The Incipient Moment

For many years, we have been told that the Chinese symbol for "Crisis" consisted of "danger" and "opportunity". In fact, the lower symbol is not "opportunity". It is roughly translated as "crucial point". Our misinterpretation of this Chinese symbol is in itself symbolic of the current
mental state of the housing market.
Many of us have adapted psychologically to housing prices that have been outrageously out of whack with fundamentals. We are at that point now where prices in the Sacramento and Central Valley area have fallen off substantially from their ridiculous highs of 2005. In comparison, some houses are beginning to look like bargains.
But is this an "opportunity"?
Or is it really that crucial point where the market and our economy pause before the crisis in all its full-blown destruction actually begins?

This past week has been a challenging time in my 2 year journey into the Sacramento area housing market. As I have mentioned before, I have a fondness for Streng homes.
These mid-century modern tract homes can be found in clumps and individually from the most exclusive neighborhoods like Shelfield Oaks in the Arden area to rusty working class neighborhoods in Elk Grove and Foothill Farms. No one is building tract homes like these any longer, though in my opinion some of these struggling builders could do far worse than to emulate the Streng's sense of style and add in some eco-friendly materials and energy-efficient components like they are doing with the same old tired stucco designs that have been promoted as the apex of tract home luxury and class. From the first time I ever stepped inside a Streng atrium model, I was in love; but at the time I had a house and I didn't pursue the matter. Now, that mysterious house with concrete paths and indoor gardens is no longer a mystery. I know what it is, and I know where to find it. But it's not any individual house that I'm in love with. It's the design of these homes that I have fallen for. I am currently tracking any reasonably-priced Streng in the Sacramento area. (Those under 400K, which means the Arden area is out of my league). I prefer the atrium models, but the other models have design elements such as clerestory windows and open-beam ceilings, that make them nearly as attractive to me.

My first, and relatively minor, challenge came when a Streng with very good bones came on the market in Elk Grove at a price that was 50K less than the other 3 Strengs in that area were asking, and with much less and relatively easily remedied futzing around with the basic design elements. (These houses can be prey to over-zealous flippers who want to upgrade them right into granite counter top mediocrity). In comparison, this house seemed to be a real bargain. And to give this owner their due, they priced this house with the right attitude. I even went to the trouble of looking into pre-qualification and what my payments would be, and that is where I pulled back. Because even though the house was priced at about 3 x my income, and was the best priced house in the neighborhood, it was still priced too high. It had a paper gain of well over 150K in 10 years, roughly doubling its asking price. Moreover, the crime rate of the area was well over the national average and household income, while still over the regional average, was a little low for the asking price. Because I recognized that the seller had at least made an effort to price well and was offering the most home for the money in that area, I was actually pleased when it went pending. A month or so later, though, it was back on MLS and had taken a further 10K price reduction. This caused me to reflect a lot on the advisability of buying in to what is still a sinking market.

Then, this week I was driving through Foothill Farms and decided to tour a neighborhood that I knew was loaded with Strengs, just to look at them. I like looking at what people have done with their Streng, and will never pass up the chance to detour into neighborhoods where there are a lot of them. Sometimes I eat lunch and do paperwork in my car in these neighborhoods, just basking in the hip wonder of it all. And to my astonishment, there were 2 houses for sale that I had missed in my weekly MLS trolling. When I got home to my computer and looked them up, it turns out they were priced below my parameters, which I set months ago in order to eliminate houses that were too far gone to rehab. These houses were not too far gone, and the neighborhood was solid and relatively quiet, filled with other Strengs that showed a lot of pride of ownership and a commendable level of respect for modern design. One of these two Strengs is a foreclosure, and it's being offered at just over 200K. It needs some work, and I've no idea what the inside is like, but on either side are very nicely maintained neighbors. Now, 200K is pretty damned reasonable in general. And I am inclined to want to look at this house more carefully, which would mean involving one of the Sacramento Bubble bloggers who is an agent -- and I don't want to do that unless I'm really serious. But it's hard to know if I'm really serious without seeing the house on more intimate terms. And even though this house is priced pretty well now, will it hold that value? If prices revert to their 2001 averages, it would not. In fact, if prices revert to 2001, this house in Foothill Farms is still priced about 70K too high. It's still 4.5 x the median household income for the neighborhood, which is still a little high -- though admittedly not as crazy high as the 10 x income in some places. There are other things to consider, too: the neighborhood isn't bad, but it isn't stellar. The house is not the atrium model that I love. There is multi-family housing in the area. Even from casual observation of the outside of the house only, it needs some serious sprucing up. Will other, more "move in ready" Strengs start hitting the market at the same pricing level in the next year? Or will it really take as many years as some people are predicting for the market pricing to fully correct to a sane level? I am not getting any younger, and while I don't want to throw money away, neither do I want to rent until I'm too old to be physically able to landscape and paint and renovate. I would like to spend a few productive years "coming home" to a place that I can make mine, instead of spending those years in a rental that I don't feel the freedom or inclination to modify to meet my needs.

Is this the opportunity within the crisis? Or is it the crucial point where the crisis really begins?
When in doubt, it is prudent to stop and think. Perhaps the turning of the year will bring further illumination.