March -- April 2015 Housing Data Rodeo

Submitted by Rich Toscano on May 20, 2015 - 4:46pm
The market's been pretty hot, by which I mean, demand seems to be outstripping supply. I base this statement on the below chart, which shows that while months of inventory is higher than it was during the spring 2013 feeding frenzy, it is lower than this time last year:



...and, it's among the lowest we've seen recently outside said feeding frenzy:



I've been discussing the plunge in months of inventory for a while, and surmising that this would put upward pressure on prices, as there is typically an inverse correlation between months of inventory and monthly price changes:



And sure enough, prices have jumped in recent months, after going nowhere for the better part of a year:





Months of inventory remains low, so I'd expect this to continue for as long as this remains the case.  However, I think there is a good chance that the recent surge in rates (which are still quite low on an absolute level, but higher than earlier this year) will somewhat reduce demand and thus upward price pressure, to at least some degree.  Still, all in all, price pressure appears to be to the upside. 

To be clear, this says nothing about what is a sustainable or reasonable level of home prices for the long term.  I am just talking about near-term supply and demand pressures, which have been and still seem to be conducive to rising prices.  (As for the sustainable/reasonable level of prices, this is best determined by comparing home prices to the underlying fundamentals... I'll be updating that stuff soon, but it hasn't changed dramatically since the last go-around).

More graphs below, for the bored among you.

























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Submitted by spdrun on May 20, 2015 - 5:35pm.

Any chance of a breakdown of the data by price tiers?
Why the drop in PPSF from March to April?

Submitted by joec on May 20, 2015 - 6:40pm.

I think for folks who bought when rates were very low...with low interest rates now to redeploy money, with the increase in prices, a lot of homes are probably just being rented now making inventory so low. 1.5 months is much less than the normal norm of 6 months.

Until this changes or rents drop in price, I don't see this working out for people hoping to buy anytime soon.

I'm sure for a lot of folks here that bought in the past ~5 years of so (and there were a lot of us), everyone is sitting pretty happy since near most places have gone up and I'm guessing a lot of people are paying less than the price to rent now.

For a primary to live in, it's such a load off your mind to not have to worry about this, really.

Submitted by Rich Toscano on May 20, 2015 - 6:46pm.

spdrun wrote:
Any chance of a breakdown of the data by price tiers?

Sure... haven't done that in a while. I'll put it on my to-do list. :-)

spdrun wrote:
Why the drop in PPSF from March to April?

Just noise, I would think... month to month can be pretty volatile. I think the 3 month smoothing in this chart gives a better idea of the prevailing trend:

Submitted by spdrun on May 20, 2015 - 7:57pm.

Why the drop in contingents vs actives the last few years? Do contingents include pendings -- i.e. are sales more likely to go pending directly?

Submitted by dimmer on May 21, 2015 - 12:37am.

Thanks for the update Rich.

Submitted by dimmer on May 21, 2015 - 12:50am.

I've been thinking roughly the same thing lately. Indeed, it does feel very comfortable.

On the other hand, anyone dependent on their equity should sell now. This bubble is piggybacking on the stimulus thrown after the last bubble. Smart piggs will tread cautiously, imho.

Submitted by Rich Toscano on May 21, 2015 - 8:38am.

spdrun wrote:
Why the drop in contingents vs actives the last few years? Do contingents include pendings -- i.e. are sales more likely to go pending directly?

Contingents are usually short sales/foreclosures for which an offer has been made, but it needs to be approved by the owning bank. It's kind of a weird form of inventory because even though it's not in escrow, the property is effectively off the market when it's in this state... ie it's only "semi-inventory." That's why I broke it out to try to get a better read on what's going on.

To have contingents so high as they were in recent years was a result of the crisis, and unprecedented. I would say that the current situation is closer to normalcy.

Contingents aren't counted in pendings.

Submitted by bewildering on May 22, 2015 - 12:03pm.

http://files.zillowstatic.com/research/p...

This is the rental information for San Diego from Zillow. The rent price data (I pasted link below) passes the sniff test, at least for the neighborhoods I know.

From the rent data it takes about 2 years to break even to buy a house in San Diego.

With low inventory, and a break even point of 2 years I see house prices rising.

I have no idea about affordability based on salary.

http://www.zillow.com/research/data/

Submitted by spdrun on May 22, 2015 - 12:53pm.

The breakeven horizon is very artificial, because it takes home price appreciation into account. i.e., it's low in San Diego BECAUSE home prices were rising quickly, thus making it advantageous to buy.

Submitted by bewildering on May 22, 2015 - 5:47pm.

Rent rises are more important than house price rises. The reason is that mortgage payments stay constant over time, whereas rent changes. the breakeven in san diego is low in san diego because landlords are responding to demand. I'm glad i am no longer competing with other renters.

Submitted by gzz on May 25, 2015 - 8:11am.

Thanks Rich. I look forward to new long term graphs. I especially like the rent to mortgage payment ratio one.

I think starting this summer we will see a 12 month increase in prices of 7 to 10%. Rents are rising, job growth is strong, and unemployment in SD is now 4.7%. All those newly employed people will either pressure purchase prices or rents up since new construction is minimal and offset by foreign buyers.

Submitted by spdrun on May 25, 2015 - 6:52pm.

...

Submitted by poorgradstudent on June 1, 2015 - 4:35pm.

Thanks, Rich!

It's interesting that although months of inventory is low, the total inventory isn't especially low. So it's largely being driven by sales.

Thinking longer term, rates are still low but rising, which may be pushing a few fence-sitters off that fence. Employment is also quite strong. SD unemployment is (supposedly) 5.3%, which puts it down at pre bubble levels. Rents are also quite high, which tends to support that side of the Rent vs. Buy equation.

At some point prices will rise to the point they will discouage demand and encourage more potential sellers. I still disagree with anyone calling this a "bubble", but it's probably a mediocre to poor time to buy and a pretty good time to sell. Potential buyers may want to wait until the fall when inventory tends to seasonally catch up a bit.

Submitted by svelte on June 2, 2015 - 6:34pm.

Thanks Rich!

Submitted by svelte on June 2, 2015 - 6:35pm.

gzz wrote:

I think starting this summer we will see a 12 month increase in prices of 7 to 10%. Rents are rising, job growth is strong, and unemployment in SD is now 4.7%. All those newly employed people will either pressure purchase prices or rents up since new construction is minimal and offset by foreign buyers.

Certainly possible...

Submitted by fun4vnay2 on June 10, 2015 - 10:37am.

It'd be interesting to see how does the housing market do in the next few years
With affordability in SD at 28% with median price/income and jobs being created are mainly low paying jobs, it's gonna be a tough ride.

Submitted by joec on June 10, 2015 - 7:12pm.

rockingtime wrote:
It'd be interesting to see how does the housing market do in the next few years
With affordability in SD at 28% with median price/income and jobs being created are mainly low paying jobs, it's gonna be a tough ride.

I really think people need to realize that in some cities (like Bay Area, LA, even SD), the median person is NOT supposed to be able to buy a home here. Maybe it's just wishful thinking of people who are looking for a collapse or want to take advantage if that ever were to happen again, but it's all just wishful musing.

Lower income people should really just move to lower housing places where you can buy a nice house in a decent school area for 100k...In CA, that place is not here so just leave and not contribute putting 50% of your income in rent/housing.

Submitted by fun4vnay2 on June 11, 2015 - 8:07am.

CA real estate has always been cyclical. More so now as real estate in CA has become like stock with lot of investors in the last few years
Someone saying it is not or it won't happen is a wishful musing for sure.

It is amusing to see how easily people forget the recent past. At the same time, past is not guarantee for future. Only time would tell

Submitted by AN on June 11, 2015 - 11:32am.

rockingtime wrote:
CA real estate has always been cyclical. More so now as real estate in CA has become like stock with lot of investors in the last few years
Someone saying it is not or it won't happen is a wishful musing for sure.

It is amusing to see how easily people forget the recent past. At the same time, past is not guarantee for future. Only time would tell

I don't see anyone on this forum saying CA RE is not cyclical and won't be cyclical.

It's also wishful thinking to expect a repeat of this last crash with the same magnitude. You obviously don't believe it yourself either, that's why you're not selling your primary house and rent. If you believe we'll see a repeat of 2005 again, then it's a no brainer to sell everything including your primary and rent.

BTW, I find it amusing that you brought up the recent past, yet you seem to forget the actual data of the recent past. Here's some data from Rich for you:
http://piggington.com/shambling_towards_...

Submitted by fun4vnay2 on June 11, 2015 - 9:24pm.

I am selling my rentals and keeping my primary as I need a place to live.

Submitted by AN on June 11, 2015 - 11:54pm.

rockingtime wrote:
I am selling my rentals and keeping my primary as I need a place to live.
Rent and buy back in 2-3 years several hundred grand cheaper. That's what happened the last time.

Submitted by fun4vnay2 on June 13, 2015 - 8:50am.

Yeah, I did that last time and made $$
This time my kids r bit grown up and am getting resistance about moving to a different place..

Trying to see if I can find some rental in my own neighborhood.

OTH: I feel this price rising has some leg to go but one can never buy at bottom n sell at peak

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