Inventory

I've been lazy tracking inventory. One data point in a month. oh well... at least I have detailed past data to compare with. The quick summary is that inventory is starting to climb up in many areas, but is still low compared to the last few years.

Note: DC and Houston are starting to look quite healthy; since their job situation is 'ok,' they could be done with the downward trend. The only question is hidden inventory.

Here in California, 9% of the mortgages are in default. That's a HUGE hidden inventory. If those mortgages are fixed so that the 'owners' can afford the mortgage, that's the same as cutting the home sales price.

Note on the upgrade market: Its dead here in California. I do not expect it to return for 5 to 7 years. Since the areas I want to buy are at inventory levels at or near the levels before everything fell apart... and Alt-A is just starting to tickle the market... I'll wait.

I still think the bottom in prices (National and South Bay LA) will be February 2011. I expect a long 'churning flat' after then as ALT-A and prime implode. Between now and then... we exit this 'calm of the storm.' I'm coasting until I see the August data (in September). July is a non-event for Real Estate in California. No conclusions should be made off July data (good or bad, same is true for November). But to get through this storm, we have the seasonal October-February "Buyers Market" to get through.

Let's just say the OC Register's attempts to make it sound like bidding wars are the norm amuse me; the best strategy for a home seller is to price below market and let the market work (bids up the home to market). Yawn. I've been suggesting that strategy to sellers for two years. Now let them mention how many chase the market down...

Keep in mind Realtytrack's latest on foreclosures:
"In spite of the industry-wide [foreclosure] moratorium earlier this year, along with local, state and national legislative action and increased levels of loan modification activity, foreclosure activity continues to increase to record levels,” noted James J. Saccacio, chief executive officer of RealtyTrac. “Unemployment-related foreclosures account for much of this increased activity, and the high number of borrowers who find themselves owing more on their mortgages than their homes’ are now worth represent a potentially significant future risk…."

There is no Real estate price recovery until incomes improve.

But the whole point to my plotting data if for you to make your own conclusion. Just realize how hard it would be to do a worse investment than SoCal Real Estate during the last five years.

Got Popcorn?
Neil

Inventory

I'm chuckling reading the comments from my last post. Yes, Inventory is down, but I still find it interesting. I also find there is a disconnect. Homes show up in the local MLS already with an offer. While I can only point to one agent doing this, I wonder, are homes being marketed before being put on the MLS? Significant? I doubt it, but interesting.

Ok, Inventory is way down. Everywhere I've been tracking. Heck Phoenix is below 40,000 (I lack detailed historical data as OCRenter used to have great data before that blog went private, so I didn't bother to track it.) Remember when it was 64,815 in Phoenix? 3/26/2008 is the peak I recorded. But there might be a day when it was fractionally higher. Today Phoenix is at 37,828!

Palm Beach (which by Ziprealty includes areas too far away to really be palm beach, but I was lazy and just used their inventory) peaked at 132,636 on 2/28/2008 (which was estimated to be a multi-year inventory at the time). Now its at 90,478. So Palm Beach county is still in deep chit.

Do note my south Bay LA only includes Torrance, Redondo Beach, RPV, PVE, Rolling Hills, and Rolling Hills estates. Yes I realize Hermosa and Manhattan beach would be among the high end areas... but I skipped to only tracking where I wish to consider buying.

Oh, I've been recording data since 11/9/2006 just for the record.

So in celibration of the Bear chit (California IOUs), I bring inventory graphs!

Inventory

I've been really bad at both blogging and tracking inventory. Mea Culpa. Inventory is down everywhere I'm tracking and crossing through 2007... EVERYWHERE! The most dramatic drops, which I haven't been charting, have been in Palmdale and Lancaster California.

Palmdale has 1,094 homes on the market. Peak was at 3,281 on 9/17/2007 (per my snapshot).

Lancaster has 1,133 homes on the market per zip realty. Peak was 3,521 on 9/27/2007 (ten days after Palmdale).

Greater Palm Beach Florida is even below 100,000 (peak 132,636 on 2/28/2008)

Phoenix is at a mere 45,086. Remember when it was at 64,815 on 3/26/2008? On 5/4/2008 it was still 62,071.

Something seems odd though. Why is LA inventory down so much? Why is any inventory down so much when so many people are known to be doubling up. I speculate the foreclosure moretorium... But is that enough to explain it? I see two groups of buyers. Those confident of their job who are leaping at the chance to buy and those being more hesitant.


Ok, inventory graphs that speak basically for themselves. We're crossing through 2007 pretty much everywhere:

Inventory and mania

No mania can end until investors stop thinking it will recover quickly. A conversation at work convinces me that we're not even close. Coworkers seriously believe we're close to the bottom. They're itching to buy. Well actually... more are itching to sell.

Five were grousing that they're having trouble finding renters while at the same time they're talking about buying homes to rent!?!

I've been a little remiss in updating my inventory charts. Still, they are better than once a month data. In general, inventory is at or just below last year. However... sales above $400k are almost universally down as is the situation with foreclosures dominating the market!

I expect credit to continue to tighten in 2009. Too many coworkers have bought 2nd, 3rd, 4th, or 5th homes on credit. They're buying nationally. If you've heard of a city, I'm certain they've bought there. Most consider subsidizing rent the first 3 to 5 years 'normal' and a loss that will easily be made up with appreciation. But the credit keeps tightening and they keep getting surprised by the plummet in rents and sales prices. This isn't over. Heck, most layoffs I know about won't even occur until the 2nd or 3rd quarter of 2009. (Big companies move slowly...)

So I stand by my prediction that 2009 will be the the year of the sharpest declines in US real estate. This is despite certain areas being near their bottom! For its not until about March that the resets even start on the prime loans. Layoffs and the venture capital shortfall will be the news of 2009.

For most of the nation, 2009 will erase that year of appreciation that never should have occured: 2003. We'll be down to 2002 prices by February of 2010 in all but a few areas. No areas will be spared the decline.

But I want to emphasize some areas are very near the bottom. If a cash buyer will make a 7% rate of return... The maket is pretty much done dropping.

Then again... the stock market hasn't even priced in the secondary effects of Davoff... One isn't truly in a recession until the states bring their budgets in line with revenues either. When the biggest donor state in the union gets the 'dry heaves' in about March (California), everyone will feel it.

Note: I still think Florida will get the worst of the economic brunt (Years of inventory and a reverse of migration!), 2nd Nevada, 3rd Michigan or Ohio, then (in no particular order): Arizona, Illinois (auto parts), and then California. But since no state exports money like California to the Feds... the ripple will be felt nationally fast.

To the graphs:
























Since the South Bay of LA is where I hope to buy, a more detailed graph broken down by city. Notice the drop in inventory for 2008? Its more than compensated by an EXPLOSION in rental availablity. Fewer homes might be for sale, but that is only because sellers are so far "under water" they are desperate and will rent to cut the monthly loss. (Its been well documented for Pheonix and is obviously spreading nationally):



















A comment. The equilvalent sales are the sales normal sellers are getting. In prior years, bank sales were too tiny to matter. This is not the case for SoCal in 2008 and its obvious 2009 will be truly dominated by foreclosure sales. Any further attempts to slow foreclosures will only tighten credit. That would only put things towards the advantage of those waiting with a large down payment.

Got Popcorn?
Neil

Some Inventory Graphs

Please see my previous article on Real Estate Emotions. We're in Panic.

Basically, inventory is down a bit everywhere. I hear quite a few people talking about waiting (up to 3 years) for when the market improves. Hmmm... could this be one of the reasons real estate recovers after a drop so slowly? ;)

National inventory says that nationally we should expect another year like 2008. However, at this point in the economic cycle one would expect layoffs to be driving home prices. Thus one will feed the other. Everything I look at points to 2009 being the worst year in home prices in US history. Yes... worse than 1931.















So I'll start the inventory with the two cities that should have the least downside risk. Now, we've watched their ex-urbs get hit, so I expect 'substitution' to pull down the center. But I'm not expecting a huge drop in either unless employment does even worse than this bear is being too optimistic. I see a chance of at most a 20% drop for both, with the worst areas being those alleged immune high end areas where we'll find out the poseurs in 2009. Most of the downside for these two areas will be due to the tightening of credit and some job losses.
















I'll switch to a city that I think will be in the Running for the worst Real Estate market in 2009. Other contenders are Las Vegas, Palm Beach Florida, and Phoenix. This is my home city of LA. While nominal inventory is going down... Look at the malls. Not just all of the new ones going up, but the empty stores at the existing.

Greater LA is a metropolis that has many industries, but too many are running off advertising revenue. I assume you have been following the trend in that LA is doing fewer movie and TV shoots (minutes of filming) and more advertising. Hmmm... Add budgets are down... and just how much of Santa Monica is employed in internet companies dependent on ad revenue? I still see a 35%+ downside for SoCal.















The South Bay portion of LA is where I wish to buy. Less ad revenue dependent than 'the Westside', but it will be hit by that downturn too. It is also the US home of Aerospace engineering but it is looking at budget cuts and that means salary cuts. Aerospace will lose a minimum of 20,000 jobs in the South bay between now and Christmas 2009. :( It could be as high as 50,000. Yikes! So hang on, there is a bumpy ride ahead.















The housing bloggers have been obsessed with Phoenix for years. Inventory remains persistent above 60,000. It will be healthy again once its below 30,000! Something like 40% of Phoenix's peak employment was working to grow the city. The joke was that it is a city where Plumbers build homes for Roofers and Realtors. Possibly on Las Vegas and Palm Beach truly have as much downside risk.

Part of the reason I'm bearish nationally as too many high population states are going down. No bailout will help. In fact, the bailouts are only keeping the builders building and this increasing the downside potential everywhere there was building (which is... everywhere!).















A little more discussion on SoCal. Over HALF of sales are now foreclosures, yet the banks are still selling foreclosures slower than they are building up on the books! This is a doomsday scenario: Declining jobs and a monster inventory overhang. Oh... If you think your area is immune, what exactly was all the media coverage about 'California equity locusts' about if we weren't driving up prices everywhere! Seriously, every area will drop to where its incomes can support housing.




















Oh... to think that the people who know bonds are speculating that during the summer of 2009 the government will lose its ability to keep propping up the economy. Bond buyers are supposed to be skeptical... there is enough momentum to keep things going for a bit. So the transition to Capitulation might not happen until this summer bond event. Cest la vie. Its going to happen. That will put those with savings in a very good space. :)

Got Popcorn?
Neil

Inventory Calm before the storm

We're in the inventory dip before the annual peak. Last year's inventory (2007) peaked nationally and in most areas about on September 27th. The year before it was a bit earlier, on September 20th. Yet there is, for some reason, always a step down at the start of September.

This inventory is incomplete. DQ news will take ~10 more days to put out there results, so I'll do an update with California by country, Las Vegas, and a few other areas I've been letting others collect the data on.

In general, inventory is at about last year's levels. It will be interesting to see sales going forward. Inventory is high. Some areas are holding up better than I thought they would at this point. But... with this week's news on Lehman, Fannie, Freddie, and the concerns with every major bank that was a leader in mortgages... I'm sticking with my previous real estate emotions predictions. We haven't jumped off that roller coaster by any means. But... LA's and in particular the south bay's inventory is dropping by the numbers... but not the number of signs one drives by. Not to mention the foreclosure process is over a year behind the curve.

And I'll let CR blog retail (empty stores). Shudder... Its ugly out there.

Without further comment, the graphs:

Repost of this month's inventory, affordability, and SoCal foreclosures

This is a long post and it took a bit of work to create. So rather than have it lost after so other posts, I'm bringing the charts back to the front. Please grab a drink as there are a ton of charts to wade through. But I ask you the reader to look at them as a group; they're related. We're in a new point of the market. You'll find sales and foreclosures for DQ news, afford ability from Wells Fargo, and inventory from ziprealty and the MRIS.

If you're not a bit scared after reviewing these graphs... I think you've missed something. We have proof of tight credit, foreclosures exceeding sales in more and more markets, and a general bear market that is entrenched in real estate. In California, foreclosures are happening faster than sales. In other words, the current sales spike that is foreclosure dominated isn't enough to slow the decline nor even the driving forces behind the decline! California and Florida on their own are going to end the mortgage market as we knew it. Too many Billions have been destroyed as is.

Do remember that during the 1990's SoCal downturn, the communities that were immune through 1992... were the ones hardest hit. The overall market only dropped 18%. But the "immune" areas had late price drops that went to almost 40%!!! That is the pattern we're currently following. This time Nationally. Edit from the first posting: I have no charts to 100% prove this. Believe or not. My main prediction is that 2009 will be the year of the greatest price drops in US real estate. We're not quite yet in the timeframe of the greatest price drops, but we will be soon.


Affordability is shooting up. But wait... this assumes income measurement are following the historical pattern! Please, do not get me wrong. I appreciate Wells Fargo Keeping the same methodology. But one assumption about these charts is that grey market income is *not* declining. Can we assume that anymore? Certainly not in Southern California. I believe, as with many metrics, that the change in incomes is being under-recorded. I do not fault Wells Fargo, they are doing the best job possible. LA is also in trouble due to Hedge funds cutting the funding of "Hollywood." Also, do you see advertising spending going up or down in 2009? Advertising has been keeping the Westside market alive. If that revenue drops significantly, expect things to get worse quickly.

I've selected the same cities for a while. Notice the spike up in affordability. Its all due to a drop in sales price. Mostly due to foreclosure sales and


















Here is a close up on the latest. Do review the previous graph of where affordability has been historically. Note: For some cities (e.g., DC), I expect the new plateau to be at a slightly lower level of affordability (due to the city establishing 'economy of scale' in the world market).
















National inventory isn't growing like it used to. If it wasn't for all of the markets with huge amounts of 'shadow inventory,' I would think this downturn was closer to being done than it is. We'll hit a bottom; but not before 2011 and more likely in 2013 or so.




















If there is one thing to scare you, it should be the drying up of the Jumbo mortgage market. Look at the hit SoCal is taking. Thankfully, DQ News has published information on the distribution of mortgages.
















I'm going to be posting this chart I from Deutsche Bank over at Patrick.net. It really shows how the real estate market is in a brave new world:















We're at the point where many markets are now driven by foreclosures. Since there is better data for Southern California than many other markets, I'm plotting my home region. But these charts plot a trend that would be true of Florida, Arizona, Nevada, Ohio, Michigan, Virginia, and a few other markets. Its brutal now for a home owner to try and sell. The competition from foreclosures will even impact the 'immune' markets. I'm seeing high end properties skip foreclosure (jingle mail) and go straight on the market as bank owned.















I'm plotting California sales and foreclosures by quarter to take out noise in the data. Compare this graph to the next one and Note that foreclosures exceeded sales in California in the first and second quarter! California is getting ready to really implode.

















Compare this graph to the above one:














Now on to other cities. Sales are down, but not too bad:

















But note the Median price is down. I haven't been in DC for a year, but I'd bet bargain hunting is going on:



























Las Vegas is in a later stage of implosion. I know of too many people holding on in Las Vegas who should be selling, so the small drop in published inventory is masking a rising shadow inventory. Once the recession really gets going, expect the next wave of the Tsunami to spank Las Vegas. US Air 'de-hubbed' in Las Vegas for a reason: The Origination and Destination market is dying.













Phoenix has been the poster child of the bubble for a while. IIRC, 40% of the jobs in Phoenix are for growing Phoenix. I'm an airline fan, so I wonder if US air will get into trouble in Phoenix too.
















Overall, DC's inventory hasn't climbed much over 2007. But look at Case-Shiller prices, inventory is too high in the region to sustain current prices overall. Counter is that DC's median income has gone up ~6%.

Houston is an interesting case. I posted before how it has the fastest job growth in the USA. But how much is due to the commodities bubble? Part of the reason I'm curious about Houston is that high end manufacturing and IT outsourcing is drifting to the city. Is it enough to insulate it during the later parts of this recession?















This is where I plan to buy. But there is a disconnect between official inventory and what I see on the street. Can we say shadow inventory? ;) Seriously, prices peaking at 11.2X income was insane! Ok, Wells Fargo put it at 9.3X income and now at 6.3X income. Per Wells Fargo, the last recession hit a trough at 3.5X income. My oh my... that leave a lot of downside. Note: Per Wells Fargo incomes have dropped ~3%. Personally, I think the income drop is accelerating.









I've skipped a lot of comment, but note that LA's decline in inventory is mostly due to foreclosures taking homes temporarily off the market. Mostly in the ex-urbs.












This is quite a bit to review here. I ask my readers patience to note the pattern these graphs lay out. Its showing the impact of the credit crunch, income loss, and the recession we are in. I still make no definitive predictions until we get to "Fall, probably late Fall." But soon we will see data showing a major transition. Soon might be November data... Heck, late Fall technically is until 12/20, so it could be in the December data; but I suspect it won't happen at the end of Fall.

Other bloggers are noting the bottom will be a two to three year bog where prices stay low due to the economy and credit tightening. I see no reason to debate that.

Got Popcorn?
Neil

Affordability, Inventory, and SoCal foreclosures

This is a long post. Please grab a drink as there are a ton of charts to wade through. But I ask you the reader to look at them as a group; they're related. We're in a new point of the market. You'll find sales and foreclosures for DQ news, afford ability from Wells Fargo, and inventory from ziprealty and the MRIS.

If you're not a bit scared after reviewing these graphs... I think you've missed something. We have proof of tight credit, foreclosures exceeding sales in more and more markets, and a general bear market that is entrenched in real estate. In California, foreclosures are happening faster than sales. In other words, the current sales spike that is foreclosure dominated isn't enough to slow the decline nor even the driving forces behind the decline! California and Florida on their own are going to end the mortgage market as we knew it. Too many Billions have been destroyed as is.

Do remember that during the 1990's SoCal downturn, the communities that were immune through 1993... were the ones hardest hit. The overall market only dropped 18%. But the "immune" areas had late price drops that went to almost 40%!!! That is the pattern we're currently following. This time Nationally.


Affordability is shooting up. But wait... this assumes income measurement are following the historical pattern! Please, do not get me wrong. I appreciate Wells Fargo Keeping the same methodology. But one assumption about these charts is that grey market income is *not* declining. Can we assume that anymore? Certainly not in Southern California. I believe, as with many metrics, that the change in incomes is being under-recorded. I do not fault Wells Fargo, they are doing the best job possible. LA is also in trouble due to Hedge funds cutting the funding of "Hollywood." Also, do you see advertising spending going up or down in 2009? Advertising has been keeping the Westside market alive. If that revenue drops significantly, expect things to get worse quickly.

I've selected the same cities for a while. Notice the spike up in affordability. Its all due to a drop in sales price. Mostly due to foreclosure sales and


















Here is a close up on the latest. Do review the previous graph of where affordability has been historically. Note: For some cities (e.g., DC), I expect the new plateau to be at a slightly lower level of affordability (due to the city establishing 'economy of scale' in the world market).
















National inventory isn't growing like it used to. If it wasn't for all of the markets with huge amounts of 'shadow inventory,' I would think this downturn was closer to being done than it is. We'll hit a bottom; but not before 2011 and more likely in 2013 or so.




















If there is one thing to scare you, it should be the drying up of the Jumbo mortgage market. Look at the hit SoCal is taking. Thankfully, DQ News has published information on the distribution of mortgages.
















I'm going to be posting this chart I from Deutsche Bank over at Patrick.net. It really shows how the real estate market is in a brave new world:















We're at the point where many markets are now driven by foreclosures. Since there is better data for Southern California than many other markets, I'm plotting my home region. But these charts plot a trend that would be true of Florida, Arizona, Nevada, Ohio, Michigan, Virginia, and a few other markets. Its brutal now for a home owner to try and sell. The competition from foreclosures will even impact the 'immune' markets. I'm seeing high end properties skip foreclosure (jingle mail) and go straight on the market as bank owned.















I'm plotting California sales and foreclosures by quarter to take out noise in the data. Compare this graph to the next one and Note that foreclosures exceeded sales in California in the first and second quarter! California is getting ready to really implode.

















Compare this graph to the above one:














Now on to other cities. Sales are down, but not too bad:

















But note the Median price is down. I haven't been in DC for a year, but I'd bet bargain hunting is going on:



























Las Vegas is in a later stage of implosion. I know of too many people holding on in Las Vegas who should be selling, so the small drop in published inventory is masking a rising shadow inventory. Once the recession really gets going, expect the next wave of the Tsunami to spank Las Vegas. US Air 'de-hubbed' in Las Vegas for a reason: The Origination and Destination market is dying.













Phoenix has been the poster child of the bubble for a while. IIRC, 40% of the jobs in Phoenix are for growing Phoenix. I'm an airline fan, so I wonder if US air will get into trouble in Phoenix too.
















Overall, DC's inventory hasn't climbed much over 2007. But look at Case-Shiller prices, inventory is too high in the region to sustain current prices overall. Counter is that DC's median income has gone up ~6%.

Houston is an interesting case. I posted before how it has the fastest job growth in the USA. But how much is due to the commodities bubble? Part of the reason I'm curious about Houston is that high end manufacturing and IT outsourcing is drifting to the city. Is it enough to insulate it during the later parts of this recession?















This is where I plan to buy. But there is a disconnect between official inventory and what I see on the street. Can we say shadow inventory? ;) Seriously, prices peaking at 11.2X income was insane! Ok, Wells Fargo put it at 9.3X income and now at 6.3X income. Per Wells Fargo, the last recession hit a trough at 3.5X income. My oh my... that leave a lot of downside. Note: Per Wells Fargo incomes have dropped ~3%. Personally, I think the income drop is accelerating.









I've skipped a lot of comment, but note that LA's decline in inventory is mostly due to foreclosures taking homes temporarily off the market. Mostly in the ex-urbs.












This is quite a bit to review here. I ask my readers patience to note the pattern these graphs lay out. Its showing the impact of the credit crunch, income loss, and the recession we are in. I still make no definitive predictions until we get to "Fall, probably late Fall." But soon we will see data showing a major transition. Soon might be November data... Heck, late Fall technically is until 12/20, so it could be in the December data; but I suspect it won't happen at the end of Fall.


Got Popcorn?
Neil