Tuesday, October 20, 2009

Dogma or Doghouse?

I'm one to continually reassess my views as new information comes in. If you had told me at this time last year that we would be purchasing a house in February, I would have looked at you with an incredulous stare.

Up till now, I figured the worst of the price declines were behind us.....but I am beginning to reconsider. Today's WSJ development's blog had a very disturbing statistic that really jarred me. The post was about the fact that the FHA, VA and other government backed, low down payment, loans account for an overwhelming proportion of the market. The post noted that "In Northern California, for example, builders said that the government accounted for 76% of all mortgages."

I had seen a couple posts on Dr. Housing Bubble and Calculated Risk which broke out purchases by loan type, with roughly 28% using FHA, and 26% using cash (investors), for Sacramento. This seemed reasonable given the tax incentives and distressed inventory, but 76% for the region is downright frightening. Assuming 25% investor purchases, this suggests there is absolutely no demand without government subsidization.

I shudder to think about the fate of our housing market if this is true. With interest rate likely to rise as the government pulls out of the mortgage backed securities market, and very little organic demand......we may be in for a bigger drop than I had originally foreseen. The only saving grace is the continued reduction in inventory.....but in the face of these statistics, I'm not sure it will be enough.

Monday, October 5, 2009

On Track for Stabilization?

As some of you know, I really like to monitor housing tracker since it looks at several price ranges as well as inventory. Thought I would do a retrospective look at how the market has behaved over the last couple years, and compare it with the predictions I made back in December of 2008. The top table is the raw numbers from HT. The second table is the % change from one line to another (except the last line). Price declines have certainly moderated since Feb 2009, compared to previous year, with even a slight uptick at the low end. Meanwhile inventory continues to decline. Both of these are good news for Sacramento housing market health.

My 1 year prediction made back in December 2008....so far seems right on the money

As banks complied with the legislated wait period in California, new NOD activity slowed to a crawl in the fall of 2008. This means the pipeline of foreclosures will temporarily dry up sometime in early to mid-2009. Together with inventory down significantly, this should lead to stabilization in prices for at least a couple months. But slowed economic activity and job losses will take a toll on the local economy. Excess housing inventory and frustrated sellers, will keep downward pressure on rents. As a result, by the end of the year home prices will continue their downward march, eventually surpassing what I consider affordable/sustainable levels (based on historical price/rent ratios and income)........In terms of time lines…..next year home prices will level off then continue to fall to affordable levels, with years 2-4 seeing no increase, and perhaps single digit decreases, in prices as excess and distressed inventory are absorbed.

I'm curious to hear the predictions of other market watchers....what do you think things will look going forward? Continued stabilization or or plummeting prices?

Thursday, October 1, 2009

Not Much Hope for the High End

Last Spring I reported that I was aware of several folks in the local market to purchase a home. All were actively looking and making offers at what I consider the high end (500k and up).
At the time this gave me hope that the market was starting to spring to life.

My have things changed. In the end, two gave up and stopped looking to buy, and the third is not very hopeful about their current negotiations. I believe all three attempted short sales at some point and were incredibly frustrated by the process.

This is not very encouraging news, even though it is only anecdotal. I don't really run in those circles, so if you think about it, this turn of events is even more disturbing given the small sample size!

As a sanity check, I took a brief look at homes which fit my old criteria in the 95762 zip code. If all the PS homes were to close in one month, it would mean a 4.8 month supply...which is fairly modest. So there is at least some life in the market.