Back in the day when there weren’t loads of short sales, we used to compare the actives to pendings to get a read on the relative ‘health’ of the marketplace.
With banks pushing harder to close the short sales (though the timelines are still uncertain), and because the buyers who have secured a short sale have hopefully done so at an attractive price making it more likely for them to hang around, let’s add the listings marked ‘contingent’ to the pending category:
Here’s our scorecard, historically, of the ACT/PEND ratio:
0-2 Hot market
3-4 Regular market
5-6 Market in trouble
7-8 Too many choices
9+ Freefall
| Town or Area | ACT | PEND+CONT | A/P+C |
| Carmel Vly | 212 | 3.07 | |
| Carlsbad | 481 | 2.12 | |
| Del Mar/SolB | 201 | 5.58 | |
| Encinitas | 189 | 2.59 | |
| La Jolla | 265 | 4.91 | |
| RSF | 271 | 7.53 | |
| Totals | 1,619 | 4.27 |
There were days that RSF and La Jolla were 10.0+. Can we call it relatively healthy now?
With a range of 2.6 (Hot)-7.5(Not) over the sample range, my initial thought was ‘all real estate is local.’
JTR- I would underwrite the contingent numbers at some % discount to the total as there is more noise in contingent than in pending. Thus your numbers would creep up slightly.
That being said, the macro trend is definately more towards health, than towards decay.
Add to that the pricier area listings, (LJ/RSF/DM/SB), have longer market times and perhaps a proportionately higher A+P/C ratio.
To say the least the A+P/C ratio is very much a ballpark figure. The number of active listings is subject to a variety of factors that affect the ratio; pend and cont, not so much. For example, shadow inventory is a factor not normally present in a market and can greatly influence the ratio. Most importantly, a “healthy market” presupposes that a sales price is within the “normally” expected range for a seller. In other words, not at a loss. Because, selling at a loss in a defacto unhealthy market regardless of what the ratio is. You can have a ratio of one, selling every listing, and still not have a healthy market.
Don’t think you can a ratio below 1 as you would be selling more houses than listed.
Thanks for raining on the parade as usual Jake.
How does the shadow inventory “greatly” influence the ratio?
There have been times where we’ve been below one, having more in escrow than listed. Click here for examples:
https://www.bubbleinfo.com/2009/10/09/how-hot-is-it/
Clearfund,
The contingent noise has been what’s kept me from publishing this more often, but I think it’s come around somewhat. Here are my thoughts:
1. The lack of quality new inventory coming to market makes the buyers want to hang onto their contingent deals longer.
2. The new listings that are coming on the market are so high-priced that it’s very discouraging for buyers.
3. The pendings are just as shaky as the contingents these days.
Agreed, that it still takes a contingent deal plus $4 to get a cup of coffee. But generally, buyers are more patient with the contingents today, than they were two years ago.
JTR – would you venture to slap a ratio on the Contingencies to mark them down to reality.
Perhaps it was 50% legitimate and now it is 80%…just made up those numbers to highlight my theory.
A couple of years ago it was lucky if 1 out of 3 short sales would close.
Today I’ll go with 80%, with these thoughts:
1. The banks aren’t foreclosing – they are pushing everyone to short-sell.
2. The only people getting foreclosed are those who go down with the ship without trying to short-sell, or those who get foreclosed by accident while in the SS process.
It’s never really an accident, but lenders with an impatient trigger finger are foreclosing on pending short sales. I’ll run a check on how many recent foreclosures were a pending short sale – my guess is 66%.
3. The short-sale fraud and deceit are at all-time highs, and the buyers wait for those 100% of the time.
4. These days if a buyer blows out of a short sale, there are others right behind them willing to suffer, due to generally lower pricing of SS and lack of other inventory.
5. I doubt that sellers have to prove a real hardship today like they used to – I’m guessing that the servicers are waving them through if they have the basic financial package in the file.
picosec at CR posted this interesting study he did of Alameda County home-loan vulnerability, showing the differences based on vintage:
https://docs.google.com/leaf?id=0B9-7PyGLac6fNmU5M2M4NDktNjJjMC00MDk4LTg1NDktNDFiYzgwOWI3Zjc0&sort=name&layout=list&num=50&pli=1
Alameda County is about half the size of San Diego County, (1.5 to 2.8 million in populations) but I’d call it a similar mix of less-affluent and more-affluent people.
speaking of shorts sales and listings marked as “contingent”133 days on the market from the 1st day like this one…what does that mean?
They probably owe 1M and hoping their bank would take 799k so we are just going to list and pretend to sell to get free rent?
My 2 cents– Cent 1: If a short sale does not go forward, The “Contingent” buyer will most likely be back in the market to buy, gobbling-up an Active piece of inventory once that buyer re-enters the market. Cent 2: There are alot of “Active” listings that are “Strategic” Short Sales that are skewing the Active Listings higher.