From the Sacramento Bee:Wow! That is quite a ratio of sold homes to foreclosures. But, I am sure we have hit the bottom...any second now...come on, where is that bottom?
January saw nearly as many people lose their homes as buy them.
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January saw 1,815 closed escrows in Amador, El Dorado, Nevada, Placer, Sacramento, Yolo and Yuba counties, DataQuick Information Systems of La Jolla reported Thursday.
But in a financial phenomenon that most analysts believe is unprecedented, 1,782 households in the same counties lost their homes to lenders. Figures for Sutter County were not available.
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The dive in prices is stressful for people who have to sell their homes, but it's a growing advantage for people who until now have been shut out of buying.Well, I am glad that there are still 26 year olds that can still afford a house. Let's see...using the 2.8 rule for a traditional loan...(235,000/2.8)...that means she/they are "hopefully" making around $85,000 in order to "afford" this home.
Casandra Leon was one of the fortunate ones.
Leon, 26, a Sacramento County public employee, paid $235,000 for a three-bedroom, two-bath bank repossessed home in Elk Grove on a street she thought she could never afford.
"Three years ago we would never have thought we could purchase a house like this," Leon said Thursday. She said the bank paid closing costs and did the deal without a complication. [my comment: Gee, I wonder why.]
"A lot of these foreclosures are not being purchased by investors, but by first-time buyers and people who want to live in them a long time," said Chris Saizan, a real estate agent in Elk Grove.
Assuming that they qualified for a 5.89% 30 Year Fixed (no money down) there would be a monthly mortgage payment of: $1392.37. That is just for P&I - throw in taxes and insurance and you are looking at about $1800+. That doesn't even begin to touch on maintenance which is always overlooked - therefore, for this exercise, we shall do the same.
It looks like you can rent a brand new 3/2 home in Elk Grove for about $1300-$1400 (which includes maintenance and often includes yard care, etc.). So, take the $400 difference that you were apparently going to spend anyway and start socking it away (maybe even pay off those credit cards that you are still charging on). At the end of 2 years you would have about $10k in the bank and ready for a decent down payment, but I guess the idea of saving is old fashioned.
Now, don't get all cranky. I am not saying that Cassandra didn't do exactly that in the last couple of years...she probably did. She probably saved up 10%-20% down and had planned her retirement and everything. Yeah...that's it.
So, let's just say that the values continue to drop (regardless of what anybody says, there is no evidence that we have hit the bottom). What if the depreciation for Elk Grove is only 9% for 2008 instead of the 26% that we saw in 2007? And then a 5% in 2009? How much will Cassandra's home be worth then?
$235,000 * (1-.09) = $213,850: $21k loss for 2008
$213,850 * (1-.05) = $203,157: $10k loss for 2009 ($32k loss in 2 years)
At the beginning of 2010, they will still owe about $30k more than it is worth.
Then, let's say that there is an appreciation of 5% per year after that (though, I think that will be rather high). In 2013, the same house will be worth $235k - which is what they paid for it. They will have about $17k in equity, so if they plan to move at that point, I hope that the bank pays their closing costs then too.
It cost the "owners" $21,600/year ($108k total) to live in the home. Does it work out that it is still an advantage to write off the interest on this? Hmm...this is sort of a ramble. I am sure all of you are smarter than I am on this stuff. It just doesn't seem like a good deal at the moment. Am I wrong?
Well, I hope that Mr. Saizan is correct that they will want to live in it "a long time".
I know, I know...I am a bitter renter.
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