Every Penny Counts

It's six months into my saving scheme for a down payment. In taking stock, I realize I've done pretty well. Except this month with the purchase of a new car and attendant costs that have wrecked my budget. I expect to get back into shape in the coming months. I've relinquished both my credit and debit card to my mother for safekeeping. I admit that I'm suffering a bit of fatigue, depressed by the still-high price of real estate in California and the reality of delayed gratification that goes with long-term planning. There was a discussion over at the Sacramento Landing blog about the XY generation and our general lack of wherewithal to save. So, when I read this NY Times article about people my age who worked to save enough for a house payment, in New York no less with little help from parents, it was a dose of encouragement.

When Janey Lee and Pablo Agüero were struggling freelance Web designers, buying an apartment in Manhattan seemed like a dream, one clouded by credit-card debt, student loans that had to be repaid and the bills for their wedding. Their combined salaries of just over $100,000 qualified them for a mortgage, but it took a lot more for them to come up with the down payment. In a city synonymous with luxury and spending, Ms. Lee, 30, and Mr. Agüero, 35, decided to do without. They gave up smoking to cut costs, they stopped meeting friends after work for beers, they didn’t buy new clothes, and they stashed away tax refunds and as much of their earnings as possible. Whenever they wanted to buy drinks, gadgets or cookware, they asked each other: “Do I want an iPod or a house? Do I want a latte or a house?”

Plankton Theory Revisted

Remember some time ago, I referenced Plankton Theory which likened first-time home buyers to plankton, the essential life force of the real estate food chain. Price them out of the market, and a chain reaction suffocates the rest of the market. This Press Enterprise article quote shows that force in action.

“Inland Southern California’s home sales last month were the worst in a decade in Riverside County...We have seen rising foreclosure activity through the year and no sign it is done climbing, and we are now seeing some real steep declines in prices. It is very difficult to say where bottom is,’ said Andrew LePage, analyst for DataQuick."

The news that Forbes ranks Sacramento as the third riskiest housing market in the country - and the riskiest investment in California-quickens my heart. Sacramento's share of adjustable-rate mortgages exceeds 50 percent. Which means that the market has nowhere to go but down.

Window Shopping II

Checked out a few more new build communities last weekend. It's become a rather interesting hobby. The places we checked out included Astoria townhouses by Centex, The Discovery, Sunrise, American collections by Beazer, and the Carriages and Isla del Lago communities by K. Hovnanian. It was a lot of houses in one day. The Astoria townhouses had great curb appeal but no models. We toured a unit under construction though and didn't like the flow. A 1562 sq foot plan 2 bd/2.5 bath went for $309,990 at $198.46 a square foot. The deal breaker, however, is the $340 HOA fee. The Mello Roos of course was also steep but I forgot how much.

Of the Beazer collections, the only one that made an impression was the Discovery collection, new "pull apart" townhouses connected only by the garages. Their website still show them as single-family homes. It was cheaper at $181.75 per sq foot. My friend and I both loved the 1,568 3bd/2bath plan at $284,990. It had a great open floor 1st floor that wowed us at the door and nice sized rooms. The drawbacks were a tiny postage sized yard and an alley garage. With two dogs, I have to have a nice sized yard. Sure, my pookies are toy poodles but they still need to run. The HOA is $83 and the Mello Roos is $120.

The Carriages had horrible floor plans with the kitchen completely separate from the rest of the house and dinky rooms. Isla del Lago was another story. Though halfplexes, the models had huge backyards and represented a good value. The largest plan, the 3bd/3bath San Miguel, could be had for $345,365 for 2100 sq foot, working out to $164 a sq foot. Out of our price range even though the per sq foot price is lower and too large for a single homeowner. But..but..but...that didn't stop us from lusting for all that space. The HOA is $35 and Mello Roos is $138.

It will be interesting to compare these prices in six months. Every builder we questioned said their properties were selling briskly (Beazer's the Landing community is sold out for example) and implied that price was going to go up and inventory down. If I were in the market right now, I'd be tempted to look seriously at the Beazer Discovery townhouses and the Isla del Lago halfplexes. Good for me that I don't have the down payment now and can't be pushed to jump the gun.

Top Ten Signs of an Asian Household

Take these with a grain of salt and a sense of humor. I have to admit, though, that there is some truth to these observations. These apply to my family's house and the homes of most of my Asian friends. You just know walking into a house that it could be owned by an Asian if:

1. In the foyer, there’s an altar to the ancestors. It’s typically red-stained woods with red blinking lights.
2. Open the dishwasher and it’s full of mismatched Tupperware.
3. The backyard is mostly concrete.
4. There’s a gas range outside for cooking.
5. Large winter melons grow in the backyard.
6. The garage can double as a supermarket. Stockpiling is an art.
7. All the walls are white, white, white.
8. The bathroom seems remodeled, but in different styles and shades of tile.
9. Pairs of shoes line the entrance to the house.
10. The property has a gate, fence or some other impediment blocking direct access to the house.

Window Shopping

My best friend and I went window shopping for houses today, visiting several open houses and model homes. We learned a couple of things: new houses show a lot better and are more affordable than a year ago, pictures can't accurately represent a house online and we should definitely wait to make a purchase. The new homes we looked at included Sheldon Farms, Laguna Point Condos and Laguna Oaks condo conversions. Sheldon Farms was the most attractive with nicely laid out one-story plans in the $350,000 range. Still out of the price range of a single girl with a modest income, but still more affordable than a year ago when the same house would have fetched maybe 20K more.

The condos were a cheaper alternative. The two bedroom condo floor plan at Laguna Point had huge rooms and an added walk-in closet for each room, a nice touch. The front door, however, opened directly into a steep staircase up to the second floor. Instinctively, it didn't feel welcoming and was definitely a no-no in feng shui. I don't know many Asians who would buy a home with that layout. The other floor plans at Laguna Point had cramped bedrooms that felt claustrophobic. Laguna Oaks condos were nicely renovated from apartments into condos in the low 220K range. Definitely affordable, but with 216 units to be sold, we didn't feel the rush to purchase one. The salesperson said that the low price was only for the initial offering and may rise as time goes by. I doubt it and will check back in a year to see if it pans out that way.

The open houses we toured were in the Pocket area: three halfplexes and a house. The interesting point is that a halfplex that didn't look that inviting turned out to be our favorite while another halfplex that looked wonderful online was disappointing. It just honed in the fact that one needs to feel the physicality of a space to get a proper sense of whether it's a contender.

Oh, and one more thing we learned. If you want to have a successful open house, don't perfume your house with an overpowering scent. The last open house we visited had an strong odor, a scent candle or something, that practically drove us out at the door.

A Kiwi Perspective on Housing

I chatted over IM with my friend in New Zealand yesterday about housing and gained an international perspective on the housing boom (and bust at least in the U.S.) In Auckland, the price of houses jumped 16% in a year, indicative of a dramatic upward trend for the last five years. The pressure my friend feels to buy in now before the prices rise too much out of her economic reach is eerily reminiscent of the atmosphere in California before the subprime meltdown. The average price of a Kiwi house in June was $557,546 versus the median household income of approximately $51,094, numbers that look positively Los Angelean. This article points out the rapid rise in housing is hardly contained within the U.S and may be closely tied to what happens over here in our neck of the world.

The rise in prices is worrisome because the international housing boom is a byproduct of globalization. The economic links act as a self-reinforcing network that has fueled the global surge in house prices but would also be likely to magnify the pain on the way down. The ripples would extend well beyond the housing markets. A fall in American house prices, for example, would crimp consumer spending - and free-spending Americans have supported growth in many export-minded nations. If house prices drop and American consumers are forced to tighten their belts, buying fewer imports, China and other nations would have to slow their dollar investments, driving interest rates higher and higher. That could hurt housing markets from Paris to Shanghai to Auckland.

Interest Rates to Hold Steady

So, the lazy days of summer have arrived along with the perpensity for vegetation, the human kind. Even as my fevered tracking of the housing market has waned, I'm still keeping an eye on interest and mortgage rates. Merrill Lynch & Co. and Goldman, Sachs & Co. recently announced that they don't expect the Federal Reserve to cut interest rates meaning that the healthy yeilds for money market funds would hold steady at 5.25%. At the same time, however, mortgage rates will likely rise. The average rate on 30-year conventional mortgages nationwide was at a nine-month high of 6.42% last week, up from 6.37% the previous week, according to mortgage finance giant Freddie Mac. I never thought I'd be interested in these types of figures. However, this news has a direct impact on little ole' me. One, I've parked my house down payment savings in a high yield CDs earning more interest than those accounts historically have offered. Second, the higher mortgage rates affect the monthly budget that I can work. Good thing the housing units for the area I'm interested in has begun to fall. Just this week, a house in the Greenhaven area listed for $171.77 per sq foot, the lowest I've seen yet. There is hope, afterall.