Tuesday, September 02, 2008

Sacramento Regional Real Estate Trends for August 30, 2008

Inventory held steady on the last Saturday of the month, giving up less than 30 listings. I do expect a sharper drop next week after the expirations that took place on the first are factored in.

September usually signals the beginning of the end of the selling season, but this year has been anything but usual. Banks have become the dominant force in the marketplace, and their ability to bypass the MLS and make their own markets has made analysis difficult. I do think this is a temporary phenomenon, however. For starters, foreclosures continue to outpace sales in the Sacramento region. Secondly, there is growing evidence that property speculators are behind the recent spike in sales. This from the Mortgage Daily (via Mr. Mortgage):

M.I. Volume Sinking Fast - August 29, 2008 By Mortgage Daily staff

Mortgage insurance activity has fallen by half over the past year, is at its lowest level in nearly a decade and is headed lower. But as mortgage insurers tighten their guidelines, the quality of new business is likely improving.

Last month, 70,725 policies were written for $12.3 billion, the Mortgage Insurance Companies of America reported today. Activity dropped from 74,779 policies for $13.7 billion during June.

Volume was less than half the level in July 2007, when 171,585 policies were written for $26.6 billion. The latest month’s activity is the lowest since 2000.
This backs up earlier reports of "mini-booms" taking place in busted bubble zones across the country. Banks will eventually be forced to use all the market mechanisms at their disposal in order to move inventory.

Also, unlike other so-called "experts," I don't see anything in these or other data that suggest a "bottom" any time soon. Prices are still falling. Foreclosures continue to outpace sales. Credit is tightening. Unemployment is rising. I am not saying the bottom call will be wrong. I'm saying that they can't possibly know. Nobody knows.












44 comments :

Darth Toll said...

Max, any truth to the following statement? (Mish's blog):

"the bump up in sales, across the country, is attributable to the double sale that occurs when foreclosure and REO sale occur. Foreclosure is reported sale # 1. REO dump is sale # 2."

If true, than bottom calls are even more absurd than usual. Any idea when the big dump of foreclosures onto the market will occur? Will it occur once the "fix is in? In other words, will it occur once the banksters have made sure that JSP will eat as much of the losses as possible, than they will dump the inventory?

Anonymous said...

DT - MLS and NAR does not report the foreclosure by the bank. They are only reporting sales of homes listed by their agents and brokers to buyers. Lenders do not use them to foreclose on their loans. I would think Realty Trac, etc. also filter out the REPOs for credibility.

Max - foreclosures have far outnumbered sales for how long now? 12 months? 18 months? I don't see the banks getting any stupider by dumping more homes than can be absorbed monthly. They have the upper hand right now.

Sippn

Anonymous said...

Max:
Do you know of any reliable way to track median rents for particular states, cities, or zip codes?

Patient Renter said...

I don't see the banks getting any stupider by dumping more homes than can be absorbed monthly. They have the upper hand right now.

Banks have the upper hand against who? They're not fighting us, they're fighting the clock. They can't keep these mortgages on their books forever - so ultimately the clock wins. Whether that means dumping or not has yet to be seen.

Max said...

Banks have the upper hand against who? They're not fighting us, they're fighting the clock.

Took the words right out of my mouth. Taken with the possibility that the majority of recent sales have been to speculators, and you have to wonder how these numbers can hold up.

Do current rents justify current prices without leverage? Even if specs are lying about occupancy, rates are still too high to make these things cash flow vs other investments IMHO.

You guys tell me: What kind rent do you need to charge to make decent ROI (less upkeep) vs a CD?

Also, in aggregate, banks are still taking back more than they're selling. At the current foreclosure rate, sales would have to increase by 20%+ just to cancel the effect! Is that even possible without further price drops?

Some other things to think about:

- I don't think there's seasonality in the foreclosure numbers, but there is in sales.
- We're at the tail end of the subprime loan collapse, but at the beginning of Alt-A. Yet, foreclosures are still increasing m-o-m.

Stuck in SF said...

Let's take a look at my Brother's situation in Rocklin. He recently purchased a house in foreclosure. 2560 sq ft on a greenbelt with a pool. Paid $331,000. He put 20% down on a 5/1 interest only ARM. He works in law enforcement and just took a gig in Iraq as a consultant so he rented out the house on a 1 year lease. Rent is $1950 per month.

Debt service is about $16,000 per year. Taxes and insurance are about $4200 per year once he gets the house reassessed. He pays for garbage service and nothing else, so total monthly expenses (less upkeep and vacancies) are rounded up to $1750. $200 monthly income.

Also, depreciation is $16,500 per year and the interest expense is $16,000. At a 33% combined (state and fed) tax bracket he is saving about $9,933 per year on taxes. It is actually higher when considdering cost taxes, insurance, maintenance, ect.

He put $66,000 down, so the yield when adding the tax benefit is 18.69%. Without considering the savings in income taxes the yield is still 3.6%, or about the same as CD.

On a non-levered basis, the yield is 7.5%. I would say this beats your CD by a long shot.

Anonymous said...

I heard the simple investor ratios are mid teens ..... 15:1 or so price to annual rent. That was 14 and it worked great.

Many bloggers need to understand the difference between speculators and investors. Investors are 30-36% of the market, always. If you made it all owner occupied, you'd see more cardboard abodes than now.

SIppn

Anonymous said...

Banks have the upper hand selling their stuff when they can control the inventory fed to the market and keep it below 2 months inventory like now.

Sippn

Bryan Gibson said...

If banks could do that without their inventory rapidly dilapidting, then yes, all would be well with them.

To my mind, the sort of inventory valving being proposed here could only last for a very short time. As a bank's obligations go unpaid and its security/collateral on its own receivables rots, there will be (is?) amazing pressure to keep the inventory moving through. This seems like a clear enough point. Am I missing something?

It's like a farmer with an over-productive harvest figuring he can just sell his tomatoes a little at a time over the next few years to keep prices high. As the tomatoes begin to putrify, he'll start to realize (and it's hard to imagine why he hadn't already) that this was a bad idea.

Max said...

On a non-levered basis, the yield is 7.5%. I would say this beats your CD by a long shot.

Well, don't forget that you must recapture the depreciation when you sell. If your brother plans to move back in and convert back to a primary residence, that's fine. This scenario might work for a short-term rental for single property owner, but I don't see this kind of math working out for an actual speculator. Especially with that kind of financing. Good luck making this work with multiple properties.

If your brother was a long-term property investor, he would need to budget for vacancy periods and repairs as well, which would cut into any near term profits. If the current speculative buyers are using this kind of math to justify a long-term investment, they're in for a rude awakening.

Max said...

keep it below 2 months inventory like now

I think we're using your adjusted inventory methodology. :) For the total MLS, we're at about 4 months. For the stuff that's actually selling, less than 3.

I can sense a shadow inventory debate coming on.

Darth Toll said...

"I can sense a shadow inventory debate coming on."

Well you did set the bar pretty high with your excellent report showing 31K foreclosures in the area vs the 14K MLS listings!

I'm with Bryan on this one and the putrefied tomatoes analogy fits. The banks can't slowly feed the market inventory as Sippn' suggests. The inventory is costing them money and prices are falling further, so waiting costs them even more money. The market will not quickly recover, and the banks need to realize that a large loss now is better than a huge loss later. They probably do realize this.

That's why I say stuff like the banks are waiting for the "fix" to come in. This is the only thing which makes sense. These guys aren't stupid and realize very well what is happening in the RE market and that it will not be over any time soon.

The fix involves making sure any GSE "solution" allows for banks to offload garbage onto the GSE balance sheets and then ultimately onto the Treasury. This has already happened to some extent. Over the last several months, while numerous mortgage lenders were imploding, the GSE balance sheets were BALLOONING, growing at a record pace. Very few asked the hard questions as to why this would be happening going into a record bust. And now it looks as if the GSE's will go into receivership so no real surprise what the bankster rats were up to (garbage handoff).

Once it has been determined that the maximum possible amount of garbage assets have been handed off successfully to the Treasury (JSP), then the flood gates will open as the banks will have no reason to hold back any longer. Sippn', you may argue that the banks are doing better by letting out a slow trickle, but this doesn't take into account the putrefaction factor (continually depreciating asset) or the growing number of foreclosures vs the amount of sales.

The banks are simply getting the most money they can on the more marketable properties and are actively pursuing knife-catchers while they wait for the fix to come in before the big dump. All cycles culminate with a capitulation phase, either on the upside or downside. In the extreme bubble years we had buyer capitulation where the Realtors convinced everyone that they just better buy now, buy anything, or they would be priced out forever. There has been nothing like a capitulation or panic selling on the downside - yet. Too much optimism, too many bottom-callers, too many knife-catchers and willing buyers to remotely approximate a selling panic. We'll know it when we see it, it will literally be the reverse of "buy now or be priced out forever." The conventional wisdom will be equally idiotic and will be something like, "RE is a terrible investment and always goes down", combined with a flood of inventory on the market and waterfall price declines. A few wise people may see the capitulation phase for what it is, but most will not and will actively avoid and fear RE - much as they avoided and feared all dotcom stocks (even good ones) for a while after the tech bust. Anybody that believes we have seen panic capitulation, please step forward and state your case so we can argue it. Right now I'm not seeing anything remotely like capitulation.

Max is probably also right - we may not see a big dump until we get a couple of large bank failures. At that point the toxicity of holding onto large swaths of depreciating assets will become painfully clear to the remaining players. Plus, it will give some political cover to allow banks to further offload garbage assets onto the Treasury as part of some criminal loss-nationalization/looting operation.

Darth Toll said...

"If the current speculative buyers are using this kind of math to justify a long-term investment, they're in for a rude awakening."

This is exactly the kind of thinking that leads me to the "too much optimism - capitulation has not happened yet" statement. A lot of folks believe that they have instant equity when the buy a "cheap" foreclosure and slap some paint on the wall and they are counting on this equity to make the numbers work properly. What they don't realize is that the foreclosure just became the comp for the neighborhood, and when one sells down the street for even less, that is now the new comp for the neighborhood.

Price is always set at the margin.

Stuck in SF said...

x"Well, don't forget that you must recapture the depreciation when you sell."

Or in 20 years he can do a 1031 into another property and collect income into retirement. He could also do an installment sale and greatly reduce the capital gain exposure. He could take all the equity out, use it how he wants, put the asset into a generational skipping trust which would give a stepup in basis on his death and all would be happy. I have a dozen other estate planning practices which could be done to avaiod the cap gains. A good CPA and estate attorney are your best friends.

Additionally, in the long term rents will increase, making the numbers look even better. Granted, my brother does not have long term fixed financing, but who is to say where rates will be in 5 years. The comoddity bubble is delfating FAST.

This type of investment scenario could work great in a pooled investment vehicle as well.

As an individual buying multiple properties, I would wait even longer for the capitulation. One can only recognize so much in tax benefit. It would then be more weighted to appreciation. In any case, I never liked the idea of residential home ownership as an investment due to the high turn of renters and higher maintenance costs. I would rather just buy a REIT and collect dividends.

smf said...

Even the cheapest house becomes an albatross when you can't find a renter.

Mark my words.

Darth Toll said...

"Additionally, in the long term rents will increase, making the numbers look even better."

What makes you say this? Rents are headed lower from where I'm sitting. My landlord recently gave me a $300 rent reduction, unprompted.

To be honest, $1950 seems like a lot for Rocklin, but maybe it is a really phat pad.

Stuck in SF said...

In the LONG term rent will go higher. We will see wage inflation in a couple of years as workers demand raises to keep up with rising costs. In response rents will begin to increase.
Show me a chart of average rents, I bet it is a lot more stable than real estate prices. I have never heard of a landlord giving a rent reduction just to be a nice guy. This generally only happens after the tenant moves out.
I have kept track of rentals that I have lived in, mostly because friends move in after me, and have never seen a rental decrease. Prices have only gone up.
Are you indicating short term trends can be extrapolated into the distant future?

Deflationary Jane said...

Maybe they are trying to throttle it
http://countrywide-foreclosures.blogspot.com/2008/09/15551-homes-offered-for-sale-on.html

Good luck with that

smf said...

Stuck in SF:

You have forgotten something.

This was not just a bubble of SFRs.

This was a condo bubble, for those who could not afford homes. Later corrupted to luxury condos.

This was also a bubble for multi-family dwellings, for all those that were being 'priced-out' of the market.

The excess will be with us for a long time. There is no possible way of bringing in enough people to occupy all the housing that was built.

Take into account a lower population growth rate, and a problem becomes a severe problem.

Bryan Gibson said...

I'm just shooting in the dark here, but I think the theory/walkthrough is that if and when real estate prices drop to a point that making payments on a house (with all the attendant little extra costs) becomes either cheaper than rent or close to it, then rents will be driven lower. Why? Because rental demand will go down as potential renters simply buy rather than rent. Landlords, in turn, responding to their suddenly empty (and unprofitable, to say nothing of depreciated) properties, will have to lower their rent to compete with, of all things, the real estate market.

While it may be true (I certainly don't know) that prevailing rental rates are a more stable metric than property values or average listing prices, I'm not at all sure that it follows that rental rates exist in a vacuum apart and are wholly uninfluenced by the real estate market.

Even to the extent that rental rates are semi-insulated from the usual fluctuations in RE markets, this state of events presumes the real estate market is not in a massive, avalanche-like slide into 1990s oblivion (or in a meteoric rise). If this presumption proves to be false, so too should one's hope in the stability & resiliance of rents. Given an appropriate amount of impact absorbtion and reaction time, the rental market correction surfaces.

But yes, Darth Toll scored an absurdly reasonable landlord.

Patient Renter said...

Granted, my brother does not have long term fixed financing, but who is to say where rates will be in 5 years

History says they'll probably be higher.

In the LONG term rent will go higher...Show me a chart of average rents

When you find that chart, be sure to cross it with supply and vacancy charts.

Darth Toll said...

bg, well I shopped a long time for him and its paying off. He's owned the house outright for many years and is an old guy that pays attention to what's happening in the economy and I'm a great renter so it works out well for all. Plus it helps that he doesn't really need the money! Word of advice - don't rent from a flipper, specuvestor, or anyone like Stuck in SF's bro who obviously overpaid for a house.

Here's an interesting discussion of housing price metrics, rental prices, carrying costs, depreciation, taxes, etc. SF's bro shouldn't have paid any more than about $230K for that place, and even then it would be a stretch. $330K is bubble-zone pricing and it won't be long before he "needs" $3K to make the numbers work.

http://clearcutbainbridge.blogspot.com/2008/08/ier-house-valuation-workshop.html

Stuck in SF said...

Bryan, take a look at markets like Detroit. Owning a home is as cheap as rent, but rents have not dropped. Rents are generally considered to be sticky.

If you are suggesting there are more renters right now than normal, then wouldn't that have an upward pressure on rents? But Darth says rents are gong lower. Does that mean we are at a housing bottom because people are fleeing their rental homes to buy new ones, as you suggest would happen at the bottom?

I wish there was more data on rents. I would be very curious to see how rents react to prior booms and busts. Here in the bay, I think rents are cheap compared to home prices, so I can't see rents going down anytime.

I found some data from the census, a bit general, but it does show the stability of rents.

http://www.census.gov/hhes/www/housing/hvs/historic/files/histtab11.xls

Vacancy rates are not that far off the mean either.

http://www.census.gov/hhes/www/housing/hvs/historic/files/histtab1.xls

Darth Toll said...

"In the LONG term rent will go higher. We will see wage inflation in a couple of years as workers demand raises to keep up with rising costs. In response rents will begin to increase."

I disagree with this premise totally. Demanding higher wages only works if you have some bargaining power and your skillset is in demand. Thanks to rampant globalization/outsourcing and a destruction of labor unions and the manufacturing base, workers of all stripes have lost wage pricing power. There is a reason wages have been stagnant for at least nine years and that is all of the items mentioned above.

Stagnant wage growth, coupled with under-reported inflation on things you actually need (energy, food, etc.) is one of the primary drivers of the asset bubble and specuvestor economy. A lot of folks were forced into chasing bubbles (dotbomb, RE, commodities) because their wages aren't keeping up with inflation and they want to protect their standard of living.

The reality is that the standard of living will be going down for a lot of people, because wages won't be going up and all asset bubbles have been exhausted. Maybe they'll just issue more and more stimulus checks!

Now if you mean they'll be going up in 20 years, then maybe you have a case. But I don't see how this will help your bro, as it won't happen anytime in the foreseeable future. This is not projecting a short term phenomena onto a longer horizon, wages have been stagnant for years!

Stuck in SF said...

"SF's bro shouldn't have paid any more than about $230K for that place, and even then it would be a stretch. $330K is bubble-zone pricing"

Darth, his house sold for 265,000 in 1991 when it was built. It next to a golf course, has had significant improvements since being built. An outdoor kitchen, pool, new kitchen with Wolf and Subzero appliances. It last sold for just under $600,000 in early 2005. I think $235,000 is a bit unreasonalbe.

Anonymous said...

darth - who is running ont he communist ticket this year?

Darth Toll said...

I see what you're saying stuck. So obviously, it is a VERY nice place. With this in mind, it should also be much higher rent than $1950 to make the numbers work. Who knows, maybe he can get it?

Stuck in SF said...

So Darth,

When I graduate USF next year I will be applying for residency programs all over the country. My top pick is UCD in Sac. I really want out of the city and don't want to move back to the east coast.
That being said. I really like the neighborhood near the Med Center in Mid (?) East Sacramento. I will have rotations at other nearby hospitals, but will spend most of the time at the UCD Medical Center.

Rents are pretty high, but so are prices. I have been checking online and driving around town to check on rental prices. It seems like a 2/1 in good condition rents for about $1600 per month. A three bedroom will go for about $2000+, but then I can have a roommate. I will be in the program 3 years plus a fellowship for another 3. It almost seems like it is the same price to rent as buy in those areas. It only seems like rents have gone up, and they go quickly. I have been watching www.sacrentals.com trying to get a feel for what I should do.

You seem to be in the camp rents are going down, this goes against my entire life of experience renting in many parts of this country. So this time next year, would you be gambling on getting a crappy landlord, having bad plumbing and what ever other host of problems come with renting 1920's houses, or just buy a place in the same area that has had upgrades, not have to ask for permission from a landlord to get a dog or paint the living room, and stick with it for 6 years? It seems to me it is close to a break even.

Patient Renter said...

Vacancy rates are not that far off the mean either.

Depends what your definition of far off is. They're at historic record levels right now.

Stuck in SF said...

"Depends what your definition of far off is. They're at historic record levels right now."

What historical levels? Record lows?

The 52 year average is 7.9%, while we currently stand at 6.9%. I do not understand what record levels you speak of.

Check the numbers.
http://www.census.gov/hhes/www/housing/hvs/historic/

Darth Toll said...

Stuck in SF, believe me I hear what you are saying. It's very tough for folks that have an entire life experience of a particular dynamic to accept that other dynamics exist. There's many people (in the Bay Area especially) that have only experienced appreciating real estate for nearly 40 straight years, with only minor insignificant down ticks. In their minds, RE truly only goes up, and whatever problems exist in the RE market right now are temporary anomalies. I've had several tell me as much.

Before we go any further, you need to realize that we are talking about credit cycles. Beyond this, you must also realize that super-cycles also exist. Here is an excellent summary of the K-Wave concept:

http://theroxylandr.wordpress.com/investing/kondratieff/

It sounds mystical, but in reality it is very simple. It is based upon the concept of collective amnesia. By the time the last Great Depression survivors die, nobody is left that experienced the GD and the stage is set for another GD, and many of the same mistakes that were made in the 1920's were again made nearly 80 years later. Not coincidentally, the K-Wave corresponds roughly with the length of a human lifespan, and so grows a little as the generations live longer. We are now exactly 79 years from the start of GD1, so we are now ready for GD2. And contrary to what Bernanke and Greescam may have us believe, the laws of economic cycles have not been repealed. It's not different this time!

So, what does all of this have to do with your question? Simply, we are now entering K-Winter and this will be a time of deflation and discharging of all of the bad debt accumulated over the last 30-40 years especially. Many of the folks younger than 40 have no idea dramatically different conditions can exist, as they have only lived during Summer and Autumn, a time of high inflation and more importantly asset bubbles and credit bubbles. I have lived a little longer than this so I'm on my third season. All people that live a full life can expect to experience each of the K-Wave seasons at least once.

The article mentioned above spells it out, but there are different strategies to investing depending upon what time it is. At this point in the cycle, DO NOT take on much debt, save cash as much as possible, and RENT. Cash is king in a deflation and credit is junk. Put up with the crappy landlord, but try to find a good one - they are out there. Over the next few years, this will turn out to be the winning strategy. Regardless of what you may have observed or have learned, timing RE is crucial to making it a good investment. Sure, there are many valid reasons aside from investment that one may purchase a house, and I don't begrudge any of these. I'm just saying that in order for RE to be a good investment, one must time it properly. Now is not the time, although we are getting closer. Another 2-3 years and we'll be at the true bottom, followed by another 3-4 of sideways action.

Really your time frame of 6 years out of med school is perfect. You'll be in a great position to witness K-Spring, starting by maybe 2015 or so, but K-Winter may not end until 2020 or even later depending upon how many retarded moves our "officials" decide to implement to slow down the necessary writeoffs and writedowns.

JMHO disclaimer.

Anonymous said...

DT - Could be

Stuck - rents where med students and residents live never decrease.

Unless they start paying them less and suddenly increase the supply of rental housing around the med center and the demand for health recedes and the city rejects the growth plans for all those hospital complexes within the 2 mile radius (UCD, Shriners, Mercy Gen, Sutter J, Sutter Main, did I miss any?)

Wasserman published a foreclosure dot map a few weeks ago and the east sac wedge was noticeably clear all the way to Folsom. Function of demand.

Residential rental real estate is a basic proven investment for hundreds of years.

Sippn

Darth Toll said...

"Wasserman published a foreclosure dot map a few weeks ago and the east sac wedge was noticeably clear all the way to Folsom. Function of demand."

Look for this to change as the Alt-A reset wave comes ashore. Not many subprimes in the east sac wedge, but many Alt-A's in these higher priced areas. The cancer is spreading up the food chain.

I agree with your other statements about rentals near med centers, etc. These will always be at a premium. Having said this, I still believe there will be some weakness even in these premium areas as the recession builds steam and layoffs mount.

Max said...

The cancer is spreading up the food chain.

I'm seeing a lot more preforeclosures in 95818, 95819, and 95864. The stress is indeed spreading. FWIW, here's a interesting post by a San Diego realtor:

November Lowball List

Will the banks recognize that we're in the midst of another pricing step-down? I doubt it, they are still swamped with closing summer business, and expect that to last for another 30 days.

By the end of October they'll be wondering what hit them, and in the following weeks we'll unleash the November lowballs. If they're getting the orders to clean up the books by year-end, they'll have to make deals - there won't be enough other buyers left willing to play.

Compile your "November Lowball List", and don't be surprised if the year-end environment has a whole new look - we'll know who the next president will be, we'll have had a couple of more banks go under, and likely much more bad news to soften up the sellers!

Patient Renter said...

What historical levels?

Sorry, my mistake. I was thinking of ownership units having vacancy rates at record levels, which isn't relevant to rentals.

Anonymous said...

Allow me to interject my $0.02 into the rents/vacancies debate.

1. As a general rule, rents are indeed rising close to city cores. Due to rising gas prices the most price sensitive group of renters are vacating their suburban digs and looking for places closer to where they work. Thus in cities with true cores (SF, NY, DC, etc.) rents are rising. Conversely, they are falling in suburban and exurban areas for the same reason.

2. This is one of the rare cases where rental rates and vacancies can simultaneously rise. As this debate has hit upon, there are an unprecedented number of properties in the shadow markets. A good deal of them are now vacant - thus vacancy rates are rising. However, the displaced owners still need a place to live, and since they cannot get into the vacant/reo places, they are competing with each other (and driving up rents) for the remaining places that are vacant AND available.

Doolin said...
This comment has been removed by the author.
Doolin said...

Regarding the shadow inventory - I looked at Countrywide foreclosure listing site posted above. Here are the numbers for Roseville and Rocklin:

Rocklin: 2 listings
Roseville: 10 listings (price rande from $200k-$550K)

Is this the shadow inventory that is going to crush the market if dumped at once?

Anonymous said...

Dude, you must not have the super secret password. Only bear bloggers can get this information. The rest of us only look like fools.

Sippn

Anonymous said...

Max - what is alot? is it a 400% increase, from 4 to 16? or is it 20/month, 50/month 100/month?

I'm sure we'll see some high growth percentages when it occurs, but perspective helps.

Also some talk out there about ALTA resets being softer as base rates (11th district cost of funds) are significantly lower now than a year ago -heck, my i/o payment is 30-35% lower than 1-2 years ago.

Sippn

smf said...

Dear Sippn:

You have spent a few years mocking us for what you call wrong data. Yet in all those years, we have been proven right time and time again.

There is plenty of shadow inventory. Tell me how many condos in the 500 N Street building are on the MLS, as opposed to how many have been sold already.

Anonymous said...

Being a resident of the 95819 since 1994, I have become close friends with many a fellow neighbor and have had numerous healthy discussions with those neighbors about their personal financial situations.

My observations have brought me to the conclusion, some neighborhoods are different than others. This also applies to streets in a given neighborhood. In the core of East Sac (39th to 50th and Folsom to H) these homeowners are very well established, have no motivation to move, and have significant equity. One neighbor just put his house for sale on 47th, I think the most expensive listing on 95819 right now. The listing price is $1.4 million (I think), but he only owes $300,000. Turnover in these homes is extremely low and most are nowhere near being upside down and thus have no reason to dump and run. When you live in one of the most exclusive neighborhoods in the city, where would you run to?
Basically, I don't see the Fab 40's crashing 50%.

Patient Renter said...

I don't see the Fab 40's crashing 50%

There is a strong heritage of people who didn't see things happening in this RE cycle, so I suppose you're in good company.

Darth Toll said...

doolin,

I guess you didn't see Max's post a while back using deutsche bank's excellent (and historically very accurate/well funded) research showing 31K foreclosures in the 4 county region vs. the current 14K total MLS listings. This is the shadow inventory that will crush the market.

So whatever listings you see in Rocklin/Roseville, just double that number for just the foreclosures already here and coming online in the next 90 days and you'll get a sense of what Max is talking about with regards to shadow inventory.

http://sacrealstats.blogspot.com/2008/08/insight-into-shadow-inventory.html