If you thought the market was bad before..

 *taps microphone*

Hello? Is this thing on?

Long time no talk! After over 10 years it is safe to say I made the right decision on purchasing a home, it has been nothing but a home run from a numbers point of view. I was extremely conservative in future appreciation and rent increases and the markets have long ago moved past my benchmarks. 

I keep light tabs on the market and I said in a comment to my last post almost 8 years ago that it is going to suck to be a buyer for a long time and it has only gotten worse. Inventory is just terrible and prices keep rising and there doesn't really look to be hope on the horizon for waiting out the market. Last years rate cut combined with COVID-19 work from home has unleashed almost universal demand. It will take builders in many land constrained areas a very long time to catch up. Builders in areas with available land are just printing money right now.

I talked to someone recently hoping for a foreclosure tsunami.. yes, that 13 year old tale that foreclosures would come in and save the buyers from the terrible choice they are faced with. It didn't happen 13 years ago with almost perfect conditions.. it certainly isn't happening anytime soon in California. The accounting rules have changed dramatically to make servicers want to work with homeowners over foreclosing.. the laws have changed making it take longer to foreclose and thus more costly. There is no impetus to foreclose in large numbers in California. It simply will not happen.

I wish the 2-3 readers who might still be subscribed all the best and hope this information is absolutely useless to you.  

How's about that RE market.

Doubt anyone follows this anymore but in case you haven't noticed RE in our local market is at a very strange place. Extremely low inventory, lots of buyers but constrained by mortgage income guidelines so it is hard to call it a "bubble". Just a frenzy for homes during this spring selling season by all evidence I've looked at.

Basically, the cream of buyers (with a few lucky stragglers) rising to the top with everyone else desperately picking over the remains.

Econ 101 nicely explains the issue:

We only have Q1 of available houses due to a large number of reasons (put off household formation due to the recession and now improving economy,  banks unwilling/unable to foreclose, large number of underwater homeowners unwilling to sell at a loss, new home weren't built during the bust and it takes a long time to get projects going again, etc , etc etc) so prices are rising (p1). We also have ultra low interest rates and increasing housing consumer confidence so one could say that the demand curve has shifted to the right as well.

It is hard to see where a "enough" new supply comes from anytime soon. On the flip side it is pretty easy to see where new demand will come from (pent up demand + normal demand + improving economy). It'll be tough to be a buyer for awhile.

Personally, I'm glad to be done with it but I have to admit my interest has been piqued at the clear signs of frenzy.

FHA significantly increases Monthly Mortgage Insurance Premium

HUD is making a significant change to FHA monthly insurance premiums, they will be increasing by .25% across all products. The change is estimated to bring in another $3 billion to shore up the FHA. This will definitely put pressure on the lower end of the market. Combine this increase with the recent rate spike, it looks like the Spring selling season will disappoint.

Turns out giving underqualified buyers underpriced loans isn't a great way to stay solvent.

Short Sale & Foreclosure for Ventura County - January 2011

Here are the sales for Ventura County January 2011. Based on me taking statistics a bit later than usual and adjusting for recent changes in the underlying data sources I think the Dataquick number will be around 540 for December. That would be the second worst showing for January since I've been keeping records. Some of that is due to Decembers stronger showing which was a pulling forward of demand due to the spike in interest rates.

I don't watch the broader market quite as close as I used to since buying a house but I still look at a narrow segment within Ventura County. My general sense is that the low end if falling away and the mid-market houses are just stagnating, with little inventory to chose from and intense competition for any "deals" that pop up. With rates knocking on 5.25% area that puts intense pressure on the market compared to just a month and a half ago where buyers could get a 4% mortgage rate.

"Keep Your Home California"

More wasting of taxpayer funds:

Unemployment Mortgage Assistance Program (UMA) – Intended to assist homeowners who have experienced involuntary job loss. UMA will provide temporary financial assistance in the form of a mortgage payment subsidy of varying size and term to unemployed homeowners who wish to remain in their homes but are in imminent danger of foreclosure due to short-term financial problems. These funds can provide up to six months of benefits with a monthly benefit of up to $3,000 or 100% of the existing total monthly mortgage, whichever is less.
Mortgage Reinstatement Assistance Program (MRAP) – Intended to assist homeowners who have fallen behind on their mortgage payments due to a temporary change in a household circumstance. MRAP will provide limited financial assistance in the form of funds to reinstate mortgage loans that are in arrears in order to prevent potential foreclosures. These funds can provide benefits of up to $15,000 per household.
Principal Reduction Program (PRP) – Intended to assist homeowners at risk of default because of an economic hardship coupled with a severe decline in the home’s value. PRP will provide capital to reduce outstanding principal balances of qualifying borrowers with negative equity. Principal balances will be reduced in an effort to prevent avoidable foreclosures and promote sustainable homeownership. The principal reduction program will most likely be a prelude to loan modification. (Servicers that contribute through matching funds increase the benefit for homeowners).
Transition Assistance Program (TAP) – Intended to promote community stabilization by providing homeowners with relocation assistance when it is determined that they can no longer afford their home. TAP will be used in conjunction with a servicer-approved short sale or deed-in-lieu of foreclosure program in order to help homeowners transition into stable and affordable housing. Homeowners will be responsible to occupy and maintain the property until the home is sold or returned to the servicer as negotiated. Funds will be available on a one-time only basis.

The market is guaranteed to be stagnant for a long time.

http://www.keepyourhomecalifornia.com/

California Shadow Inventory Report - Q4 - 2010

This is a simple graph to show the accumulation (or lack thereof) of REO inventory. When the blue line is above the green line REO inventory could be accumulating. I say "could be" because the green line is merely the number of homes sold during the quarter that were foreclosed in the past 12 months, so investors trustee flips would be captured in the data as well. I think the blue line will elevate somewhat but the two lines will stay pretty close as it makes little sense to foreclose and not market the home.I am very doubtful of the tsunami theory simply because the government has said it is not what they wish to happen and they have gone to great lengths for it not to happen. What we will have instead is stagnation in the market for a very very long time.

As you can see with the above graph, there was a drawdown in REO inventory in Q4. The net drawdown is about ~2000 homes. Sales were ultra low but homes taken back by the bank were even lower. I am sure this is no coincidence. REO inventory sells very well and the robosigning issue slowing down trustee sales had to have an impact in Q4.

Rents..

Rents appear to be bottoming in many areas. Here are a couple data points (all emphasis mine).

From Jon Lansner:

Rents in Southern California fell 0.2% for all of 2010, by math from the Bureau of Labor Statistics that is based on a survey of renters. It’s the first drop since 1995. And the previous drop was in 1941.

But renters should be aware that landlords appear to be regaining some pricing power. The local CPI shows that rents rose on a year over-year basis in the last four months of the year. December’s 1.1% jump vs. a year earlier was the largest annual rate of rent increases in 16 months.

From Calculated Risk (here and here):

Rent growth is mostly from reduction in concessions. Not as much top line growth.

• Almost all areas are showing improvement.

• Walt Smith, CEO Riverstone Residential (manages 162,000 units) said it is "Pedal to the metal" on rents

...

The overwhelming sense from participants is "YES" the apartment recovery is real. One data point - There are a record number of attendees this year.

The expectations are for a record low supply completed this year (as Tom Lawler and I have noted before). Some pickup in completions next year (2012), and then plenty of completions in 2013. The starts will probably pickup later this year, although I'll know more at a later session. The pickup in starts will help both GDP and employment growth this year.

The expectations are for strong rent growth over the next two years (around 5% per year) for large upper tier apartments. This will keep the vacancy rate from falling too much as owners trade off rent increases for occupancy.

When rents are falling the buying decisions becomes much less favorable. If rent vs own prices are in the ballpark and rents start increasing, obviously the purchasing decision becomes much easier. But in many areas renting vs owning is still much cheaper and so rental growth is something to watch but not something that will push you into needing to buy right away.

Ventura County December 2010 Home Sales

Dataquick reported home sales for Ventura County for December 2010. Home sales came in at 761 down 15.1% YoY and up 27.4% MoM. The median sales price came in at $355,000 down 1.4% YoY and down 5.3% MoM. This is still more of the same, horrible sales and a stagnant market. Nothing is really changing much on the demand or supply side so it's just a grind.

Changes coming to the blog

Now that I have bought I'll actually have more time for the blog. The bad news is some of the data I post comes from the MLS and I won't be continuing my membership as it is expensive and I have no real need to have MLS access anymore. This means the weekly inventory reports (which have been on hold since early December) and first of the month sales reports wont be published. I will attempt to find a replacement data source to create new data sets or continue the old ones.

Short Sale & Foreclosure for Ventura County - December 2010

Here are the sales for Ventura County December 2010. Based on me taking statistics a bit later than usual and adjusting for recent changes in the underlying data sources I think the Dataquick number will be around 700 for December. While historically low sales, relative to the past few months that is a strong showing. There is a couple of different reasons I can see for the late surge. First the interest rate surge from 3.875% for a 30yr fixed to 4.750% would prompt those with locks to hurry up and close, this would also scare the sellers to take a slightly lower price now rather than a greater lower price later. Secondly it appears the banks were clearing some REO inventory at the end of the year with the strongest REO sales since October of 2009. The banks may have been worried about the interest rate surge or just trying to clear up the books and take some losses to offset some profits. If these theories are true neither of them suggest a durability or robustness to the market just a pull forward of demand.

Why did I buy now?

Someone asked my motivation for buying right now. I clearly don't think this is the bottom in home prices. There clearly is a lot of distressed inventory on the sidelines yet to come on market. So why buy?

I promised myself a couple years into this (I started house hunting in late 2005) that I wouldn't try to time the ultimate bottom. I would just pick some parameters (area, age of home, square feet, etc) and when those parameters were met relative to a rent / debt service ratio and debt service amount I had selected that I would buy. Mortgage rates hitting 4% helped the debt service side of the equation and ultimately a seller accepted my offer during a slow time of year where most transactions that are being made are because of seller compromising on price.

There were personal financial factors that also led me into thinking that this wouldn't be a horrible spot to fix costs in time. Also knowing that I would be in this house for a long time helped sway the decision. I'm well aware that the mortgage interest deduction is on the firing line but I am betting that it's repeal will apply to loans above the conforming loan limit. That is if it gets passed at all. I've also planned on it being appealed completely but that would make the purchase decision less favorable over renting but not so much that I couldn't handle the difference.

My view of the economy has gotten much less bearish and in some ways bullish and that helps the purchase go/no go decision. We clearly have a lot of things to get through as a country but the fight now is really how much inflation are we going to have as opposed to an inflation/deflation argument in which taking on long term debt is a much dicier proposition. Growth is happening, and whether that growth is organic or only happening because of the Fed printing money is irrelevant. In the former scenario we are in a true recovery and in the latter scenario I don't see the Fed stopping printing if they think the recovery would falter.

I'm of course not thrilled with the price I paid for the house but the low mortgage rate takes the sting out a bit. Rates have spiked 75bps since I locked and that would mean the same house would be $200-300 more a month. That would be almost the same as getting the same house today for $50,000 cheaper (property tax drops so it isn't 100% the same).

When prices fall in the future some may ask if I am pleased or displeased with my purchase. Financially, it would come down to what is going on with rents and interest rates. There are scenarios where I would still come out ahead by buying now. The numbers were close enough that if you erred on the side of inflation it looks like all the numbers work (I'm talking 1 to 2% not any rampant inflation scenario which makes taking on long term debt a trivial proposition).

Renting during the boom turned out to be a good decision. I don't expect that the buying decision will compare as clearly favorably that renting did during the boom/bust but I don't expect it to be a huge mistake either but it could be a small/medium mistake. Only time will tell.

If you have any other questions please post in the comments.

San Fernando Valley home sales report - November 2010

San Fernando Valley Single Family Home sales for November 2010 came in at 470 which is down 11.65% MoM and down 19.24% YoY. This is the fourteenth straight month of YoY declines and the second worst November on record for Single Family Home sales. The median price for single family homes came in at $385,000 which is even MoM and down 2.53% YoY. The market is completed stagnated, the administration is keeping the motivated inventory generally off the market and there is no market clearing event so sales and buyers choices will continue to be horrible going forward. New pendings last month were at levels suggesting December will come in below November levels.

Condo sales came in at 178 which is up 5.95% MoM and down 11.31% YoY. Median price for condos came in at $210,000 which is down 4.54% MoM and down 6.66% YoY. Relative to SFH condos have been performing better but that is because there is more motivated condo supply than SFH. Sales are still horrible in historical context, just not as bad as SFH.

Based on November pendings (green line) the predictor (red line) suggest sales for December coming in lower than November.

Ventura County November 2010 Home Sales

Dataquick reported home sales for Ventura County for November 2010. Home sales came in at 592 down 20.6% YoY and down 3.5% MoM. The median sales price came in at $375,000 up 2.7% YoY and up 5.6% MoM. Slowing sales and rising median is an indication of the low end falling away while the high end volume holds up a bit better. Volume is the better indicator for the health of the market and volume has been horrible. At the same time inventory is restricted and so we just have this stagnant slowly grinding lower market.

And we're back!

Sorry for the delay. Posting will resume now. I'll attempt to catch up old posts.

Delay in postings..

I bought a house and have been very busy the last month dealing with it. I will have the usual posts back soon.

Weekly Housing Inventory update for SFV & Ventura - 12/04/2010

Here are the weekly inventory and pending counts for Ventura County and the San Fernando Valley. For the legend Single Family Homes is abbreviated SFH, Ventura County is abbreviated VC and San Fernando Valley is abbreviated SFV. For readers who might not know, REO are bank owned foreclosures and short sales are owners hoping to sell the home for less than what is owed on the mortgage balance.

Short Sale & Foreclosure for Ventura County - November 2010

Here are the sales for Ventura County November 2010. Based on me taking statistics a bit later than usual and adjusting for recent changes in the underlying data sources I think the Dataquick number will be around 575 for November. This is very low sales level and is usually only seen around January/February.

Interest rates recently spiked from sub-4% to mid-4.5% plus.. that will pressure the market further in the coming spring season and could blow up some existing pendings as everyone (myself included!) expected QE2 to lower mortgage rates or at least keep them at 4%.

Stagnation in the market appears to still remain the new normal.

Short Sale & Foreclosures for the San Fernando Valley - November 2010

Here is the sales breakdown for the San Fernando Valley for November 2010. The SFV has a lot more late reporters as a percentage of sales and so it is a bit tougher to discern right now just how weak sales will ultimately be for November. But, it appears that sales should be lower in November than October.

San Fernando Valley home sales report - October 2010

San Fernando Valley Single Family Home sales for October 2010 came in at 532 which is down 8.43% MoM and down 19.76% YoY. This is the thirteenth straight month of YoY declines and the second worst October on record for Single Family Home sales. The median price for single family homes came in at $385,000 which is down 2.53% MoM and up 1.28% YoY. The market is completed stagnated, the administration is keeping the motivated inventory generally off the market and there is no market clearing event so sales and buyers choices will continue to be horrible going forward. New pendings last month were at levels suggesting November will come in at October levels.

Condo sales came in at 168 which is down 13.40% MoM and down 26.31% YoY. Median price for condos came in at $220,000 which is even MoM and down 6.38% YoY. Relative to SFH condos have been performing better but that is because there is more motivated condo supply than SFH. Sales are still horrible in historical context, just not as bad as SFH.

Based on October pendings (green line) the predictor (red line) suggest sales for November coming in about even.

Ventura County October 2010 Home Sales

Dataquick reported home sales for Ventura County for October 2010 today. Home sales came in at 619 down 29.6% YoY and down 9.2% MoM. The median sales price came in at $355,000 down 2.7% YoY and down 4.0% MoM. This was in line with the prediction I made at the beginning of the month for closed sales. Currently Novembers pace is running basically flat to slightly raised. These sales numbers are horrible and are only beaten historically by the sales numbers that were posted after the subprime and Alt-A market imploded and most of the lenders weren't geared up for FHA or Conventional back in the fall of 2007. Prices will continue falling with a sales pace as anemic as this. It is a post tax break sugar rush let down but the question becomes where the demand will come from? The best case scenario is everyone looking towards spring and hoping there is some level of pent up demand waiting for the first of the year to buy.

Short Sale & Foreclosure for Ventura County - October 2010

Here are the sales for Ventura County October 2010. Based on me taking statistics a bit later than usual and adjusting for recent changes in the underlying data sources I think the Dataquick number will be around 600 for October. This is very low sales levels usually only seen around the winter months. Sellers keep cutting prices looking for buyers but its just a slow time of year (see Mortgage Purchase Applications Index for proof) so things don't look to be getting better anytime soon. Interest rates are set up to reach sub 4% levels and supply is muted and adjusting price slowly to the new reality. Stagnation appears to be the case still for the next few months (and probably beyond).

Short Sale & Foreclosures for the San Fernando Valley - October 2010

Here is the sales breakdown for the San Fernando Valley for October 2010. The SFV has a lot more late reporters as a percentage of sales and so it is a bit tougher to discern right now just how weak sales will ultimately be for October. But, it appears that sales should be at the same levels as August perhaps slightly weaker.

California Shadow Inventory Report - Q3 - 2010

This is a simple graph to show the accumulation (or lack thereof) of REO inventory. When the blue line is above the green line REO inventory could be accumulating. I say "could be" because the green line is merely the number of homes sold during the quarter that were foreclosed in the past 12 months, so investors trustee flips would be captured in the data as well. I think the blue line will elevate somewhat but the two lines will stay pretty close as it makes little sense to foreclose and not market the home.I am very doubtful of the tsunami theory simply because the government has said it is not what they wish to happen and they have gone to great lengths for it not to happen. What we will have instead is stagnation in the market for a very very long time.

As you can see with the above graph, there was no great accumulation of REO's during Q3 but the spread between the two lines was at its greatest point in 5 quarters. The accumulation is about ~8000 homes. If resales stay this low and foreclosures stay this high it could be a worrying trend but as prices fall sales will pick up to absorb the excess inventory. And of course the robosigning issue could put a damper on REO supply as well.

Recontrust trustee sales

Every week I check the Recontrust page and record how many NTS and Trustee Sales are posted. You can see the latest foreclosure moratorium affecting trustee sales. The trustee sales number is the total amount of sales over the last 30 days from the date I recorded the number.

While this will mean less REO supply over the short term I don't think it will affect sales that match. Lenders have been limiting the amount of inventory they take in and they could "play catch up" if they chose to do so. I've also noted some evidence of more pre-approved short sales and short sales coming back on market after long delays which usually means the bank is responding more. This leads me to believe that the banks have shifted idle resources to work on short sales while the moratorium is in place.

San Fernando Valley home sales report - September 2010

San Fernando Valley Single Family Home sales for September 2010 came in at 581 which is up 7.79% MoM and down 15.06% YoY. This is the twelfth straight month of YoY declines and the second worst September on record for Single Family Home sales. The median price for single family homes came in at $395,000 which is down 1.25% MoM and up 3.95% YoY. The market is completed stagnated, the administration is keeping the motivated inventory generally off the market and there is no market clearing event so sales and buyers choices will continue to be horrible going forward. New pendings last month were at levels suggesting October will come in at or below September levels.

Condo sales came in at 194 which is down 6.73% MoM and up 2.64% YoY. Median price for condos came in at $220,000 which is down 4.34% MoM and down 5.17 YoY. Relative to SFH condos have been performing better but that is because there is more motivated condo supply than SFH. Sales are still horrible in historical context, just not as bad as SFH.

Based on September pendings (green line) the predictor (red line) suggest sales for October coming in about even.

Ventura County September 2010 Home Sales

Dataquick reported home sales for Ventura County for August 2010 today. Home sales came in at 682 down 13.0% YoY and down 5.1% MoM. The median sales price came in at $370,000 down 0.5% YoY and flat MoM. I noted in my early month estimate that my normal model predicted sales of 700-720 but due to changes in the underlying data used for estimates I thought closings would come in lower and that was what in fact happened. Currently October is running at 20% below September closings month to date so this horrible performance is continuing. To put these numbers in perspective the last time numbers were worse, 2007. Countrywide had just imploded and all that was left was FHA (which few were equipped to underwrite at a large scale) and the GSE's had a $417,000 limit. Additionally prices were much higher as were interest rates so the gap between buyers and sellers was much much wider. But right now we have a $729,000 loan limit, 4% mortgage rates and lower prices and sales are anemic. Prices are still too high.

Short Sale & Foreclosure for Ventura County - September 2010

Here are the sales for Ventura County September 2010. We are at levels which suggest flat to down sales from August but there is one caveat. The underlying data source has been undergoing some changes and I don't know how that will effect these numbers (there is more of a possibility of double counting now). So there is a possibility the numbers could come in a bit weaker than my call of 700-720 for the Dataquick Ventura sales number but I wouldn't think it would be dramatically lower (nothing lower than 650). I just don't have enough data at this point to know how the changes will effect my normal guesstimate.

Short Sale & Foreclosures for the San Fernando Valley - September 2010

Here is the sales breakdown for the San Fernando Valley for September 2010. The SFV has a lot more late reporters as a percentage of sales and so it is a bit tougher to discern right now just how weak sales will ultimately be for September. But, it appears that sales should be at the same levels as August perhaps slightly weaker.