Sunday, May 13, 2007

Sacramento Regional Real Estate Trends for May 13, 2007

Happy Mothers Day! Going to make this one short and sweet as well, since I've got Mom stuff to do.

Please note that I've decided to remove from the graphs the data affected by my undercounting of higher-priced houses. The period is between March 31, 2007 and April 22, 2007. All my older graphs are available in the archives of the blog if anyone is interested. Going forward, I want to stop reporting the bad data.

Well, we made it to the 16,000 club. Inventory shot up 1.8% to 16,126 from 15,845 last week. That is 14.5% higher than last year at this time:


Price level inventory is keeping with previous trends. The $200K-$300K price range in Sacramento County is over 25% of all listings:


It appears that asking prices are still trending downward everywhere except El Dorado County. Median asking price in Sacramento hit a new one year low of $340K:


Flipper inventory seems to be leveling out once again, which means the overall flipper ratio is decreasing slightly:



Unfortunately, I acquired the mid-April sales data after I ran these stats, so there might be a jump in the flipper numbers next week. Consider that fair warning. :)

The weekly change data speaks for itself. Nothing really remarkable except the huge influx of new listings in El Dorado and Placer counties:


25 comments :

Bubble Sitter said...

Max,

Your mother should be very proud. Please give her our best, since she has given us one of her best!

Real said...

I am a little confused with the gaps in the chart and the reason exactly why the data was removed, but regardless, I would think these numbers are valid even I drew a straight line from the beginning of the gap to where we are today on inventory:


YoY Inventory Increase (per your previous blog postings)
April 14th - 17.6%
April 29th - 18.7%
May 13th - 14.5%

So, maybe there are events that are causing listings to lapse, etc, but it looks like the rate of increase over last year may have finally turned. If this is the case, it would imply that the sub-prime meltdown, etc has not caused any accelerating issue which may have caused prices to come down overall. Instead, we see the market stablizing (as seen by prices in mature, desireable neighborhoods flattening and/or increasing) as measured by a decreasing rate of increase. Maybe I am interpreting your data incorrectly, but with sales well off last years pace and inventory growth (YoY) decreasing, the worst may be behind the market overall as it is passed the mature/desireable neighborhoods already....

Patient Renter said...

"it looks like the rate of increase over last year may have finally turned. If this is the case, it would imply that the sub-prime meltdown, etc has not caused any accelerating issue which may have caused prices to come down overall."

Wrong, all that decreasing inventory growth implies is that there are only so many houses that could possibly come on the market. Eventually inventory will peak as it does every year. Does that mean prices can never drop for more than a year because inventory peaks every year? Look at previous housing crashes for the answer.

Real said...

Wrong, all that decreasing inventory growth implies is that there are only so many houses that could possibly come on the market. Eventually inventory will peak as it does every year.

I really don’t understand your point here unless I make the assumption that you misread the statistics as month to month increases vs. Year over Year. If month to month, yes, the numbers will peak in the July/August timeframe and then go down for the remainder of the year as this is a seasonal pattern displayed for many years. My point is that these are YoY comparisons which give us an insight into just how much higher 2007 peak inventory will be over 2006 peak inventory. I believe that you will concede the point that your (and the other bubbleheads) argument is that “High Inventory = Lower Prices”. Looking at the numbers for last Q4’06 and early Q1’07, many would have thought 2007 inventory levels would peak 20-50% higher than 2006 given slowing sales AND shocks to the system like tighter lending practices and sub-prime meltdown, etc. However, with this latest bit of data, it looks like the peak could be only 0%-15% higher despite all the shocks to the system. I think this is likely a result of decreased builder activity and the disappearance of investor homes form the market and I would expect the decreased builder activity to lend further decreases to the inventory build in 2008 once the true impact of the expired land options fully hits.

My premise for the market as a whole is that if inventory does not go up significantly from 2006 levels (20-50% higher) and sales stay constant to 2007 year to date volumes (adjusted for seasonality), you will not see a large scale decrease in prices in the Sac region overall. If builders have free reign and build down to a 0% margin and pump inventory into the 35K range – yes, prices will come down across the board but we know this can no longer happen given the raw land is no longer available. But, if inventory remains <25K peak for 2007, you won’t see significant downward price movements on the year. This, combined with decreased builder activity in 2008 and a forecasted pick-up in home sales in 2008 would lead to flat prices in 2008 as a worst case scenario with a return to a 3-5% increase in prices a more likely scenario. Now, these statements are for the city overall – pockets within the city will see different dynamics with new neighborhoods suffering while the mature/established neighborhoods continuing to rise as we have already seen starting in Q4 of last year. The key to all of this is the builders and their margins. The expired land options are a great thing for existing home owners as it will not only delay the introduction of new homes once demand rebounds (driving prices higher) but it raise the builder’s costs significantly as they will need to rebid for the options restricting their ability to price low.

I think one of the main issues with the bubbleheads is what I would describe as the ‘Taco Bell Syndrome’. You incorrectly believe that housing supply is the same as the supply of taco’s produced at Taco Bell. Your belief is that the house has a limited shelf life like a taco and the owners will eventually capitulate and make a sale at a low price to avoid having the product spoil under a heatlamp. That view is pretty accurate for a builder, but it does not describe 99% of homeowners – hence, your ‘supply and demand’ ratios do not cause huge decreases in price. There will always be some people needing to sell because of a divorce or changing jobs, but most homeowners in the past 3 years were ‘upgrade buyers’ (their old houses becoming inventory) that move out of choice not out of necessity making it unlikely that they will drop price because they don’t have to ‘upgrade’ unless it makes sense financially. ‘Upgrade buyers’ (non-1st time homebuyers) represented 70%+ of all new sales for the last 3 years.

Patient Renter said...

"Looking at the numbers for last Q4’06 and early Q1’07, many would have thought 2007 inventory levels would peak 20-50% higher than 2006 given slowing sales AND shocks to the system like tighter lending practices and sub-prime meltdown, etc"

No, not really - most of the factors that will sustain abnormally high inventory have not yet played out.

"However, with this latest bit of data, it looks like the peak could be only 0%-15% higher despite all the shocks to the system. "

When are you going to learn, this thing has a ** L-O-N-G ** ways to go. By long I mean years. Mortgage resets haven't peaked, NODs haven't peaked, forclosures haven't peaked, new builder inventory hasn't peaked, tightening of lending standards hasn't peaked - nothing effecting inventory has peaked and we still have a long ways to go until it does - again, think years.

"it looks like the peak could be only 0%-15% higher despite all the shocks to the system."

As stated above, the other shocks to the system have just begun. Besides, 0-15% higher than last year's near record inventory is more than enough stimulant to continue driving down prices.

"My premise for the market as a whole is that if inventory does not go up significantly from 2006 levels (20-50% higher) and sales stay constant to 2007 year to date volumes (adjusted for seasonality), you will not see a large scale decrease in prices in the Sac region overall."

Why would 2006 inventory levels be enough to drive down prices, but magically in 2007, equal or greater amounts of inventory would no longer effect prices? Your premise sucks - and even if it didn't suck, again, all of the factors effecting inventory still have a long ways to go.

Real said...

Why would 2006 inventory levels be enough to drive down prices, but magically in 2007, equal or greater amounts of inventory would no longer effect prices?"

For the better neighborhoods, 2006 inventory DID NOT drive down prices. Further, the inventory numbers are for existing homes and do not include the inventory of the builders that are in-process. As such, my premise is that the builder inventory drastically reducing means that the reported existing home number can be higher AND NOT drive a price reduction. The main reason why the mature neighborhoods did not decrease in price is that NEW INVENTORY is out of the question as the areas are completely built.

I did notice that you did not go back and clarify your point on inventory peaking for the year - I will take that as an admission on your part that you didn't know what the hell you are talking about and your fingers were working much faster than your brain. If you have a different take on how your logic applied to the numbers I posted I would love to hear it.

On the bright side, you managed to make is through your entire posting without the 'revert to the mean' and 'price goes up at the rate of inflation' BS that you were spewing just a few weeks ago. Hopefully, you realize just how ridiculous your 'revert to the mean' theory is and you will move on to more sound arguments in the future.

Sippn said...

Why didn't I think of the "Taco Bell" argument. Aye.

Real said...

Why didn't I think of the "Taco Bell" argument. Aye.

Do you argee with the argument? Curious on your take....

Sippn said...

Oh yes.

Builders will not build new projects without evidence profits are available - profits are a necessary part of business.

Permits and fee increases are offsetting other cost savings.


CA is a developable land rationing state. Those who can bid the most, get the real estate. If you mandate 5% affordable, 5% of the bottom earners get that product, cheating out 5% of the middle.

Pie Argument:

CA is like a pie. We get one pie this year, how small do you want the slices? How much are you willing to pay for a big slice? Are you willing to wait for next years pie? Do you want the left over pie? Do you want the foreclosed upon pie, it has a bite taken out of it. Ha Ha.

Patient Renter said...
This comment has been removed by the author.
Patient Renter said...

"you managed to make is through your entire posting without the 'revert to the mean' and 'price goes up at the rate of inflation' BS that you were spewing just a few weeks ago"

My comments you refer to included references to research by Robert Shiller Dean Baker. So the historical based conclusions of two of our nation's best economists are "BS"?

Sippn said...

I'll defend Real - sure I doubt those economists - have them explain res real estate prices in London and Tokyo vs those quotes.

If they pick the time period in question, I'm sure they'll be right. If I get to pick, they'll be wrong.

Patient Renter said...

It might help you guys to know even the smallest bit about Shiller's research before you make a pathetic attempt to discredit it.

For research that has been accepted by the academic economics community, it would be pretty impressive for a no name, untrained anonymous blogger to discredit it, don't you think?

Real said...

"My comments you refer to included references to research by Robert Shiller Dean Baker. So the historical based conclusions of two of our nation's best economists are "BS"?"

For your comment to be true "price only rise at the rate of inflation" than all real estate in the US would cost exactly the same (US rate of inflation tied to fed reserve policy). The only way that would not hold true would be if everywhere has a different rate of inflation which would explain the different prices. Now, what was the rate of inflation for San Franciso vs. the rate for Sacramento? How are you computing the 'the rate of inflation'? If you define inflation as 'the rate housing prices increase', than you theory is sound, but then again, that defeats the purpose of your argument. I would be willing to bet you that the average home price in Medford, WI will never equal the price of a similar house in San Francisco - your 'revert to the mean and then rise at the rate inflation' says that it will. That argument is ridiculous - regardless is you or Albert Einstein makes it....much less economists using model that do not hold up to real world behaviors.

Patient Renter said...

Real, you are a complete waste of breath.

If you think you, the untrained, annoying, anonymous blogger have found some spectacular flaw in Shiller's research that he amazingly overlooked - how about you send it to him. I'm sure he'd love to hear how "ridiculous" his "BS" research is and for you to tell him how to correct it.

Real said...

Oh, and BTW, maybe you should actually do some reading on Shiller. He is best know for his 'Irrational Exhuberance' book written in 1996. In the book, he said that there was a stock bubble and that the next 10 years would show no growth. Well, when Greenspan gave his famous speech in Dec. of that year, the Dow Jones was at just over 6,000. 10 years later, the Dow was 12,000 and showed >8% annual growth vs. Shiller's prediction of 0%.....

Well, if Shiller is as 'right' about this bubble as he was about the stock bubble, you should look forward to renting a long time. BTW, there is no need for me to discredit Shiller - his own predictions and the subsequent observed market prices do that for me....

http://online.wsj.com/article/SB116537283751041900.html?mod=opinion_main_commentaries

Patient Renter said...

"He is best know for his 'Irrational Exhuberance' book written in 1996. In the book, he said that there was a stock bubble"

"Well, if Shiller is as 'right' about this bubble as he was about the stock bubble"

Did you not read this before you wrote it or did you not get the memo that there was indeed a stock bubble and that Shiller was indeed about the only major economist to predict it?

I think we're too far off topic and you're just trolling at this point, so I'm done.

Real said...

"Did you not read this before you wrote it or did you not get the memo that there was indeed a stock bubble and that Shiller was indeed about the only major economist to predict it?"

Please read the WSJ piece. The stock bubble was created a full 2 years - starting in 1998 - after Shiller published his book. Despite the run up in 1998 and the subsequent correction, the realized return on stocks was >8% vs. the 0% predicted by Shiller. If 8% returns (doubling in value over 10 years) when Shiller said no growth is being 'correct', then I see how you believe your theories are correct as well. BTW, Shiller started crowing about a housing bubble 5 years ago - I bet there aren't many people that listened to his advice from 5 years ago that think he is correct. If someone constantly says prices are going to fall, eventually they will be right. But in the long term, you pass up gains as seen in the stock market of >8% annually. Sorry, Shiller was wrong then and thus far, he is wrong now. But don't take my word for it - read the Wallstreet Journal....

Real said...

Patient Renter, it seems as though you refuse to read the WSJ opinion of Mr. Shiller so I will present you the data so hopefully even you can see that he was dead wrong:

DJIA Dec 1st open of each year
1996* = 6,400
1997 = 7,838
1998 = 8,725
1999 = 11,158
2000 = 10,647
2001 = 9,764
2002 = 8,536
2003 = 10,046
2004 = 10,675
2005 = 10,833
2006 = 12,417

* In 1996, Shiller book was published talking about a ‘stock bubble’ in 1996 based on P/E valuation. He stated that this ‘bubble’ would pop causing stock prices to crash (from their 1996 price levels) and that there would be 0% return over the following 10 year period (1996 – 2006).

I have given you the data, let’s see how he did. Did stocks drop below their 1996 level that was an ‘inflated bubble’? Lowest they came after there correction was Dec 2002 which was 8,536. Strange, the ‘bubble popped’ but prices were still 33% higher than Shiller’s inflated bubble of 1996…..

Well, maybe he was right on his other prediction about no growth from 1996 – 2006…
Seems the market went from 6,400 to 12,417 – wow, that is a 94% increase in price from the ‘bubble’ and seems a lot better than 0% as predicted by Shiller – maybe you think the numbers are still close?

Now, did the stock market have a bubble? Yes, but the bubble inflated in 1998-2000 and when it popped, the price went back to 1998 levels. This is a clear indication that when Shiller wrote his book in 1996 claiming that there was stock bubble in 1996, he was WRONG.

I suggest you go get your fellow ‘economist’ Diggin Deeper and maybe the 2 of you can get one of your Sac State teachers to show how a 94% gain in the stock market really is equal to 0% and the Shiller was right. Or maybe, you can simply open your eyes, look at the data, and if all else fails, read the WSJ article to find out that your hero doesn’t know what the hell he is talking about.

Sippn said...

Got to hand it to Schiller, had a really great book idea.

Max said...

Wow, you guys are better than a boxing match at Arco (or a melée at a Shell station in Elk Grove. :)

Really, I think the only purpose served by comparing recent data to 2005 data is to prove how abnormal 2005 was. It's normal to have a disjointed housing market in Sacramento, and depending on how you slice it, you will have areas that rise in value even as the entire rest of the market takes a dump.

BTW, check my mea culpa post as an explanation for the missing data. Sufice to say, all the inventory and price data was underreported due to a programming error on my part. I would rather delete the data than report false information.

Real said...

Patient Renter - were you able to talk with Diggin Deeper and your Sac State econ prof yet? The data is there for you and your argument has been debunked (not just by me but by the WSJ and history). Are you at least man enough to admit that you were wrong? I am just curious as if you still refuse to admit your error, I see no point in responding to you in the future given you do not base your assumptions and arguments on facts. Thanks.

Patient Renter said...

"I see no point in responding to you in the future"

ditto.

Patient Renter said...

"were you able to talk with Diggin Deeper and your Sac State econ prof yet?"

http://en.wikipedia.org/wiki/Internet_troll

Anonymous said...

"Oh, and BTW, maybe you should actually do some reading on Shiller. He is best know for his 'Irrational Exhuberance' book written in 1996."

Wasn't the book published in 2000, just before the dot.com implosion?