February ’13 Numbers

Glen’s Numbers 2/28/2013

After 20 consecutive months of seeing a decline in inventory, February signaled the second month in a row of a slight increase in the number of available homes for sale. Although, this is somewhat typical for this time of year, we are hoping that this continues to be the start of a trend lasting long into spring and summer.

Despite the positive signs of a return to normal levels, the effects of these lower inventory numbers will still carry through for several months. With fewer homes to sell, less homes go into contract resulting in a lower number of sales. The next topic of conversation in the coming months will be “why have sales dropped?” They’ll be some who will interpret that as a weakness in the housing recovering and the overall economy in general. However, it will be more a reflection of the “supply and demand” principals and a lack of inventory. February sales totaled only 1,513 homes. I had to go back to the beginning of 2008 to find numbers that were lower than this.

I believe the comments below in Stephen Butler’s editorial give a sound assessment of our housing market at this time.

  • Our inventory for the East Bay (the 38 cities tracked) is now at 1,510 homes actively for sale, up from the December low of 1,086 homes. We’re used to seeing between 5,000 to 8,000 homes in a “normal” market in this area.
  • The month’s supply for the combined 38 city area is now at 21 days up from the December low of just 15 days. Historically, a 4 to 5 months supply is considered normal for this area.

  • Our Pending/Active Ratio decreased to slightly under 3. This is the 12th month in a row that the ratio has been above 2, still signaling a strong seller’s market. (Keep in mind that this number is overstated due to the large number of short sales that remain in pending status for longer periods than normal).

  • Distressed properties, (REOs and Short Sales), are still a large part of our local markets but still declining. 21% of the active listings, 55% of our pending sales (primarily due to the large number of short sales – 48%), and 38% of the sales over the last 4 months have been distressed properties.

Click here for a complete copy of Glen’s Numbers (February 2013)

Recent News

Reading between the lines on housing price boom  |  Stephen J. Butler, 3/1/2013

The current nationwide boom in housing prices illustrates some important investment fundamentals that have little to do with housing. For one thing, a basic commodity that undergoes a price collapse will exhibit a “snapback” in values with a speed that will take most experts by surprise. It wasn’t that long ago when experts were predicting a “second round” of foreclosures that would “dwarf” the original collapse back in 2008. Apparently, that isn’t going to happen.

A recent article in Bloomberg Businessweek offers statistics on the recent housing boom in major U.S. markets. Year-over-year median housing prices have increased by 28 percent in San Francisco, 34 percent in Phoenix and 18 percent in Los Angeles.

A rebound in prices this soon after the housing collapse is driven by a low inventory of homes for sale. This, in turn, has been caused by a four-legged stool of influences. First, foreclosed homes went on the market quickly in many places, and investors with cash bought them to rent out, which reduced supply of available homes for sale.

Next, underwater homeowners or people with time to wait for the “snapback” are reluctant to put their homes on the market, which further reduced supply.

Then, for all practical purposes, there have been no new homes built for the past five years.

And finally, mortgage interest rates are at an all-time historical low, which allows buyers to spend more on a home — if they can find one for sale.

Obviously, this combination of factors is fueling the rise in prices we have seen recently.

Not many saw this coming. Most of the people I know in the housing industry were saying a year ago that foreclosures would continue to dampen the market and that it would take several more years before that bad influence had run its course. What this shows us is the extent to which several influences, as previously mentioned, all combine to create a positive sea change. It is impossible to predict the net effect of these variables, which is why we shouldn’t bother to try.

What’s easy for many of us to forget is that housing is first and foremost a place to live. Setting aside the obsession that a home might be worth more than we paid for it someday, anyone could argue that if we just broke even we would be ahead of the game. The net after-tax cost of mortgage interest and property taxes is probably equal to what we otherwise would have paid in rent.

Meanwhile, we have had a place to live and a forced savings program to the extent that we paid off some of the mortgage principal. That’s probably all we should expect of a house.

Looking back a hundred years, long-term home prices have only increased in value by about 3 percent per year — about the same as inflation. Thanks to the gyrations of recent years, home prices have reverted to that 3 percent norm.

It remains to be seen whether we’ll be experiencing “déjà vu all over again,” but if home prices continue to rise, it will create opportunities for older owners to bail out and diversify.

This will leave younger folks with a window of opportunity to gain a piece of the action.

More Consumers Say Now Is a Good Time to Sell  |  DSNews, Esther Cho, 3/7/2013

In Fannie Mae’s most recent housing survey, consumers maintained their optimism toward home prices, while the share of consumers who said now is a good time to sell reached a record high. However, consumers in the survey were less optimistic about the economy and their own financial situation.

Nearly half, or 48 percent, of respondents in the February survey said they expect home prices to rise in the next 12 months, up from 45 percent in January. On average, consumers expect prices to rise by 2.9 percent over a year, up from 2.4 percent the month before.

Seventy-three percent of respondents said now is a good time to buy, an increase from 69 percent the month before. At the same time, 25 percent also believe now is a good time to sell, the highest level since the survey’s June 2010 inception.

“Despite fiscal headwinds and political uncertainty, consumer sentiment toward housing is robust and continues to gather strength,” said Doug Duncan, SVP and chief economist at Fannie Mae. “We expect home prices to firm further amid a durable housing recovery, gradually reducing the population of underwater borrowers and helping to boost the share of consumers who say that now is a good time to sell.”

 

Zillow: Top-Tier Homes Lead Inventory Crunch  |  DSNews, Tory Barringer, 3/7/2013

Inventory shortage continues to darken the skies over the housing market as the spring selling season approaches, Zillow reported Thursday.

Zillow observed a 16.6 percent year-over-year decline in its overall number of listed homes in late February, indicating an inventory crunch just as buyers start to feel more comfortable dipping their toes into the market.

Nationwide, the greatest year-over-year inventory declines were among more expensive homes, with the availability of top-tier properties falling 20.5 percent on an annual basis. That was followed by middle-tier homes (which saw a 17.2 percent inventory reduction) and bottom tier homes (9.1 percent).

Meanwhile, California’s larger metros reported the greatest decreases in for-sale homes over the past year. Among the 30 largest metros covered by Zillow, four of the top five in inventory contraction call California home: Sacramento (down 48 percent); Los Angeles (down 45.7 percent); San Francisco (down 40.9 percent); and San Diego (down 39.4 percent).

“The supply of for-sale listings continues to dry up, driven in part by potential sellers trapped in negative equity and homeowners that won’t sell out of fear they won’t be able to find a suitable home to buy later,” said Dr. Stan Humphries, Zillow’s chief economist.

 

Capital Economics Revises Home Price Forecast Upward  |  DSNews, Krista Franks Brock, 3/8/2013

Strong demand and tight inventory have brought existing home sales back to “normal” levels, and further gains are possible, according to the latest market report from Capital Economics. Additionally, market conditions may prompt lenders to “loosen the purse strings slightly” and lend a little more freely.

These conditions, combined with broader economic indicators, lead Capital Economics to revise its previous forecast of a 5 percent price gain this year up to 8 percent. Next year’s projection is a smaller 4 percent gain.

Existing home sales will rise to 5.1 million this year, and new home sales will rise to 0.5 million, up from last year’s 4.7 million and 0.4 million, respectively, according to Capital Economics’ projections. Sales in both categories will rise even further next year.

Mortgage rates, which have risen slightly, will not impede sales, according to the firm. Rates may fall again throughout the rest of the year, but even with recent increases affordability remains high.

The type of inventory on the market is in a transition mode as fewer foreclosures take place. “[M]ore homes that, a few years ago, would have come onto the market as foreclosures are now coming onto the market as short sales,” Capital Economics said.

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