Monday, July 28, 2008

Sacramento Regional Real Estate Trends for July 26, 2008

Inventory failed to sustain its July high of last week, falling by 0.8% from last week. All of the trends showed minor reversals over last week, which could be due to typical end of the month listing expiration effects. (Hit me with your best shot, Sippn!)

This year the market has definitely defied the trends of the past, so any forecasts you read should be taken with a grain of salt (including mine!) A lot of what happens will depend on the availability of credit and how effective any bailouts are. From direct personal experience, I can tell you there are no second liens being done at all, and 10% down is the minimum I've seen offered on 700+ credit.

**Update on sales from Minyanville (via Lander's blog)**

According to the Journal, metro areas like Sacramento, California, Denver, San Diego and Las Vegas actually reported a decline in housing inventory from a year earlier. Supply is still well above historical averages but, the report argues, if this trend continues it could usher in the end to the real estate slump.

Small boutique investment firms, big hedge funds and Investment banks like Lehman Brothers (LEH), Goldman Sachs (GS) and Merrill Lynch (MER) are driving these markets. Some are buying foreclosed homes en masse, while others are snapping up delinquent mortgage at a deep discount. As the new owner of the loan tries to sort things out with the borrower, homes previously for sale come off the market.

The majority of these properties, however, will just end up for sale again: Almost half the delinquent mortgages traded in this market ultimately end up in foreclosure. Investment banks and hedge funds aren’t in the business of owning portfolios of residential real estate, so in a few months they’ll start punting homes at further discounted prices.

Second, year-over-year comparisons for real estate and mortgage data are about to get a lot easier. Think back to the beginning of the credit crunch last summer - the mortgage market all but shut down. Real estate transactions ground to a halt, inventory spiked and price declines began to accelerate.

For as bad as the real estate market is today -- and while prices have certainly come down -- activity last year around this time was even worse.

In the next few months, new calls for a bottom will ring out. But given that so-called experts have been calling for a bottom since, well, the top, Minyans would be wise to continue to wait patiently for real signs this has occurred.


Anonymous said...

The Eldo median asking price appears to have fallen off the chart, literally! Any idea what the median asking price is?

Max said...

The Eldo median asking price appears to have fallen off the chart, literally!

It's actually chasing the bottom right at $450K. I need to work on the graphs anyway; I'll see if I can build in a margin...

Deflationary Jane said...

A friend of mine is still looking. Others have quit and are shopping for jobs out of state a bit more aggressively.

It sounds like much of what is out there has to meet FHA 203b standards to be purchased. Add to that how strict FHA and the lenders are now on DTI and credit histories and you have a market that is locked up for all but the very very best of credit risks.

I don't think anyone realizes how little inventory that represents. Banks are listing homes in need of major structural repairs at prices of clean buys and then they wonder why they don't sell.

She looked at one yesterday that while priced ok for the area was covered in black mold inside. Someone will have to pick it up cash at 1/3 of the price and then rehab it to make it cash flow. We're talking a 25k to 30k purchase price, ouch. Sounds like her agent is ok as she talked her out of even considering it.

If that is where prices are going, those people who are underwater and thinking they can sit tight for even 3 to 5 years have no clue how bad this is. If we're talking about people haviing to actually prove they can and will pay back the loan, prices still have a long way to go.

Welcome to deflation.

Anonymous said...

DJ - bingo on the REOs. Some are garbage.

Max - too soon to tell on the trend line, but people are finally dropping their short sale offers and making real decisions.

On CR today, Case Shiller is finally getting trashed.... no visibility.... heavy weighting the worst know they sell securities that ride their index.... follow the money!


Max said...

Max - too soon to tell on the trend line, know they sell securities that ride their index.... follow the money!

That's what happens in an opaque market. Nobody really knows what's really going on, so people fall back into the conformation bias trap.

It seems like there's a certain kind of psychology at work here with RE investors. Instead of looking at fundamentals (P/E, carrying costs, suitability vs other investment classes), they look to any positive indicator as an excuse to start buying. We'll know we're at the bottom when "investors" are completely purged.

Max said...

conformation bias

Ha! I coined a new phrase. Should be confirmation bias. Conformation bias works just as well, methinks.

Anonymous said...

"We'll know we're at the bottom when "investors" are completely purged."

Truer words have never been spoken. When most folks simply think of a house as a place to live, instead of trying to lever up for profits or retirement money than we'll know it's safe to go back in the water again. Meanwhile, those of us that actually do want to buy a house to live in will have to rent one for a while longer or risk becoming insolvent. It's hard to imagine how the Realtor business won't be totally dismantled as a result of this bloodbath. The complete lack of credibility most of those folks now have has destroyed what used to be an honorable profession many years ago.

Thanks for your great site Max.

Anonymous said...


Oh, wait, that was my 2 year old.


DrDoom said...

Does anyone have good links to the story on the Alt-A wave (to crest in 2010?) especially as it relates to Sacramento and California? I am trying to get recent information in comparison to sub-prime. There shouldn't be a bottom until the Alt-A's wash on shore.

Also, can someone tell me where agentbubble has gone? Did I miss something? Not a word for many a moon.

Anonymous said...

Try this page DrDoom....