Tuesday, October 5, 2010

Misleading Market Indicators

As of late, I have been a bit concerned about housing inventory. Primarily because the biggest price drops tend to occur in the last quarter of the calendar year when it is more difficult to sell a home (at least over the last couple of years). So I checked in on our local listing service, Metrolistmls, and was in for a very pleasant surprise. They have recently rejiggered their site, so you can now search by status (active, pending, and sold). This is great news for us market watchers and data hounds.

What is even better, is that I can now easily calculate "months inventory", which is a key market statistic for determining supply and demand. With a click of a button (single family homes under 500k), for both El Dorado Hills and Folsom, I was able to see that EDH had 109 homes pending, and 138 that are active. Meanwhile Folsom has 165 homes pending and 207 active.

The results of both these queries shocked me (perhaps someone can double check my queries). This is a little over one month of inventory for both markets assuming all the PS close in 30 days. Of course, more realistically (dealing with banks), homes can take around 3 months to close, but even then, that is still only 3 months inventory.

So just maybe, the positive trends I have seen over the last couple months in these areas will hold. For instance, the number of foreclosured homes in EDH is back down to levels not seen since mid 2008. Some could argue that the banks are holding back inventory, and that a flood is coming, but the whole shadow theory has lost credibility in my eyes.

I'm feeling more confident that we have indeed found bottom, and are now scraping along.

10 comments:

husmanen said...

AB thanks for the post. I too am taken aback by your findings regarding months of inventory, especially as I see price drops on a daily basis in both areas. At one month inventory one would normally expect a seller’s market and prices moving up. Weird.

Inventory, until last week, has been steadily going up during a period where it historically dipped (sacrealstats). I thought this was a pretty good sign that more houses were coming on the market with prices based more on historic fundamentals. Months of inventory is but one metric in a housing market.

Regarding shadow inventory, the flood did not occur due to unprecedented government intervention. If it would have come we may have been in recovery mode already. But it hasn’t and the banks continue to hide properties and slowly leak homes on the market. There are a lot of houses in the foreclosure pipeline, I don’t think they will all disappear quickly and most will make their way out eventually, especially in the higher end.

I poked around on Realtytrac for the EDH and Folsom Area and found*:

…….PreFore.…Auction.…Bank…. Total
EDH...117……182………...152…….451
Folsom.181……222……….193…….596

My rental is currently in the Folsom pipeline, it won’t be on the market tomorrow but it will probably next year sometime.

But for fun let’s say that 50% of the totals actually get up to date on their payments and they move happily on their way and the other half are leaked out (Bank/SS) at about 20% per month. That would add about 45 homes to EDH and 60 homes to Folsom per month. Odd, that is about what I seeing from my daily watch of the auctions at the court house steps.

The new monthly potentially leaked homes on the market in EDH would constitute about 50% of the active homes while in Folsom about 30%. That is a lot of additional homes given the low active levels.

Now what about ‘organic’ sellers? This is a tricky one as it is tough for some to sell if they believe they may obtain bubble prices, on the other hand others cannot wait and are the weak link (divorces, deaths, transfers etc) driving towards market fundamentals.

I don’t feel like we are bumping along the bottom but slowly skidding downward to another lower level. We may bump when fundamentals are in line, doesn’t feel quite like it yet, but getting closer.

Or maybe ‘FLAT’ could be the new tag line for Real Estate Agents, like ‘you can count on your house not losing value in the next five years’ or ‘flat is better than declining’ or?

* Note: does not include homes that have not paid and have not received an NOD. I personally know of a handful in Folsom that have not paid for over 6 months and no NOD.

smf said...

Can't tell you how many houses were 'sold' many times in the past, but it has happened.

Kept track of many homes, saw plenty with the 'PS' marked, only to see them come back months and often years later.

Right now, we are nowhere close to the bottom.

I mean, the original problems that caused the current situation were never addressed, but yet the bottom is supposed to be here?

This is little more than being in the eye of the storm.

husmanen said...

Although the data is on a macro scale it has some relevance to our area:

Here's Why House Prices Will Now Drop Another 20% (Gary Shilling)

http://www.businessinsider.com/gary-shilling-house-prices?#ixzz11bDXXm5u

Wish we could get this type of data for our local area.

Easiest way to read the article due to the large number of graphs is to click on 'view as one page' on the bottom right.

sacramentia said...

I think it all depends on price bands as much as zip codes. Below median price levels are finding a bottom and The higher end stuff is still falling.

husmanen said...

AB. Earlier this year you had a post regarding the changes to the water rates in EID.

Did you notice any change?

I have had two family members and a few friends surprised by the jump, nearly 50%.

Buying Time said...

No we didn't notice a change....when you buy a new home, they give you the average sewer bill for the year...since you don't have a service history established.

We use below average, so our water rates have stayed the same, if not gone down. We don't have grass either, so that helps.

husmanen said...

Thanks AB! So you did the xeriscaping?

I would love to do xeriscaping in the front yard, never got into mowing the front yard for benefit of my neighbors.

Backyard, not so much for xeriscaping but a good drip system would help out tons instead of mainly sprinklers.

sacramentia said...

AB - How is home ownership treating you. Do you think that this year is the bottom in EDH? Do you even think about it anymore?

Buying Time said...

Hey Sacramentia - I don't check my account much anymore so I apologize for not publishing your comment earlier.

Thanks for checking in on us. We are really enjoying being homeowners again. We just love our neighbors, the neighborhood, and being able to make the yard into exactly what we want.

As for the market, until lenders loosen up a bit, I expect the market to stay flat, through this year. Inventory is really low, so normally you would expect prices to rise (and rents are). But with financing hard to come by, it puts a damper on demand.

sacramentia said...

It's time to fire this blog back up. How long will the current run last?