Sunday, May 18, 2008

Sacramento Regional Real Estate Trends for May 17, 2008

It's déjà vu all over again. MLS inventory has been falling since mid March, and has crossed the 2006 level at 14,485:


This MLS inventory drop seems to be a nationwide occurrence, but there are reasons to believe that the MLS (and the NAR stats by extension) no longer represent a complete enough picture of the market.

Last year, I posted a comparison of REO listed for sale on Countrywide's web site with the MLS. Now that foreclosures are dominating the real estate story, the shadow inventory meme is catching fire. (Both Mr. Mortgage and Mike Morgan have recent commentaries on the topic.)

At this point, it is very difficult to piece together a complete picture of this shadow inventory, but the preliminary examinations I've been able to make seem to reconfirm the conclusion I drew last year: the banks have far more inventory on their books than they are actively marketing. Countrywide has 330 Sacramento area REOs on its site for a total asking price of $66,539,243. However, only 136 are listed in the MLS! I'll be digging into this data a little deeper later in the week.

As for the rest of the data, I think incessant_din said it best in the comments:

What I see is that the inventory is stable, but the SIT portion is stable and huge. Most stats seem to be stable, which might well be an inflection point or a bottom (or top, depending on your POV). If I were an investor, I would wait a couple of months to get a direction on the market. A flat market makes it hard to make money.











10 comments :

Anonymous said...

So would you say this is a good time to buy or not? Are prices going to keep dropping more? Predictions anyone?

Anonymous said...

The prediction is there, read it. I would definitely wait because I believe there is much more property than listed. The impending slowing season will make it that much worse.

Patient Renter said...

So would you say this is a good time to buy or not? Are prices going to keep dropping more?

If you've read this or similar blogs for any period of time (more than once), you'd know the answers are obviously NO and YES, but we welcome anyone who thinks otherwise to go ahead and set a comp for us :)

Max said...

So would you say this is a good time to buy or not? Are prices going to keep dropping more? Predictions anyone?

I try really hard not to give predictions. If you're an investor, you should be able to answer the question yourself using your own research. If you're a "regular" buyer, there are too many personal factors at play.

That being said, I don't see a lot of upside to this market. Asking prices continue to decline, and REOs/SITs dominate the margin. I'm sure there are houses priced low enough to make sense for some. However, there are some things on the horizon that we need to pay attention to:

- The default rate on houses with HELOCs is soaring.
- The day of reckoning for Alt-A is approaching rapidly.
- Other types of consumer credit are defaulting at an increasing rate.

Also, remember that housing bottoms tend to be long and overcorrecting, so there's no economic reason to feel any urgency to buy.

Patient Renter said...

Max - just curious, do you agree with Mike Morgan's commentary regarding how the handling of the REO inventory is going to destroy the tax base, and therefore local government jobs?

I don't disagree with this idea, but it really leaves me wondering, what sort of revenue level will these property tax decreases take us back to? Will it be similar to pre-bubble (2000'ish) revenue? It's hard for me to believe that local governments have expanded so much in the last 7-8 years that rolling back property tax revenue to pre-housing bubble level will devastate things.

I'm guessing, more likely, local governments have squandered so much of their tax revenue increases in recent years that the revenue cuts will leave them worse off than they were pre-bubble.... kinda like how many people who win the lottery end up worse off than they were to begin with.

Max said...

do you agree with Mike Morgan's commentary regarding how the handling of the REO inventory is going to destroy the tax base, and therefore local government jobs?

Yes, but it will be a slow process. I can't speak for Florida, but Cali government financing is so complicated it's impossible to predict specific outcomes. So much of it is tied to federal and state grants/matching, mandates, and contracts that who knows what these budgets even really mean anymore.

Look at the monthly increasing state deficit predictions from the Governator as an example. These guys don't even know what's going to happen tomorrow, let alone one or two years from now.

Darth Toll said...

"so there's no economic reason to feel any urgency to buy"

Max, you've inadvertently hit upon part of the psychological basis for determining whether or not housing has bottomed. As long as folks believe that there is some urgency to buy, then the housing market cannot bottom. All financial manias are based upon psychology (better buy now or it will be higher tomorrow) and when the last greatest fool has bought in, the psychology will turn and the bust will begin.

The bust portion of the cycle can't end until the conventional wisdom is that RE is a terrible investment and will always lose money. As long as folks have some buying urgency, this washout bottom cannot be attained and lower prices can be expected.

DrDoom said...

Predictions anyone?

Two recent articles analyze the national trends and come to the conclusion we are only 1/2 of the way through the national correction. Both projections are no recovery until ...2010

The Economist has a cute article 5/8/08 that looks at a Fed Reserve release (check out the Map of Misery) and a U of M paper on affordability

http://www.economist.com:80/finance/displaystory.cfm?story_id=11333030


Then FTN Finacial Economic weekly on 5/9/08 discusses inventory levels and sales. It is worth reading for the summary of the SF Fed paper that blames the bubble on the decline of down payment requirements by lenders to zero

http://www.ftnfinancial.com/media/docs/PDF/doc_301.PDF

Two different views but similar conclusion.

Perfect Storm said...

Shadow inventory is huge, I see plenty of homes that are for sale, but not listed and I see homes that are sitting empty with no sales sign.

I suspect 50% to 60% of the recent sales activity are REO's in the low end market and that means no move up buyer and the rest are people who are moving away from Sacramento to another state, so no move up buyer.

To all the recent invetors, who have bought a rental, have fun with your tenants tearing your place apart.

Were right on track for a 50 % decline by 2009.

Anonymous said...

We won't see the bottom any time soon. Price are still high and inventory is ASStronomical. The sheeps are buying bahhh!!!!!!!!

These oppinion didn't factor in the AltA and the loss of equity. Also, people are walking away and saving to purchase again in the future. They know that homes will go down and stay down.