It seems that enough people expressed interest in attending Thursday’s economic forum that they had to move to a bigger venue over at the USD campus. So if you were planning on attending, please be sure to check out the updated location info.
Moving on, I wanted to highlight some really interesting analysis recently performed by realtor and fellow panelist Jim Klinge.
I have been writing for some time about the strange mixed signals being sent by housing inventory and foreclosure activity. Housing inventory is at a level that, superficially, would indicate a fairly healthy market. Yet homes are going into foreclosure at a very rapid pace, a fact that leads one to believe that a lot of must-sell inventory could eventually hit the market.
In a recent pair of blog posts (here and here), Jim and a colleague have attempted to quantify these opposing forces.
Rich, if I read your article
Rich, if I read your article correct, it sounds like what you’re trying to point out is, with the phantom inventory, it would move some area from “healthy” inventory level into an “unhealthy” inventory level. Am I correct in that assessment? If so, I’d like to riddle you this:
Here are the two extreme, Mira Mesa vs Del Mar.
MM:
March closing:50
Current inventory: 137
Phantom inventory:214
Current monthly inventory: ~2.75
Phantom + current monthly inventory: ~7
Del Mar:
March closing: 9
Current inventory: 180
Phantom inventory: 11
Current monthly inventory: 20
Phantom + current monthly inventory: ~21
So, although MM has over 4 months worth of phantom inventory, the total supply still yield a very healthy monthly inventory. Correct? However, although Del Mar only have 1 month of phantom inventory, there’s so much supply out there that this 1 month inventory won’t make it that much worse.
Just my 2 cents.
The point was more that
The point was more that however healthy it seems, most places are substantially less healthy than that.
Interesting point though on current inventory being lower in the high-relative-shadow-inventory places (Jim mentioned that too).
Rich
Question is WHEN. WHEN we
Question is WHEN. WHEN we will finally see all this much discussed shadow inventory?
From what I hear it is really, really, difficult to get an offer accepted right now on a house. Lot’s of buyers looking for months and months only frustrated to losing out once again on bank owned properties with 10-40 offers the day they hit the market.
The market is tightest at the $450k and less SFR market.
That’s one of the strange things about this crash I’d like to hear Rich talk about. It’s a “multiple offer” crash. In a lot of ways, as or more competitive then ’03 or ’04. From what I hear it was not like this in the 90’s crash.
When I envisioned the crash back in 2005, I envisioned banks begging people to buy their houses. Being to take your good ‘ol time like a kid in a candy store. But it’s not unfolding like that. Anything priced competively out there has extraordinary competition.
ctr70 wrote:
When I
[quote=ctr70]
When I envisioned the crash back in 2005, I envisioned banks begging people to buy their houses. Being to take your good ‘ol time like a kid in a candy store. But it’s not unfolding like that. Anything priced competively out there has extraordinary competition.
[/quote]
That was what I was expecting as well. Unfortunate for us, that’s not the reality.
Even with a record high
Even with a record high unemployment rate there seems to be no end to the numbers of buyers out there.
I think San Diego could have 50% unemployment and still have multiple offers!
ctr70 wrote:Even with a
[quote=ctr70]Even with a record high unemployment rate there seems to be no end to the numbers of buyers out there.
I think San Diego could have 50% unemployment and still have multiple offers!
[/quote]
Alittle bit of an overstatement dont you think? 50% of people are outa work. The height of the depression was half that! (50% would be road warrior style, afterall the guys who were defending the gas all had jobs!)
Ok, sorry, just had to point that out.
But why didnt you think even the bust would be cyclical? Ups, downs, long periods of blah. Look at the 90’s bust. There were up periods during the down times, and we didnt have BS interest rates, $8g tax credits, a nationwide recession, constant government intervention and cheerleading, idiot economists recomending negative interset rates……. and everything else you read in the news currently. So we are in an up time after what, 2.5 years????, down. Nearly every single economic indicator is negative or flat from 6-8-12 months ago. REO pipeline is full to bursting ensureing that nothing will change for the foreseable future. Job losses are higher than atleast the last 30 years and most likly since WWII, recharging that pipeline. But apparently we have a 4 month rally, in the spring to boot!, and sunny days are here from now on. Atleast wait till fall and see what happens then before getting too frustrated.
“Job losses are higher than
“Job losses are higher than atleast the last 30 years and most likly since WWII”
you mean losing 500,000 to 650,000 jobs EVERY month isn’t typical?
ctr70 wrote:Question is WHEN.
[quote=ctr70]Question is WHEN. WHEN we will finally see all this much discussed shadow inventory?
…
When I envisioned the crash back in 2005, I envisioned banks begging people to buy their houses. Being to take your good ‘ol time like a kid in a candy store. But it’s not unfolding like that. Anything priced competively out there has extraordinary competition.
[/quote]
Give it time. You have no idea how much “stupid money” has been made in real estate over the last few years. Many people are still convinced that real estate is the road to riches and think that this is a temporary speed bump.
5 years from now– when houses are selling for less in inflation-adjusted terms than they are selling for today– then you will get a reasonable deal…
I think it’s also important
I think it’s also important to keep in mind that all this activity on the low-end of the spectrum is investors and first time buyers, buying from banks. So there’s no “move-up” buyers for the higher tiers as well as persistant job loss. This is going to put the squeeze on the upper tiers for quite some time to come.
Also, I think the low end is
Also, I think the low end is moving b/c that all that people can really afford, now that they have to prove that they can make the payments. You can’t pretend that you can afford a McMansion. When it comes time to sell those McMansions and you have to prove you can really affod it, we’ll just see how many multiple offers are out there. The bigger they are, the harder they fall.
so how does it play
so how does it play out?
Lower priced homes get sucked up until higher priced homes come down enough that 1st time buyers may be able to squeeze the payment into their budgets?
I’ve been tracking the
I’ve been tracking the foreclosure sales at the courthouse steps for a few months. Many opening bids are for lower than the stated amount on the note and still no one offers a bid and it goes back to the lender. So the REO’s are going to mount. It’ll be interesting when more desirable homes hit the steps.
The only market right now are
The only market right now are first time home-buyers buying sub-500K homes. That’s it. Period. The “Move-Up” buyer doesn’t exist anymore. That’s why the market for >500K homes is virtually dead.
So how long can the new home-buyers continue to buoy up the market? Not much longer I wouldn’t think, given rising unemployment.
Jim’s definition of “shadow
Jim’s definition of “shadow inventory” is highly misleading. What he sees as “shadow inventory”, in many cases, really is future supply – houses that will hit the market during the next 6 months. There’s ALWAYS future supply. Even in normal circumstances, we know that some houses will appear on the market tomorrow, a week from now, a month from now … But we don’t count those as shadow inventory, do we? The difference is that we can see them now ahead of time, before they do hit the market, because it becomes necessary for many people to receive NODs before they can sell.
This about it. Mira Mesa and Santee are at 2002 prices. On the way up it was normal for first-time homebuyers and investors to put little to no money down. Almost everyone who bought between 2003 and 2007 is underwater. Many people did cash-out refis during the same period, they are underwater too. Perhaps 30% or more homeowners in MM are upside down right now. Upside-down houses only sell through short sales or REOs. Short sales normally require a NOD. The remaining 70% with positive equity are staying put.
If you pick a number of recent sales in MM at random and examine their circumstances, you’ll find that many, if not most, had a NOD in their recent history.
That’s the way the low-end housing market works today – properties must join the overt default pool (“shadow inventory”) before they sell.
P.S. Looked through 10 most recent closings in Mira Mesa. 6 short sales, 1 probable short sale, 3 flips.
Eugene wrote:Jim’s definition
[quote=Eugene]Jim’s definition of “shadow inventory” is highly misleading. What he sees as “shadow inventory”, in many cases, really is future supply – houses that will hit the market during the next 6 months. There’s ALWAYS future supply. Even in normal circumstances, we know that some houses will appear on the market tomorrow, a week from now, a month from now … But we don’t count those as shadow inventory, do we? The difference is that we can see them now ahead of time, before they do hit the market, because it becomes necessary for many people to receive NODs before they can sell. [/quote]
That’s an interesting point, Eugene, and I agree with some of what you are saying. But I don’t really agree that you can just equate shadow inventory with what would have been future inventory anyway.
For starters, there are many forms of future inventory. Anyone who is going to sell for any reason. Off the top of my head here are a few: moving out of SD, divorce, moving up, and can’t afford to stay.
The shadow inventory captures that last group, but the other groups are still there. (Well, maybe the move up buyers aren’t, but the rest are). So to some extent, there is a natural rate of future inventory, and these numbers measure a component of future inventory — and that component happens to be huge.
(True, most places may be underwater, but that doesn’t mean that everyone who is going to sell in the future has already stopped paying the mortgage and gotten an NOD.)
Also, another distinction is that this doesn’t just measure future inventory, but future must-sell inventory… so unlike say move-up buyers, it’s harder for this inventory to be pulled off the market to wait for better times.
Rich
We should ask ourselves, why
We should ask ourselves, why is inventory important?
The answer is, high inventory is a SYMPTOM of imbalance between supply and demand. It arises because, when supply outpaces demand, houses tend to linger on the market for many months before withdrawing, even though they are being actively marketed. That is what’s going on in parts of high tier now.
Shadow inventory isn’t being actively marketed. The fact that there are 5 months’ worth of distressed properties in Mira Mesa is, by itself, meaningless. Could be simply that most properties become distressed before selling, default rate is equal to new listing rate which is equal to sales rate, and shadow inventory is a 5-month buffer of fixed size through which most properties pass before selling. In fact, 5 months, give or take, would be just the right order of magnitude in a bottoming market, because it takes 6+ months from the time a NOD is received to the time the house is listed for sale as a REO.
It _would_ be a bad omen if we thought that this inventory could somehow be unleashed on the market at the same time. But it can’t. Or if we had evidence that shadow inventory is growing (because new NODs outpace loan modifications and distressed sales). It may very well be growing but there’s no data to demonstrate that. If we had data, we could compare inventory growth rate with sales rate and estimate how many sales we’re missing because banks are delaying foreclosures and hoarding REOs.
[quote]Off the top of my head here are a few: moving out of SD, divorce, moving up, and can’t afford to stay.
The shadow inventory captures that last group, but the other groups are still there. (Well, maybe the move up buyers aren’t, but the rest are). So to some extent, there is a natural rate of future inventory, and these numbers measure a component of future inventory — and that component happens to be huge.[/quote]
You know very well that prime delinquencies are way up nowadays. We have moved beyond defaults among people who can’t afford to stay, to defaults among everyone who bought or refinanced in 2003 or later and needs to move for whatever reason (even a divorce). My quick review of recent MM sales confirms – non-distressed sellers are rare. Your shadow inventory IS future inventory, or a big part of it.
[quote]Also, another distinction is that this doesn’t just measure future inventory, but future must-sell inventory… so unlike say move-up buyers, it’s harder for this inventory to be pulled off the market to wait for better times.[/quote]
That is true. Is there any way of knowing how many normal buyers end up withdrawing rather than selling in a healthy market?
deadzone wrote:The only
[quote=deadzone]The only market right now are first time home-buyers buying sub-500K homes. That’s it. Period. The “Move-Up” buyer doesn’t exist anymore. That’s why the market for >500K homes is virtually dead.
So how long can the new home-buyers continue to buoy up the market? Not much longer I wouldn’t think, given rising unemployment. [/quote]
Could be a good time to buy in a move-up market, while unemployment is still high and move-up buyers are still scarce.
Eugene wrote:
Could be a good
[quote=Eugene]
Could be a good time to buy in a move-up market, while unemployment is still high and move-up buyers are still scarce.[/quote]
Yes, if sellers are prepared to sell for what buyers are prepared to pay. But there’s a stand-off.
The important part is to
The important part is to distinguish between move-up markets, overpriced move-up markets, and overpriced first-time-buyer markets. Generally speaking, areas desired primarily for their schools are first-time-buyer markets, because that’s where young families shop. Even places like Carmel Valley. You just have different kinds of first time buyers – in Mira Mesa it’s blue-collar public, in CV it’s double engineers and lawyers.
True move-up markets are places like Coronado and Bonsall – they may or may not have great schools (they usually do), but that’s not the attraction.
ctr70 wrote: When I
[quote=ctr70] When I envisioned the crash back in 2005, I envisioned banks begging people to buy their houses. Being to take your good ‘ol time like a kid in a candy store. But it’s not unfolding like that. Anything priced competively out there has extraordinary competition.[/quote]
We’ve got a David and Goliath situation, so get out your sling shot and start practicing. Don’t buy and tell your friends and family not to buy, and every time a realtor tells you it’s a great time to buy, snap those thongs together tightly.
All I can say is what I am
All I can say is what I am seeing right now.
First off those who are saying that only the low end is hot right now are incorrect. That is false. Stated more correctly the activity varies by price in all zip codes. Pricing at the 700k and below level in places like 4S and/or CV is very desired right now and getting alot of activity.
Today I called on 10 places in PQ and ALL of them had offers on them. Every single one of them. They were all in the 450k – 550k range.
My personal advice is if you are a serious buyer this is perhaps the most competitive market you will experience in the past several years. It would behoove you to walk away from it and not compete.
To me this is not the bottom at all BUT unless we get a substantial catalyst such as a very large influx of inventory, or a very sharp change in interest rates this will indeed continue.
I recall the mantra about let’s see what happens when we have double digit unemployment. I even chanted it myself. Well we have it. It is here and I see no abatement in activity. In fact I see more activity now then when we had single digit unemployment. The bottom line is that this has all played out a hell of alot different then many of us thought it would. I am not trying to be a wet blanket on the bearishness and I still am very much in that camp. However I am feeling that I have to rely more on hope now because all of the tangible things that I thought should happen, that I thought had to happen, kind of did happen but my biggest fear of the government slowing things down has come true. As an engineer I find relying on hope is rarely successful.
I will put it this way we better see a huge influx of foreclosures, or else we will indeed see prices start to rise.
SD Realtor wrote:
I recall
[quote=SD Realtor]
I recall the mantra about let’s see what happens when we have double digit unemployment. I even chanted it myself. Well we have it. It is here and I see no abatement in activity. In fact I see more activity now then when we had single digit unemployment. The bottom line is that this has all played out a hell of alot different then many of us thought it would. I am not trying to be a wet blanket on the bearishness and I still am very much in that camp. However I am feeling that I have to rely more on hope now because all of the tangible things that I thought should happen, that I thought had to happen, kind of did happen but my biggest fear of the government slowing things down has come true. As an engineer I find relying on hope is rarely successful.
I will put it this way we better see a huge influx of foreclosures, or else we will indeed see prices start to rise. [/quote]
Someone has to prop up the banks over the next couple of years. Better the current buyers than me…
Let the stupid money drain out of the system. Without jobs, the price of real estate will go down.
I’m wondering how long it
I’m wondering how long it will take today’s buyers to be underwater – I think as soon as this fall many of them will be saying, “Oh, darn, that wasn’t the bottom”
I’ve done the research on
I’ve done the research on this. Since 1960, whenever Unemployment goes above 7%, RE prices in CA start to head south. We’re at 11.3% and still rising, foreclosures rising. I’m seeing houses in my area that are now priced in the mid $500K range that are on the market well over 6 months and they cant sell them. Their chasing the market down. Two homes that went for mid $500K in 2006, just sold for $330K and $350K….Very good schools, high demand area throughout the decades.
When a market has a huge percentage of motivated seller about to unload their product, this forces prices down hard. Thinking that “shadow inventory” from banks at the numbers we’re seeing will have little effect is beyond illogical.
Peter if you want to list the
Peter if you want to list the addresses of the two houses you mentioned I can call the listing agent. Or perhaps simply call the number on the signs in front of them and see if they are not short sales going through processing.
Great forum, Rich. I enjoyed
Great forum, Rich. I enjoyed everyone’s comments and it was not boring at all. Quite entertaining.
Thanks JP… good to see you
Thanks JP… good to see you again.
Rich
I second that – the
I second that – the discussion was quite interesting and stimulating. Thanks to you and the rest of the panel for providing it.
SD Realtor wrote:All I can
[quote=SD Realtor]All I can say is what I am seeing right now.
First off those who are saying that only the low end is hot right now are incorrect. That is false. Stated more correctly the activity varies by price in all zip codes. Pricing at the 700k and below level in places like 4S and/or CV is very desired right now and getting alot of activity.
[/quote]
My anecdotal evidence: Here in Sausalito (Torrey Hills), where there was remarkable strength a year ago, there are six properties sitting, with nary a squeak for quite some time now. Four on the market for about 90 days, two for 30 days. These are bona fide Carmel Valley properties at the ~$700K price point.
As a potential buyer (yes, circumstances force me), I can say that it is an entirely dysfunctional market. The sellers who accept reality are seeing their properties fly off the market, even in the above $1M price range. Those who don’t, and this seems to include the substantial majority, are seeing their properties sit. We made a cash offer for a Solana Beach (east of I-5) property, at about year 2001 price, and were basically told to F off. I have given up on coastal SD for the time being and will hunker down in east county for the interim. At least my downside risk is reduced, I think both on an absolute and percentage basis.
It unfortunately takes time for things to adjust. It took nine years for this thing to build, and if it took less than nine for it to come down, the system might not be able to take it. Sad but true.
Sorry, but the high-end
Sorry, but the high-end market is practically non-existant. How much sales activity has there been in La Jolla, Pt Loma, or Coronado in the last quarter? Negligible.
Fearful I know Sausalito
Fearful I know Sausalito really well and agree with you on that. I think your analysis is correct especially about the market being dysfunctional.
Look, if we do get all of these reo or soon to be reo properties on the market I will feel much better about things. There are three things with which I am 100% certain. We are not at a bottom. The high end is getting killed. The market is very very active in many areas at a variety of price levels and if you are a buyer you better be prepared to deal with it and have a strategy for it. My advice on that strategy is to wait it out. Check back in when inventory is back to sane levels. Maybe it is at the end of the summer, maybe the end of the year, maybe next year.
I did a polygon search on Sausalito. I only came up with 4 active listings. 10820 Corte De Marin, a short sale which has been on the market 6 days, 4271 Corte De Sausalito which is a regular resale and on the market for 86 days, 4294 Corte De Sausalito with is a regular resale and on the market for 79 days, and 10845 Corte De Marin which has been on the market for 91 days and is also a regular sale. Please let me know which two addresses I am missing and I can check them out.
SDR, the information that you
SDR, the information that you get on DOM, is that the real DOM or just the DOM from the MLS#? In other words, do you have the actual DOM of an address, as opposed to when someone lists for a month to 3 to 6 months and gets a new listing number each time, turning the clock on the DOM over so it doesn’t appear it’s been on the market very long.
Hi JP
On the MLS we have two
Hi JP
On the MLS we have two fields to look at for days on market. One is MT which is market time and AMT which is adjusted market time. AMT is intended to compensate for homes that go from active to pending then back to active. Same for if they go to withdrawn. AMT does not increment when homes are in not ACTIVE. MT increments all the time.
Now as for when a property is an MLS listing and then gets relisted yeah that is and always will be a problem.
Yet don’t we have the reverse problem nowadays? How about the home that is a short sale that sits in an ACTIVE state for 150 days yet has not taken any offers for 120 days because they are waiting for the lender to come back with an answer for the short sale.
I wholeheartedly agree we need some serious upgrading to the mechanisms provided by the MLS so that we can gather much more accurate stats. These should include but are not limited to DOM counts to include previous listings of the same home if they are in a certain timeframe, and an entirely new classification of homes that are short sales and have offers and are not taking any more or are only taking backups.
Most all agents are savy enough to look at the listing history to catch previous listings.
The additional Sausalito
The additional Sausalito houses are 10753 and 10757 Calle Mar De Mariposa. Both on the market about one month.
10820 Corte de Marin has, I think, been pulled and relisted, because I recall seeing the listing before, so I think it qualifies as a long listing.
Fearful
I have one of those
Fearful
I have one of those and it has a few offers on it. It would have sold long ago if it was handled properly. I am cleaning up someone else’s mess right now.
Received a new assignment in
Received a new assignment in Mira Mesa yesterday, property was foreclosed by a major bank in SEPTEMBER. Tenants must have thought they had died and gone to heaven, free living!!! A little depressed when I knocked on the door…..
It’s the biggest mess the
It’s the biggest mess the states seen in RE drops. As unemployment persists and more foreclosures hit the market prices should keep headed south. Prices went up from 1997 to 2007, it’ll take longer than a couple of years to give most of that back.
peterb wrote:It’s the biggest
[quote=peterb]It’s the biggest mess the states seen in RE drops. As unemployment persists and more foreclosures hit the market prices should keep headed south. Prices went up from 1997 to 2007, it’ll take longer than a couple of years to give most of that back.[/quote]
peterb is right. It’s a long way from over, and real prices are going to get closer to 1996’s. Can we hit fast-forward now?
I agree w/peter. It took
I agree w/peter. It took quite a while to get to peak and gov is doing everything to make it a gentle landing. It will land eventually, but they are prolonging it as much as possible.
I also think that when Alt-A/Option ARMs take hold, that will change the environment and put pressure on the higher end, bringing prices down and causing a domino effect decline on the mid-priced.
Shadow Inventory is the
Shadow Inventory is the smaller piece. We have more underwater houses than at any other time in history and the listings on these houses have expired. In a normal market, many of these houses would be listed in the hope that you could escape with a little equity or get the bank paid but in this market; the houses are underwater big $ and the owner has no hope of escaping. In California, 30% of all homes with mortgages are now underwater. We also have more unoccupied houses than at any other time in our history. This will take a long time to unwind.