Sunday, March 08, 2009

Sacramento Regional Real Estate Trends for March 7, 2009

Another week without any remarkable trend changes. Inventory is trending slightly downward, and asking prices are showing a small increase. Sub $200K inventory is falling off in Sacramento and Yolo counties, which may explain the price action. My wife and I were on the housing prowl this weekend, and we visited several open houses and new developments. There was remarkably little traffic, which was due to the great weather (according to some agents we talked to. The weekend before the low traffic was due to the bad weather. :) At all the new developments we viewed, we were the only visitors. So far, according to my data and our on the ground experiences, the market looks absolutely dead.












25 comments :

Anonymous said...

I think the days of where the crash coming from a spike in inventory is over.

Any seller out there with a choice will hunker down and not even list. The key then is sales. Inventory will continue to grind down to very low numbers. Will the tiny volume of sales be enough to sustain prices? We shall see.

Husmanen said...

A large shadow inventory is still there, see example from averagebuyer:

http://averagebuyer.blogspot.com/2009/03/market-stress-update-back-where-we.html

I wonder, is there historical data to show the relationship between population, employment and houses on the market? That might provide an indicator to see if we are close to norms, above, below etc.

Just a thought.

Anonymous said...

In other news, the unemployment number shot up t0 11.6% last month. Despite spring being around the corner, the market here is dead dead dead.

Max said...

A large shadow inventory is still there, see example from averagebuyer

Yeah, and now that the moratorium has lifted, there are hundreds of new REOs hitting the market. The Shadow Knows.

Buying Time said...

"My wife and I were on the housing prowl this weekend"

You two should have it royal if buying a new pad, assuming you are both first-timers, $18,000 in tax incentives. Your waiting has certainly paid off, in more ways than one!

We were a 2 weeks too early to get the new home credit for buying new...argh.

Max said...

Your waiting has certainly paid off, in more ways than one!

Yeah, our own little private bailout. :) Also, I think that $7500 IRS loan is still operative, so the US and California taxpayer could be subsidizing over $25,000 of our house purchase. That's on top of any loan subsidies that we might be getting (FHA being the only game in town really.)

It's too bad for us that the only new construction in the area we're looking is all luxury infill in partially completed developments. At the prices they're asking, our offers wouldn't even come close. (@ $190/sqft, 15% off is not enough. :)

We definitely feel like we're in the drivers seat though; some of the false urgency we've been subject to has been laughable. (You couldn't rebuild it at that price, so it's a good deal; it already fell out of escrow once, so someone really wants it!) We (blog readers and writers) know how much REO is out there, and (judging by how many current listings are short sales) how much more REO there will be in the near future, we have all the time in the world.

Bill said...

I don't think 'waiting' necessrily paid off. For starters, if you had a halfway decent job and moneyf or a downpayment - you probably already own a home.

If you had a crappy job or uncertain job and no downpayment, you probably still aren't going to buy a house. You probably saw your 'downpayment' lose 50% of its value and your job is now on the chopping block.

So, outside of a small handful of people (those who have high net worth held in gold or US treasuries), the previous angry renters got their wish of the housing market collapsing - and as they had been warned - are no closer to being able to buy a home than before. Frankly, if they could turn back time, I would think they would gladly go back to the days of unafforable housing, but $10K in the bank and a steady job.

Anonymous said...

"Husmanen said...
A large shadow inventory is still there"

Probably so, but weve been talking about shadow inventory forever, and the banks still havent "dumped" them back on the market. In the mean time, regular inventory continues to decline, decline, decline...

My guess is the banks are not going to "dump" it as we hope. My guess is they will keep dribbling it out, month by month, year by year. Never enough to make inventory rise, (and cause prices to further crash). Instead they will just try to keep prices flat for a long long long time...

Sorry for being so pessimistic, its just Ive been waiting for this "shadow inventory" for so long, I cant get that excited about it anymore.

Max said...

ts just Ive been waiting for this "shadow inventory" for so long, I cant get that excited about it anymore.

There is a waiting for Godot element to this if you only look at MLS data. The shadow market has its own dynamic; understand that real estate agents are just another expense to the banks, one that is easy to avoid if you know how. I've talked to "independent" agents that are really REO portfolio managers for large banks. They handle 75-200 REOs at a time, setting the comps and prioritizing the sale. Some of them get commission, most get a flat fee per house. They deal with investors looking for cash flow property, and it's all very cut and dry.

Buyers like you and I wouldn't be interested in 80% of what these guys have, and the "hand-holding" we require isn't worth their time anyway. That's why, when it comes to buying a place for yourself, the inventory numbers and overall market indicators are less important than your specific needs.

You have to ask yourself: what would make me buy today? Price/size/condition/location etc and look for that. If you don't see it, make offers. If you get rejected, your expectations are out of line with what the market's doing right now. It could get better for you in the future, so if you believe that, keep waiting.

Darth Toll said...

At this point, there is a window of opportunity and it will soon close. If the bond market takes a dirt nap as I expect in the next few months, interest rates will skyrocket and lending will effectively be shut off entirely. The economy will plunge headfirst off the cliff straight into GD2 - but this was inevitable anyway. If you want a house, can't afford to buy with cash outright, and have reasonable job prospects going forward, this may be your last opportunity in a long time to get financing. Even in GD1, unemployment was around 25%, so 75% were still employed! And this was during a time of better and more honest government statistics. FHA for first time homebuyers is basically 97% (cal-fha is 100%) and most "angry renters" that have been sitting on the fence for a long time (3+ years) are considered 1st timers. So not much cash required and houses about 60% off. What's not to like? Sure, you could lose your job in GD2, but you could also get hit by a bus tomorrow.

Once the bond market implodes, houses will get A LOT cheaper. But will it matter if you have no cash? Only rich folks will be buying at that point - similar to the land barons of the 1930's. Buy now or be prepared to sit it out for a LONG time. And this coming from a long time RE bear and angry renter. BTW, Bill, this mess was not my "wish". I wish the RE bubble never happened in the first place, and I wish the derivatives monster was never born and RE just appreciated at a "normal" rate along with incomes. But in the end, I'm a realist. The RE bubble happened, and I decided to wait for the inevitable crash. I will get a house for 60-70% off bubble peak, my credit is not wrecked and I have a reasonable chance of paying off the house in my lifetime. If I bought during the bubble, none of those things would be true. Did the angry renters cause the bubble or the crash or the coming depression? I think not. Greedy lenders, wall st banksters, the Federal Reserve, lack of regulation, and flippers did - among other factors.

I believe I made the correct choice, but only time will tell for sure.

Anonymous said...

Max said...

"They deal with investors looking for cash flow property, and it's all very cut and dry. "

So Max, if I understand you correctly, I think you are saying that for guys like me (mid to upper middle income types) the hidden inventory (a) sucks and (b) wont reappear on the MLS. Is that a down and dirty version of what you are saying?

"Darth Toll said...

Buy now or be prepared to sit it out for a LONG time. And this coming from a long time RE bear and angry renter."

Sounds reasonable DT - and I appreciate your honest POV. Basically, I am in the same or similar camp as you I think. Ive had it with this thing. Ive got cash, financing is avail, rates are cheap, job is OK...I think I am ready to go. 4 years is long enough.

Anonymous said...

DT - I think you're pretty close. Here's my theory.... reading about an investor in Detroit or Chicago a year or 2 ago. Buys junky homes under $30K, does a little refurb, sells them using private investors as his lender to subprime borrowers. Figures about 1/3 loan failure rate and makes a decent living. High interest rate and high % down.

If wall street had figured that failure rate into the subprime loans (instead of less than 2%) they would have been priced properly, required larger downs, and prices likely would not have skyrocketed with all the leverage.

Once the "market" found out about the garbage packaged loans, it repriced them.... less 1/3 for the failure rate and another 30-50% for the asset overpricing due to the leverage - devaluing pension plans, etc.

It was a housing bubble that was created by and exposed the real problem... credit.


Max - we're at a 3 year low of inventory and were still talking about a "shadow inventory" ??? To maintain this inventory level adn sales rate, REOs need to be fed to the market about 2000 per month. Keep in mind that the tract builders, who were producing about 2000 per month in 2005/2006 are now producing a few hundred per month... and there is no prospect of them being able to spit out homes quickly anytime soon as the industry infrastructure has been scattered to the wind.

Max, appreciate the comments on the REO managers and bulk buyers - yea they want individuals to work with agents - that's what retail is all about.

If the credit markets don't get fixed, we're all screwed, but even these DC dummys, and I liked them in January, but its now mid March, will figure something out. Boy do they do a lot of damage while they talk out loud.


Sippn

Deflationary Jane said...

I guess I'm the only person still waiting. Actually my attitude has improved greatly now that I'm sidelined from buying for the next year at least. It's good to smile a little >; )

Like DT, I didn't wish for any of this. All I wanted was to be able to buy a modest house with a conservative loan. I didn't want to climb the property ladder or use the house as an ATM, I just wanted a house.

But the downturn is here and it is what it is. I know too many people recently laid off with zero prospects out there. They say it's as if companies just slammed the gates shut in Dec/Jan. I want those job loses to be felt in the wider RE market now.

I wouldn't assume that many of us lost 50% of our portfolios and are now bitter. If bonds go crazy, that is great news for me as I wait a little longer.

I've waited since 2001 for this to be over. I can wait some more.

Anonymous said...

Geez, DJ, maybe you should be running the portfolio at CAPERS. Not joking that much.

The problem is it wasn't just individuals using the house ATM, the tax revenue it generated, both property and sales taxes, as well as development fees, were the life blood of governments and govt related entities as all fattened payrolls, pensions, and of course, new fire dept dormitories.

What job is protected?

Sippn

Anonymous said...

"I've waited since 2001 for this to be over. I can wait some more."

Since 2001? That means youve spent 1/10th of an entire human lifetime waiting!

No offense, but I think you might want to re-evaluate why you want to buy anyway. I know someone who didnt buy in LA in 1996, the absolute bottom of the market, because she thought it was STILL overvalued! 13 years later - she still watches the market like a hawk. Shes in complete denial that things just wont get down to what her level of "price appropriateness" is. Its quite sad really.

I dont mean to give you a hard time - I dont know you from Adam. But at some point you have to say enough is enough. There is nothing wrong with renting - people in Europe do it their whole lives and they are fine with it.

As I see it, either bite the bullett in the near future, buy and and quit watching the market. Or just recognize buying isnt your thing, continue to rent and be happy with it. Regards.

Husmanen said...

Yes, the house inventory is down compared to a few years ago. The only sellers are basically REOs, Short Sales or those on their way.

But what is the inventory like compared to historical levels considering population and employment?

Waiting has definitely paid off for me personally. I have much more money in the bank, flexibility with living arrangements (but a move to another rental would suck) and have a greater peace of mind than friends and family that bought at the peak, soon after and a two years after. That is worth a lot.

Admittedly, my bids are not accepted because they are too high for today's market and based on fair value. The fundamentals are the fundamentals:

* traditional appreciation (1% after inflation 1950-2000 Robert Schiller)
* ability to pay (median price / median house)
* price to rent ratio or monthly parity (PITI covers rent)

Meeting historical norms is not an implosion it is a correction. Over correcting could cause problems if there is no money to lend and no buyers as there are no jobs. If a major over correction occurs I will continue to rent and save, barred I still have a job.

Max said...

Max - we're at a 3 year low of inventory and were still talking about a "shadow inventory" ???

Hey, even the Bee reported that 71% of all sales in January were REO.

So Max, if I understand you correctly, I think you are saying that for guys like me (mid to upper middle income types) the hidden inventory (a) sucks and (b) wont reappear on the MLS. Is that a down and dirty version of what you are saying?

Yep. I plan on exploring this idea in greater detail in the future, but keep in mind the median sales price in January was $165K. These sales didn't happen in so-called "desirable" areas. Qualitative, I know, but I'll have more later.

Anonymous said...

Yes, Max, but most of that 71% REO sales was listed in MLS and sold to retail buyers - wasn't "shadow inventory".

Most short sales are the same inventory we will see as REOs in 6-12 months as there is little % turn in short sales - can't call that shadow inventory as it is already counted.

Watch Schiller, as his charts do not account for the advent of the 30 year mortgage (post WWII) and they blend the always dead mid west markets with the mostly growing coastal markets. Its not his smarts, but his motives I question.

Sippn

Max said...

But what is the inventory like compared to historical levels considering population and employment?

I think one issue we're dancing around is location value. The median in Sac County is $165K, which is well within historical affordability. But do you really want to live in Oak Park? Even at $50K, I wouldn't want to live there.

The overall market metrics only give you a generalized picture of the trend. I also agree with anon 8:56: it's impossible to time the market perfectly.

Max said...

Yes, Max, but most of that 71% REO sales was listed in MLS and sold to retail buyers - wasn't "shadow inventory".

Are you sure about that? I'm running some numbers now, and in a zip code I'm interested in (95628), it looks like this:

Total MLS Listings: 222
Total Foreclosure Radar REOs (120 day): 43
Total FR 120 day REOs currently listed: 16

That's a shadow level of 12%, just looking at the 120 day REOs. In 2008 there were 213 foreclosures in 95628, and 366 since 2006. It'll take me some time to crunch the numbers, and I'll post the results either way, but I'm pessimistic.

Deflationary Jane said...

Sippin,

Some friends just rented a place around the block from my new place. I did some digging for them and then some for them since zillow listed it for sale.

sale history:
Nov 2005 610,000 initial sale
October 2008 350,000 asking
Sold to investor for 275,000 who bought it sight unseen.

I know because we stopped at the home while the new landlord was there and I got to ask many question of her. It was handled through a bank's asset management arm, it never hit the MLS.

Deflationary Jane said...

'I think one issue we're dancing around is location value. The median in Sac County is $165K, which is well within historical affordability. But do you really want to live in Oak Park? Even at $50K, I wouldn't want to live there.'

exactly Max. When prices were going up in 97-98, it was the good locations that lead the way. Currently it's the worst areas that are leading the charge down. We're talking apples and oranges in terms of housing stock available at a certain price point.

Anonymous said...

"Max said...

Yep. I plan on exploring this idea in greater detail in the future, but keep in mind the median sales price in January was $165K. These sales didn't happen in so-called "desirable" areas. Qualitative, I know, but I'll have more later."

I wish you would. The issue has been out there for a while and with the stated inventory declining like this, you have to wonder...

Honestly, I blame Mr. Mortgage for all this. He has hyped the issue so much its unbelievable. Smart too because its never truly known (it is "shadow" afterall).

Its really screwing wiht things too. Youve got guys looking at coastal property in the 1MM market thinking there is some huge chunk of bank held REO out there that will suddenly be released and drive beach property down to 1981 nominal prices. They are going to be very very upset if things start heading back up in say 2011 or so, and that so called "shadow inventory" never returned.

Bryan said...

Shadow-Inventory-Denier! That's tantamount to Holocaust-denying around here. :)

Anonymous said...

Bryan - funny. The only thing possibly more sacreligious is questioning the forcefulness of the OPTION ARM IMPLOSION - coming soon to a neighborhood near you!