When I say, “the inventory is thin”, it really means that the demand for good-looking-properties-that-are-priced-reasonably is healthy. While that would seem obvious in any market, it is worth repeating when all you hear is how bad the real estate market is from the mainstream media.
We have also seen that there is a relationship between inventory and sales/pricing.
When there are fewer houses on the market, buyers feel pressed to gobble up the ones that are available – and end up paying whatever it takes. Flash back to 2003 to remember the max-frenzy conditions!
Here are the comparisons of the total number of detached listings/number of solds between January 1st and October 31st in North SD County Coastal (La Jolla to Carlsbad). There isn’t a direct connection between them – some sold this year were listed last year – but the TL/S-ratio trend is worth watching:
| Year | Total Listings | Solds | TL/S Ratio |
| 1999 | |||
| 2000 | |||
| 2001 | |||
| 2002 | |||
| 2003 | |||
| 2004 | |||
| 2005 | |||
| 2006 | |||
| 2007 | |||
| 2008 | |||
| 2009 | |||
| 2010 | |||
| 2011 |
This year we’ve had the fewest listings since 2000, and more sales since 2007, the height of easy financing. Yet the balance feels relatively healthy, and like the old Jim Ratio of actives-to-pendings, I think we can say that a 2.0 TL/S-ratio is about right.
(For those with MLS access who are checking, because Sandicor deletes withdrawn listings from previous years, I deleted them from all years – there were only 211 this year. The expireds and cancelled listings are included.)
While it feels like there are very few good deals available, does it mean that there has been pressure on pricing lately? Let’s compare detached sales and pricing in the same January 1st-to-October 31st period of this year, to last year:
| Town or Area | Zip Code | Sales 2010/2011 | Avg $/sf 2010/2011 |
| Cardiff | 92007 | ||
| Carlsbad NW | 92008 | ||
| Carlsbad SE | 92009 | ||
| Carlsbad NE | 92010 | ||
| Carlsbad SW | 92011 | ||
| Del Mar | 92014 | ||
| Encinitas | 92024 | ||
| La Jolla | 92037 | ||
| RSF | 67+91 | ||
| Solana Bch | 92075 | ||
| Carmel Vly | 92130 | ||
| Total | All |
With the exception of the Del Mar explosion, those numbers look as steady as possible.
I love NAR economist Yun stating 2006 buyers will be back to even by 2015. WOW! It took 10 years to clean up the 1989 mess and this is 3 times worse.
I feel the downward trend has to continue in the non confirming markets. Not that I am an expert as I am not in the RE business. I do work in Finance and live in CV.
Once simple stat.
I work out at the Pacific Athletic Club(PAC) with the Carmel Valley owners(trying to pay the bills)and sellers. I also have many in the area(CV, DM, RSF) as clients(not real estate) and know their financial situation intimately. I see many cancelling a $300 a month PAC membership and golf memberships while they live in a house that is underwater(less than 15% equity).
These are the underemployed attorney whose income is down 40%, Entrepreneur who can not get business financing, small business owner whose tied to construction are all still living beyond their means. Will they be able to keep their house and how are they going to ever buy up?
What you do not see behind the $900k house is that many are using their 401ks and IRA’s to keep themselves financially above water and fund the college costs. They all want the house long enough until the kids are done with college then downsize or rent. They are using their Retirement plans as ATM’s .
The logical next question is where are they getting the tax money to pay for the 401k and IRA taxable withdrawals? This will amount fed and state tax(40%), 10% fed penalty and 2.5% state penalty. In many cases you then need to add interest and IRS penalties.
The money for taxes will come again from the 401k’s and IRA and the cycle continues.
If we do get a pop in 2012 because of the artificial supply shortage, I feel we will have to see a triple dip later on because of the flood of inventory(banks and down sizers) and no qualified buyers with tough lending standards
Jim……….To be more objective it would be nice to see “more” Corelogic and Mark Hanson data on your site referencing :
— 30% can not afford to buy up because they are underwater(have less than 15% Equity)
— Under the new FICO models, low equity lowers your FICO score as your strategic default risk rises
— The “strategic defaults” increasing in 2012 as defaults increase, banks increase foreclosures, sellers realize they can not afford the house, IRS penalties increase.
Thanks for the data
I think Jim would love to see more CV foreclosures, since he’s got buyers ready and willing to pick them up!
We have a friend that bought a 900+K house 5 or 6 years ago. Got laid of last year and has already gone through his 401K (he’s 40 years old). He got some kind of refinancing deal, but honestly he can not afford to stay in that house.
I have a question for you Jim. What is the current discount caried by second hand houses compared to new builds in SD? Here in South Africa it is currently about 30% (Bearing in mind the electrical installation in my house is to British standards and dates back to 1928, the plumbing is brass and galvanised steel, the walls are brick and the roof is tile, oh, and there is no hvac though some people have through the wall air conditioners). How long do the SD wooden houses last without major maintenance and is this reflected in the new to second hand discount?
You are getting some long distance readers. Are they from Calculated Risk?
Thanks for the input Hankster.
CoreLogic wants me to pay $25,000 minimum for an account. I include an occasional article that will reference them, but the publishers are after bloggers. This week it was the North County Times that told me that if I keep running their articles, they’ll be coming after me.
Mark Hanson covers vague, general hysteria, and is caught up in the same bind as Dr. HBB – their audience expects all negativity, all the time, and they have to deliver. It’s not objective.
I try to be objective, and just report what I see.
For 800k+ market, do we have a “substantial” number of buyers putting in larger down payments, on top of a good credit score? … if so then strong hands are in play and market would catch-up at a faster rate.
Things have changed a lot since 1989. Information is flowing at speed of light and buying/selling decisions are more informed and take much less time to make. A 10 year recovery period from 1989 era would definitly map to a shorter time-frame in this age. Would it be 2015 ? … cant say … but would be less than whatever it was in 1989.
At the end Real Estate is all local and national patterns may not weigh a lot on certain market segments.
Admittedly, sales have been strong the last 2+ years and I have many buyers waiting, mostly impatiently.
But the demand could be finite. But we won’t know until we get there.
Just mock or make fun of the articles and claim it is fair use.
http://en.wikipedia.org/wiki/Fair_use
Or claim it is educational and you aren’t seeking profit from the use.
Kishna Khurana,
The underwater to recover phase has a lot of correlations, but information speed is only a small part of the equation.
A much larger correlation to the recovery phase are in:
1. Local job growth/median household income
2. Local household formation
3. Local Borrowing rates
4. Amortization schedules for peak buyers
It does no good to be notified of price increases if you have no job, no savings, and can’t borrow enough to buy anyway.
Chuck
Chuck,
I agree on all that. I am simply suggesting that all else being equal, decision making is less risky and much faster in this decade.
Of-course if one does not have a job and savings then simply do not buy … downsize and/or rent from the other Buyers/Owners and hope that your landlord is kind enough not to increase the rent again. All the income and job related points that you suggested are still valid for the rental scenario but my landlord increased the rent again by a good %age … just “To cover the increasing cost of maintenance” …