An excerpt from Nick’s article in the WSJ about housing inventories:
The growing pessimism is attributed partly to rising inventory in many markets, a trend that doesn’t bode well for prices. The Wall Street Journal’s latest quarterly survey of housing-market conditions in 28 major metropolitan areas found inventories of unsold homes were up in 19 markets at the end of the third quarter, compared with a year ago, with especially large increases in San Diego, Los Angeles and Sacramento.
“We’ll see some additional price declines,” said David Berson, chief economist at PMI Group Inc., a mortgage-insurance company in Walnut Creek, Calif. “The gains we’ve seen can’t be sustained given the current supply situation.”
He is right about the increase in active inventory since last year.
Our active-inventory count of detached and attached listings is taken around the middle of each month. In September, 2009 the count was 7,848, last month it was 12,565 – a whopping 60% increase. Here is how this year compares with others:
Once potential sellers think prices are going up, they want to get in on it, and sell too.
But these are psuedo-sellers tip-toeing in from the sidelines. For whatever reason (their high loan balance, elevated ego, etc.), they aren’t motivated enough that they’d sell for what the last guy got – they have to try for more.
Over-priced turkeys are everywhere, and the buyers aren’t going for them. Thus, the active inventory has been building all year, though the trend has tapered off over the last 3 months with healthy sales combined with post-season cancellations.
Why don’t psuedo-sellers get realistic and lower their price after a few weeks or months? It would be normal to think that they won’t lower their price because they can’t, due to loan balance, or just working the short-sale/free rent package.
But only 2,753, or 22% of the 12,447 active listings today are marked as short-sales.
Yes, there are listing agents who aren’t marking their listings as short sales – but it looks like the majority are elective sellers, just happy to have a sign in the front yard from which they can hang holiday decorations?
We have seen in the past that when the inventory gets bloated, buyers tend to back off. Sales have been holding up, but it appears like we’re heading for the Big Stalemate:
Sellers who need to sell, need to lower their inflated list-price. To casual observers it might look like prices are going down, but consider this from SR, zillow’s CEO:
MP: I know you’re out there discussing data and stats on a regular basis, including in our Daily Real Estate Advisor. Despite the story the data tells, what positive messages do you think are important to get out there about real estate?
SR: Home values have bottomed and bounced off the bottom in some parts of the country. In San Diego, for example, they’re already 5-10% off the bottom. We don’t expect a significant price appreciation from here, but we don’t expect home values to go further south in those parts of the country. This points to the way we must look at home values—which is at the neighborhood and regional level. It’s more nuanced than what the national media typically reports. There is definitely some good news for our industry which has been underreported. For example, we’ve clearly passed through the bottom in terms of transaction volume. Homes are selling again and the dark days of two to three years ago when there were no sides taking place are behind us.
We’re off the bottom, but there has not been continually-increasing trend – we went flat at $250/sf:
The buyers have tolerated a little bump in pricing when there was little to choose from (note how the active inventory during the second half of 2009 was the lowest of the seven years), but now that so many over-priced turkeys have proven what homes aren’t worth, the buyers are happy to sit tight and wait.
Will sellers lower their inflated list-price? I think it is very doubtful. There isn’t enough difference between a short sale and foreclosure, so those sellers won’t care to lower their price just to sell. The elective sellers think they have enough resources to wait it out, and don’t mind that 38% of the listings have been on the market for more than 90 days. There will be an occasional flurry, but mostly stagnation ahead.
Great post putting many thing into perspective. Thanks for your work!
by the way, those “psuedo-sellers” are what CR called truly shadow inventory. This is the reason he mentioned for that house price will not increase dramatically during the initial recovery phase.
It is definetly nice article. It reflects the truth to most extent. As a buyer, I am waiting , so is my seller :).
Thanks for keeping it straight Jim.
I have noticed these days, pigging*** is having articles more biased on extreme.Nothing agnaist Rick ,but guessing it is a good time to decrease the frequency of checking it out.
BTW, if any guys are checking out in buying new homes, lendors are giving good discounts on buit in inventory. Well I didnt even like it after discounts. But the good thing i noticed from last 6 months is , they are calling me( hollywood is calling me too frequently to check if i am available 🙂 )
Im depressed watching my home equity dissappear and the chargers lose.
OPT’s — gotta love that.
I think Jim’s views are generally right with one exception…
If the fed increases interest rates suddenly house prices will fall again.
“If the fed increases interest rates suddenly house prices will fall again.”
Fed doesn’t really get to set the mortgage interest rates. The US treasury market is probably the best gauge and 10 and 30 year bonds have been making a nice move off of their recent lows. Actually the 30 year bottomed back in August while the 10 year made a new low early in October.
I do think there’s a general sense of complacency this winter. We’ll just continue along at around $250/sqft with a really low level of sales. That sounds right but maybe we’ll get a surprise one way or the other.
I still love JtR’s classic line: “Priced to sit or priced to sell?” Mahalo for all your stellar work on bubbleinfo, Jim!
i call BS….these people that ‘want to sell’ but dont like the price offers are selling for what reason? not because they have to move for a new job or because their kids need a better school district…no…it is because they are flippers. they bought their house partly to flip it for a huge profit and now that they cant sell (for the price they want) they are stuck……they keep trotting the house out but dont sell…ha!
what i would like to know is the price they eventually sell for 3 years from now……prices will not go up to 2006 levels for years..probably decades.
these people will sell when they can no longer do the minimum interest payment and start choking on the alligator they bought…..they cant heloc and they arent making payments but that cant go on forever.
Great analysis Jim! thanks.
I am a buyer and really love the posts on this website. I have been following this market for the better part of 7 years.
I believe that whether its renting or buying a primary residence, it comes down to when that individual feels the real value in either scenario. I can say that for me the rent/own ratio favored a purchase.
As a tip to anyone looking, if its priced well and you really like it, then by all means pull the trigger.
aperion,
Jim can speak better to this, but I believe a lot of OPT’s are essentially the “retirement plan” for their current occupants. They can afford their payments, but are looking to cash out and “don’t want to give it…” (i.e., their retirement fund) “… away”. They counted on a life of USDA Prime but are only being offered USDA Choice (and IMHO will end up eventually scrambling for USDA Select).
*Grin* I finally figured out that OPT means in the title: over priced turkeys! Fits right in with Thanksgiving right around the corner…
@tj – you are probably right but i was thinking along the lines that ‘housing is an investment’ attitude instead of housing being a depreciating asset like everything else that gets old and rots…! if all the baby boomers try and sell at the same time (because they are all retiring at the same time), it will just toast the market.
i still cant believe people rationalize a house at $400 a sq ft as ‘reasonable’ or cheap because it is located in calif instead of nevada. dont get me wrong as i love northern calif but most californians never go outside so it isnt the weather and they never go to the beach either….
…and as always…great article jim
BTW, if any guys are checking out in buying new homes, lendors are giving good discounts on buit in inventory
What does this mean, LongTimeRenter8Years? I just (today) pulled the “trigger” (why is buying a house equated with shooting a gun) on new home buy and am curious about your statement.
One thing I disagree with you about JTR is that buyers today are not just looking to pay what the last guy paid they are looking to pay lower in some cases much lower. That is why only the ultra motivated sellers are striking deals. That is also why there are many properties on the market priced 10% lower than the prior comp and are still sitting on the market. Once a seller is 10% lower than the last comp I think it is going to very difficult to push them further down immediately unless they really need to sell. Sellers do not respond well to large gaps down in pricing like we have been seeing lately. Also, yes the inventory is inflated over last year but last year the inventory was very low historically.
My guess is that we will muddle along until the number of distressed sales remaining in the prime areas is not enough to satisfy the ultra motivated buyers in those areas. We are clearly not at that point yet perhaps we will be in 2-3 years. Here is a bomb that recently closed in one of the nicer parts of point loma:
http://www.sdlookup.com/MLS-100042375-3503_Dickens_St_San_Diego_CA_92106
The house sold for 36% higher than its prior close back in 1995 which corresponded to the bottom of the prior cycle.
It will take some time for the market to adjust to this type of comp. Is that a 2000 price or lower? I would say yes it probably is. It is starting to look inevitable to me that even the nice parts of SD are going to revert back to 2000 price levels at least in certain price points. We bought back in 2009 and going back to 2000 pricing puts us down 20% on paper. However, once we get down to those type of price points, I believe that the number of elective sellers will dry up almost completely. The sales volume will be even lower than it is now IMHO.
Frankly I think things will be frustrating then as a buyer because buyers will see these enticing prices but realize that it is suddenly very difficult to find the house they want because the folks sitting on the prime properties are going to be hunkered down with an ultra low fixed interest rate courtesy of the FED.
That is why we bought last year when the distressed properties were plentiful. Still plenty of time to get in if you are a serious buyer and have an awesome agent like JTR.
While I’m not a big fan of $/SF as a metric, it certainly is stable for the past 24 months. Can’t really argue that the market has reached some form of equilibrium based on that.
Hi Pinkie,
what it meant was, the “Builders” are giving heavy discounts than the price they quote for the lookie lookers.Eg. A recent home in 4s was quoted for me around 670K. After some level of interest, they offered me a built in home at 620K price + 15K as builders incentive for closing and interest rate buydown + upgrades.
LongTimeRenter8Years, thank you for the information.
Do you care to mention the builder or the specs of the house (ie, size and such)?
I am not sure, if i can do that.But anyways, it is silhoute in 4s. you should be able to derive the rest. Or Talk to really any builder with existing inventory.
Thanks. I figure it would be them. They have been struggling to sell those lots.
I think they are overpriced, especially for what you can get in Monteluz or Andulasuia.
I don’t really think it helps them to be right next to Monterey Ridge, either.