From the following graphics you can see the drop in inventory, especially on the low end. As well as the fact that in many spots demand is lower for the market segment but Months Supply has still dropped.
The SFV is a supply constrained market. But help may be on the way.... (foreshadowing to a August 31st report..)
3 comments:
by "help is on the way" are you referring to the perspective of home buyers who want low prices? thinking about the number of 90+ day delinquencies that are about to hit the market? what are your thoughts as to the relative size of these 90+ day delinquencies relative to the size of the market? there is a big imbalance between 90+ day delinquencies and reo in the "prime" space....how do you see this potential supply affecting measured inventory/sales ratios?
"by "help is on the way" are you referring to the perspective of home buyers who want low prices? "
Well I was TRYING to create some drama and make you come back in a week! But since you want to be a spoil sport, it looks like trustee sales will beat Junes level which will be a very good thing for the market. And if the trend continues September should be gangbusters.
As to the growing number of delinquencies outpacing foreclosures... Clearly there is a massive disparity.. How that issue ultimately works out will determine how much further the market has to fall.
But it is the stated position of the USG that they view foreclosures very negatively and they have interfered with the market in a massive and unprecedented way. For So.Cal at least it is all about how much supply can come on market, we have the demand because of a large renter population. In other areas (Ohio, Michigan) they dont have that luxury.
The trillion dollar question is how many foreclosures will happen, since the Government has stepped in in such a huge way I have no way of realistically predicting how many will ultimately happen. As you aren't just predicting the normal rules of Home equity, interest rates,unemployment, supply and demand.. you have factor in government intervention at increasing levels.
**IF** we ever get more REO supply on the market in So. Cal. it will go a long way to clearing the issue sooner rather than later. That will mean prices will fall but the market will clear. And each sale creates its own stimulus. People buy furniture, remodel, agents get commissions, etc.
I apologize for jumping the gun.
What intrigues me is the issue of expectations. Does "the market" expect that inventory to sales ratios might hypothetically double (so prices will not fall from here), or is the "average buyer" unaware of the possibility of a rising I/S ratio (suggesting that clearing prices should fall).
The Loan Performance data I look at shows that about 6% of prime mortgages are seriously delinquent. The prime market is obviously a lot larger market than the subprime market. The thing I am trying to noodle on is how to think about the marginal impact of this 6%. Relative to what? If the number of units sold in a neighborhood is currently, say, 3% of the housing stock then, in an overly simplified way, the inventory to sales ratio for that market will triple. In "hot" markets with low current I/S ratios this won't be a problem. In more expensive markets with high current I/S ratios the ramifications could be breathtaking
As you point out, the actions of the government are hard to predict. If the US government decides to warehouse foreclosed properties then they could in the short run effectively shift the supply curve of housing upwards, driving marginal prices up and dramatically reducing the number of underwater mortgages
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