And So It Begins?
According to data from the Bubble Markets Inventory Tracking blog, Sacramento's housing inventory is once more on the rise.
01/01: 11,622Housing Tracker (here and here) also is showing increases over the past week. Keep in mind that 2007 commenced with significantly more homes on the market than 2006. Will the trend continue and follow in 2006's record-breaking path? Or will DataQuick's John Karevoll's prediction that inventory "will go down by spring, significantly" come true? Stay tuned...
01/10: 12,040
01/14: 12,150
21 comments:
If you have a chance to see pendings .. that usually increases in January also, as well as new home sales data (look at your article a few days ago) its all interrelated.
Whether inventory goes up or down, the trend in prices depends on the ratio of inventory to sales. Right now there's about 10 months of inventory at the present rate of sales. That is a strong leading indicator of lower prices. As long as the months of inventory stays high the prices will keep falling.
Hey Lander:
Hey, Congrats on Second Place. Sort of reminds me of that "second place in a beauty contest" card in Monopoly.
http://www.housingwire.com/2007/01/15/announcing-the-2007-reba-winners/
HousingTracker: Ineventory up 2% this week, median asking prices down 1.2% this week.
There is a start of a trend for 2007!
Didn't that card get you $10? Oh well. Thanks everyone for voting.
Buyers beware of falling knifes.
Garth-
What data are you using to calculate MOI?
Lander, Congratulations on your blog award. I don't know where you find the time to provide this service to the people of Sacramento, but I will tell you it is a very important contribution. I went the web in late 2005 and early 2006 trying to justify offering $900,000 for a house. Thank the Lord I discovered your work and the work of others, to let me know how imbalanced the market had become. You saved me 10-years of misery and another 5-years of woring past retirement.
Happy New Year.
I am relying on the Bubble Markets Inventory numbers for inventory divided by sales volume as reported for the last available month (which is usually about two months old). By conventional wisdom the "months of inventory" thumbnail gauges whether the market favors buyers or sellers. The party line is that six months of inventory is neutral.
Garth, Lander - you're looking at the 2 typically deadest months of sales data in December and November - January already has a lot of "pop" happening.
Get real numbers for pending activity.
Heard a couple of "talking heads" say this weekend that pendings have kept up with the January inventory rise.
At present in the 4 county area:
1285 homes sold in the last 30 days
431 homes have sold this year
1487 homes sold in Jan 06
2094 homes sold in Jan 05
There are currently 1813 homes pending sale
Let the inventory race begin. We are on the first mile of a very long race. Just wait until folks realize that they can’t unload their homes in 1 month at peak 2005 prices. This will bring in more last minute sellers trying to get past peak values which to their dismay will not happen.
Dr. Housing Bubble
At some point, the cost to build a new home will have to come into the picture as far as how low the market could go. For a 6,000 SF lot, a typical 2,000 SF home would cost, before land cost and builder profit, the following
Bldg at 65 PSF - $130,000
Site development $ 40,000
Fees - $ 40,000
Indirect costs - $ 80,000
(int, ins, adv,
marketing,
design, eng,
sales, etc)
So, before land and profit, the breakeven cost is around $290,000. Builders will demand a profit on any "new" land purchase and land owners are not likely to "give away" their land, so everyone can make a judgement as to how low replacement costs could go.
AgentBubble,
Of the 1813 homes pending sale, what percent do you expect to actually go through? 85%?
I think 85% is a pretty good estimate.
But keep in mind, the 85% that are pending will not all close in January either. Some may close three months from now.
Anon, good analysis, but fees are now days 1.5-2.5x in the spots the tract builders are.
You're going to turn blue in the face telling these guys they can't buy their home when the price will drop to $200k and builders will keep building them.
I think the builders are close to cost now and writing down land they paid even more than today's basis. They're moving enough new homes to reduce inventory numbers - remember 4.0 months is the normal low over the past 15 years as it includes empty lots.
Jr-
Thanks for the kind words. It looks like you've been pretty busy yourself lately. Keep us informed about your blog plans and let me know if I can be of assistance.
@ anon 10:49:00 AM
Great calc--I also think the fees are significantly higher in the Vineyard, EG, Natomas, and Rancho ($60k++), but for 2,000 sf conditioned, $40k gets you in the ballpark.
Your post highlights that because of high fees and delays in infrastructure, the values of land in some areas are quickly approaching zero BASED ON TODAY'S COSTS AND MARKET. The recent spate of charges taken by the public companies highlights this (Lennar @ $500,000,000) reduction in land value. I think most builders are willing to take a 0% net margin on sales if they could just move their inventory, which as we here know, is not happening!
As I recall Lennar did about 50,000 homes last year and has a gillion "lots" under control. A $10K per home write down or less if divided by future land - folks you are not going to see a miracle happen to new home prices.
My $0.02 - home price adjustments will continue to be a function of inventory. If inventory doesn't start clearing out, expect incremental adjustments in home prices. Lennar and KB have consistently been able to sell homes at a good clip even in this down market, but to accomplish this they have been offering huge builder cash incentives and free options/upgrades. Keep in mind the 1/2 billion dollar charge was for ONE quarter. Spring is going to be crucial in many ways here. Nonetheless, I'm more interested in falling land prices rather than home sales prices. There are lots of farmers out there crying over spilled milk. I've seen 50% - 60% reductions in some lots for sale, but the big builders seem to be holding steady on their lots which will probably change when spring doesn't pump some life into this market.
I expect a considerable number of entitled lots on the market come spring as the publics try to dump excess lot supply (except for a few like Horton and Centex who have publicly stated that they are trying to build up a 2+ year lot inventory). I also expect to see some horizontal and vertical merger activity in this sector.
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