Wanted To Buy In Lands Park, Davis or East Sac But Bought in Elk Grove!

[wburg]

The problem here that the number of square feet is NOT the only factor to consider when buying a home. The average new home in the suburbs is around 2200 square feet, but the only homes that size in midtown are the huge mansions. It's not too hard to find comfortable and perfectly nice houses in the 1000-1200 sf range for a lot closer to that $300K. Because the house is a lot smaller, it's cheaper to light, heat and cool. The house is more efficiently designed, so that 1200 sf works more like a 2000 sf modern home, the only thing it lacks is generally things like a big hallway (instead of having the rooms connected to each other directly) or a useless cathedral-ceiling entryway, or a three-SUV garage. Plus you'll save thousands on transportation, even if you don't take public transit, by living closer to work (assuming you work downtown) you burn much less gas. There are other reasons why Midtown homes cost more, like their beauty and rarity and the neighborhood. You get all of this when you buy a central city home, which is a premium. You don't get this buying a McMansionette in Laguna. Besides, as time goes on there will be plenty more new suburban housing (at least the way things are going) while nobody anywhere is building brand-new 100 year old bungalows!

Comparing a new 2000 sf home to a 2000 sf Midtown mansion is like comparing a pound of cheap 73% ground beef to a pound of filet mignon. Sure, they weigh the same, and yes, the filet mignon costs a lot more--but there's a reason for the cost differential.

Personally, I have a different sort of hope: that we can figure out a way to fix public schools in the central city. It's a shame that parents should have to choose between an urban lifestyle and a decent public education for their kids.

[OBongo]

WBurg,

We both agree that Midtown is more desirable than Laguna West or most other suburb for that
matter. The question is how much better: $100K, $200K etc.

Secondly, I looked for nearly a year for homes in the inner nicer areas and saw none of the
$300K homes that were 1000 sq ft that you mention.

Now our friends bought some nice homes in lands park for $400K that were 1000 sq ft
about two months ago after much waiting and as much as they love the beautiful street-scape
find it too small (people have more junk than fifty years ago). Also you can rent (as I do)
a 1100 sq ft apartment in Fremont building brand new, classy place for $1400 a month.

Also, many of the LP/ES homes were built around the 1940's and the plumbing, electrical and
other system stuff is crapping out which can be expensive to repair (i.e. you need to pull out
the plasterboard to replumb a home.

If I had to put a figure on it I would say midtown would be worth at least $100K to me,
upto $150K if it were near some nicer area like capital park, but its not worth $300K
more. That's the fundamental question and the reason I believe prices will drop.

[CityGirl72]

Originally Posted by OBongo

If I had to put a figure on it I would say midtown would be worth at least $100K to me,
upto $150K if it were near some nicer area like capital park, but its not worth $300K
more. That's the fundamental question and the reason I believe prices will drop.

If you didn't have kids - Would you figures go up? Would you spend more to live there?

I would. If it was a 250K house in Elk Grove or a 500K (if I could get financed for that ) in Midtown, I'd still live in Midtown.

IF I DIDN'T HAVE KIDS - which kinda throws a wrench into it - but It will be figured out. I much rather just move back anywhere just to get back (well probably not Elk Grove)

I see Midtown as an investment too, a piece of history that is my responsibility to keep nice for generations to come. I could retire there. Ever see those little Grandmas in their cute tudors fixing up there petunias? I wanna be them!

[wburg]

Originally Posted by OBongo

WBurg,

We both agree that Midtown is more desirable than Laguna West or most other suburb for that
matter. The question is how much better: $100K, $200K etc.

Secondly, I looked for nearly a year for homes in the inner nicer areas and saw none of the
$300K homes that were 1000 sq ft that you mention.

Now our friends bought some nice homes in lands park for $400K that were 1000 sq ft
about two months ago after much waiting and as much as they love the beautiful street-scape
find it too small (people have more junk than fifty years ago). Also you can rent (as I do)
a 1100 sq ft apartment in Fremont building brand new, classy place for $1400 a month.

Yes, people had less junk 50 years ago than they do now. There's a lesson in that: buy less junk. Part of why my wife and I were able to buy a house in Midtown on our considerably-less-than-six-figure income was because we didn't buy as much crap. I spent $3000 on a car instead of $30,000, $300 on a 25-inch TV instead of $3000 on a 60-inch plasma screen, etcetera. Instead of having a gym membership, I walk home from work for exercise. Admittedly, I still have a lot of junk (mostly books, records, some antique furniture, etc) but with some planning and judicious use of storage furniture, my 101 year old, 900 sf house still feels huge.

While I respect your optimism, I don't think you're going to find any more $100-150K homes in midtown, any more than you're likely to find a fifty-cent cup of coffee.

[zen_klown]

The New York Times had a pretty good article on price to rent ratios. Basically the article argued that as housing prices fall enough it makes more sense to buy rather than to continue to rent.

http://www.nytimes.com/2008/05/28/bu...ewanted=1&_r=1

Hot pads ran with that idea and came up with a program that graphs out by zip code price to rent ratios. Basically areas with high price to rent ratios either need rents to rapidly shoot up to justify prices or prices need to drop to correct with rents.


HotPads.com - Real Estate, Apartments, Homes for Sale and for Rent, Rental Houses, Sublets, Roommates

In foothill farms you can find a condo like this that is renting for $750

Large unit above garage (http://sacramento.craigslist.org/apa/850430905.html - broken link)

You can find a similar condo like this for 45K on the mls. With 9k down at 7% a interest rate you are looking at a mortgage of 240 a month. Even with HOA dues of 185 a month, allowance for vacancy factors, and maintence this place is positive cashflow right now. Effectively there is no reason to not buy this place right now, assuming there is no major damages discovered during the home inspection. In short the graph passes the common sense test. Its showing you where property is cheap relative to rents and where it isn't. This is what I mean when I say, I am not too concerned about the risk of prices falling much more in foothill farms or in similiar places like this in Oak Park. When the rents easily cover the cost of ownership, there really isn't reason to worry much about prices falling further. If its cheaper to buy than to rent, it is logical to do so.

Cameron Park and Placerville Real Estate

In the higher end areas of Sacramento, the logic isn't quite so compelling. In Davis, Granite Bay, Arden Park and East Sac, while those are all really nice communities to live in, the housing prices are no where near close to being justified by the underlying rental values. In these neighborhoods, the only thing that is still holding up property values is the greater fool theory of real estate. You have to find someone else to spend a lot of money to buy into your neighborhood. While incomes are higher in Granite Bay than Foothill Farms, people still need to save for college, to pay for there cars and to buy food. You can't devote everything to buying a house.

Over a 21 year period, historically people in Sacramento were spending about 3.3 times median incomes or alternatively they were spending about 26.3% of there family incomes on their mortgages. The nature of an average is that you spend half the time above it and have the time below it. This means while there are periods like the peak of the housing boom when people were spending well above it, there were also periods when people were spending well below it.

The Housing Cycle Barometerâ„¢ (http://www.realestateconsulting.com/Newsletters.aspx?quicklaunch=true&newsletter=Strat egic/strategic200206 - broken link)

Right now, according to John Burns people are spending on average in Sacramento 35% of there incomes on housing. During the boom we have been way above the average.

John Burns Real Estate Consulting - Local Analysis (http://www.realestateconsulting.com/Intelligence.aspx?quicklaunch=true&region=local - broken link)

The problem isn't the low end. The places in foothill farms and Oak Park cashflow positive already. These neighborhoods already have adjusted as the subprime loans imploded. These low end neighborhoods are also were a lot of the sales are happening.

But the high end properties basically avoided the subprime problem. Buyers in Granite Bay, Davis, El Dorado Hills, Arden Park, Fair Oaks weren't really using subprime loans to buy into those neighborhoods. In these neighborhood the buyers had better credit ratings.

Because they had higher incomes and prices were going up so fast during the boom, these buyers also really overextended themselves. But they were using a different type of loan, alt-a loans. Up until this year, alt-a loans weren't resetting themselves. So these borrowers really weren't getting into trouble.

But alt-a loans are now going to be resetting in mass. When these loans reset it is going to create a problem in the high end areas of Sacramento and in Coastal California where these loans were widely used. The pay option stated income adjustible loans were mostly alt-a loans. These people just had higher credit ratings, than subprime borrowers. There was an internal logic that made sense to use them during the expansion phase of the housing boom, but that logic is no longer true. People who are upside down on their loans, can't refinance there way out of there problems. These folks are going to be giving there homes back to the banks. The high end in Sacramento isn't immune to falling prices. This is the area that now needs to correct the most.

Calculated Risk: IMF: Mortgage Reset Chart

More stuff generally about alt-a loans.

Calculated Risk: Alt-A: The New Home of Subprime?