Tuesday, October 30, 2007

"The Numbers Are The Numbers"

From Business Week:

Houston, you have a problem—with housing inventory. And as the number of homes for sale in the country continues to creep upward thanks to waning demand, many other major U.S. cities are dealing with the same issue...The housing supply is particularly bloated in Los Angeles, Chicago, and Miami—the top three on our list of the cities with the biggest housing inventories based on data from San Francisco brokerage ZipRealty (ZIPR). Tampa, Phoenix, Washington, Dallas, Boston, Sacramento, and Houston form the rest of the top 10.
From the Sacramento Bee:
Upon buying a house in the Sacramento area recently, [first-year coach Reggie] Theus told Kings co-owners Joe and Gavin Maloof that they'd better not ponder the idea of making a third coaching change in four years. In this real estate market, especially, it's just not the time to sell.
From the Modesto Bee:
Many borrowers believed the people they were dealing with had their best interests at heart. If that single-income family of four couldn't really afford that 3,000-square-foot house, one of those professionals would warn them off. But that's not really how it works. Business is business; it's not personal. People are in business to make money, and consumers have to look out for themselves.

Bob Endsley, founder of Coldwell Banker Endsley and Associates of Turlock, believes people were taken advantage of. "They were talked into low teaser rates and told they can't go wrong. If those loans had not been available, the demand for houses wouldn't have taken off like it did, and we probably wouldn't be in this mess."

So where do we go from here? Clearly the market is in turmoil. One of the things driving the downward spiral these days is people's attitudes. But don't blame the messenger, that's just an easy out -- the numbers are the numbers. Being better informed just makes for better consumers who make better choices. Everyone wants that, right?

"People need to make more prudent decisions," Endsley said. And the best way to do that is to learn as much as you can about the marketplace, understand your own financial situation so you don't overextend and take your time making such a major decision.
From the Modesto Bee
When the market was at its peak, Kimiko Horiuchi avoided buying because prices were too high. Now, she and her husband are buying a 2,700-square-foot house in Patterson for $329,000. She said her real estate agent told her that a few years ago the home was worth $600,000, because it's a former model home with several upgrades. "We're definitely getting a home for a good price," said Horiuchi, 28, who will move from Tracy into the new house in early November. "You're going from renting to paying on the mortgage, and if the economy comes back, then I'll have a house that I bought for less than it's worth."

Buying the house comes with some tradeoffs. She'll have to add about 25 miles to her commute to her job as a patent legal assistant in Sunnyvale and still will take her sons to school in Tracy.

Horiuchi said she knows she may be taking advantage of someone else's misfortune or bad loan. "I just feel bad that I'm taking someone's house," she said.
...
Although many trends point to prices sliding more before they rise again, experts said it's not necessarily a good idea for a buyer to wait. Too many homes at cut-rate prices will spur the return of lots of buyers, including investors who were partly responsible for making prices soar in the most recent boom. And interest rates aren't likely to drop much more.
Northern San Joaquin Valley: Change in Median Prices From Peak [pdf]

44 comments:

Lander said...

Over the last few days, the Modesto Bee has had a whole slew of articles, charts, and videos about the housing market:

Housing in Turmoil

smf said...

Are these people idiots?

"Too many homes at cut-rate prices will spur the return of lots of buyers, including investors who were partly responsible for making prices soar in the most recent boom"

There are more homes than people available to buy them, at any price. You can get buyers, when the prices get decent again. But if you have 4X the normal inventory, 4X the normal buyers will NOT appear from thin air.

And why would investors (speculators) really come back? Are they going to get the same type of 100% loans as before? Would banks not correctly charge them more for investment homes as before?

People, 2004/2005 WILL NEVER COME BACK. Neither will the .com bubble. Those are perhaps once-in-a-lifetime glitches.

I mean, after more than 7 years, the NASDAQ is fully 1/2 of its 2000 high. And NO ONE is buying tech stocks right now on the hope that sometime soon their highs will be reached again.

Will be the same with housing.

rocklin renter said...

buying a 2,700-square-foot house in Patterson for $329,000.

I wouldn't pay $150,000 for a 5,000 sqft house in Patterson.

Just another delusional buyer using some seriously faulty logic. 25 miles extra tacked on to an already long commute to Sunnyvale? At what point to do you stop whoring your life out to the commute and get those hours of your life back? At what point do you stop, look around, and realize that you live in PATTERSON!!!! And for what? So your can be a slave to a mortgage for a house that is in an undesirable location in the middle of a cow patty?

SMF - Agreed. Although we will eventually hit NASDAQ 4 or 5,000 again, but even at a hypothetical 10% growth rate (annualized) we are still 6 years off (from 5,000), and the peak-to-peak of the NASDAQ would be more than 13 years in that VERY rosy scenario!

So, applying that logic, and understanding the housing value historically grows at a MUCH slower pace (more like 3%), we could be looking at the mid-2020's before we get back to the bubble's peak prices.

It's going to be a long, long ride to the other end of a this long and wide valley - and we haven't hit the bottom yet!

Bakersfield Bubble said...

http://bubbletracking.blogspot.com/2007/10/if-only-i-waited-in-bellezasan-marcos.html


That link is for the potential knife catcher on the previous thread.

King for a Day said...

Isn't "living in __________" (Insert Tracy, Patterson or the name of any other central valley town) an oximoron?

I agree with rr, I just do not get it... nor the price people paid or still asking for that matter...

anon1137 said...

You guys who don't understand why someone would buy a huge stucco box in the middle of nowhere don't understand human reproductive biology. Ask any fertile woman about the appeal of huge house with lots of empty bedrooms waiting to be filled with children.

norcaljeff said...

Well, not surprised there. These areas ran up in price way to fast to people driving 2-3 hours one way to their high stress bay area jobs. Anyone who paid $600K for a home in Patterson is a moron. Anyone now paying $329K for a home there is still a total moron. Does anyone know where that place is? If you drive on I-5 South to LA and you find yourself in the middle of nowhere half way down, that would be known as Patterson. Gwyn, didn't we have this discussion a few months ago? :) I think I said Patterson was about 20 miles south of BFE.

Anon - LOL

Sippn said...

Read the Bus Week list - still looking for the 40,000 homes availible in Sacramento they say.

Their numbers are completely different from Housing Tracker - some cities way higher, some way lower. HT has Sac at 17,000.

smf said...

"Read the Bus Week list - still looking for the 40,000 homes availible in Sacramento they say"

Yeah, and?

10,000 homes available IS already too much. 17,000 is a gross excess.

40,000?

Perhaps.

New developments are NOT shown on the MLS, including the hundreds of new townhomes littering the area.

Nice way of picking and choosing, sippn!

Tyrone said...

Commuting from Tracy to Sunnyvale! Kimiko Horiuchi is an idiot. Approximately a 60 mile commute. Great way to piss your life away.

Buying Time said...

"Ask any fertile woman about the appeal of huge house with lots of empty bedrooms waiting to be filled with children."

Anon

That is only the explanation for the big house. They actually end up in Patterson cause the men want a large lot. Due to the territorial hunting instinct. ;)

anon1137 said...

Nice try BT, but you can't hunt much on a 20,000 ft2 lot (although, maybe you could do a little farming . . . ). In general, guys don't make the buying decisions, we're just along for the ride.

For anyone who needs a refresher on human reproductive behavior, vis-a-vis women and home buying:
http://singlehouselessfemale.blogspot.com/2007/01/week-1-seed-of-want.html.

Buying Time said...

I had to take a shot. I just didn't have time to come up with a clever retort....the kids were running wild all over the office and were about to take off with the office supplies.

Our last house (where the kids were born) was a 1000sq ft townhouse (attached on both sides). I hate long commutes and would much rather live in a smaller space, close to work, than spend half my day commuting. To nest is human...to nest within your budget is divine.

Curious said...

Tyrone said: Commuting from Tracy to Sunnyvale! Kimiko Horiuchi is an idiot. Approximately a 60 mile commute. Great way to piss your life away.

Tuesday, October 30, 2007 7:39:00 PM


No, she's dropping the kids off at school in Tracy. She's actually commuting from Patterson to Sunnyvale. An 84+ mile commute which mapquest optimistically calls an hour and twenty five minutes. Adding the stop in Tracy (another 29 miles) to unload the kids adds another thirty four (optimistic mapquest) minutes for a grand total of 1:58 hours. Without traffic. Without accidents. Each way. Over the Altamont Pass.

So, how early is she going to have to wake her kids up for this marathon and how long will they have to wait at school or in daycare for her to pick them up each night?

Oh boy. No way do any of them get an 8 hour night's sleep for the next few years until they sell at a loss and move back to the bay as renters.

I did the EG to San Ramon commute for awhile (roughly equilent to Patterson to Sunnyvale, without the side trip to Tracy), it was a bitch.

Curious said...

equilent=equivalent.

Shoot, I meant to fix that before posting. Sorry.

anonymous said...

Does anyone have any guesses on when/if home values will ever come down in Auburn (zip 95603 specifically - and for the sub-behemoth size home, of less than 1,500ft)??

I know there was some discussion a short time back,with some folks suggesting IT will happen, just will take a bit longer in these outlying regions. We recently sold our home in Cool (not easily), and are renting and waiting for the perfect house in Auburn. What we've noticed, at least in the downtown 95603 area,is that prices are staying close to their peaks. Case in point: a 996sq ft home, 50 years old, near downtown and within 200ft of train tracks, on small city lot, sold for $335 a square foot (last month)! The house was on the market for about 4mo's (a FSBO), and the seller wouldn't budge on his price (house was in good shape, & nice setting/neighborhood, but we couldn't see paying that much. I've been riveted with the discussions on this blog for the past several months - some great insights.

Sippn said...

SMF - no 10,000 homes available in Sacramento would be a sellers market.

While the Sacramento area has its issues, an inventory of 17,000 is less than the peak inventory both in 2006 and 2007.

When you look at places like Miami with 117,000 homes - they've added more than 17,000 this year - 6 times the inventory of Sac.

There are 30 cities with larger inventory numbers than Sac - most of them 20% higher than last years peak - Sac is lower than last years peak - how come?

Diggin Deeper said...

"Are these people idiots?"


Got an email that included the following stats.

"A staggering 17.9 million homes were without residents during the third quarter, reports the Census Bureau. Never before have so many homes stood empty. Over 1 million properties were added to the list since this time last year alone."

Hmmm...now that's alot of empty boxes to fill. Given that a family represents say 3.5 per household, it would take about 73 million people in this country to fill these homes or a bit more than 20% of the total population of the country...unbelieveable!!...and that number continues to grow.

smf....if these numbers by the Census Bureau are correct, this oversupply is a national problem and it will take years(maybe even a decade) for enough bodies to consume the square footage available.

Diggin Deeper said...
This comment has been removed by the author.
Diggin Deeper said...

Sippn...

And the available number of qualified buyers, to consume our paltry 17K inventory plus whatever the bank holds, is sufficient enough to cushion the Sacramento market? Are you saying the market has favorably turned?

Get real...

No qualified buyers = growing inventory = falling prices = better value = more qualified buyers.

Lower tax revenues = a sagging government based economy = job layoffs = more inventory.

RMB said...

Sippn,

It called a seasonal cycle for housing inventory. It happens every years. Go take a look for yourself. FB think that if they take thier house off the market for the holidays and then relist next Feb/March they will get a better deal.

Gwynster said...

Someone hand me the big spoon, please. Sippin needs another beatin' >; )

Some days I'm convinced there is no real Sippin, just a J. Casto wannabee that likes to cherrypick and publish as fact various bits that he or she knows will generate posts. Sippin really should have been in charge of press releases for the GWB team, they have better benefits.

smf said...

"Sac is lower than last years peak - how come?"

Let me count the ways:

1. Builder inventory not on MLS
2. People waiting for the market to turn around next year
3. A large # of houses for sale that were foreclosed and will come to the market soon.
4. I am sure plenty of other can give us other reasons.

All I can really tell you about inventory is the ZIPs I track. 95827 is my ZIP.

Years back, inventory #s were about 40 tops. Last year it went up to 140 at its high. If you check it now, it is STILL 140.

And that doesn't include other houses that are on sale, but not on MLS.

There may be up to 20 townhome for sale here that are not shown on MLS. I can point out where they are if you want one.

Out of my little enclave, there have been another two houses for sale or sold outside of MLS.

what a mess said...

Hello Sippin!

A few days ago, you wrote about a conversation with a renter outside an REO comparing rent to cost mortgage.

Could you help me understand your encounter with the renter a little better? What are the specific details? Are apples being compared to apples? Could we please see some numbers? I have provided a few questions to help with the info I would need. Your response would be greatly appreciated.

1. How much is the renter paying, what area is the rental in, and how is the rental configured? # bdrms, baths, garage, Etc.

2. Price of REO home, how configured, lot size, condo, mello roos, HOA dues, etc.

paranoid renter said...

Should I buy?? Read on.

A couple of months or so ago I posted about a 2Bd/2Ba condo that was listed for 265K. I put a bid for 200K, it eventually sold for 250K. Now there are two more similar units in the same complex. One is listed at 250K, the other has been steadily dropping and is now at 220K. Would it make sense to actually buy this if it falls all the way to 200K? At its peak these units sold for more than 350K.

alba said...

sippn,
Sacramento Metropolitan Area

...from businessweek.com

The housing supply is particularly bloated in Los Angeles, Chicago, and Miami—the top three on our list of the cities with the biggest housing inventories based on data from San Francisco brokerage ZipRealty (ZIPR). Tampa, Phoenix, Washington, Dallas, Boston, Sacramento, and Houston form the rest of the top 10. ZipRealty pulls inventory data—the same data available to Realtors—from multiple listing services in different metropolitan areas.

Sacramento
September, 2007: 40,195
September, 2006: 36,720
Change: 9.5%
PRI: 51.4%

...and from ZIP Realty 10/05 press release.

Following is a snapshot overview of the September ZipRealty Housing Inventory Index:

ZipRealty Price
Active Home Percent Reduction Index
Market Name Inventory (SFRs Change: (percentage of
and Condos) Month over listed homes with
Month a reduced listing
price)
----------------- ----------------- ------------- -------------------
Overall Market
Total 829,894 1.17 percent NA
----------------- ----------------- ------------- -------------------
Baltimore 10,374 4.4 percent 46.1 percent
----------------- ----------------- ------------- -------------------
Boston 43,158 3.1 percent 48.4 percent
----------------- ----------------- ------------- -------------------
Chicago 82,839 -.2 percent 40.8 percent
----------------- ----------------- ------------- -------------------
Dallas-Ft. Worth 47,097 -.2 percent 35.9 percent
----------------- ----------------- ------------- -------------------
Houston 39,332 1.4 percent 36.7 percent
----------------- ----------------- ------------- -------------------
Las Vegas 29,828 .7 percent 47.1 percent
----------------- ----------------- ------------- -------------------
Los Angeles 111,269 1.0 percent 45.9 percent
----------------- ----------------- ------------- -------------------
Miami 79,154 1.1 percent 38.1 percent
----------------- ----------------- ------------- -------------------
Minneapolis-St.
Paul 31,904 .1 percent 43.0 percent
----------------- ----------------- ------------- -------------------
Orange County 18,824 .3 percent 51.3 percent
----------------- ----------------- ------------- -------------------
Orlando 35,365 .7 percent 47.5 percent
----------------- ----------------- ------------- -------------------
Phoenix 54,536 2.2 percent 47.1 percent
----------------- ----------------- ------------- -------------------
San Francisco Bay
Area 37,731 2.1 percent 43.9 percent
----------------- ----------------- ------------- -------------------
Sacramento 40,195 -.4 percent 51.4 percent
----------------- ----------------- ------------- -------------------
Seattle 35,865 4.0 percent 40.5 percent
----------------- ----------------- ------------- -------------------
San Diego 20,968 .7 percent 45.0 percent
----------------- ----------------- ------------- -------------------
Tampa 58,601 .6 percent 42.3 percent
----------------- ----------------- ------------- -------------------
Washington, D.C. 52,854 2.7 percent 46.8 percent
----------------- ----------------- ------------- -------------------

To view other local market housing conditions, visit ZipRealty's updated blog at: http://ziprealty.typepad.com/marketconditions/. To view all MLS-listed homes across all major metropolitan areas that ZipRealty operates in, visit www.ziprealty.com.

Any housing number in the Sacto region is going to be negatively impacted/weighted by the city of Sacramento. No need to fight the facts, nor the trends.

alba said...

RealtyTrac shows that Sac County has about 600 homes scheduled for auction (NTS)in November 2007. Another stat: there has been at least 2,500 homes that have passed their auction date, and are "Awaiting Update." Either they have been designated REO, or will be, since this past few months.

More uncounted "inventory" sippn.

Sippn said...

Yea I saw the Bus week published numbers, they just don't match the same sourced numbers from Sacramento Real Estate Stats site and Housing Tracker site - the same sources many of you use to back up your arguments - just take the highest number and use it - right?

Maybe they're adding the whole central valley and Solono together with Sac. Somebody asked me once if Dixon was in Yolo Co.

Gwynster - the ocean IS to the west, pond to the east.

SMF - I might have your view if I lived in your zip.

What a - the house in question was in the lower $200s - and first time buyers get an "off the bottom" tax subsidy.


I'm not saying its turning, I just saying some are seeing opportunity. Traditional investors are getting busy in this market. The big Japanese investor arrived here in 88-89 before the bottom and bought 550 homes, sold before the peak and did fine.

You'all just argue amongst yourselves.

Lander said...

Don't know the parameters of Business Week/Zip's inventory numbers, but their YOY figure, +9.5%, is in the ballpark with other sources:

TrendGraphix: +7.9% (Sept)
HousingTracker: +13.4% (10/28)
Housing Tracker2: +9.3% (10/29)
Housing Watch: +13.6% (10/31)
Bubble Markets: +7.4% (9/30)

The trend since July 2007 has been an increase in inventory YOY. It appears that month-to-month inventory is not declining as quickly this fall as it did last fall. (Inventory typically declines in the fall.)

Sippn- Here's a pop quiz just for you:

What portion of Sacramento's 90s bust (median price peak to trough) was completed when MLS inventory peaked? (Clue: It was not close to the market bottom.)

smf said...

"SMF - I might have your view if I lived in your zip."

Wel, sippn, my ZIP has been giving me pretty accurate information as to where the bubble has been heading.

In my ZIP is where I first noticed in 2005 that prices had stopped their rise.

In my ZIP is where I first noted that inventory was exploding.

In my ZIP is where I noticed the total disconnect is house prices, like a 1500 sq.ft. home with the same price as a 2500 sq.ft. home.

In my ZIP is where I first spoke about 2003 prices having arrived.

In my ZIP is where I started to notice the beginnings of the foreclosure wave.

Is is not my fault if my ZIP happens to show the way for this bubble.

Patient Renter said...

paranoid:

Maybe. Just know that if you did buy soon, values would still tank for a while. But if you're ok with that and feel comfortable at the 200k pricepoint, then it's just a simple quesiton of whether you'd rather own sooner or save some more money and own later. Whatever you feel good about is fine.

Sippn said...

SMF - touchy -

I'm just saying the inventory and market is different in every zip.

Your zip is showing 15 months inventory on 8 sales, I would be concerned but sales only need to go to 20 per month to get to a buyers market. . . that not that many - price adjustments will make it happen. Elk Grove and some parts of Sac are at 20-30 months of inventory. . . . thats a much bigger problem than your zip has.

SheWrestles said...

I agree that you have to consider the entire region's economic stats.

It's up to local governments to halt the overbuilding, though.

smf said...

"I'm just saying the inventory and market is different in every zip."

Sure, but they all had a relation to one another before. The houses in midtown were (SWAG) 15% more expensive than the houses in 95827, for example. We always had a certain percentage of new project or resale homes in certain areas. Or a percentage in the price difference, as well.

Those relationships will all go back to the long term trend eventually.

"It's up to local governments to halt the overbuilding, though."

They have no reason to. More building = more taxes.

Gwynster said...

"They have no reason to. More building = more taxes."

Thank you Prop 13. The irony of this just slays me >; )

smf said...

Gwynster -

Is not just that, but the 'fees' that are tacked on to any construction project.

They can easily go into the hundreds of thousands.

paranoid renter said...

Patient:

What year of price should we be looking at? 200K was the price paid in 2002. You think it will go lower?

Jacob said...

Start with what it was worth in 1999 and add ~25% and make sure you get it for no more than that price.

Gwynster said...
This comment has been removed by the author.
Gwynster said...

Ok here is a simple algorithm you can do in excel for those folks who don't have the math background or just like to keep excel spreadsheet in the Palm or Blackberry like me.

Starting number: 150K and 3% compounded annually. Make yourself a date column and an amount column. Set up a reoccurring equation that multiples the previous amount by 103% to determine the next years price.

sample: =B1*103%
So this is what I get:
1997 $150,000
1998 $154,500
1999 $159,135
2000 $163,909
2001 $168,826
2002 $173,891
2003 $179,108
2004 $184,481
2005 $190,016
2006 $195,716
2007 $201,587
2008 $207,635
2009 $213,864
2010 $220,280
2011 $226,888

The overall percentage won't be a stable 25 or 26.75% because what amount you start with accelerates or deteriorates the compounded gains.

My apologies if this seems like I’m talking down to anyone. That’s not my intention.

Excel is great to build amortization scales and a whole bunch of other useful home shopping things in. It’s nice to be able to get the PITI in a few seconds of entering numbers while standing in front the agent so can tell them point plank how much you are saving by renting the house down the street. They turn this interesting shade of white >; )

SheWrestles said...

Today is moving day. These guys are awesome! We had the entire house staged and ready when they arrived (primarily because we wanted to save money! lol), so it's been an easy roll.

So, the house-death watch is officially on. L O L

Seriously - I'm more afraid of utilities, maintenance, and upkeep than of the mortgage and tax.

On a side note, my friends from around the country have really become interested in this blog. They're intrigued by all of you guys and by the situation out here in Sac.

Gwynster said...

Ummmm if they are "investors" thanks but no thanks.

paranoid renter said...

If I go by Gwynster's numbers then the 200K condo in 2007 looks like a decent deal (if I can get it for that) since it sold for 165K in 2001/2.

But there's so much negative news I'm starting to get turned off again.

How will I _ever_ become a home owner???

Gwynster said...

PR
you start at 97/98 not 01/02 because by 01 we'd already had 3 to 4 yrs of crazy price inflation.