Saturday, July 22, 2006

Four-County Inventory Record Has Been Shattered

You heard it here first, folks. The four-county Sacramento region inventory now stands at 18,114, exceeding the population adjusted record of 17,913 (as calculated by oc_renter at Bubble Markets Inventory Tracking) by 201. We are also within striking distance of another record based on the increase in the total number of housing units. We are in uncharted territory. Sacramento has never seen this level of inventory, ever. And it keeps going up.



Another big story is the continuing erosion of pending activity in Sacramento County. Pending levels have dropped again w-o-w, to 8.9% of total inventory, or 1,120 out of 12,608 listings:



So, inventory is at record levels, and pending sales are dropping. One thing is for sure: this can’t be good for the market.

13 comments :

John in Rocklin said...

Max, If there are pending sales in Sac County of 1,120 houses, and there are 12,608 listings, does that mean we have an 11.25 month supply of homes, at the current "burn rate" (to use dot.com bubble talk). Are the pending sales for a 30-day period?

I find it pretty strange peopel are STILL denying a buyer's market.

Garth Farkley said...

Rocklin John:

Let me take a shot at your question.

The RE industry computes "X month's supply" by dividing current inventory by last month's sales volume. The concept of this benchmark is to show how long it would take to sell every house currently listed if there were no new listings and if sales continued apace until all homes were sold. This is of course a very artificial concept but it's how the Realtors try to gauge if a market favors buyers or sellers. Generally they argue that six months is a normal supply and a balanced market. I'm not vouching for these concepts, just repeating what I've learned from industry experts.

Garth Farkley said...

Max,

First, let me thank you for all your great work on this blog. It's a tremendous civic service to publicize and scrutinize this data as we watch this thing unfold.

Second, would you care to comment at all about the sources for your total inventory numbers? I might have missed it.

As you probably noticed, OCRenter recently added a few notes on his sources and the components included in inventory. Although all the Sac bloggers are within spitting distance of each other, you are all consistently and a bit maddeningly different.

You can make headlines with the population adusted all-time record so a word about components might be in order. Ulimately, I suppose, one has to go back to '92 to figure out what components were counted then. I'm not sure anyone can.

The '92 number seems to come from a news article. It's never discussed much. But it sounds about right looking at the history starting in '93. I don't want to offend anyone by citing other blogs (although you already gave an h/t to OCRenter).

darth toll said...

john in rocklin,

Not to parse your language as I understand the basic sentiment in your post. However, we are most certainly NOT in a buyer's market. The whole "buyer's market" concept is just more Realtor spin to flush out unsuspecting fresh meat, and is far from reality. In order to be a buyer's market there has to be more buyers, and I would submit that there are precious few of these as the numbers show.

What we have here is a plain old crash in the making, where you have many asks but no bids, so the pricing is either unknown (no market-maker to facilitate bid/ask) or the ask is in a slow-motion freefall. I agree with your months of inventory statement and this is the dirty little secret that the spinmeisters didn't want out. If inventory shoots up AND pendings drop at the same time, the months of inventory metric can skyrocket in a hurry, thus showing how a hot market can become "balanced" and then ice-cold in a matter of a few months.

Max said...

As you probably noticed, OCRenter recently added a few notes on his sources and the components included in inventory. Although all the Sac bloggers are within spitting distance of each other, you are all consistently and a bit maddeningly different.

This is a source of frustration for me as well. I actually get my inventory data from two locations, the Metro MLS site and an IDX source. The MLS site includes pending listings, which is where I get that number. There are three other web pages besides mine that post inventory data:

http://bubbletracking.blogspot.com/
http://sacramentohousingbubble.blogspot.com/
http://www.benengebreth.org/housingtracker/

bubbletracking and sacramentohousingbubble seem to agree rather well. Comparing them on a day they both have data for (7/20/06), they're within 121 of each other, so they might be using slightly different search criteria. I believe they both get their data from ziprealty.com. I can't speak for benengebreth.org, they seem to use a hybrid approach that includes random parts of cities and neighborhoods.

It's possible that my IDX source includes some broker's data that isn't forwarded to the MLS. I've written to all the authors of these blogs asking for more detail on how they get their numbers, and none of them have replied back. Believe me, I really want my data to be correct, and I think my numbers are, but until the four of us resolve this question, we'll just have to deal with four different numbers.

Besides, I think what matters here is the overall trend, not the specific number. :) I think it's worth noting that all four of us are consistently higher than the "official" SacBee numbers, so collectively, we're telling people a story that they're not getting anywhere else.

As for the "months of inventory" question, I think you're right on. I can't draw a conclusion about months of supply based on the numbers I have, but I can say that there are fewer houses "in process" now than there was last week. I believe this is an indication of a declining market.

Anonymous said...

Today there were a few articles regarding homeowners who are refinancing AGAIN in order to "put off the pain". There's a post about it over at Calculated Risk:

http://calculatedrisk.blogspot.com/2006/07/putting-off-mortgage-pain-until.html

I'm wondering how everyone thinks this sort of behavior might slow the impending crash in the Sacramento area.

Mozo Maz said...

Thank you Sacramento Bee! If you hadn't been out in front of this story, we never would have known about this dying real estate market. What an important service you have provided to our communit...

SSsnnk. Mmmph. [Yawn!]

Oh man, What a weird dream... I thought the local media was doing some objective investigative reporting, or something...

Anonymous said...

Do you keep track of other markets. I am interested in the trend you note for Sac as I live outside of Boulder, CO and am seeing the same trend here in Boulder County.

Garth Farkley said...

Max,

Thanks for all your hard work and your reply re sources and methods. I know you asked the others for clarification/consistency. I saw your gracious comments there.

Bottom line, thank you. It's an amazing time. And it's a relief to be a renter (by choice). I sold a home on the coast in the fall and began shopping in Fair Oaks. Many others surely experienced the same sticker shock. I decided to rent. Then my move got put on hold, and I'm quite relieved.

I agree it's the trend that counts. And with unprecedented new home construction in Sac, the overall supply of single family homes is surely at least tied with '92. That is, an all time high.

Many circumstances today differ from '92. But the most relevant imho is the local hot rocket ride from '01 to date leading to the current exorbitant affordability multiples based on median income. I haven't seen any metrics for '92 but I bet they can't compare. In other words the fundamentals supporting the towering inventory today are much more precarious.

I’ve studied the OFHEO numbers for 1st Qtr ’06. I focused in on the fifty largest MSA’s as defined by PMI mortgage. Sac was one of only five large markets that actually saw a decline in prices in the 1st quarter this year (almost 1 quarter point price decrease over 3 months). What struck me was the 112% price rise Sac saw from 1qtr ‘01 thru 1qtr ’06:

MSA Sac-Arden-Arcade-Rsvlle Price Change
1-Yr......1Qtr......5-Yr.
13.18%...-.24%...112.23%

As best I can see the very first OFHEO index was in ’95 so I can’t gauge what the run up and affordability were like in ’92. But, I doubt they were this precarious.

The combination of rocketing prices, sticker shocking unaffordability and historical high inventories should tell us what comes next.

patient renter said...

garth:

Don't forget to factor in the ARMs, which weren't a real part of the problem in the early 90s. Forclosure numbers and everything else resulting from rising mortgage payments for everyone who took out an ARM need to be taken into account.

Garth Farkley said...

Patient,

I agree there are a whole host of other factors and components for the current stinky housing stew. I also agree that the current rising foreclosure rates will be aggravated by the coming ARM reset wave (tsunami?). That is one component. A few of the others include capital gains changes, "creative" lending standards, potential job losses from an RE/construction industry recession snowballing into the a more traditional and broad based job loss/housing deflation scenario. These are a few of the many crucial problems--I know there are many others. I'm really not an expert at all.

But the net effect of everything is the outrageous exorbitant affordability multiples we are seeing. That is, how many multiples of average income does it take to buy the median home? I doubt it's ever been so bad before. (Rent capitalization multipliers are the analogous issue for income/rental properies and they also seem to be unprecendented.)

Measuring how fast we got here shows imho how steep the descent may be and just how precarious our prices are. In my layman's view the volatility of the upswing suggests a highly volatile drop. I'm guessing we may see a rapid drop back to more traditional levels of exorbitant unaffordability like we had grown used to in California.

clark said...

Are the pending sales for a 30-day period?

No. How long is a home typically pending? 3-4 weeks would be my *guess*. Which would equate about 9 months of inventory - assuming all the pendings go through, which they won't. Once you account for the amount of pendings that won't go through the inventory is probably around 11 or 12 mo?

Garth Farkley said...

Clark,

Someone else can correct me if I'm wrong Here's my two cents: You divide current total inventory by last month's sales volume to derive the "months of inventory" benchmark.

It's just an artificial benchmark. It doesn't really mean anything by itself, just a way to chekcing how sales stacking up against inventory compared to other historical, or traditional time periods.