Neighborly News

The following is an article about Fairfield, CA and comments from Sonoma Housing Bubble Reader, Ali in Cali.

Thank you Ali! (Ali's comments in purple)

"The following appeared in an article in the Fairfield Daily Republic in the Business section on Sunday, May 21, 2006.

Their website is for registered users only, which I doubt is worth the subscription fee, so I have included the excerpt that I think is most relevant below. Enjoy!"

Slowing Housing Market Requires Attitude (Adjustment?)
By Nathan Halverson“

…Look at the numbers.

"In May 2005, 335 homes were listed for sale in the area of Cordelia, Fairfield, Green Valley, Suisun City, and Vacaville. This month, that number jumped to 1,231 homes for sale, an increase of 267 percent, according to Multiple Listing Service."

"Meanwhile, the number of properties sold declined 30 percent in the last year according to Bay area Real Estate Information Services. In April 2005, 373 properties sold in the northern part of the county. This April, sales were down to 260 properties."

"Why to still buy ...Nathan Fitzgerald, an 18 year veteran with Prudential Realty in Fairfield who monthly provides his clients with numbers like the ones above, said he thinks home prices will be flat to slightly decreasing in the coming months."

"And he doesn’t hesitate to tell that to his clients.“They look at me like “why would a Realtor tell me that?” Fitzgerald said. But Fitzgerald points out that just because prices are declining, doesn’t mean that potential buyers should wait."

"Here’s and example why: Say you could buy a house today for $465,000, which is the current median home price in Solano County, or wait two years after it’s price has declined 10 percent to $418, 500."

"But, during those two years interest rates for a 30-year fixed mortgage increase from 6.55 percent to 8.55 percent. Is it worth it to wait? In this scenario, you should buy the house now."

"Here’s why: The monthly mortgage payment for the more expensive house at today’s prices would be $2,954."

"The payment for the less expensive house, but at the higher interest rate, would be $3,232."

"Both payments assume a $30,000 down payment."

"The house you waited two years to buy for a 10 percent discount would end up costing you $278 more a month, or $8,340 during the course of the loan."

Keep in mind that this is only an example.

My questions are:

1. When I do the math, an extra $278 a month times 360 payments (30 years x 12 months/year) = $100,080.

At 12 payments (one year’s worth) the figure comes out to be $3336.

Thus, I have no idea where this person is getting this figure of $8,340. If the intention is to scare the buyer into hurrying up, wouldn’t the $100,080 figure be more effective?

The arithmetic alone here makes me wonder about the accuracy of any of this.

2. This example assumes that prices will only fall 10% in the next two years. What if they fall more? And what if they fall faster? If the sales prices drop more than 10% in two years, or drop 10% much sooner than this projection, does the example still work?

As long as the sales drop faster than the rates increase, I think this example is rendered useless. Am I correct?

3. I guess the figure is assuming a 10% drop from today’s prices, but have they taken into account that prices in many markets have already dropped since last August’s peak?

4. What about the money that the owner will be saving on the property taxes over the lifetime of living in the home? I know it is minimal, but I think it is unfair to disregard that the person who waited until the price dropped from $465,000 to $418,500 would be saving an additional $500+ a year in property taxes.

To me this is just more Realtor propaganda. Is it possible that this reporter’s source is baised? Is it possible that Mr. Fitzgerald would say this to his clients since he needs them to still buy otherwise he is out of a job?

Is it possible that I am going to see right through this pile of BS, but others will use it to run out and make a bad decision in this very tentative market? God, I hope not.

Buyers of the world: UNITE! Or, at least use your heads…