Wednesday, April 9, 2008

What Happened to the Spring Bounce?

The trees and flowers are blooming. However it appears that home inventory in Sacramento is immune to the trappings of spring this year.

I have come to believe that the industry has undergone such fundamental changes lately that the typical seasonal patterns are getting wiped out. First the evidence, and then a couple thoughts as to why.

According to housing tracker, we have been way above last year’s inventory level (by about 2000 listings) until this month. As seen from the monthly data, inventory appears to be flattening out and losing its “seasonality”. One look at the “inventory chart” and this trend becomes very obvious (the widening and flattening of inventory can also be seen in Max’s inventory charts over at Sac Real Stats).

Lately when I look at the Sacramento housing market metrics, one word keeps coming to mind…..FUBAR. We are in some serious uncharted territory. So all this talk about “inventory stabilizing”, and “bottom calling” on the local blogs is starting to make me chuckle. They always forget to mention that inventory has been way above normal levels for quite some time now. I find it especially amusing when commenter’s make broad predictions based on one or two data points. Personally I wouldn’t trust anyone who makes predictions which such self-assurance. We are all playing a guessing game at this point.

Yes, inventory may be stabilizing, but I believe it’s for a very different reason. It’s the loss of seasonality. Normally stabilization occurs because sales occur at an increased rate, thus keeping inventory down. (Although there is some evidence that increased sales are keeping inventory down at the lower price ranges).

The fundamental industry changes driving this trend have a lot to do with the overwhelming amount of distressed inventory, which, according to Agent Bubble’s latest data, now stands at 50% of the Sacramento market. A bank has nothing to gain by removing their listing from the MLS and waiting till spring (carrying costs make this a really stupid thing to do). I would imagine, distressed seller’s (short sales) feel the same way. I haven’t seen much to suggest that waiting till spring improves your chances of selling your home. If a home is priced right, it will sell, no matter what month it is.

Personally, I never understood the reason for the strong seasonal trend in residential real estate. Don’t people die and get divorced all year round? The only reason I can think of is related to the local school calendar. Some families want to sell their home in spring in order to be moved into a new home by the time school starts in fall. But that doesn’t really explain the increase in sales in spring (or why there is still a bump in spring inventory in counties with year-round school). Why is spring a better time to buy a house? Only reason I can think of (is self reinforcing) is that there is more inventory to choose from. In other states (think Midwest and East) the weather might come into play. But here in California, we have beautiful weather most of the year.

My industry (aviation) is rather seasonal, but there is a valid reason for that. Most families travel during school breaks (primarily the summer). There is also considerable travel to warm destinations in the winter (HI and FL come to mind). Business travel happens all year round, so it’s the additional the vacation travel that drives the seasonal demand.


Patient Renter said...

Many good observations. Regarding bottom callers, I was happy to see good ole Greenspan calling a bottom in home prices "well before" next year. No doubt this will crystalize him and other bottom callers as the fools they are... not that I don't already think Greenspan is a fool, but by the end of the year everyone else will as well.

Jacob said...

I think we will hit the bottom in sales soon. I mean, once we get to 0 then we are at the bottom.

Well no spring bounce may help things along. A lot of speculators bought last year just to flip in the spring this year. I wonder how that is working out for them... lol

If 50% of the sales are foreclosures / short sales, and 50% of the sales are to investors / speculators, how can we be close to the bottom.

The banks are taking back more homes each month than they are selling.

The only bounces for the next few years will be of the dead cat variety.

Sippn said...

Seasonal market artificial?

Lump it in with the holiday season (mid November-mid Jan sometimes through the superbowl) Easter break (2 weeks ago) Tax season (now) Vacation peak (August) Back to school lull

Aviation became all-weather, 24/7 with radar, why is it seasonal?

My point.

Hiring and transfers play a large part in the housing market. Corps often hold off during the above dates as wells as corp budget time as they are busy doing other things. Public entities are similar.

Elections bring hundreds of changes to the area.

Davis is a one season market - summer. I knew a guy there who would build a bunch of homes there every year for the summer market, finish, leave on vacation and wait it out. Like clockwork.

Buying Time said...

Speaking of the aviation industry, we have now lost 3 carriers in the last month. Yikes...this must be a new record (ATA, Aloha and now Skybus).

Deflationary Jane said...

Sippin, that must have been a hella long time ago as the building restrictions here in fanasty land are fierce.

BT, I saw the airline news and thought of you. Is your firm picking up extra routes out of this shakeout?

Also, remind me to check the courthouse records for upcoming auctions in your revered zips. You know my email >; )