Monday, August 25, 2008

Sacramento Regional Real Estate Trends for August 23, 2008

Inventory change was essentially flat this week, with a slight decline of 0.5%. The median asking price held steady at $220,000, while the average dropped $2,000 to about $283,000 and change. Lower-priced inventory continues to increase in all four counties, but that increase is being offset by declines in higher-priced inventory. Based on the weekly inventory price change data, I'm thinking this is less to do with repricing of existing inventory at the price-level margin, and more to do with new, lower-priced listings coming on.

As we approach the end of Summer, I expect inventory to begin falling in earnest. That should also be when the decline in asking prices begins to accelerate as well. I think it's better to buy in Winter rather than Summer; the prices tend to be lower, the sellers are way more desperate, and it's easy to spot leaky roofs and drainage problems. :)


Wadin' In said...

This housing market is interesting. I can remember in 2005 & 2006 thinking the bubble was taking forever to pop, and price reductions were minimal at best.

Now, 3 years later, it seems like the bubble keeps deflating every week with no bottom in sight. When will it all end?

Darth Toll said...

Wadin' In, good points.

It seems to me that 2000/2001 would have been a normal RE cycle peak with 1994 as the trough - had all the stops not been pulled out with structured finance and ultra-low rates (lend any amount of money to anyone who could fog a mirror.) With this in mind, prices would have returned to 1997 inflation-adjusted levels to put in a solid bottom before RE could take off again. Max can correct me if I'm wrong here.

Instead, we got a monster bubble on top of a RE cycle PEAK. It would have been a lot better had the bubble come along during a cycle bottom (like Denver for example) and we wouldn't be getting crushed quite as badly. All of the bubble gains are false and I'm sticking with the theory that prices will return to 1997 adjusted levels (1999 prices?) before putting in a bottom, and they may go even lower due to mean reversion, the wrecked economy, and lack of financing (collateral damage.) They may go as low as 1995 NOMINAL prices, which would be quite a shock to a lot of people.

In my area (El Dorado) I've seen 2002 pricing with a few foreclosures, so we're a long ways off yet. All of the games that Bernanke and Wall St. are playing with the various alphabet soup programs and endless "too big to fail" bankster bailouts will just prolong the agony.

All bubbles have a guillotine phase and a sandpaper phase. The guillotine phase is where there are huge haircuts for a few years and then the sandpaper phase, which is sideways action but still basically downward can last ten or even fifteen years or more, depending on how willing the banksters are to clear the bad debt. It could last only a few years if the bad debt is written off.

Japan is a good example of how NOT to manage a bubble bust. Almost twenty years later and they are STILL getting sandpapered because their banksters refuse to clear the bad debt and the system slows to a crawl and all capital is tied up and banks can't lend. We are heading down the same long sandpaper road.

The big difference between Japan and the US, of course, is that Japan is a great nation of savers and a huge net exporter, so they were (and are) able to survive a long deflationary period without a depression - although they have slipped in and out of recession for years. Can we do the same?

Max said...

Japan is a good example of how NOT to manage a bubble bust.

Patrick had an interesting link today on just this topic:

Yakuza, the big winners

Essentially, the Japanese central bank restricted lending to large corporate clients, which lead to small businesses seeking capitol from loan sharks. I think we're seeing the same thing beginning to taking place here: all kinds of revolving and short term credit are being restricted (HELOCs, credit cards, auto, small business, student loans) while favored businesses get a pass (Fed alphabet soup, GSE bailout, FHA).

IMHO, this won't be allowed to continue in the US. Unlike Japan, we're a net importer and we're a debtor nation. Eventually our creditors will want something for their dollars, and the biggest garage sale in history will take place.

Anonymous said...

Agree there are some similarities with Japan - the bubble is real estate related.

At the beginning of the end of Japan's bubble in 1990, their real estate used in loans, was valued at 1.5 times all the real estate in the rest of the world. Hmmm.

Max - I'm guessing that inventory will stay fairly flat with REOs continuing to fill the void left by volunteer sellers that are pulling homes off the market ("more lower priced listings coming on") - but it would be great if you were correct.

The first step to recovery is sales volume, and per Lyon's charts, Sac county has had 7 straight months of sales growth, bringing down # months inventory from about a year to under 4 months. Considering that the low end is doing 95% of the work, and at the higher end, lenders aren't really doing anything (unless you already have the money).

The higher end in our region will shift back to what it almost always was - a transferee market, not a move up market.


DrDoom said...


Didn't you allude (You promised me! You promised me! :) that we would see some sales volume figures soon? Golyon is so slow they still don't have July figures. Sure would be nice to have trust worthy monthly or weekly sales data to go with the inventory and pricing figures (also known as "the rest of the story").

darth toll is probably correct that we needed the bubble to burst in 2000/2001 instead of entering the hyper-expansion phase..oh well.

Max said...

Max - I'm guessing that inventory will stay fairly flat with REOs continuing to fill the void left by volunteer sellers that are pulling homes off the market

At this point anything can happen; this year has defied all attempts at prediction. :) Anyone's guess is as good as ours.

The one surprise has been the persistently low interest rates. Strange how qualification requirements have tightened up but rates have stayed so low. Not an inflationary scenario at all.

Who knows? Credit could get so tight (with low rates), we could have "Japan-lite." Asset prices would be propped for a time by foreign dollars coming back to roost and foreign ABS holders taking claim to the underlying assets.

As long as jobs hold up, we'll be writing our rent checks out to Mr. Hong instead of Mr. Smith, but doomsday averted.

Max said...

Didn't you allude (You promised me! You promised me! :)

Sorry, man. I'm in the same boat as Lyon: the sales data is controlled by the counties, and they keep their "preferred" customers at the head of the line. For MLS sales, we've been relying on an increasingly busy AB for those data. Maybe if we're very nice, make a happy face, clap our hands, and buy him a beer, he'll do a post soon. :)

Darth Toll said...


Don't higher priced houses always represent a potential move-up? That's what we've been told by Realtors for years: "buy this lower priced house and build equity and eventually you'll be ready to buy a move-up house". Not that I totally believe this, though.

I guess we need to define terms here. A higher priced house could mean anything from 300K to 600K or even more and most inventory priced in this window would have to be considered move-up because there simply aren't nearly enough buyers in this range to do trade-across transactions so you need move-up buyers to fill the void. This is why there is no volume in this part of the spectrum. But the problem comes in when all inventory that is moving is the ultra low-priced stuff and the higher end sits and sits and sits.

Eventually, in order to actually sell, the higher priced stuff needs to come down and once it does, this puts further pressure on the lower-priced stuff to go even lower. A true curve must be established at some point where the more money you spend, the better house you get all the way up the curve.

But you bring up a good point. If you are talking about $1.2M+ than certainly these will always be out of the reach of regular "joes" and will be trade-across exclusively amongst rich people, which is probably how it has always been historically (minus the bubble years).

In terms of months of inventory, this has been totally debunked. Max has shown that there is probably closer to $31K actual houses that are REO's or will be REO's in the next few months that are not listed on the MLS so the MOI is really meaningless. There is essentially infinite inventory as more inventory is actually being created than is clearing so we're a long way from being able to use that metric to gauge the health of the market.

Darth Toll said...


As an addendum to my post, the more foreclosures that sell, the more pricing pressure is on existing homeowners, the worse the comps are, and the more foreclosures this will create in the future. You talk about increased volume in the low end like this is a good sign that the market is finding a bottom but this isn't accurate.

The more foreclosures that sell, the worse the market will get. Sure, at some point in the very distant future, increased volumes will mean an end to the RE bloodshed but this isn't that point. I would say increased volumes of NON-foreclosure sales would be a hint that better times are coming soon.

Anonymous said...

Well, I look at inventory as what's being offered on the car lot, not really the supply of fenders and engines in the factory.

Builders also have a large "inventory" as counted by BLS,in empty lots. Takes months and personel to convert empty lots and REOs into homes that are on the market.

We'll have a 2000+- per month supply of mostly needing work REOs coming on the market, maybe for 2-3 years, feeding the rental and entry level market. New home building is off by 50-75% of that number.

For nice Lyon charts, I just watch a couple of agent's blogs as they release them early to their folks and it looks pretty.

You have a region that was growing at a rate of 40-50K population per year, averaging 18K jobs per year 2000-2006. Even if that rate recovers to 50%? Not all those REOs were empty - those people still need places to live, whether they own or rent.


Husmanen said...

Sippn, your writing style has changed considerably as well as the way you refer to data and subjects we have convered many a time before, e.g. population growth (refer to Gwynster here).

Also, you are using an an Anonymous login. Come to think of it, I haven't seen you on AverageBuyer for a while (requires a login).

What is going on? Has anything significant happened?

Anonymous said...

Its discouraging to watch AB go through what I said they'd go through with shorts, but she still shows OK data monthly.

I try to check my spelln' mor offn.

And I'm looking for a new gmail account before I use the hook again.

And I'm focusing a little more on the revenue side of life.


Anonymous said...

"They may go as low as 1995 NOMINAL prices, which would be quite a shock to a lot of people."

You are smoking crack. Why don't you put your money where your mouth is an sell futures against housing?

If you all were so smart, you would be rich, living in a big fat pad on the hill, but instead you are posting the same nonsense on blogs over and over. Reminds me of realtors talking the hype during the peak of the bubble--just the other way around.

Anonymous said...

"They may go as low as 1995 NOMINAL prices, which would be quite a shock to a lot of people."

You are smoking crack. Why don't you put your money where your mouth is an sell futures against housing?

If you all were so smart, you would be rich, living in a big fat pad on the hill, but instead you are posting the same nonsense on blogs over and over. Reminds me of realtors talking the hype during the peak of the bubble--just the other way around.

Bryan Gibson said...
This comment has been removed by the author.
Bryan Gibson said...

Time will tell, Anon 11:30 (and 11:35), time will tell.

In the meantime, save your invective. Your audience is neither pleased to hear arguments they agree with (because they don't) nor converted by your preaching. Instead, they are made to serve as a sounding board to your cathartic tension release occasioned by so many voices speaking contrary to your clear view of things. You're frustrated, and I sympathize. But really, do we need to hear about it? Surely you must have some bought-in-2006 friends or neighbors which would be much more appreciative of your outlook.

Having said that, I believe Darth Toll is smoking some kind of crack. But I kind of like the smell, if you know what I mean. In any case, you would do well to remember that he is (ostensibly) a dark lord of the Sith, so be careful. He might find your lack of faith disturbing.

Darth Toll said...

Sippn', thought you might like this article:

"When you see sales begin to increase, that's often an indicator of a market turning," said Chris Thornberg, founding partner at Beacon Economics and former economics professor at the University of California, Los Angeles. "But this is a bit of a false dawn."

Sounds a lot like what I was saying above.

anon 11:30. I suppose all of the "nonsense" I was talking about the GSE's a while back doesn't seem so ridiculous now does it, what with the GSE's trading in single digits and all?

I said MAY go back to 1995 nominal prices and this is based on mean reversion causing houses to go BELOW market value, certainly 1997 adjusted values is a safe target. BTW, the most bearish prognostications concerning the RE bubble/bust have consistently turned out to be the correct ones.

Darth Toll said...

Also keep in mind that correct housing valuation is "income adjusted" which is a little different that inflation adjusted.

Ask yourself this, since 1999 how much has your income gone up (apples to apples, same job comparisons)? If the answer is "not much" than the answer also is that RE shouldn't have gone up much. In this light, 1995 nominal prices doesn't seem quite as outlandish, but a bryan gibson has said, time will tell.

You might be surprised to know that I was arguing with anony bloggers years ago on Ben Jones housing bubble blog. These are the same folks that insisted "there is no housing bubble", "all RE is local", "RE only goes up", etc, etc, etc. All lies.

Anonymous said...

It'd be nice if Thornburg elaborated more than a sentence.

Case Shiller at -16%, OFHEO @ -4% because they include everything. Hmmm.

The high end is getting hit as lenders are not lending unless you have Warren Buffett's credit and resources - problem is, Warren isn't interested. Just heard a buyer, after getting ticked off at 2 lenders, whipped out the check book this week and paid cash in the $1 mil range.

As long as lenders have decided to look for perfection in the $600K plus range, the market will be screwed. Its like instantly raising the driving age from 16 to 35, auto sales would suffer, except for the few under 35 year olds who could hire chauffeurs.

Anonymous said...

"I suppose all of the "nonsense" I was talking about the GSE's a while back doesn't seem so ridiculous now does it, what with the GSE's trading in single digits and all?"

What gets me is how you think you are so cutting edge in your analysis. The issue with the GSE's has been known for years with yields and smart money reflecting it since 2004.

I just love all the arm chair quarter backing going on with these blogs. Nothing like stating the obvious and then gloating about it.

Bryan: Not looking for sympathy, empathy, or anything else here. Nor am I suggesting or stating any type of outlook or preaching. Also, please give the thesaurus a break and leave the condescending post for somebody who gives a hoot.

Anonymous said...

So, anony, when did the "smart money" get out of all the lenders, builders, auto mfgs???

My guess is the "smart money" sold CDOs to our public retirement systems and municipalities.

Even Buffet admitted he goofed by getting out of Budweiser early.


Max said...

So, anony, when did the "smart money" get out of all the lenders, builders, auto mfgs???

One thing I've come to understand is that there is no "smart money." Read Taleb and Schneier. Understand the Black Swan concept and complex systems. Then realize that nobody's in charge, luck plays a huge role in selection, complexity breeds vulnerability, and bad concepts can persist for reasons that aren't obvious.

Darth Toll said...

anon 7:33

Let's set a few things straight. Back in 2003-4, there was basically nobody, and I mean NOBODY that was out there talking about this. Sure, it seems obvious now, but in 2003 or 2004? That's just not true. I had to search for hours to find a decent source of info on the subject and it was NOT mainstream at all. All I could find at the time was calculatedrisk (it was a small obscure site then) and Ben's housing bubble blog, of which I was one of the first few posters. Mostly Ben's page would have one or two responses per post, and now that and CR's page have often hundreds per post.

So don't give me that garbage that the "smart money" knew about this in 2004. This is another whocouldanode moment. The true smart money sold out in 2006 at the height of the mania, when it became obvious to them that this was a train wreck waiting to happen.

In the bubble years, everybody was drinking the koolaide and I would be routinely ridiculed for even suggesting a term like "housing bubble". Most folks at the time would say "what's a housing bubble?" Don't you remember this at all, it wasn't THAT long ago?!

BTW, I don't consider that myself terribly cutting edge, just looking at things the way they are and not getting caught up in lies and hysteria. Maybe that is cutting edge, now that you mention it!

Also, I'm assuming you are the same anony that gave me the "stop scaring people with your delusions" crap not more than two or three months ago when I suggested a planned GSE implosion, as your writing style is the same. Now it seems "totally obvious" that the GSE's are in trouble and will probably go under but for years it was "too big to fail", "the government would never allow that", "they have an implied guarantee" and other such worthless manure.

Here's another "cutting edge" observation that you are blissfully unaware of: The GSE's book is overwhelmingly profitable and is a huge cash cow made up of mostly seasoned performing assets. The "crises" at the GSE's is actually a glorified phony looting operation where select FCB's and IB's are gearing up to loot all of the good stuff via covered bonds or a preferred and leave joe six pack (the Treasury) with the losses in order to re-capitalize the banking system. You won't hear that on CNBC, LOL! But I'm sure that this is me just fear mongering and trying to scare people with hysterical nonsense!!!

BTW, It would make things easier if you adopted a pseudonym.

Max said...

In the bubble years, everybody was drinking the koolaide and I would be routinely ridiculed for even suggesting a term like "housing bubble".

That's what's so great about the internet. All of these posts and comments are preserved for posterity.

I'm hoping that someone will write a comprehensive history of this bubble once it's all over. If it does end up being an historic downturn on the scale of the Great Depression, they'll be studying it for decades to come.

Anonymous said...

Darth, no that was not me posting before.
Yes, there has been fear of the GSE's for many years. From what I gather, you are not too well connected in the financial world.

A couple of headlines:
Washington Post 2003,"Mortgage Giants Are At Risk, Official Warns; Fannie Mae Says It Has Ample Capital"
"Housing finance giants Fannie Mae and Freddie Mac pose "a fundamental risk to the continuing stability of our financial system" because they do not have nearly enough capital to survive a major financial shock, a senior Federal Reserve official said yesterday."

Do you remember the accounting scandal in 2003? Do you remember GW Bush trying to push legislation to reduce the scope and power of the GSE's and possibly take the implied federal backing away?

Come on Darth, can't find any news except for a precious couple of blogs?

Oh and your talk of CNBC not knowing about the value of the mortgage securities, sorry, they have been talking that story for weeks as well. The MBS's just can't be used for collateral, but they have implicit value and somebody is going to make a huge pile of cash by buying them. Old news darth.

What is your background darth? What makes you such a qualified source of knowledge?

Anonymous said...

I've lost all faith with the folks who were supposed to know what they're doing - the PHeD, the treasury, etc.

Most of "us" thought lending was regulated, it wasn't.

The wall streeters who modeled these securities committed high crime with a few subtle "I forgots" while raking in the bonuses


Darth Toll said...

anon, Sippn' is 100% right. All of the supposed "experts" couldn't see any of this coming and if you insist they did, well, that's just revisionist history that you are making up to suit your point of view and we'll have to agree to disagree on that one.

You may be right in one sense, though. Some of the "experts" and so-called smart money (whatever that is) may have actually known about some of this stuff and they were just lying about everything. I haven't totally discounted that possibility. Regardless, if they didn't know or if they were lying, one thing is certain: the MSM totally failed at reporting and the financial wizards also failed and were asleep at the switch. They all get a big fat F.

Is Ben Bernanke qualified? How about Paulson or Greescam or Jim Cramer? Are they qualified sources of knowledge? If all the experts failed, does it matter who is a anointed expert, or does it matter who is right and has been right consistently? This is what builds credibility in my book.

Max is right. CR and Tanta are right. Russ Winter, Mish, Ben Jones, Denninger, Fleckenstein, Krowne, and Roubini and many others are right. Some of these guys probably have masters degrees or PH'ds in finance or statistics, but I don't necessarily hold that against them (although it can be a serious disadvantage!) I will continue listening to them and disregard those in the so-called MSM outlets until the quality and truth-quotient starts to improve. As for me, I'm just a lowly engineer and long-time RE investor that has a keen nose for BS, and a knack for developing game theories. Regardless of what you say, I know very well that I've been way out in front on most of these issues, with the help of the blog army. Good sources of knowledge just weren't available in 2004 and still basically aren't. You have to look for them unless you are a connected insider. Maybe that's what you're saying is that you are a connected insider and had access to all of this knowledge before the commoners and that I am not well connected so I have to rely on the bloggers. So be it.

BTW, Hemingway once said that the truth has a certain ring to it. No offense, but so far nothing you've said has that ring.

Anonymous said...

"Hemingway once said that the truth has a certain ring to it. No offense, but so far nothing you've said has that ring."

Right back at ya Darth!

Darth Toll said...

That's all I get? No actual debate?

Not anything I didn't expect, though.

And they say renters are bitter. Sheesh!

Bryan Gibson said...

Anon (who I'm liking more by the minute):

"Thesaurus," I'll have to look that one up. It sounds scary though, in a prehistoric way.

Hey, I apologize for my condescending (warning: long word) tone. It's just that when you're speaking to someone at a lower level, you have to speak in a downward (this means "towards down") direction. Hence the condescension. (I kill myself!)

But seriously, if you don't love this blog, can I put this in a way that makes sense to an avowed thesaurophobe...go? These people here, they aren't going to make you feel better, except as objects of abuse. And if you're here to scream and rant and treat them that way, then really...don't they have little squeezy relaxation balls for that?

Darth Toll will not be gainsaid. Trust me.