Monday, June 30, 2008

Sacramento Regional Real Estate Trends for June 28, 2008

The near-term growth in inventory accelerated this week, with a 2% increase over last week. The growth took place almost completely at the lower priced end of the market, which drove the asking price averages down as well. Interestingly, there appears to be a trend reversal in the flipper inventory also, which could be indicative of bank inventory dumping.

Like I discussed last week, it is looking more like the market has reached an inflection point. Next week I expect the usual monthly inventory drop, so any new trend should at least be understandable by July 12th or 19th.


DrDoom said...

Any idea what happen on sales side in June? Did sales go down as inventory went up? How many sales were there?

The Elk Grove Ford, Gamel RV and Room Source troubles all flow from the declining real estate. More retail trouble to come. Anyone care to guess how much we will see?

Anonymous said...

Who would buy a home in this uncertain time? Who knows, rent could drop as home prices drop, and continue to snowball. We could go into a depression. Too early to buy (especially when home prices are expected to fall futher. A self fullfilling "propharcy".)

Sippn said...

Alot per this chart.... June looks to be at least 2x 2007 also.

We're all reading national headlines similar to what happened here last year.

With the stock market down 20% YOY, lots of money is wondering where the returns will be....

Wadin' In said...

Max, It looks like your call for a dead cat bounce this summer is coming true. Now we have to wait and see if WAMU is going out of business.

Max said...

We're all reading national headlines similar to what happened here last year.

It does appear that Sacramento is the national test case for the banks, but if they're still foreclosing on more houses than they sell, I don't think we can call a bottom.

lots of money is wondering where the returns will be....

If that money is smart, it'll be looking for ROI not from asset appreciation, but income generation.

Also, I've been hearing that "money on the sidelines" statement a lot over the last six months. I wonder how much there really is...

Deflationary Jane said...

Greetins' from St Louis

I'm going with dead cat bounce too. I saw that the housing tracker ticked up on inventory but we're still getting price drops. I guess in this case we really can say "blessed are the knifecatchers for they will inherit a mortgage payment far larger then mine".

Most everyone that has money looking for gains, is moving out of anything tied to the USD. Too much deflationary pressure on domestic assets (to offset inflation on commodities) to make sense to get in yet. If my hack at Fidelity is telling me this, you know the smart money is way ahead of us on this cycle.

Deflationary Jane said...

bah make that
"but you are still getting price drops"

This Jane has left the building >; )

Max said...

Greetins' from St Louis

Hey DJ, I see you've already gone native. Hope you're staying above flood stage, or at least wearing galoshes. :)

mortgagedataweb said...

The mortgage lending is rapidly decreasing and it is getting less competitive. More market dominance by Wells and B of A (countrywide now part of B of A). See trend report.$blog/sacramentomar08.htm

Darth Toll said...

So sippn',

Are you calling a bottom? Sometimes I have a hard time telling what your point is, aside from being bullish on all things RE.

As usual, I'll take the ultra-doom bearish side of the debate. Max has pointed out that inventory is now increasing again so what could this mean? Have banks reached the capitulation point where they will dump on the market with reckless abandon? I never thought that the "banks are managing this downturn well" theory had any water. More likely it has been the Fed's willingness to swap treasuries for level 3 "assets" (read: toxic garbage) that has kept stinkers like Wamu, Wachovia, and CFC/BAC floating as long as they have. Banks are seriously under-capitalized and this will crimp lending regardless of whether or not the bond market implodes. Have you guys seen the Fed's H3 and H4 reports? UGLY.

Bernanke made a bet that RE would turn around if he floated the garbage CDO's for a while, but this turned out to be a horribly misguided strategy. You can't float a burst bubble! It just doesn't work. All you will do is ignite a different and potentially more deadly bubble (commodities.) What do you think the IB's are doing with the slush/leverage? Buying commodities!!! A burst bubble won't stop bursting until mean reversion has happened, and we're still too expensive even in Sac which has already been hit harder than most areas.

So sippn, the "smart" money knows this very well and is piling into commodities. They will get out of that before it bursts as well, but we could have some more time to run on that - it depends on if the Fed catches a clue or not. Smart money won't come back into RE until interest rates are very high. Then they can buy houses for a song (with cash) and they won't have to compete against JSP and his funny-money financing.

Anon 7:35, good questions. Who would buy now knowing that we have many more years of RE bust ahead and much more pain and higher rates? Only those with money to burn I suppose. Or maybe those that are naive or foolishly bought into the Realtor's agitprop campaign.

Sippn said...

Hey, Max. Did I loose a string here?

Big smart money going into commodities until its bored.

Mom and Pop money going into rentals under $250K.... why? lost faith in Wall Street and can touch its assets everyday.

Its not bottom yet, just an indicator that its coming, sales volume doubling, # months inventory 1/2 of a few months ago.

Sacs large bulge in inventory the past 2 years was sales volume slowing to nil, while home builders continued to build into summer 2007.

Whats different now? Builders building below sales, total builder inventory lower (# months still high) resale volume more than 2x YOY...

With the lower prices and sustainable lending, the low end should hold strong.

Anonymous said...

Let's see a 250K home rents for what $850 ?

after taxes and other expense this is well under 4% cap rate.

so why not go for 10 yr bond instead ?

only if you expect capital gain from the value of the home or increase in rent.

Darth Toll said...

"With the lower prices and sustainable lending, the low end should hold strong."

I've never understood the concept that the low end of the market will remain strong and the higher end will stagnate. This is circular logic.

If the high end of the market drops, this puts better houses in a lower bracket competing against the supposed "low end" stuff. Therefore, more pressure on the worse houses to go LOWER. Think of a downward spiral for all houses in all brackets, but in waves. Nothing moves in an exactly straight line. It all collapses until mean reversion as is the fate of all bubbles. We're in the third inning.

Also, what do you mean by sustainable lending? If you mean 20% down and good credit history then I see your point - maybe several years ago. But these days it would have to be more like 40-50% down for the banks to cover eventual losses and make sure you don't get upside down right away like the recent round of knifecatchers. Like DJ said, "blessed are the knifecatchers for they will inherit a mortgage payment far larger then mine". The banks can't afford to take this risk on right now, that is NOT sustainable lending. 40% down and good credit history, good job, full-doc loan in a high-risk market like Sac might be considered sustainable if it was at 8-10% interest to protect the fragile banking system. This is not the case currently, ergo this lending is not sustainable.

Big/smart money laughs and takes mom and pop's money - same as it ever was, just more so recently with massive bifurcation of the economy and classes. Mom and pop won't be a big winner here, they will lose even more.

Sippn, you are an excellent candidate for Mish's "things that have not yet happened" post:

The FDIC is ramping up hiring and is projecting 150-300 banks failures in the next couple of years along with much BIGGER banks failures. We've had about 7 or 8 so far this year. So what do they see that we are not yet seeing? Do they see that the level three accounting will have to be reconciled and appropriate writedowns taken? Maybe they see that the capital requirements are not there and fictitious capital is vaporizing at a rapid pace. What effect would this kind of banking crises have on lending standards and interest rates?

Anon 10:10 I see your point but be very careful unless you can hold the bond until maturity. The FCB's are setting records every week buying bonds like mad with their printed funny-money, and our treasury is setting records with their auctions (printing of bonds). What does this tell you about the value of bonds?

Max said...

Its not bottom yet, just an indicator that its coming, sales volume doubling, # months inventory 1/2 of a few months ago.

With the lower prices and sustainable lending, the low end should hold strong.

What you're saying is true, but I think it's still too early to make a bottom play. There are too many unknowns:

- Sales always pick up in Spring.
- Shadow inventory
- External economic factors are shaky.

I suspect there are still a lot of investors making equity plays: even at the "lower" market prices, these properties simply don't cash flow at prevailing rents. (Even if you could get 100bp over treasuries by being a landlord, I've never understood how the hassle was worth it. To each their own, I guess.) My bet, the so-called cash investors buying in now will bleed to death over the next couple of years while they wait for "appreciation."

Deflationary Jane said...

That's what I was seeing, people picking up foreclosures, dumping more money into them to reno then they sit on CL week after week, bleeding dollars until they lower the lease price enough that the unit finally rents.

They're lucky if they get the P&I covered at this rate. The competition is too fierce. You have all the mom and pop's who bought decades ago and who won't sell "because they don't want to give the house away" but they can sure rent that puppy out and they can undercut these new speculators every time.

I still check my ziprealty searches and saved houses. Many went off the MLS as pending in Jan and Feb and I kept track of them to see what they would close at. 6 of them just went back on the MLS as they were unable to close. One that did close sold for 90k, list price was 189k in april 08. Another that sold for 365k in 06 came back at 135k, went pending, then came back to MLS yet again.

My old search used to give show me 60 at a time, then went to 85 this spring. Yesterday it returned 97 properties. So much for the dimishing inventory due to speculators.

Anonymous said...

I thought it finally happened in my neighborhood - nothing had moved for about two months and the houses sitting were all overpriced. Then I took a walk the other day and what do I see, another Pending Sale sign on a house down the street. I get the feeling that whatever's selling in my neighborhood is being bought by knife catchers or those silly enough to think they can rent to the Med Center clientèle (a doctor I met called our neighborhood the "white coat ghetto"). Too bad the old homeowners can undercut anyone new by a lot, and we don't have mortgages to pay every month.