It is what it is

My wife Vicki, has a saying she uses whenever I start complaining about the high price of gas, our insurance premiums or the cost of groceries. “It is what it is,” she reminds me, expressing in those five little words the futility in my haranguing about what I cannot change or do without. While reviewing the May real estate sales report, compliments of the El Dorado County Board of Realtors, I was reminded of her wisdom.

Home sales in the county should have been better than the 146 reported. There are usually more home sales in May than in the months of March or April but not this year. It was the slowest May dating back 10 years. Last year wasn’t terrific either with only 197 monthly sales but last month was another 25 percent drop. Historically, May sales will average 250, which puts our measly monthly number 41 percent off our average. DataQuick Information Service reported only 22 new home sales for the month, a 43 percent decline from a year ago.

Thirty-four percent (50) of all county sales occurred in El Dorado Hills. The average price of a home that closed escrow was $668,000 and a 7 percent dip from May of 2006. El Dorado Hills, with an available inventory of 500 homes, has more properties for sale today than did the entire county back in 2002. While home sellers in EDH have a 1 in 10 chance of attracting a buyer, sellers in Cameron Park had even less odds. Currently, Cameron Park has 210 homes on the market, 17 closed escrow last month with an average selling price of $513,500. That puts Cameron Park with a year’s supply of inventory.

The greater Placerville area was the third most popular destination for county homebuyers last month. The average selling price of the 16 homes that closed escrow was $511,000. That was a big monthly jump from the $458,500 last year during the same month. The Placerville area currently has 188 homes looking for new owners.

Between Apple Hill and Sly Park there are currently 219 homes with a “for sale” sign in their front yards. Eighteen sold last month with an average price of $350,000. The Georgetown Divide has another 200 homes for sale and with only 8 monthly sales, was the slowest area in the county.

While too much inventory and too few buyers summarizes our local market, the median selling price of the few homes that close escrow each month is holding, at least, statistically. Last month’s median price of $497,500 was actually $3,000 higher than the county’s median price for May of 2006 and $10,000 higher than the median for May of 2005. What’s up with that? Higher priced home sales continue to prop-up the county’s median sales price. One out of every five homes selling in the county are in excess of $700,000. Ten percent of our total sales are in excess of $900,000 and we had six existing homes and 5 new homes sell for in excess of a million bucks.

Another interesting statistical phenomenon was the number of new listing added to an already crowded market. New listings historically increase during May-July and then decline in the fall and winter. Last month, the 449 new listings were a decrease from March and April and down 135 from May of 2006. Perhaps after 18 months into our market correction, sellers are finally getting the message that now isn’t the best time to be selling their home or maybe it’s just a monthly anomaly.

Land sales have been weaker than house sales. There are currently 800 parcels of vacant land for sale in the county and only 25 reported sales for the month. The average price of a vacant parcel that did sell was $293,000. I expect the residential market to be stagnant for another year and then gradually increase in activity and price but land sales could be impacted for a longer period of time. Permit and building fees are much less in Folsom than adjacent El Dorado Hills.

There is no immediate cure for our market malaise. Potential buyers continue to sit on the sidelines waiting to see the effects of increased foreclosures and excess competition from too many listings. The recent rise in the interest rates and more stringent loan guidelines for borrowers are not helping the situation. Oh well, it is what it is.

Enjoy the weekend.

Is the end in sight?

Don’t count on any major rebound in the housing market but the end of declining sales and home prices may be not so far in the distant future. The major slump in the housing market is nearing an end and should not have a significant impact on the overall economy, Treasury Secretary Henry Paulson said Wednesday. Paulson refused to comment specifically on the market impact of troubles confronting two large Bear Stearns hedge funds that invested heavily in subprime mortgages — loans made to borrowers with spotty credit histories.

"We have had a major housing correction in this country," Paulson said in an interview with a small group of reporters at the Treasury Department. "I do believe we are at or near the bottom." Paulson said he realized there would be losses along the way but said he believed those losses have been "largely contained." "It doesn't pose a risk to the economy overall," he said.
Paulson's comments echoed remarks by Federal Reserve Chairman Ben Bernanke, who said in a June 5 speech that he believed the slump in housing would last longer than expected but that so far, "we have not seen major spillovers from housing onto other sectors of the economy."
The overall economy grew at a barely discernible 0.6 percent annual rate in the first three months of this year, the worst showing in more than four years. But many analysts believe growth has picked up significantly in the spring to around 3 percent or better.

Paulson said the U.S. economy is being helped by strength in other parts of the world, noting that unemployment in Europe is at a 15-year low and global financial markets have large pools of money to invest. But he cautioned that investors must remain alert to risks given that there has not been any serious financial turmoil for quite a while. "We have had benign markets for some time. That means there is less discipline," he said. "We have to be vigilant about risk, but we need to recognize this is a strong global economy."

Lower home prices?

PMI Mortgage Insurance Company, the U.S. subsidiary of The PMI Group, Inc., has updated its 2007 U.S. Market Risk Index. By ranking the 50 largest metropolitan statistical areas by the likelihood that home prices will be lower in two years, the average score, weighted by population, was 346 -- which means there's a 34.6 percent chance that home prices will be lower in two years than they are now.

"The market's changing tide doesn't mean it is a bad time to buy or own a house, but it is a reminder that homeownership is a long-term investment," said Mark F. Milner, chief risk officer of PMI Mortgage Insurance Co. "For buyers, in many areas it's a much friendlier market than it was even a year ago, but you need to choose your mortgage product carefully. If you already own, you need to take the long view and have realistic expectations about how much your property may appreciate. Building equity in a home is still a great way to build wealth over the long term."

An additional feature of the enhanced index is the introduction of risk ranks, which group areas with consistent characteristics together. Riverside, CA, Phoenix, AZ, Las Vegas, NV, and West Palm Beach, FL, rank highest on the index, with a 60 percent or greater chance that home prices will be lower in two years. Five of the 11 MSAs facing a greater than 50 percent chance of a price decline are in California (Los Angeles, Santa Ana, Oakland, Sacramento, and San Diego) and four are in Florida (Orlando, Fort Lauderdale, Miami, and Tampa); the other two are Boston, MA, and Washington, D.C.

Texas, Ohio, Indiana, and Pennsylvania MSAs constitute the lowest ranked group -- those facing a less than 10 percent chance of lower prices.
"What the markets with the greatest risk of decline have in common is a history of price volatility: rapidly rising rates of price appreciation above the long-term average followed by a recent sharp slowdown in the rate of appreciation," Milner explains. "Markets with a history of volatility are more likely to see price declines in the future. MSAs with a history of low to moderate rates of volatility in house price appreciation have a lower risk of price declines."
According to the Office of Federal Housing Enterprise Oversight, the rate of price appreciation slowed in all but five of the 50 largest MSAs, and only five saw appreciation in the double digits in the first quarter of 2007, down from 26 in the first quarter of 2006. Nine MSAs -- West Palm Beach, FL, Oakland, Sacramento, and San Diego, CA, Boston and Cambridge, MA, Detroit and neighboring Warren, MI, and Cleveland, OH, saw slight year-over-year price declines. In most areas, the risk of price declines continues to be balanced by strong economic fundamentals, including low unemployment.