A reader who stopped by yesterday noted how the shortage of inventory is not just a San Diego problem – the phenomenon is happening across the country.
He suggested that it is more than just a seasonal change in local real estate markets, instead that it is a full-blown shift in American macroeconomics. Could there be a societal shift in the works? Let’s examine some of the particulars.
First, the new listings coming on each month. In January, we started out with at least 10% fewer listings than in recent years, and have stumbled along with remarkably-few new listings each month:
At the same time, buyers are gobbling up the good and decent buys (in San Diego County there are 10,261 listings marked contingent or pending) and the active inventory keeps plummeting – literally almost cut in half in less than two years (thanks Rich T.):
Is there one reason, or a combination of events, that is causing fewer listings to come to market? Do they reflect bigger changes in society?
A. We saw in the previous post that more loan modifications are being completed (now that they have tweaked the qualifications so most anyone who applies will get approved). All distressed-home categories are in decline – here are the SD County counts per month of each:
| Type | Jan ’12 | Feb ’12 | Mar ’12 | Apr ’12 | May ’12 |
| REO listings (MLS) | |||||
| Short-sale listings (MLS) | |||||
| Trustee Sales (FR) | |||||
| Cancellations (FR) |
(From Sandicor MLS or ForeclosureRadar)
The new issues on NODs are running fairly steady, but we don’t know how many of those are recycled old defaulters – I regularly see the same suspects on the new default lists.
B. Have those folks in real distress already been relieved of their homes, and now we’re just down to those in a comfortable, or semi-comfortable financial position? Most residents probably have no intention of moving (less than 5% of San Diegans sell their house each year), and those who have hung on this long might make it through?
C. Of those who are just hanging on, how many are successfully learning to adapt – by either renting out the home, or modifying it in a way that makes it more suitable, eliminating the need to move?
D. Are we still in the early stages of the baby-boomer generation needing to move?
E. Has the mortgage underwriting guideline known as the Anti-Buy-And-Bail rule effectively killed the move-up market, squashing the dreams of growing families?
F. We thought that we’d see more sellers flood the market with every sniff of rising prices, but it’s been the opposite so far. These conditions are ideal for prices to appreciate – will more seller eventually come to market once they hear the good news? Are they solely waiting for higher prices?
Did we run out of sellers, before we ran out of buyers?
Transaction costs are significant, but easily ignored when markets are rising 10% a year. If prices are flat, you can’t afford to eat 6-8% every couple years. So you sit on your hands unless you really have to move.
What did pre-bubble inventory numbers look like (1980s and early 90s)? Probably pretty similar to now if you adjust for population change.
You think maybe a little market manipulation? How hard would it be? It is happening all across the country. Where is my tin foil hat….
Societal Change?
I Don’t really think so unless you consider most people not wanting to lose money on a underwater home a Societal Change.
Not everyone can afford to rent out the current home and move so a lot of folks are just stuck.
I think I will call this “the stuck economy”.
You heard it here first Folks.
Attention underwaters!!!
But wait – for a limited time only you can short sell your house and get out scot-free! That’s right folks, no re-payment necessary, and no taxation! But for a limited time only – offer expires 1/1/2013.
(yet short-sale listings are going down)
Don’t the potential sellers who are underwater realize their predicament by now? That any return of their equity is a long ways off?
Who is going to sell if they think we’re at a bottom. It will be interesting to see how the buyers and sellers react to rising or falling prices. Will the buyers panic if the prices start going up or will the sellers panic if prices start going down.
We got the spring bounce in sales volume but so far pricing has been muted. Maybe price increases will start showing up in a couple more months. I was expecting more upside on the pricing front especially considering how optimistic it was looking in February and March. With Europe and stock market back in the spotlight I could understand if people started pulling back a bit.
Sellers that don’t have to sell are holding on. They believe the market will come back and are willing to wait. Most baby boomers aren’t moving, for a number of reasons.
Sellers that are way underwater are holding on, figuring they have a place to live for now and things can only get better.
There are a lot of buyers that do not already own or else do not need to sell to buy. Investors are at the bottom of the food chain, but many buyers are owner-occupants at all price points. These folks are highly motivated to buy.
The number of willing buyers far exceeds the number of sellers, willing or otherwise. The market is way out of balance, Prices will go up and/or the market will slow to a trickle.
A lot of marginal real estate agents are twiddling their thumbs and need to start looking for other work. Pros like Jim will tough it out.
Well in my mind, underwater also includes those who put a large down payments which cannot be recovered at current prices and cannot accept the loss.
There are a lot more of these folks than most realize.
Particularly if they are looking to downsize or move out of state, they are not going anywhere until they feel they can recover at least most of their investment.
This post is ridiculous. What we are seeing is prices hitting the point where sellers, other than distressed sellers, aren’t interested in selling. It’s called a bottom. Prices will now start to rise, and as they do, sellers will become more interested in selling. It won’t be a flood, but depend on how much each seller has invested in a property versus its market price.
Also, agree with Jiji. I’m not close to underwater, but I’ve lost a good chunk of the twenty percent I put down on our home. Barring a fantastic job offer elsewhere, my home won’t hit the market until I can walk away with some money for a new place after paying commissions.
Thanks to the massive re-fi effort, only the homeowners of the following groups are thinking of selling (JMO):
1. those even with lowered monthly payment still can’t afford it;
2. those who have or nearly have exhausted savings/retirement funds to make the payments;
3. those who have had job offers outside of the region that are too good to refuse;
4. those who are simple too sick to live by themselves and must move to a nursing home;
5. last but not least, the defaulters those who are so far behind the payments that there is no way for them to make up the missed payments.
#1-4 are not defaulters and they may have been just a few months behind on payments. They are different from #5 IMO.
The above groups are not defaulters.
I guess the point I was trying to make is if only those people are thinking of selling, no wonder there are so few listings.
The housing bubble created a large pent up demand to buy for the fiscally responsible. Those people have finally gotten off the fence and decided to buy. We’re probably in the early stages of building a pent up demand to sell. It will probably create a interesting yet confusing market somewhere down the line.
Life happens so there will always be some buyers and sellers, but maybe we’re in a for long term stretch of lower sales volume and minimal price increases. There’s certainly a bunch of headwinds facing major price appreciation even it this turns out to be a nominal price bottom (Boomer downsizing, record low interest rates, high student loan debt, globalization of wages, high leverage, etc.)
Ooooooorrrrrrr (drum roll maestro please and a tip of the hat to ocrenter) its the start of the next property cycle! Property cycles in the US run on average 10 years or so don’t they, and the QE printing of dollars MUST push prices for hard assets like property up eventually.
People always believe the status quo is going to persist until it doesn’t, that’s why the bubble went on so long on the upside. Unless there is some type of economic catastrophe (i.e. Eurozone), prices will start to rise, because there are a lot of buyers on the sidelines. Moreover, banks are starting to get far enough away from their bottom that lending standards will loosen. I’m on my second home, but don’t need prices to fully recover to be able to sell, I just won’t sell at the bottom. There are many others like me who don’t need to sell, but have now been in their current homes for 6-8 years, and still would like to “move up.”
So what have we got at the end of the day ?
Either a lot of foreclosures/short sales hit the market or prices have to rise before there is significantly more inventory that will come on line (at least in Coastal SoCal).
Oh, and a lot of frustration on all sides.
This post is ridiculous.
Thanks.
Great data and discussion. Watching MLS inventory is more fun than sports.
My 2 cents, seems that the bulk of the chaff has been foreclosed/ss’ed out and the remaining owners are not going to sell at this level. But, the economy isn’t doing too great either, so I think it’s going to be a very slow climb.
Some buyers, me included, are unwilling to over paid as economy is not strong and I am really tired of the typical tract house design. Older house with low ceiling and small rooms are too expensive to remodel . So may be I might just remodel my current house.
so I think it’s going to be a very slow climb.
Me too, for two reasons:
1. Now that the comps are transparent, buyers can easily check for themselves.
2. Without more sellers selling for more, it will be difficult to convince buyers that there is a solid trend.
With less transparency and more exotic financing, the frenzy whipped up very quickly during the boom. These days, buyers might pay a little more, but not much.
For those who saw last week’s Carmel Valley video get posted at pigginton, you saw how sdr pooped all over it with his examples of houses that have sold for less around CV. It is a choppy trend so far.
Let’s look at the facts
1) ~30% of the buyers are all cash despite the lowest interest rates in modern history. Why? Are these just the rich investing in something other that treasuries hoping for higher returns?
2) San Diego is has one of the most mobile populations in the United States. How many people do you know who were born here? People here are the first to move for greener pastures- thats how they got here.
3) Low inventory (40-60% of normal) and low interest rates should be sending prices through the roof but aren’t.
4) Most people move/sell their houses for reasons other than trying to time the market. Jobs, a bigger/smaller house, divorace, death, nursing homes etc.
I think the low inventory is due to the fact the most anyone that bought in the last 10yrs is underwater or near underwater and can’t afford to sell to move-up or relocate for better job opportunities. This is the beginning of a period where our population becomes house bound and loses the mobility that create economic hot beds like San Diego.
Prices would be falling further if it wasn’t for the all cash investors responsible for buying a larger than normal porportion of the the listings.
Any increase in inventory or increase in interest rates should push prices down further.
Increases in median income or employment should push prices up.
Link please. Otherwise, it’s just a feeling, not a fact.
here’s a link showing cash buyers double normal rate in SD:
http://www.utsandiego.com/news/2012/may/16/diving-deeper-april-housing-market/
No societal change here. Id love to sell but only for the right price. Im not selling my house for the comp that some short sale sold for where the seller had nothing vested in getting fair market price.
Hey Jim, this post is so ridiculous it is getting ridiculous amount of comments! 🙂
I agree we are looking at simply logical moves on the part of buyers and sellers. It has been confirmed that 5 years after the bursting of the bubble, the bottom has been reached. (just look at how many Piggs, including the professor himself, have bought). Now buyers are rushing in, and sellers are doing everything they can to not sell. Creating the low inventory scenario.
I think this was talked about before the bursting, and I was a strong advocate that you don’t wait for the true bottom, but rather you create your own bottom buying opportunity while the market slide downward toward the “bottom”.
Thanks for the mention Andrew, but i cant take credit, a lot of people smarter than me came up with the ten year cycle thing.
Speaking of the cycle. The whole idea was the last bottom was in 1997, it was suppose to peak around 02 or 03, but the peak was juiced and went all the way up to 2008. Five years to reach the bottom, the logical conclusion would be since the peak was juiced, the bottom should last longer too, or at least the incline would not be very steep… But then they are trying to juice the recovery too, ah, who knows. All I know is I get to refi my jumbo yet again for 30 years at 3.75% at zero point, cheap money aplenty!
I agree about the surge of cash buyers. This is the feeling, not fact:
I think the low inventory is due to the fact the most anyone that bought in the last 10yrs is underwater or near underwater and can’t afford to sell to move-up or relocate for better job opportunities.
Societal Change: I see I am surrounded by post-war housing that is small in square feet and jammed with far too many bedrooms for today’s modern buyer like myself. Almost no one I know has 4-5 children anymore. So theses tiny post-war houses that are 1500 sq.ft with 4 bedrooms do not cut it for today’s modern societal norms.
I have been looking to buy. Very few decent homes available in my price range ($500,000 – $600,000). Nearly every house that I have gone to look at is in need of a total remodel. Plenty of “cracker-boxes” but no decent homes in a centrally located area. I suspect no one with homes in this price range are selling now because they are “upside down” in their investment and can’t afford to lose $100,000 – $200,000 if they sell now.
On the other hand, I see quite a few listings of $ million dollar homes. I think it is because people who have $ million dollar homes are in a better position to absorb an equity loss when selling.
Dont be so Sure we have reached a bottom. Prices may rise for the next 6-9 months but that doesnt mean the bottom is in for several reasons.
1-Rates are artificially low-with these artificially low rates(they should be around 6-7 right now without Bernake’s interference)we havent really seen a crazy surge in prices -albeit some bidding wars have erupted in some micro markets and some specific properties.
2- nothing goes in a straight line as far as economics. prices went straight up for 10-20 years(depending on locale) But the ride to the bottom isnt a quick ride down a slope- there will be bounces and such due to the current goverment policies that have inspiried some buyers to nibble and get off the fence.
3-The recession never ended.It has been masked by artificial goverment stimulus. Average salaries havent increased a cent and the sometimes misreported and manipulated unemployment figures are really still near all time lows. for any major bounce to happen- these two items will need to change-significantly
4-there will be no large increase in REO anytime in the next few years due to the artificial goverment and bank interventions- this will keep somewhat of a lid on inventory.
5- The current recession we are in (we are in a recession that has lasted since 2007) will likely accelerate downward in the next 6-18 months -keeping a lid on any large momentum in our local housing market.
of course this is my opinion- I could be wrong(but I doubt it)
Sorry, ridiculous was a poor choice of words. Your post is very thought-provoking; I just disagree with a premise that something different that what typically occurs at a bottom is going on.
In my opinion, there has been very little (althoug some) price movement because most buyers haven’t realized we are at the bottom or just moving past it.
I am an east coaster, currently living in a mid-size city (but considering a work-related transfer to the San Diego area). We had very few foreclosures in our suburbs and very few exotic loans, but probably a 10 to 20 percent price drop from peak, depending on the desirability of the area. Also, not much of a home rental market, and investment buying is limited mostly to flipping. Fairly defined spring selling season with an abbreviated fall season. Fall season here was in-line with past post-boom years, and spring was a little slow initially, very low inventory. But nearly everything that didn’t have major flaws disappeared from the market between late April and late May even in the $750,000 plus range, as if buyers were waiting to see everything that was coming online and then a game of musical chairs ensued. For the first time since 2006,properties are sold before being listed (although in a much much lower number than during the boom). Friends who bought during the boom and improved their property were able to sell at what they considered a decent price. Others who bought between 2000 and 2003 got tired of waiting, and were able to sell at or slightly above what they paid. This season has been very different from anything since the boom, but still no major price appreciation. Also, there is still a dearth of updated houses hitting the market (housing stock is very old here as we are relatively close to the city center, approx. 20 minute commute, and houses often have their original or second owners).
To: N.C. Comment Number 17. Yes, exactly. Small houses with small rooms and low ceilings in need of a total renovation. Thats what I see here.
I am not from San Diego. I am from the suburbs of Seattle, then moved here to join the family business. It’s shocking to see what small-old-packed-together-housing folks here in S.D apparently accept living in. I think it is “boiling frog syndrome”?
*Sigh* The # of comments generated by JtR’s thought-provoking post is just one reason I’ve missed checking into bubbleinfo daily (Just too much to do: family wedding in early May and my daughter graduates from college in 10 days). I’ve been into Jim’s blog since first hearing about him from an LA Times feature in the Spring of 2009. Addicted ever since…
And yes, Jim, for the record, I am experiencing severe bubbleinfo withdrawal symptoms. *Chuckle* Do you have a proven remedy for that? In about 10 days, my life should settle back down and I can once again get my daily “bubbleinfo” fix. Mahalo for being here, JtR. I’m a much wiser lady in RE Land when I include bubbleinfo in my day…