More on March Existing Home Inventory
Submitted by
CalculatedRisk on Tue, 04/22/2008 - 8:12am (34 comments)
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Yet again.
I love the smell of down day
I like this graph.
It depicts the problem very clearly. You can see the headlines in a few months: inventory drops YoY! Recovery is here! Bottom of the market! (actually I think they've already done that from the month on month reduction).
damn,...i'm putting a house on the market next month and looks like i need to prepare for a dirty uncle right in the onion.
About time for that nice man Mr. Bernankie to show up with a rate cut to prop up oil prices.
It also doesn't tell us about homeowners waiting for a 'better market'.
It also doesn't tell us about people who would like to sell but are not listing while they wait for a better market. There's pent up demand to buy as NAR likes to say, but there's also pent up demand to sell.
CR, great graph. Startling. . .
with the speculative fever and easy credit gone, it will be ages before enough borrowers appear to support the housing market.
Great title of the daily "Up and Down Wall Street" article today:
Recovery Seen By Those Who Missed The Bust
Note: the NAR doesn't adjust for reality.
Many of the homes in my area (Santa Cruz, CA) are still going on the market at 10 to 20% over values in 2005, folks still haven't got it. Seems to take a few months for the price drops to happen, if the owner is serious about selling. So sales are down nearly 50%. Must be really painful being a realtor, half the income. And delivering the message that, no, your home is not worth that; and no, you won't have a profit on owning it after paying the commission...
Any idea whether this inventory accurately captures forclosures?
rw,
Exactly - how much demand was pulled forward with unsustainable pricing and lending practices - and how many members of the 'pent up demand' will be engaged in multi-year repair of their balance sheets?
Absent any feedback effects from employment declines, commodity price inflation, etc.
From today's San Jose Mercury News, we see that one (of many) condo project is coming online, and will not help inventory levels one bit:
http://www.mercurynews.com/ci_9011213?nclick_check=1
"Affordable Condo Project in San Jose Fails to Attact Buyers"
The last two paragraphs of this article are kinda sad and kinda funny:
Amy Flores, who paid $590,000 for her three-bedroom condo late last year, is the lone homeowner at Villa Almendra. She's hoping the non-profit's efforts to sell other units pays off.
"It would be nice to have neighbors," she said.
Absent any feedback effects from employment declines, commodity price inflation, etc.
LOL. Nobody in the US uses fossil fuels anymore.
ac, most REOs (but not all) are listed these days. So this mostly captures foreclosed properties - but not perfectly.
Best Wishes.
Now that the Spring selling season has arrived, the question is: Will inventory levels keep setting new records, or will inventories hold steady (or even decline)?
Isn't the answer to this question simply a matter of looking at where the percent of home-owners with little or no equity is trending? If the growth in the numbers of equity poor home-owners is slowing then maybe we are getting close to a bottom.
At the end of the day, it is the numbers of foreclosures that will determine the depth of our downturn, and the number of foreclosures is primarily a function of the numbers of people with no equity (i.e. people with equity can always sell if they run into financial trouble).
In fact, from what I understand, high numbers of foreclosures necessarily lead to increases in inventories since the downard pressure on prices (which foreclosures cause) make it difficult for existing home-owners to sell.
My aunt is the only occupant in a condo development in the SF east bay. The city bought a couple units, but haven't put anyone in them yet. It's Bodie quiet, and she's the park ranger. She had several neighbors, but they've all "moved out" now (FCs?).
The builders are still trying to finish two more buildings in the complex; the construction folks park cars, which helps it have a lived in look.
This business cycle was monumentally stupid.
Mmm...donuts said:
It also doesn't tell us about people who would like to sell but are not listing while they wait for a better market. There's pent up demand to buy as NAR likes to say, but there's also pent up demand to sell.
Well said. I know, anecdotally, that there is some pent-up demand in my area, as folks wait for prices to fall, but I've also noticed that at least a dozen local homes that went off the market last November-December never came back on, but nor is there a new entry for them on the county's assessors' website. And that's only the handful that I've been watching.
I suspect many of these homes are "pent-up demand to sell", as sellers are trying to avoid what Craig called "a dirty uncle right in the onion." (Whatever the heck that means.) How long these sellers can wait probably depends on their circumstances.
At the same time, the bitter renter crowd can hold out for as long as their patience lasts, which is why I think we're in for a stretch of very low sales in the market, as both sides wait to see who blinks first.
Personally, I think if the recession becomes official, that's going to further depress sales.
Before anyone jumps all over me, that "bitter renter" reference was tongue-in-cheek.
Where I am, in metrowest Boston, sales are way down but in the more affluent towns inventory is also very low. It makes for an eerie feel. Homeowners read of the crisis but aren't (yet) immediately feeling big pain. In those more affluent towns, they cannot hold off forever. Eventually, folks will have to sell, for whatever reason. Then I suspect the big pain will present itself.
Oh... to clarify my earlier post... I think the house price pain is coming, it just makes for an odd experience currently.
Sorry if this appears elsewhere--Shiller now predicting this house slump may be worse than Great Depression
Economist: Housing slump may exceed Depression - Boston.com
cr-
Excellent graph though I have a request. Is there any way to add a line (not a bar) of the "averages' for each month so that we can have a better sense of what average changes occur over the course of the year? That curve would be helpful to separate the expected monthly variation from the current trend.
Andy,
Not to rain on your parade, but why do affluent homeowners have to sell? Unless it's employment-related or a 4D (divorce, death, disease, disability), you can live there until you die. Then your kids can burn through the inherited equity, waiting to get the price they "deserve."
This is why I think predictions about rapid prices declines are wrong (sadly). Many individual sellers don't have stockholders to punish them when they act unreasonable. They can wait for years, chasing the market down a few thousand at a time. Sellers won't "give away" their home; buyers won't "give away" their downpayment, and so no transactions occur. We just can't assume people act reasonably when it comes to such enormous, one-time transactions.
I know relatively affluent folks, who in the mid-90s had houses on the market for 2 years. And the kicker is that today they think they did the right thing by being patient.
My area did not bubble during the boom, we got hit hard in 2001 and RE was flat for 2001-2004 with about 5% appreciation after that, so houses are generally roughly in line with income (more like 4x or 4.5 than 3 x) anyway, our inventory is rising too and the market is very very slow, the Cali investors are gone (disappeared in a poof in August) and everything is still, lots of high end stuff coming on in the 9-8-7OOK that is just sitting (carry costs are going to kill some HB), and nearly every house I look at these days (4-500K) is owned by a senior citizen who needs to move out of their huge family home, many are already vacant with the seller in assisted living. These folks generally have prices that were reasonable last year but now they just sit.
Inventory at record levels, slow sales, and we are probably one of the strongest markets in the nation.
thanks for this chart, cr -- really easy to make the seasonal trend!
why do affluent homeowners have to sell?
I figure they have to sell for more or less the same reason anyone has to sell: illness, death, divorce, larger family, relocation, financial hardship, whim.
I suspect that the more affluent may have more financial cushion allowing those who need to sell near-term to hold off until the later part of whatever "near term" means, but eventually they can no longer artificially suppress the supply side of available housing in their own towns.
Fatal, is anyone predicting real estate prices will suddenly become "unsticky?"
That said, you know that prices in any market are set on the margin. And while a minority of sellers "have" to sell, they do exist. People do die, divorce, get laid off, move away, marry. On the flip side, no one ever "has" to buy, so long as rental housing or a relative's basement are available.
So those transactions by strapped sellers are the ones that are going to set the prices.
CR -- where does nar get the inventory data from? their sales data is nothing more than an estimate -- and there are large differences at the state level between nar figures and state association figures. please send an email to discuss these issues offline should you have an interest, thanks.
...why do affluent homeowners have to sell? Unless it's employment-related or a 4D (divorce, death, disease, disability), you can live there until you die.
Most "retirement calculators" and articles on retirement finances seem still to assume "6% annual return" on the retiree's portfolio -- and seem to assume that as a return after inflation.
But real interest rates are negative, and likely to stay that way for a long, long time, as the Fed and govt have allowed all the large financial firms to grow to too-big-to-fail size, and they can't retain highly talented personnel able to generate illusory profits on which to base Brobingnagian top management compensation unless they pay out more than all their profits in bonuses. Without negative real interest rates they will collapse, taking the rest of the economy with them.
So unless there's no way typical "affluent" investors or their pension funds will be able to get a positive after-tax, after-inflation return going forward.
One consequence of that is that a very large fraction of the supposedly "affluent" are going to find in retirement that they can't afford the real estate taxes, insurance, and maintenance on their homes -- especially on the McMansions.
Inventories can only really decline when prices for houses return to being in-line with (ever-shrinking) incomes.
However, there are countless shell-games that can be played to make it look like inventory is falling.
I think we'll be seeing "Level 3 housing inventory" (like Level 3 accounting) soon enough, where the real inventory is huge, but the crooks just hide the REO's, the cancelled house sales, etc.
Affluent neighborhoods are filled with flippers and ARMs owners who either hoped to become affluent or wanted to appear affluent while their home appreciated. In either case, their homes will go on the market, usually as REOs, and the affluent neighborhoods will drop significantly in price. I believe most people are overlooking the ramifications of this, and erroneously believe that affluent areas are resilient.
CR: Minor glitch, but you should take the 05's off the X axis labels. Good work as always though on the concept and the guts of the chart.
Elvis,
Do you mean like this?
Phoenix Couple Struggles to Hold On To Several Investment Properties - WSJ.com