Sunday, June 29, 2008

Inventory At records!

Ok, national inventory is 200 below the highest peak I've measured, but since so much shadow inventory is being kept hidden off the market, its obvious we're at an all time inventory peak! Some cities show declines, but the number of for sales signs not in the MLS makes me wonder are we only seeing a false decline in their local inventory?

Seriously, its one thing to manipulate the spin, its a totally different sin to manipulate the numbers. This is really frustrating home sellers (as their homes are not making it onto and other national selling sites quickly).

Ok, rant off, now some charts.

In a word, wow! Yes, the slope of growth is slowing... But if anyone expects that BS spring recovery, you can see its not going to happen. 2009 is going to be the steepest year of price drops (nationally).

This is just fishy. If you drive around, the 'for sale' signs dominate. Yes, some is the drop in inventory in the ex-urbs... but in the nice core, 1/4 of the inventory seems to be shadow inventory! And the ex-urb inventory only dropped to be processed from a foreclosure into a REO.


Inventory is up a bit... but look what happens if you break out a few cities. You can really see the plague of flipping that went on in Torrance and Redondo beach. Do not think the nearby cities will be immune; the REIC really put a cancer into this area:

What about other areas? DC and Houston March along. I think the only reason Houston isn't falling apart is that the state of Texas has been extremely pro-active in recruiting companies out of the bubble markets to their cities. The low workers comp is alone a nice incentive. Add to that the moving reimbursements, lower taxes, and lower cost of living... and you can understand why Aerospace is leaving some of its older bases and moving to Colorado and Houston:

DC is at a record inventory. Now what would it be like if the shadow inventory were properly added in? I have no feel on the size of the shadow inventory there. But if there is one thing I've learned, the louder an area screems 'its different here' the more likely it is to have Shadow inventory.

Is the mother of all bubbles in Phoenix or Las Vegas? Both are burning down their months of inventory... both have declines in their inventory. But how much is real and how much is the time lag for conversion to REO (or shadow inventory)? I know too many people trying to sell Las Vegas property to even begin to believe they're within 18 months of the bottom. Phoenix, in a way, is in worse shape. They have far too much of their employment based upon expanding Phoenix (its been described as plumbers building for electricians...).

Notice something? Las Vegas and Phoenix are now showing much improved inventory turn times yet they still have FAR more inventory than is healthy. They're both above the 8.7 month inventory 'trip line' that triggers fast declines in sales values until inventory can be brought under 5 months. But as I've noted, there is Shadow inventory out there. In Phoenix is mostly homes being processed to REO's. In Las Vegas, its that massive condo building boom.. and the REO's. I'm going to be *very* curious to see the August numbers for both. Heck, I'm going to be very curious to see the August numbers for everywhere!

There are many things I can accept in life as just salesmanship. But the growing fraud in the inventory numbers is that: fraud. If you sell a stock as a sure thing there are regulations. When are the regulations on real estate transactions going to be enforced? (Its not as if there are not laws out there.)

After an investment mania there must be ambivalence. We have a long way to go. If you wish, read my real estate emotions article to see the long path we have yet to travel. The inventory suggests we have a long way to go. The fact that the REIC feels they need to hide the current true status of the inventory... implies its worse than this bear was stating.

If you're going out to buy, understand you must bargain like an a-hole. If not, you are the sucker. If you're a seller, realize that high value mortgages are becoming tougher and tougher to acrue. I'm also starting to see those who have owned for a *long* time realizing that its sell now or own for the rest of their lifetime. Its funny watching the local realtor trying to convince families that have owned since 1975 not to sell... for once they set the comps... those will be the comps. But on streets were few (if any) homes have sold in decades, we're starting to see inventory. I know of two homes being prepped for sale where I would *love* to buy. In both cases, the owners are treating the sales like a stock or auto sale; you price to sell and nothing else matters. Yes, you shine it up to sell... But you also price it to sell.

I've mentioned before I know dozens of people who will never have to sell any of their real estate. But I've also mentioned that they would sell *at any price* at some point to become liquid. I didn't expect them to wake up this early; they've been smart investors their whole lives, so I should have given them more credit. Besides, some realize their businesses will have to go into hibernation for 2+ years. At this point, they're retiring.

Why the long winded conclusion? *Everything* is aligning for 2009 to have the steepest drops in prices. The only counter examples are the manufacturing moves to the Carolinas, Texas, Alabama, and other low cost of living states. But manufacturing jobs do not create a real estate frenzy. But they are the start of the recovery. (Yes, far before the bottom... but some reasons I do not see a Depression.)

June and August vie to be the peak selling months of the year... normally So I'll be very curious to publish an article after August. ;)

I still think the wheels come off in the Fall and in Spring of 2009 I see a convergence of numbers that scars even this bear. e.g.j: Alt-A forced resets start in mass, taxes are due, employment, airline/auto/municipal employment declines, savings depletion, integrated impact on consumer spending due to high oil prices, dollar decline, slowing velocity of money, credit crisis, Hedge fund failures, and baby boomers waking up to the fact they haven't saved enough as a group to retire. Oh, I should also mention that the price range of homes I want to buy in are influenced by stock market performance too. By the spring, all of those who will buy to get out of the stock market will have bought.

Got Popcorn?

1 comment:

The Anonymous said...

“if there is one thing I've learned, the louder an area screems 'its different here' the more likely it is to have Shadow inventory.”

Oh Really! THIS is the one thing you’ve learned!?!? So where exactly did you learn this little nugget of axiomatic truth?

Sorry to bust your balls, but I am getting tired of everyone screaming about hidden inventory. Last year when inventory was rising, all the bears looked at it relied on it, trusted it was correct. Now, suddenly, as soon as it shows the bulls a picture they don’t like, they start screaming it cant be right, hidden inventory – hidden inventory!!!!

I do believe that some inventory is hidden, but is this something that just started this spring, or is it something that has been going on for a long time (meaning that the long term trend lines are correct, just the numbers are off)?

Second, in a time where inventory should be RISING, why would the REIC be so brazen as to show it is FALLING? Why not just show it as being flat, or rising slightly, perhaps not as fast as before?

Finally, the problem I see with the hidden inventory theory is that it belies what we see. As with your exurbs, Prince William Co inventory around here is dropping. However, why is Arlington inventory (which you "conveniently" forgot to graph) dropping too (again it should be rising)? Why are the two areas, one hard hit, one pretty unscathed, moving in unison with one another? Arlington has an absorption rate of 4.6 months of inventory - why on earth would anyone "hide" something from that market??? You would think this brisk sales rate would cause the shadow inventory to suddenly appear (i.e. sell while you still can). Yet, despite this, inventory keeps falling, and falling and falling.

Again, I don’t doubt that there is some hidden inventory out there, but there is a simpler explanation out there that I choose to believe whether I like it or not.