Sacramento housing sales up again
Business - Home sales up for 2nd month - sacbee.com
I wrote on this subject last month, when the Sacramento real estate market had it’s first year-over-year (YoY) increase in houses sold in several years. I read and write about the Sacramento market for a couple of reasons. First, I lived there for about 5 years (until last fall) and I am very familiar with the market and area. Second, outside of possibly Las Vegas (lived there before moving to Sacramento!), the Sacramento region was one of the hottest markets before the recent melt down and may be a leader in the recovery.
For May, the Sacramento region had its 2nd month in a row of year-over-year home sales. Total sales of 3,420 were 6.3% higher than May 2007 and 8% higher than April 2008. The peak May sales occurred in 2004 with 6,761 homes sold. As would be expected, there are some positive and negative numbers in the month’s results. Here are a few of the more interesting facts:
- 51% of the closed sales represented previously foreclosed residences. 10,224 homes have been foreclosed on year to date and 5,448 repossessed homes have been sold.
- The for-sale inventory of 12,366 is the lowest in 14 months, representing a 4 month supply based on the May sales. Last month I reported 12,606 homes listed for sale.
- Median home prices were down, by county, 12% to 35%, directly proportional to the percentage of repos sold. Sacramento county, with 61% sales of foreclosed homes had the biggest median price drop.
- New home sales totaled 476 compared to 726 sold in May 2007.
- Investor purchases were 19% of sales, compared to 27% at the peak of the real estate boom.
It appears the region is working it’s way out of the real estate boom/mortgage meltdown hangover. I think the next step is getting to the point where repo sales are a small portion of total sales (maybe less than 25%) and find out where the “real” housing prices settle. I will close with this quote from a local real estate agent:
“There are so many investors and first-time buyers out there. … I don’t see that changing. I’m getting multiple offers on many of my good listings,” she said.
Interesting facts on mortgage delinquencies
The Mortgage Bankers Association released a report on their mortgage delinquency survey yesterday for the first quarter of 2008. I took the time to read through the report and thought I would share a few of the facts and figures here. There are a few things that jumped out at me, so that will be my focus. Note: unless noted all figures are seasonally adjusted (SA).
First, the big picture numbers: The percentage of mortgages more than 30 days past due was 6.35%, up 0.53% from the 4th quarter and 1.51% from Q1, 2007. This is the highest seasonally adjusted percentage is the highest recorded since 1979. The percentage does not include loans in the process of foreclosure. The percentage of loans in the foreclosure process was 2.47%, up 0.43% from Q4 and 1.19% from a year ago.
Note quote: “The 30 day delinquency percentage is still below levels seen as recently as 2002.”
From deeper in the report I want to parse two subjects: Delinquencies in California and Florida and subprime ARM mortgages.
California and Florida are the main drivers of foreclosure rates. Of new foreclosures started in the quarter these two states had 49% of the subprime ARM and 62% of the prime ARM loans foreclosed, accounting for about 90% of the national increase. The preponderance of foreclosures in California and Florida left 43 states below the average for new foreclosures and 20 states had actual decreases in foreclosures.
CA and FL account for 21% of all mortgages but 36% of new foreclosure starts. For prime ARMs the numbers are 39% and 54%, subprime ARMS: 30% and 42%. These numbers show the two states had a much higher percentage of written ARM mortgages which are resulting in high foreclosure rates. Throw in Arizona and Nevada and these 4 states account for over 50% of the new ARM foreclosures in the country.
On to subprime ARM mortgages. For all of the news and catastrophe warnings on how these mortgages will bring down the U.S. financial system, and have already had a tremendous negative impact on many financial companies I am surprised at the percentages. The seriously delinquent rate, over 90 days late or in foreclosure, for all (ARM & fixed) subprime mortgages was 16.42% and the foreclosure inventory rate was 10.74%. Subprime ARMs accounted for 39% of the foreclosures started in the first quarter. Here is the point I found interesting: Only 6% of all mortgages are subprime ARMs! At the rate these things are defaulting and being foreclosed, in a few quarters there won’t be any left!
My analysis is at this point the continued problems with mortgage delinquencies and foreclosures are mostly confined to the California and Florida markets with an emphasis on subprime ARMs. Most or many parts of the country may have peaked as far as problem mortgages go.
Different looks at housing supply
I have been reading with great interest recent articles on the current housing market. The recent Case-Shiller report shows average home prices have fallen 14% over the last year and there is currently an 11 month “inventory” of 4.55 million homes. This report has widespread news reporting, but there are other reports out there that paint a slightly different picture. I would like to reference some of these reports with a little analysis of my own.
First, let us talk about housing “inventory”. Jeff Miller at A Dash of Insight has a nice discussion on the errors of mass media discussion of housing inventory. He points out that the difference between motivated and unmotivated seller and demand of buyers changes tremendously with pricing and perceived price directions. I have put housing inventory is several classes:
- New home building: This is the only source of new inventory, all other are existing homes someone is trying to sell. Home builders have slashed new construction and managed to sell the bulk of their existing inventory. This news release from the California Building Industry Association - New-Home Production Remains Weak in April, shows that California home builder’s will build the lowest number of homes in 2008 since records were started right after WWII. Further, the 80,000 new homes this year and 92,000 projected for 2009 are well below the 200,000 that are needed annually to account for population growth in the state. The results (from the press release):
“Furthermore, if the current projection comes true and we build the lowest number of homes since at least World War II this year, the current increase in affordability could quickly turn around when the pent-up demand for new housing starts outweighing the supply.”
- Finance forclosure homes: This is a significant portion of available housing “inventory” and is owned by extremely motivated sellers–banks. This is the portion of inventory that is both pulling down prices and offering buyers tremendous opportunities. This article (subscription req.) from the Wall Street Journal documents that sales are increasing in the hard hit areas of the housing meltdown: Las Vegas, Sacramento, CA, Ft. Myers, FL and inner city Detroit. Quote:
In the Las Vegas area, sales of single-family homes in April were up 30% from a year earlier. The Greater Las Vegas Association of Realtors says properties being sold by lenders account for more than half of recent sales.
I have written earlier here on the positive sales reports from Sacramento, where a large amount of foreclosed homes are being snapped up by value conscious buyers. In many areas of the country, once potential buyers believe the prices of foreclosed homes have leveled many will jump in to buy and get a “deal”.
- Motivated sellers: These are those homeowners who really need to sell. They fall into two camps. Those who purchase at the price peak and are having trouble with their mortgage, but are not willing to let it go to the lender. These are very motivated, but may not get the price they want/need and go with another option, like mortgage work out. The other camp is those who need to move. If they purchased the home before 2004, they are most likely still have equity or a house payment that makes renting out the property and option.
- Unmotivated sellers: These are sellers who do not really need to sell, for example, retirees who would like to go buy a repo in Florida, but remember the prices of a few years and have listed their homes at unsaleable prices. Let us call this “dream inventory”, because these homes only sell in the owner’s dreams.
When we look at these classes of inventory, it is apparent that foreclosures are the driving factor in current housing sales. Sales figures from scattered areas of the country show pricing for bank inventory has started to reach levels to bring out additional demand. Once, public perception is that prices have stopped falling, demand will increase significantly, most likely starting serious bidding on most bank owned real estate. Because home builders have very few homes starting or in inventory, there will be no outlet for heating up demand. Individual home sellers will start moving up their asking prices as the 3rd alternative for home buyers who do not want to miss the “bottom”.
At this time I am looking for more of a leveling of prices and sales, with new home sales continuing to fall. True growth in home sales and prices are dependent on availability of financing and interest rates. At this point almost all financing must meet Fannie/Freddie guidelines and these are dependent on what the politicians accomplish.
Will California lead housing turn around?
Unsold single-family homes rise to 23-year high in April - MarketWatch
The MarketWatch article linked above shows that nationally unsold home inventories are still rising. This is the opposite of the news I wrote on for the Sacramento market, where unsold inventory has fallen by about 25% over the last year. Sacramento is one of the places where prices have fallen enough to really bring out the buyers. News from California show some other markets in the state showing signs of increased buying, decreased inventory. As one of the worst, and hardest hit, bubble areas, is California starting to lead the nation out of the real estate downturn?
One of my favorite pastimes these days is to read the comments on articles like the one above. I assume those who so gleefully cheer for further housing woes will never be able to afford to own a home at any price. As far as mortgages go, it appears there are still plenty of buyers who can qualify for low down payment mortgages, as long as they stay out of the jumbo arena. How much longer can the housing-bust-dot-com blogs hang on?
Area home sales bounce back
Business - Area home sales bounce back - sacbee.com
The area referenced in the title is the Sacramento region. I wrote a few days ago about some stabilization in the real estate market there, and this article from the Sacramento Bee is more positive news. The fact that caught my eye is that Sacramento county had its first year over year sales gain in 37 months. Many on the Internet are still embracing a continued housing slow down because year over year numbers keep falling. Here are some facts I gleaned from the Sac Bee article and related blog:
- April sales in Sacramento county were 24% higher than April 2007. Two other nearby counties also had year over year gains.
- There were 12,606 homes for sale in the 4 county region down from a peak of 16,262. The April sales totaled about 3,000 homes, showing a current 4 month supply.
- New home sales were still down with 454 sales vs. 687 in April 2007.
Anecdotal stories have buyers coming out as home prices have fallen back to 2003-2004 levels and aggressive bidding for foreclosure homes under $300,000. However, there will still be quite a bit of foreclosure inventory to absorb before more normal market conditions return. If the home builders are not building at this time and working off their inventory a positive pricing trend could be here sooner than many expect. Pricing has remained strong in the San Francisco area, which tends to start pushing people out towards the central valley, looking for affordable housing.
This information pertains specifically to the Sacramento region and one month does not a trend make. I report on it because I am familiar with the market and it was one of the worst “offenders” during the price run up.
A Tale of 3 Markets
May 2008 Lyon Press Release-Dist.pdf (application/pdf Object)
I have a personal interest in the Sacramento real estate market and check regularly for news of the market there. Today I found the press release linked above at the Sacramento Bee Real Estate Blog. Mike Lyon is the owner of the largest real estate brokerage in Northern California and I have found him to knowledgeable and interesting. I you have interest in more details of the Sacramento real estate market read the whole report, it is only 3 or 4 pages. This excerpt pretty much covers the tone of the report:
“The market is now being driven by three different factors affecting three separate price ranges,” said Michael Lyon, CEO of Lyon Real Estate. “Homes under $300,000 - especially foreclosure homes - are selling in a matter of hours with multiple bid and in under three months. Then we have homes above $300,000 and under $580,000 that are not in foreclosure but have low interest, low-down FHA programs to finance the sale and have inventory levels of under six months - this market segment is much better than it has been in the last two years. Finally we have those homes for sale in the non-conforming loan or Jumbo bracket, and inventory levels of around 20 months. With down payment requirements of between 20 to 30%, even if priced right, it can take two to three times longer to sell a home in this price-bracket than those homes priced under $580,000.”
“The good news in all of this lies in the rate of absorption for the foreclosure properties. If sustained, it will mitigate the effects of the 15,000 foreclosure homes still expected to come on the market this year. Many people who never dreamed of owning a home now have a chance, at least until the end of this year when these FHA programs sunset.
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