April Resale Data Rodeo

Submitted by Rich Toscano on May 6, 2008 - 4:55pm

There was actually a glimmer of good, or at least not-bad, news in the resale data last month.

But first, prices. As measured by the size-adjusted median price, they continue to drop: down 3.3% for single family homes, .3% for condos, and 2.3% in volume-weighted aggregate:

Here is an update of my proxy Case-Shiller HPI incorporating the April data. Interestingly, the proxy HPI is now down precisely the same amount from its peak as the aggregate size-adjusted median: 28.0%

The plain-vanilla median managed to climb a bit for detached homes but fell for condos, resulting in an aggregate rise of .3% for the month. The median resale price is down 25% from the peak, which appears to understate the actual decline but is at least in the ballpark.

The bad news for the market is that prices appeared to decline again despite this being a time of typical seasonal strength. The lack of a spring rally in 2007 boded poorly for the rest of the year... and so far in 2008 the spring rally is a no-show.

The good news is for the market that volume picked up pretty substantially.

It was coming off pretty dismal levels, and sales are still below where they were last year. But it's a big improvement over the earlier part of the year. The average year-over-year decline for January, February, and March of this year was 30.7%, versus a year-over-year decline of 13.4% in April.

At the same time, inventory grew very slowly considering the time of year and, while still higher than it was at this time last year, closed the gap a bit.

As a result of the above two trends, the months-of-inventory figure plunged to levels not seen since round two of the credit crisis began last year.

So what does it all mean? One really helpful puzzle piece was supplied by SD Realtor a couple weeks back. He posted some data showing that while volume has declined in many higher end areas, it is actually up quite substantially in some of the areas that have really been crushed (e.g. Eastlake).

His conclusion was that the price declines have gotten so bad in some areas that buyers are starting to creep back in. But where the prices have been stickier, demand remains quite weak. This is a sensible analysis and I tend to agree. If this is what's going on, and volume is still the good leading indicator it once was, those hard-hit areas are likely closer to the bottom than the rest of San Diego.

BTW this is another example where the aggregate data I put up runs into analytical limits, and I really appreciate people posting some of the more detailed data (e.g. SD Realtor's data and esmith's zip code-level HPI) now that I don't have as much time to spend on this site as I used to.

There's one other twist to the question. The months of inventory figure has declined, but that measures sales against "want to sell" inventory. What's arguably more important is the number of sales vs. "must sell" inventory. It could well be that even as the total amount of inventory declines, must-sell inventory is steady or even rising. I attempt to proxy this relationship with my sales-per-notice-of-default charts. Perhaps the next update of that chart will fill in some blanks, but given that we've just been at or near all time high default levels and that defaults generally represent future must-sell inventory, it doesn't seem like there is a real danger that must-sell inventory will decline much any time soon.

All that said, sales volume is a very important leading indicator, so this is a development to watch in future months. For the time being, however, the housing bust marches on.

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Submitted by SD Realtor on May 7, 2008 - 6:58am.

For the time being, however, the housing bust marches on.

Yep that is an accurate assessment of the sum of all the data. It is a frustrating time for buyers right now, especially those who have been patient and bearish. The sales activity has been particularly robust (WHEN COMPARED TO THE PAS FEW MONTHS) in some of the more desireable areas due to a few reasons, more aggressive pricing being one of them. Places like Mira Mesa for instance have seen some lenders come out with REO pricing that does indeed come close to cash flowing. Other places like Scripps still have insane pricing (IMO) but have active/pending ratios like we haven't seen for years. Yes pricing is down in Scripps but not enough for me to buy the house I want...yet enough for others to buy. As I said the bellweather of insanity was that the flipper on Reisling made money on his flip which really grates on me.

The increased pending rates are quite staggering. There are two types of those pendings that fall out. One falls out because the buyer cannot secure lending. The other falls out because they were short sales and took so darn long to get processed that the buyer walked. It is hard to quantify how many of them are "strong" pendings and how many are not. Accordingly many "active" short sale listings actually have offers in on them already so that is a point of data that should not be ignored either.

The statement that even as inventory declines, must sell inventory may or shall rise is something I agree with that varies with region but will increase with all regions as time goes on. I know many sellers who are non distressed who have finally thrown in the towel and are simply gonna keep the home or convert it to a rental. I don't think this will stem the market direction but again, may add to the saying alot of good deals but not alot of great homes.

The extraordinary thing that this market requires is patience IF you are bound and driven by the financial aspect only of buying a home. Indeed I am not as curious about this spring as I am this summer and fall. The spring has played out exactly how I thought it. It doesn't worry me alot but it has frayed my patience somewhat as a future buyer.

SD Realtor

Submitted by sdduuuude on May 7, 2008 - 10:21am.

It seems at this point, some neighborhoods are at the bottom and will start to pick up. Others will be dropping.

This means it is going to be very difficult for any aggregate measure of price - be it the vanilla median or the Case-schiller or even $/sq ft to move much in either direction, though there is probably some drop left to come.

I suspect this means a long, flat bottom to the aggregate market and careful analysis by neighborhood will be the key to smart home buying in the coming two years.

This confuses the market considerably, I think and requires bottom callers to be clear on the market they are discussing. TemeculaGuy might see the bottom three years before ILoveCarmelValley.

Submitted by gdcox on May 8, 2008 - 7:08am.

Fascinating stuff.
There might be room for stabilisation of key parts of the market (as mortgage deal availability deterioration slows and after-tax interest rates are quite low) were it not for the foreclosure flood and uncertainty over employment / income growth.

The dimensions of the flood must be critical. What is the best measure of forced sale properties actually coming to the market so we can see the trend. I seem to remember reading that the delay from default to a property on the market averages something like a year now; and if that delay is getting worse, the flood will be attenuated ( though its ultimate volume will not). Same applies to any gov interventions; eg (eg http://www.housingwire.com/2008/05/07/ne...

Submitted by cr on May 8, 2008 - 10:35am.

Do you think we are past the worst? From Rich's detailed case for a bubble and serious price decline prices fell in the last two bubbles as long as they went up. Granted we've seen faster drops, but history indicates it will overcorrect. The decrease will slow down, but it also won't hit the trend line and pick right back up.

According to the SD CSI the peak was 11/2005. Since then prices dropped 24% overall, but they doubled or more in many areas during the boom. It makes me think that we could be roughly half way.

Then there are the resetting Alt-A and Prime loans still looming. Sure San Diego was earlier in this game too, but with Billions of loans resetting through 2011, San Diego loans are surely a portion of them.

Subprime may have been the bigger culprit in driving the lower end down 30% off peak, and though the mid and higher ends didn't clim quite as high, could Alt-A and prime resets bring them down further?

Submitted by Omega Point on May 8, 2008 - 12:57pm.

As long as incomes cannot support housing price levels, home prices will continue to decline. It's really that simple. Any market, over the long term, cannot sustain that type of an imbalance. Of course, we could have massive wage inflation which could possible correct the imbalance (if nothing else increased in price).

Submitted by FormerSanDiegan on May 8, 2008 - 1:09pm.

Do you think we are past the worst?

I'd bet that we have seen the steepest part of the decline for this cycle in San Diego as measured by Case-Shiller or median per square foot as of last fall/early winter. However, we have only removed the outer layers of fat from this steak. From this point on we are starting to cut into muscle to get to some of the marbled areas (high-end coastal). The question is how deep into that muscle the knife goes and whether or not we nick a bone or two as the fat is excised.

Submitted by CA renter on May 9, 2008 - 2:07am.

Well put, FSD. Couldn't agree more.

Yes, the lower end areas are getting closer to a bottom as many have already seen 50% declines. Next up: the move-up market. This is where the BIG MONEY losses will be for the banks.

Just think...they haven't even written down the losses in LA and New York yet (largest populations, high-dollar values). I'm seeing cracks in the higher-end & move-up areas. One area tracked is Sherman Oaks, West Hills and Woodland Hills in LA. These are middle-class to upper-middle class areas that have held up very well over the last couple of years. Seeing prices inch back to 2003 levels (anywhere from 10%-25% from peak), and it looks like things are just beginning to accelerate.

We still have to deal with a fickle credit market, failing puplic entities (whose bonds are insured by the same companies that insure the mortgage derivatives), a slowing economy, stagnant/falling wages, etc. We have a long, long, long way to go, IMHO.

Patience... :)

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