Sunday, February 25, 2007

Sacramento Regional Real Estate Trends for February 24, 2007

Inventory levels increased with a vengeance this week, shooting up 2.3% to 13,357 over last week:


About half of that increase was in the $200K-$300K price range in Sacramento County:


It is only a matter of time before the price-range trends start affecting overall asking prices. Although they have stabilized over the past month, median, average, and price-per-sqft asking in all four counties is at an almost 1 year low, with only Placer showing a modest increasing trend in average asking price:


Flipper inventory continues to rise in all four counties as well:


Though not as fast as overall inventory. Thus, flipper market share has stabilized:


Looking at flipper market share in Sacramento a little closer, a pattern is beginning to emerge on a rough, 60-day time scale:


I would only be speculating (no pun intended) if I tried to explain this phenomenon, but here goes:

We know that inventory cycles on rough 30, 60, and 90 day intervals, centering on the first of each month. This is due to the typical listing contract durations a seller agrees to with an agent, and tendency to list around the beginning of a month. (The "roughness" comes in when a listing expires during the middle of the week, and doesn’t get re-listed until the following weekend or after a holiday.) Combined, these two factors lead to a pattern like this:


with weekly increases and monthly drops. Now, logic would indicate that flippers would adhere to the same cycle. However, if that were the case, we would not see a pattern in the market-share trend tied to the inventory cycle that would differentiate flippers from the rest of the market. This means that a disproportionately large number of flippers are dropping off and re-listing with the MLS at the same time.

Here is where the speculation comes in. Ruling out the possibility of a vast flipper conspiracy where they all get together and decide when to list their properties, I would guess instead that a large fraction of these flipper houses are owned by a mere handful of individuals or companies. Could it be that more and more of these flipper houses are falling back to the banks, even if they are not selling for less than the previous sale price? What does that say about HELOCs or "sloppy second" loans?

Or is it possible that a large REIT got into the flipping game in Sacramento, and is now left holding the bag?

Please, feel free to speculate in the comments. I would love to find out what is underlying this trend.

14 comments :

Anonymous said...

Max, I am not understanding what you are tryinig to interpret here. I think all listing patterns in residential probably revolve around weekends, since that is when home owners can meet with listing agents.

Are you saying flippers are different? And that that data you refer to here is only for flippers or FITs?

Max said...

Are you saying flippers are different? And that that data you refer to here is only for flippers or FITs?

Yes, that's what I'm saying. Flipper listings, as a proportion of the market, slowly decrease until about day 60, then jump back up. This has been happening for the last 6 months.

Now, if flipper re-listings were distributed evenly over time, you would expect no pattern on the market ratio graph.

Flipper houses are behaving as though they're all being re-listed at the same time, every 60 days or so. That implies they're tied together somehow.

How they're tied together is anyones guess.

Perfect Storm said...

Flippers tied together, maybe a bunch of short sellers getting together and trying to gear the market.

Who knows?

Anonymous said...

Max, it is difficult to speculate without more data, but as Sittin' noticed in the FITs listings for 2/19/07, it appears the lenders are taking back more properties and wiping out the 20% 2nds, then immediately listing for the amount of the 1st mortgage or even less.

The example used in the blog comments was for 3443 Stoney in Placer County. It was sold on 5/11/05 for $479,000 with 80/20 financing by Mandalay Mortgage. Deutsche Bank foreclosed it on 11/13/06 (and evidently it counted as a "sale" in MLS at $400,500 or $201/sf). So Deutsche now owns the house and has it listed for sale at a $380,000 asking price ($190/sf).

By the way, your FIT stats show this Stoney house as a 5.1% loss of $20,500 from the point Deutsche took title. In reality, this is a loss of $99,000 from $479,000 in 2005. Thus it is total loss of 21% from the high point in 2005. And clearly, no one is going to offer them the asking price. A similar house on Milburn just sold at auction for $315,000 and closed escrow a few weeks ago. If the Stoney house goes for $315,000, it will be a 34% mark down from mid 2005. That is approaching 2002 values.

Your point this week appears to be that normal listing patterns suggest individual listings often expire mid week, yet are typically renewed on the weekends. Is the abnormality you question about why the FIT listings are renewed immediately upon expiration, mid week? Or why they seem to act mid week in concert with other FITs?

I suggest to you that large shares of the FIT listings are already lender owned, and they do business on weekdays, perhaps even month end, when they might bundle up all the REOs and list them. I also think the individual FITs are super motivated sellers and the agents that represent them are probably very hungry and let no grass grow under their feet. Expired listings are a beacon for other agents to call the seller and pitch a fresh horse to pull the wagon train. The only other explanation is an investment group owns a disproportionate number of FITs in Sacramento, which brings up a whole new set of questions, similar to the Filipino mortgage fraud scam in Temecula. How ironic would it be if all the innocent FITs in Sacramento came to realize they were bidding on houses against a funny money fraud ring which bumped values $100,000 to $200,000 per house? It is a painful road back to reality.

There seem to be a lot of irregularities in the market these days. Foreclosures are growing and yet they are counted as sales, so sales are definitely picking up in Sacramento. Can you separate out those REO take backs to see what is really be sold by third party sellers who are not institutional? Can you sort by date to see which FITs are re-listing midweek and month end, vs the weekends and look for a pattern? Is there enough time in the day? Do you have a real job?

I must say, you have a way with the numbers and it is always fascinating to see what you come up with on your blogs.

Sippn said...

Yea Max, get to work! Who needs that pesky day job anyway.

Looked at the listing turnover and it appeared normal month end stuff. No wild plot! But could be a single bank with 20-40 properties?

Talked to my friend the foreclosure buyer 2-3 weeks ago and he said that the deals weren't as good as normal yet cause the banks were protecting their positions. (wow it really is normally worse?)

From a retail point of view, we're (us readers that is) all shocked, but that wholesaler is not seeing too many opportunities.

Again, likely depends on the price range, a certain amount of foreclosures is normal (not the 2002-2005 levels). Saw a $1.4 mil REO listed 2 days ago in Los Lagos and sold immediately. At least someone with $$ recognized the deal - about $400-500K low.

Another friend of mine went to buy a REO and the place was filthy - cat stuff on the carpet. Should this property be used as a comp?

Anonymous said...

Sippin,

When does your foreclosure buying friend expect to see the market tank to the level he will see some good deals?

Sippn said...

Probably now if the 2nds weren't being protected so much. Becaue of the equity situation or lack of required down payments, the banks are protecting their own positions instead of letting the foreclosure flippers take them off their hands.

Anonymous said...

That's a lender for you.....always willing to lose other people's money, but pucker up when it's time for them to take a hit!! Oh well, let them hold on for while. It all they have left. They will capitulate soon enough when the regulaters come knocking. Can they spell R-T-C?

Max said...

Yea Max, get to work! Who needs that pesky day job anyway.

I could literally do this full time. There's so many ways to look at this picture, and so many stories to chase down. The Bee has at least one full-time guy doing RE stories, and he can only find one story a week. :) I could do one a day, easy. I guess if you're only looking for good news...

Looked at the listing turnover and it appeared normal month end stuff. No wild plot! But could be a single bank with 20-40 properties?

The flipper listing increases were 226 on 9/23/06, 108 on 12/9/06, and 97 on 2/9/07. So maybe a bank holding 100+ properties...

With some work, I could probably track down actual listings and pinpoint the addresses in question. That would at least tell us if it's the same houses being relisted each time. Since the numbers are trending down, it's possible that these properties are selling...

Not enough hours in the day. :)

Anonymous said...

Max, Sac Landing has this at the top of the stories today:

"Lenders in the four-county area took possession of 814 homes in fourth-quarter 2006, a 1,300 percent increase from the same three-month period in 2005."

If a bunch of the FITs are from lender owned properties, because they foreclose for the loan amount which more than the property is worth, then you have the logical place to look for your trend confirmation.

The lender waits for a bunch of foreclosures, dishes out the listings and signs the agreements all in one mid week day.

By the way, if you have 860 FITs this week, up from 600 a couple of months ago, the foreclosures are probably adding significantly to the stats, also.

I still would like to know if foreclosures are counted as sales in the MLS stats. There were probably 4200 sales in the last quarter of 2006. If 814 were foreclosures (which will eventually be counted as a sale again), then the sales numbers are bogus by about 20%.

Sippn said...

MLS stats typically only included transactions performed by members of the local Asso of Realtors.... sales transactions, listings, pendings, withdrawals.

So when you see # of homes sold via MLS, its only transactions reported by a Realtor. Will not include most builder transactions ("706 in January for 60% of subdivisions" per builders asso)

MLS in Sac in January = 823
New Homes per builders = 706

Foreclosures not included in any of this.

Anonymous said...

Thank you Sippin. This is all very interesting data.

Sippn said...

WHich kind of brings up another point ... new home sales often move up and down along with MLS resales, but what if it didn't?

THis last fall builders started to figure out a way to sell their homes, incentives and pricing, and it further slowed the resale market in those areas. In areas where that wasn't a lot of new supply, the resales often improved.

I think I'm right, Max.

Off to the paying job.

Max said...

So when you see # of homes sold via MLS, its only transactions reported by a Realtor.

This is why you have to take Realtor Association numbers with a grain of salt. Sippn is right: the MLS data is only showing ~50% of RE activity right now. Strictly from a price perspective, MLS listings are not the best deal right now, from what I've been able to gather.

THis last fall builders started to figure out a way to sell their homes, incentives and pricing, and it further slowed the resale market in those areas. In areas where that wasn't a lot of new supply, the resales often improved.

You're not wrong, and this proves my point. Where new houses are being sold, the resale market is depressed. This is really putting the screws on the flippers who are trying to sell two years later and can't break even.

From a buyers perspective, this is great news. Just don't believe the "buy now before prices go up again" hype. The way credit is contracting, prices aren't going anywhere but down for a long time.