broken out by sector for Sacto?

Anyone have any other metrics?

husmanen said...

Also wanted to add that 'uniqueness' of the home and/or areas would skew the rental parity, as well as quality of construction (up or down).

Giacomo said...

husmanen: you seem to be freely mixing "intangibles" ("family & friends in area, enjoy local environment") with statistical evidence. That is your prerogative, of course, but renders all your analysis highly subjective, doesn't it? It impossible to make a rational critique if the fall-back position is going to be something like "well, it's close to work" or "it has such a beautiful view from the deck" or "the schools are really great" -- all of which might be true of a property at ANY given point in its history, including, say, 2006.

This is I why I try to ignore those factors in deciding when -- and if -- to buy. I believe delaying gratification will be rewarded in this case.

Sarah Becker said...

Giacomo, I believe you are correct about the intangiables if you are an investor who is adressing non-residential real estate for investment purposes only. However in the sale and purchase of residential property "homes" there is a very prevelent emotional factor related the enjoyment one derives from living in that home. Residential Home buyers are rarely as rational as you appear to be. I am not suggesting that people should pay to much for a "home" that they love. I am suggesting that the correct way to view a "home" purchase is to make sure you get a GOOD DEAL on a HOME YOU LOVE. Frankley they may have to live in that home for many many years to come...The "piggy bank house/ bubble era" has ended. Upgrading to a bigger house or a better school district next year is not a guarentee. We can't count on double digit appreciate to fund the upgrade and cancel out a bad purchase decisions in todays market.