Tuesday, March 25, 2008

Bottom's Up

There had been some speculation on the blogs and in the MSM that we may have hit a bottom for the lower end of the housing market. I thought I would do some homework to see if this trend applies to the two markets I track, Folsom (95630) and El Dorado Hills (95762), since my screen scrape (which is at the lower end) has been indicating a pick up in contract activity.

To some degree this theory is born out. The lower price brackets is where all the action is at in terms of pending sales (including release clause pendings). The data was gathered by quickly counting and bracketing info on Metrolistmls.com, so it is not that accurate (for example I think I had some overlap...600k homes will show up in both the 450-600k search and the 600k - 800k search using the Metrolistmls queries).

For a reference, a ratio of 16% is approximately 6 months inventory if all the pendings were to close in one month...which is highly unlikely...but still a good reference number to know.


Paul said...

I seriously doubt we are at a bottom in any price range (and especially not the upper end housing). In 95682, I continue to see an increase in the number of listings between $200-300k (the bottom in 95682), and increasing listings under $250k. I admit that 95682 is a smaller sampling than others, but as the number of $200-300k listings increases, there is more pressure on folks to price at the bottom of that range to be competitive. So long as overall listings are climbing in any given range, there will continue to be bottom end pricing pressure. Only when total listings start to decline in a price range, do I think it is likely we will see firming of prices in that price range.

My opinion and $5 will get you a cup of coffee.

sacramentia said...

That is some expensive coffee!

sacramentia said...
This comment has been removed by the author.
Mystere said...

Well, now this isn't so convenient for the frenzied hot air from the 'Sky-is-falling-due-to-coming-wave-of-ARM-resets' crowd..


Pocket Money said...

This is a very astute post. I've been seeing the same thing in the Pocket/Greenhaven, where our family has been renting for 1.5 years after moving here from the East Coast. Based on SacBee home sales for 2008, there have been 27 homes sold in 95831 under $300K, 17 between $300K and $400 K, 5 between $400K and $500K, and just ONE home over $500K sold (and that was for $550K). The couple of dozen or so homes on the market above $500K (some nice places) are just not going.

alba said...

Their loans reset every year...want to bet which direction? Their home values are under water. Any news from the OC has to be overly-positive...more wishful than anything from the land of free money.

Sippn said...

Yea, Paul, I've mentioned to Mrs. BT that tis much cheaper here in the flatlands.... Utilities, COFFEE, etc.

One comment on the $300K and less, REOs and short sales often don't show pending until the last minute prior to close.

OK, two comments. Short sales are so hard to put together, its hard to legitamately call them inventory as you often don't have a seller capible of consumating a deal. No stats, but it would be interesting. In some areas, like Elk Grove, etc. approx 1/3 of the inventory is a short. Its better to think of these as future REO inventory (6-12 months out) than something you can count on as available.

Been to the Nugget yet?

Patient Renter said...

Their loans reset every year...want to bet which direction?

Actually many of them reset monthly. The chaos is basically delayed until the moment the banks force the Fed to raise rates again.

Gwynster said...

'Its better to think of these as future REO inventory (6-12 months out) than something you can count on as available."

Lordy, Lordy! I'm buying the next round. Sippin and I have agreed on something >; )

Looking_in_EDH said...

"Well, now this isn't so convenient for the frenzied hot air from the 'Sky-is-falling-due-to-coming-wave-of-ARM-resets' crowd.."

What a load of crock ... how many of the lenders out there are willing to refinance to the negative equity crowd?

alba said...

from RGEMONITOR.com newsletter today:

Complicating the picture even further is the fact that recent mortgage defaults in the U.S. are not primarily driven by interest rate resets on ARMs but by falling house prices and negative equity considerations. Any market-based solution in this particular environment requires principal balance reductions to restore some equity for the homeowner rather than modifications of interest payments alone. Another alternative is a change in the bankruptcy code to allow judges to “cramdown” partial mortgage balance writedowns. The ‘nuclear option’ of last resort is the creation of a depression-era mortgage refinancing agency; this solution – however radical in principle – may become the most appropriate way to address seriously the rising risk of a destructive “tsunami” of foreclosures.

Patient Renter said...

Ick, the nuclear option.

I suppose that may be what we get... forcing taxpayers who prudently avoided the bubble to finance a bailout of the greedy/foolish folks who bought homes that are now underwater.

Mystere said...

"What a load of crock ... how many of the lenders out there are willing to refinance to the negative equity crowd?"

You're missing the point, which is that resets are becoming irrelevant due to dropping short term rates. Even as reset, rates now are not materially, if at all, adding to the burden on borrowers. There are -other- issues in the bust that remain unresolved, of course. As I said initially, this was directed solely at the 'reset tsunami' proponents...

G Spot1 said...

I think arguing about the "reset tsunami" is kinda missing the point. Most ARMs were never going to reset at levels that would drive the borrowers out of their homes. What is really concerning about the next couple of years is:

1. More subprime resets. Even if overall rates are low, many subprime loans like 2/28s and 3/27s will reset at much higher rates. They are based on an initial low rate - not a teaser, but more like 7 or 8%, which is lower than people with subprime credit scores would normally get. The idea was that over 2-3 years, the borrower would repair credit and refinance at a prime or near-prime rate. But the loss in home equity will make refinance impossible. So the rates will reset much higher - often 10 or 11% - even with the lower rates in the overall mortgage market. These are the loans the Treasury Dept's rate freeze were targeting. Many of these loans were made in 2006 and early 2007, and have not yet reset.

2. Stated income fraud. These loans were DOA when written, regarless of the rate, although they take time to go into default and foreclose. Again, many were written in 2006 and first half of 2007.

3. Option ARM resets. This has barely started. People making only the minimum payment (75% of those with option ARMs according to some estimates) can't afford the fully amortized payment and will lose their homes. These loans "reset" when negative amortization causes the loan balance to hit a certain percentage of the property value - somewhere in the range of 110 to 120%. When that happens, the borrower can no longer make a minimum payment but must pay the fully amortized payment. Good luck.

Of course, all of these bad loans are exacerbated by negative equity, preventing sale or refinance and making walking away look like an attractive option.

Unfortunatley, I think talk of rate resets has become shorthand for all of these loan problems, much the way "subprime" has become shorthand for the whole credit crisis. So when you point out that most people with ARMs won't reset to a higher payment, you haven't really told us anything about what's coming down the pike in terms of the housing and mortgage crisis. Simple rate resets on most ARMs were never going to be the big problem.

As evidence that this is far from over, the Bee reported recently that about 2000 foreclosures were purchased in Jan and Feb. During the same period, the banks foreclosed on 3500 homes. The market is making progress, but the banks are still taking more homes than they are selling. Inventory levels will remain high through this year and probably beyond.