Saturday, May 24, 2008

On your Mark, Get Set...

Traditionally, we're at the start of the summer listing season. More precisely, next week should be the initial uptick in home listings. Inventory should start a 3 month climb.

Of course such comments need graphs. ;)

But I should comment. I believe we are in the "Bull trap." An event that should last into June and possibly even through July. I've made a point of not predicting the next real estate emotion change until Fall. When the in the fall? I wish I could predict that well. ;)

My first choice is to buy in the South Bay of LA.






You might comment that many of the cities the last few years didn't have a run up in inventory starting right now. Correct. Some... lag. But usually professional neighborhoods like to move around the school year.






Nationally?




What we're looking for is masked out in a Spring through Fall inventory growth. So do understand I'm 'mono-focusing' on neighborhoods where working professionals want to live.




Houston seems to have almost flat annual inventory. However... I started tracking them later in the game.

DC shows a spike that is a bit more weather driven. This year the inventory climb has been 'less energetic' there than last year. I find it interesting that the inventory peaks earlier than the national trend (seasonally).





But there are cities going counter to this trend! Why? Foreclosures:
Phoenix:




Do you recall the bubble blogs as the inventory in Phoenix broke through the new thresholds? I can recall when 40,000 was a big deal. Then 50,000... Now 60,000 is a yawn. In this bull trap, inventory has 'dropped' to a paltry 15 months. ;)



How about Las Vegas?:





A sharp drop in inventory. But wait a second... what about all those condos under construction? Well... I know two people who have left their Las Vegas homes and have given up selling them for 'less than they are worth.' In other words, shadow inventory. Could these individuals hold onto their homes for years? Yes. But its going to put a cap on any appreciation as soon as the market turns (waiting sellers will jump back into the market).


So let's see how the market develops this summer. I expect a continued 'bull trap.' But when will it end? My father strongly feels that June is when everything is likely to fall apart. Myself? I'm not as sure. I simply know we cannot get through the fall with the current economic climate without some sort of break in the housing market.

But then that gets back to how I won't buy before 2010... Be patient.

Got Popcorn?
Neil

4 comments:

Iago de Otto said...

This is an interesting site to watch I would think for those like myself who are less than well informed about all things real estate but whose sometimes better-half has it in mind to but a house in the United States some day sooner than later, which tends to make me cringe a bit as we live on the other side of the Pacific. I think that I just may link to your blog from my blog just so I can remember where you are for future reference. Cheers, mate.

Taylor said...

shadow inventory is something that is really going to catch people by surprise over the next 10 years. it's not just homes that were built/bought in the five years near the peak.

it also includes the millions of baby boomers who are planning to downsize their consumption en masse starting in 2012/13.

prices will decline far longer than anyone realizes because of this inventory. when they find their natural level, they will then lag inflation for many, many years.

excess capacity is a horrible thing. in the 80's, the oil patch ramped up production in response to an unsustainable price spike and was left with millions of barrels of excess daily production capacity. as a result, oil prices didn't move very far from cash extraction costs for the better part of 20 years (82-02).

the same thing will happen with housing. the baby boomer headwind + the millions of underwater mortgages that have yet to be marked to market will create a huge supply overhang that won't captured in the official data.

my thesis is that home prices will converge to rental equivalence and not move much for a decade or more.

tj & the bear said...

taylor,

Agree completely. The bad demographics will be further exacerbated by additional factors:
* Failing pension & health benefit programs.
* Increased energy, food & healthcare costs.
* Decreased government services due to budget constraints.
All of these will force many seniors to sell homes they would've otherwise kept, simply to pay bills.

wannabuy said...

TJ,

I 100% agree we have to watch that "shadow inventory."

I'm thinking this downturn really won't get started until the government realizes they have to cut spending.

Is there a long term potential for deflation? Oh yea... One theme... patience.

For anyone looking to buy near term... think. Negotiate.

Got Popcorn?
Neil