We live less than an hour away from Mount Diablo State Park, which is home to a 3,849 ft. summit. We have been saying that we'd go see it as it is claimed to be a great view of the bay area on a clear day. One way or another, something always seemed to get in our way of going, despite it's closeness. But last weekend with the weather being so nice, we FINALLY ventured out with RJ in tow.
We drove up to Rock City, with plans for continuing on to the summit after lunch. But we decided to stay in Rock City and explore after realizing that the summit was farther away than we thought.
So we have yet to see the spectacular view, although even from Rock City's lower elevation, we got some pretty pictures AND RJ got introduced to one of Momma's favorite pastimes! Rock climbing classes, here we come!
RJ recently got a package in the mail with an adorable Steelers onesie and a plush football blankie. The return address was the manufacturers and there was no note inside.
As you can see, he's really enjoying his new toy, but doesn't know who to say "thank you" to. You can remain anonymous if you wish, we just wanted to be able to say thank you!
We don't want to be homeless, so we need to figure out where to live next. Have any advice or insights to add to my analysis? We know a lot of homeowners, so if we're missing something you'll have to set us straight as we try to figure things out.
Option 1: Rent
We could just find another place to rent. Taking a look at craigslist there are places available in Mountain House and Livermore. We could also look at Tracy, CA the next town to the east and live next door to MC Hammer but Tracy smells like cow poo.
It is off-season for finding rentals, but with the number of foreclosures displacing people it is likely the rental market supply will continue to shrink. The homes available for rent comparable to what we're in now seem to be a couple hundred dollars more each month than what we're paying. Plus we have the expense of hiring movers and commitment to a one year lease to consider. We've been month-to-month since last August.
One problem I have with rents is it is unclear whether the rent increase is due to increased mortgage expenses as rates reset or due to increased demand. I have been trying to track the number of listings on craigslist to see how quickly they are being scooped up. There are at least two rentals that have been available for the past 10 days.
Option 2: Buy
We are pretty confident we're not going to be in California for 30 years, but we still may be here long enough to justify buying a place. In Mountain House and towns farther east real estate has dropped hundreds of thousands in the past year and a half. Livermore and the Bay Area have softened some but are not yet affordable with a traditional mortgage. We are not far from Stockton where 1 in 6 homes is vacant and considered the epicenter of the foreclosure crisis. Is there opportunity here?
The $600k home I mentioned in the last post was ridiculous and didn't make sense. I dug up some numbers to try to figure out what was going on.
Historical Pricing Trends
Based on data from the US Census Bureau there is median house prices collected since 1940, both nationally and by state. In 1940 the median price in California was $3527, in 1950 it was $9564, and by 2000 $211,500. The best decade, 1970 - 1980 saw a 13% increase in house value year over year, and the worst decade 1980-1990 saw an average increase of less than 1% per year. Overall from 1940 through 2000 the average was around 7% per year housing appreciation in California. If you project that out to 2008, the median price of a house in California would be around $365,050.
Income-to-Home Ratio
Ok, what about income trends. I only found California data for 1990 ($33k) and 2000 ($47k). With those median household income values, we find the median price of a house being 4.5 - 5.5 times income. With the most recent data I've seen (2006) for our area, the median household income is around $75k. That projects to a house valued around $375k.
Affordable for Income
Based on income above, a traditional loan would recommend you spend no more than 30% of income on housing. Based on rates at 5.75% that projects out to an affordable home for the area to be around $330k not counting property taxes or homeowners into the equation as 40% seems generally common practice.
So, based on that data I'd expect half the homes to be priced under $350k. They're still not there yet.
Market Conditions
In Mountain House as of 01/08/2008 there were 87 active homes for sale with 7 pending sales and 2 homes sold in the last 30 days. Pulling data from trulia it looks like there were 12 homes sold in Mountain House in January ranging in price from $340k to $665k. Looking at MLS data there are 160 3+ bedroom, 2+ bathroom homes for sale in the 95391 area code. In just Mountain House as of Feb 9 there are 79 homes for sale with a high at $819k and a low of $299k and median asking price of $445k.
The economic fortunetellers are predicting home price declines potentially for the next few years. Back in October Goldman Sachs did an analysis where they concluded:
"Our house price model indicates that Californian homes are 35-40% above the price range implied by current and forecast economic conditions... economic conditions support prices between $350-$380k; material price declines are likely, in our view."
Rent vs. Buy
Given the current rental and selling conditions, is it worth it for us to buy? I put together a spreadsheet long ago that has evolved into a little python script for performing a price sensitivity analysis to figure out when to buy.
Let's take a $300,000 house as an example and make some assumptions for down payment (20%), income tax (25%), property tax (1.25%), and insurance (1%). The mortgage payment would be $1400 for a total monthly cost of $1963 with taxes and insurance.
After one year:
remaining principal: $236,912
home equity growth: $3,087
tax benefit: $4,573
property taxes: $3,750
homeowners insurance: $3,000
If we took one of the rentals at $1750 and an investment savings rate of around 4% we would increase our savings by $1,876 in interest alone for the year and put $4,433 more in savings by avoiding property taxes and homeowners insurance.
In a flat market on that $300k house, rent would need to go up to $1845 to make the costs of homeownership balance the benefit. Then it would require a 6% commission or $18k to get out of the home. That means the house would need to appreciate at least 1% a year, or 5% overall to make up the cost of selling if we were to leave in 5 years.
This model is simple and does not account for maintenance costs and I think long term appreciation in home value beyond 1% a year is reasonable -- though that was the case throughout the 1980's as mentioned above. Buying would lock in the cost of rent that could continue to rise. Anything else I'm missing?
We went to take a look at some foreclosures last weekend so I'll talk more about that in the next post.
We're amused by the funny face that RJ makes when he's dropping a load in his diaper. This is quite convenient because if we see poo face, we can change his diaper right away instead of waiting for him to start smelling. We're hoping that poo face will come in handy when it comes time to potty train as well.
RJ has been making poo face for quite some time now, but we've only now gotten it on video. The kid seems to poop when he's eating - I guess he needs to make room for more.
If nothing else, this movie might help us in the teenage years. For example, "Oh, you don't want to help mom fold your laundry? Well, I guess we'll just have to show Vicki the poo face video next time she's over to 'do homework' with you." A little negative reinforcement never hurt anyone!
(BTW for those who want a little psychology fun fact, negative reinforcement is not the same thing as punishment. It is the reinforcement of a desirable behavior by removing an undesirable consequence. So not showing the video {removing the undesirable consequence} is supposed to keep RJ doing the desirable behavior {helping fold his laundry}. It's not quite as effective as positive reinforcement of behavior, but more effective than punishment.)
When we're dressing RJ we usually say the requisite, "Where's RJ??" when his head is still in his clothes and then, "There he is!!" when his head pops out. It appears that he enjoys this game of peekaboo and now engages us in the game by utilizing his bib during meals.
Not only is this the cutest thing EVER, but it's also a sign that he's figured out object permanence. Object permanence is the understanding that things exist even when they are not in sight. Jean Piaget believed that babies don't get object permanence before 8 or 9 months, but more recent studies (mostly conducted by Baillergeon and colleagues) show that babies as young as 3 months old can understand that hidden objects exist, even though they're still unable to physically search for hidden objects. The peekaboo video is an excellent portrayal of this very amusing milestone, as is this picture of RJ (at 5 mos.) peeking around the edge of the book to see me!
So not only am I a mommy, a wife, and a professor; but I am also going to be the Acting Director of the Child Development Center on campus (a.k.a. RJ's school) while the director is on maternity leave. I'm barely juggling my other responsibilities, but in a moment of ambition and dreaming, and apparent insanity, I volunteered to take this on without being asked. Why?
First, it is exactly the type of job that I've wanted since I was an undergrad. My honors thesis advisor, Dr. Sharon Carver was the director of The Children's School at Carnegie Mellon, in addition to her appointment as a Professor in the Psychology Department, for which the school was a laboratory. The Children's School was the laboratory preschool and kindergarten on campus in the Margaret Morrison building where I worked as a work study student during my undergrad years. I loved that she could run the school and get to teach at the college level. Her research was based on the learning environment - and it was her research that got me interested in pursuing a research-based PhD rather than a clinical PhD.
Second, I was really interested in helping Jennifer (the current, very pregnant director of RJ's school) improve the Child Development Center in terms of its thematic curriculum (one of my research interests) and making the school easier to conduct research in.
and Third, who wouldn't want to be in charge of her son's school?
I saw Jennifer's pregnancy and maternity leave as an opportunity to get a taste of what my "dream job" was like for a semester, without making the long-term commitment. So in addition to teaching two classes (Human Development I and Early Social & Emotional Development), I will also be taking over as director when Jennifer goes into labor or the first week in April, whichever comes first! Starting on Wednesday (the first week of the Spring Semester), I will be transitioning in as she is transitioning out.
Stay tuned for more thoughts as my experience unfolds... hopefully I'll have time to blog!
"When I was young, parents encouraged their kids to eat their vegetables by saying, 'People in India are starving.' This is the sort of parenting that teaches children values, such as stupidity. To this day, when I think about people who are starving, I eat a little extra. I think it helps." --Scott Adams
January was a month of food exploration. Our first week back from the holidays we started the pattern of oatmeal at 6am for breakfast, rice cereal at noon for lunch, and multigrain cereal for dinner at 6pm. He's eating three heaping tablespoons mixed with freshly pumped breast milk. We've gradually been introducing vegetables and fruits as well to go along with his cereal -- once a week at first but now pretty much one new one every 3-4 days. He eats about 1/2 jar (~2 oz.) each serving.
He is getting a fruit with breakfast and vegetables with lunch and dinner. So far we've introduced in this order:
We have started making our own avocados, sweet potatoes, bananas, butternut squash, and peas with a Food Mill that we ordered from amazon. We mill the food, blend it with liquid if necessary, and then put it in ice cube trays to have serving size portions for later.
Squash has been by far the easiest baby food to make. The consistency was just perfect. Next week he will try beans and then mango.
We are renting a 2000+ sq ft house in Mountain House,CA which was intended as a foothold to get to know the areas before deciding where we wanted to settle down. We checked out new construction in Livermore last year where they wanted over $600,000 for a condo. We looked at the numbers and then at the Shea representative and questioned how anybody can afford this. If you haven't been following the news the past six months -- the answer is not many people could.
This past Sunday Carolyn Said in the SF Chronicle reports:
The lending debacle, which wiped out hundreds of billions on Wall Street, made the stock market tank, triggered hundreds of thousands of foreclosures and led the nation to the brink of recession, may be the biggest financial mess of all time.
Some 316,769 California borrows received subprime loans in 2006, the study said. The foundation said that in 2006, more than 90 percent of subprime mortgages in California were adjustable-rate mortgages and the "dominant type" of subprime loan was one that reset in two years. In 2006 there were 12,672 foreclosures in California according to DataQuick Information Systems. In 2007 there were 84,375, an increase of 565.8 percent.
The Tracy Press reports on Mountain House that there have been
50 * homes that have fallen into some stage of foreclosure in the past six months
There are only around 2000 rooftops in Mountain House.
The other day we got a business card in the door. Written on the back was the owners name with a note "I'd like to help you with your situation". The other side of the card identified it was from a risk mitigation real estate company. I called up the property manager who was able to confirm that the home we are renting has had a first notice of default.
What we know so far:
The owner owns more than one property in foreclosure
The owner stopped paying the mortgage, but the property management company informed them they must put our rent toward the mortgage or face criminal penalties
It usually takes a minimum of 120 days to reach the point of foreclosure
The property management company has our deposit so the owners can't run away with it
Banks can only have some percentage of homes in foreclosure at a time or risk losing access to federal funds -- so we are probably in a queue of homes until the bank can get to it so we might have as long as 6 months
We haven't received it in writing yet, but are being given 60 day notice from the owners, after which we can stay as long as we pay rent up until the bank tells us to get out, and we can leave at will without giving notice
The bank must give us at least 30 days, but we might be able to argue for 60 days since we've lived in the house for more than a year
This means we need to find RJ a new bedroom sooner than we had anticipated. We have started weighing our options which we'll discuss in the next post.
I think the title says it all. We've achieved independent forward motion in the form of the army crawl! He's been moving around in circles on his stomach for a couple of months now, but last Sunday (1/27) he just took off across the living room. He also enjoys assisted "walking" and is generally happiest when standing up.
Enjoy the video - after all, a picture is worth a thousand words.
