Tuesday, May 20, 2008

April May 2008 Month's Inventory

The moment I wait for each month has finally arrived (the Dataquick SFH resales reported by SacBee). For the first time since I have been keeping track (a little over a year), total month's inventory has dipped below the 6 month mark. Of course this is not for all zip codes, as you can see from the table (sorted from most to least month's inventory) but it does seem that the market is finding its footing.

Sacramento has led the nation into the housing slump, and perhaps it will lead the nation out as well. In most zips, prices seem to have dropped enough that demand is beginning to balance out supply....hence inventory stabilization. This is much more serious than a dead cat bounce many cite (5.2 month's inventory down from a high of 12.4 in October). However, that's not to say I think prices will be appreciating any time soon. Housing is in for a long period of stagnation that will last until all the distressed inventory gets worked off.

For all the doom and gloomers, last year at this time, month's inventory was also at a low point, so its entirely possible this could be another seasonal low. Its anyone's guess at this point....

15 comments:

smf said...

Inventory #s are way out of whack and I would not trust them at all.

Why?

Simple.

The house we sold over a week ago is still in the MLS. The house we bought is only recently gone.

There was a house from sale around our old house which never made it to the MLS as well.

Two homes in our new are in Gold River have been marked as being 'For Sale' in Zillow with nary a peep from the MLS.

Why?

It is all whacky.

I get the feeling that some of the realtor chat about a 'turnaround' is prompting sellers to wait and see what happens.

When the selling season is over with a whimper, watch out for falling houses.

This is far from over.

Patient Renter said...

Yea, good point about the MLS. Max is (I think) planning to cover the shadow MLS inventory, which clearly exists - the only question is to what extent.

Sippn said...

SMF - frustrating, but those exceptions and lagging entrys always happen, so your YOY comparisons are similar... shadow inventory has always been there, banks rarely have all their stuff listed and you'll love this, builder inventory is usually overstated as it includes finished lots and homes under construction not sold (see census data) so 4 months inventory for builders is effectively 'zero'.

But, its hard to argue the sales numbers... those are closings. The first numbers we heard a few weeks ago were realtor numbers (based on realtor entries) the current news your hearing is based on recorder's office data - facts.

Now lets not use Zillow as a factual source, I reminded a friend of mine he posted his home in Zillow a couple of years ago - his response "I did?"

smf said...

Sippn:

I am not disagreeing with sale #s, except to mention that the same problem (speculators) is still occurring (with foreclosures) now.

As to the shadow inventory, all I can say is that if I can see this within my very limited field, I can only imagine what the real extent could be.

As for Zillow, read what I stated carefully.

These were homes that were either claimed by an owner/agent and listed for sale there.

Sippn said...

stunning turn around, but remember that for both the high # months inventory we were looking at a few months ago, and these lower numbers, about 1/2 of what it was, were not seasonally adjusted. Derivative numbers like # months show the widest swings.

Sippn said...

Don't confuse a 2005 speculator with a 2008 investor, most of the 2004-2007 speculators are still trying to fix their problems, typically have no more money.

The 2008 investor is not the same person. Typically skin in the game. 30-100% cash. Looking for long term returns, 5-10 years. Pulling money from 1% CDs and negative stock market to put their money where they can watch it. Even the tax code treats them differently. .. capital gains vs regular income.

Jacob said...

Well most sales are distressed properties right now.

Is there a chart or data table anywhere that shows the # of foreclosures each month?

If those start to decline, while sales start to rise then we might be near the bottom. But if sales increase and foreclosures increase then I dont think we are done with the pain yet.

But my questions are:

How many investors are really in it for the long term vs. those that still think there is a huge payday coming in < 2 years?

How many sellers that can wait are holding off for the return to the 2005 prices?

How much inventory do banks have that is not listed for sale?

There is still a lot of potential for more losses.

bob said...

Frankly, Then supply is still extremely high in Sacramento. Of course the 'good' news of a lessoning of the inventory makes it seem that the turnaround all those RE agents desperately want to see become a reality. But the fact is that the supply just a year ago was the highest it had ever been. To say that there is now less of it isn't exactly something to brag about.

I just got back from visiting Sac over the weekend. I'm reminded of just how much Sac got overbuilt when I see the hundreds of housing billboards for new communities as well as the MASSIVE developments right along the freeway, of which many are still being built, and most look unoccupied.

Sacramento and California still have a looooong way to go down.

smf said...

"How many investors are really in it for the long term vs. those that still think there is a huge payday coming in < 2 years?"

When 30-40% of the buyers are still investors, that is speculation.

When most people who recognized that a bubble happened, but are STILL expecting (again, this is from people who have stated this directly to me) 2005 prices to reappear soon, that is speculation.

When those low, low prices are occurring in marginal areas, and people are buying these homes, that is speculation. You won't see me buying any home in Del Paso Heights, Rio Linda, etc. at ANY price point.

Sippn:

NEVER have such a large # of buyers WHO HAVE NO INTENTION IN RESIDING IN THEIR PROPERTIES has happened before.

That large % makes this still a speculator driven market, regardless of #s and statistics.

This market will be 'normal' once all these excess of 'investors' returns to its historical mean.

bob said...

I'd also venture to say that there will probably be a large quantity of early knife-catchers who were probably sitting on the sidelines and only didn't buy because they couldn't afford or would have strained their finances more painfully than they cared to and will likely pounce at the very first sign of weakness.

I'm seeing a bit of this in my area already. This will likely be followed by a long protracted period of declines-albeit slower than the initial drops- as well as stagnation and sideways movement for perhaps the next 4-5 years minimum. It will be slow because the early knife-catchers will see no appreciation and thus the whole "my house is now worth "x" dollars!" mania will keep everyone else waiting.

Patient Renter said...

sippn makes a good point regarding 2008 investors being different than 2006'ish investors. One thing that hasn't changed though is that they're both buying a declining asset, and one which still will not be seeing appreciation for a long time (if history is a guide).

According to the theory of bubbles and bubble psychology, the very existence of many speculators will prohibit a declining market from finding a bottom. Only when full capitulation occurs will it perhaps be a good time to buy.

Mike said...

The investors mostly buying now are still the "I am going to double my money in couple years" crowd mostly.

Before the boom, traditional real estate investors were the "buy & hold" types that invested for cash flow rather than price appreciation.

I think these 2008 investors (if you can call them that, I call them mostly flippers) are going to be awfully disappointed in couple years. Furthermore, they may contribute to the housing mess lasting longer as they will likely be upside down on their investment will walk or mail their keys to the banks like the 2005 investors are doing now.

sacramentia said...

I'm a traditional real estate investor by Mike's definition, and have never purchased anything when the CAP rate wasn't at higher than the finance cost. Most investors I know are still on the sidelines.

There are a handful of properties that can cashflow now, but what is keeping me out is the Rents. Rents have been relatively flat for ~6years. The economy is clearly trending down right now and that with the oversupply of homes should drive down rents. I would want to be able to absorb a 20 decrease in rents - or about a 9 Cap on a SFR right now.

The appreciation is the gravy. Since 1968 CA real estate appreciation has outpaced inflation by 2%, no guarantees on the future, but California has many natural assets, the worlds largest technology brain trust, a culture of innovation, and a government that likes to make it difficult to build. I'm betting the long term appreciation to continue to outpace inflation.

Mike said...

Sacramentia,

I would like to, eventually, be a "traditional real estate investor" like you to provide additional cash flow income in my retirement age.

But as you state, there aren't that many cashflow properties out there. Most current investors are short term appreciation types that will be burned soon. I like your way of thinking as real estate investment "Appreciation is the Gravy"

bob said...

I wouldn't exactly count on the fabulous tech sector to continuously save California. The fact is that the number of companies outsourcing is incredible.

Secondly, California had a head-start in the tech field because of all the defense contracts they had during the cold war. This enabled the transition from defense to consumer tech. That advantage is no longer there. Cities like Austin, Raleigh Durahm, Atlanta, and others are growing their own tech firms that can easily out-perform and under price CA labor.

I stand fairly firm in my belief that if you really want to invest in something and make some almost guaranteed returns, you'd still do far better in stocks.

Sound unbelievable? Well, the fact is that despite dramatic rises in value, the overall long-term appreciation for CA RE is roughly 4% annual appreciation. Prices might go up 50%, but the last few cycles were followed with painful and protracted declines that took 5-7 years to play out. Throw in inflation, and every down cycle has yielded a 30-40% drop in value between booms. Hence the real long term appreciation is around 4%.

Stocks go up 7-10 years, and if you invest even in a very modest mutual fund, you're likely going to get an avg of 7-10% annually, which clearly outperforms RE by a long shot.