Sunday, September 16, 2007

Sacramento Regional Real Estate Trends for September 15, 2007

Inspired by Bubble Sitter who has diligently been adding up the "Total Losses" value over on the Flippers In Trouble site, I ran a plot of the sum of all the asking price losses for each county over the last year and a half:

The peak in asking price losses corresponds well with both the overall inventory peak as well as the FIT inventory county peaks, but not with SIT inventory (there aren't any peaks yet):

What gave me pause was the exponential increase in SIT dollar-value losses toward the end of summer compared to the fairly linear increases in both SIT inventory and FIT dollar losses. What the heck is going on in SIT world? Another thing to ponder is that the drop in flipper inventory accounts for nearly all of the drop in total inventory we have seen since the peak.

Of all the trends, the one that remains in place is the drop in asking prices. Sellers are waking up, if rather slowly:

I would love to hear your guesses as to what is happening in SIT world. Why is this happening with SITs but not FITs? Is there a huge undercurrent of short-sale activity going unreported in the MLS...? Inquiring minds want to know.


Bubble Sitter said...

Max, just to review for everyone,

FITs = Flipper selling at a loss within 2 years

SITs = Sellers selling at a loss regardless of holding period

Back to your question: "What the heck is going on in SIT world?"

First, FITs are disappearing as the 2 year window kicks them out of the category. No one is buying homes to flip anymore, so FITs are an endangered species by definition. However, expired FITs do become SITs.

Second, As prices drop toward 2003 levels, more SITs (including expired FITs) are tossed on the SIT pile. Thus, the absolute dollar loss grows with increased SITs counts ("X") and greater losses per house ("Y"). That creates the exponential growth when you multiply "X" times "Y". That is the danger of bubbles.

And until these stats bottom out, or at least level off for a year or two, there is no point in buying a home. If you do, it will only be worth less next year.

I tried to talk some friends out of purchasing a 2,345sf, $432,000 home in May ($189/sf). It was "previously offered" at $820,000 (though none sold at that level). They gave me all the standard lines from the NAR why they should buy now. I backed off.

Last week a much nicer 3,085 sf home across the street just sold for $418,000 (or $135/sf). That makes their home worth about $320,000. Just a little patience would have gained them $112,000 if they waited 4-5 months, or more, as prices are still dropping. I can afford to be patient for the annualized equivalent of $268,000/year.

wrong moves said...

We moved to Sacramento in early 04. Now I can look back and actually feel good about being priced out of the market. The way I see it, I have "made" 100K by not buying then compared to today's asking price for the type of house we want.

If you count what I have put into the bank instead of into a mortgage, no house has appreciated that much in that amount of time.

smf said...

Bubble Sitter:

That is a pretty good explanation of what is going on.

Plus, there may also be an undercurrent of houses where the owner knows they are already screwed, and are simply awaiting for the bank to follow with the next logical steps.

A decreasing percentage of sellers are probably also awaiting for the return of the market next year.

But I have seen a marked decline in 'sale pending' houses in metrolist.

Max said...

Second, As prices drop toward 2003 levels, more SITs (including expired FITs) are tossed on the SIT pile.

Great comments. While I agree that the FIT is an endangered species, I don't think that competely explains the exponential growth in dollar losses on the SIT side. My assumption is that there has to be some limit to the losses an SIT is able to take before the bank says "no". Also, any REO property that shows up on the MLS will be classified as an FIT if the foreclosure happened within 2 years of the listing.

Therefore, the huge, recent difference between SITs and FITs (~$45,000,000 or about 50% in Sac County) can't solely be explained by increased REOs or FITs falling beyond the 2-year cutoff.

The huge jump could be due to either hidden short-sale activity, or that many of these SITs are writing off large down-payments. Somehow I think the second explanation a little less likely. :)

Max said...

After coffee follow-up:

I bet the best way to gauge the SIT vs FIT loss phenomena would be to look at average percent loss over the time period for each group. My guess is there would be a loss cap for the SITs in the 10%-20% range.

That still won't tell us if they're losing their down payments or if they're really short sales tho...

Gwynster said...

Still plenty of people out there with boxes of stupid.

MLS #: 70100528
This was a REO in Jan/Feb of 07. Started at 320K, down to 289k and sold for 230K. Months later it's back on the market after a future FIT picked it up at 337K.

What makes this so bad is the neighborhood. It's really really bad with tons of property and drug related crime. No one is going to spend 330k is move into Yolo's version of Oak Park.