Yesterday we saw that list pricing of San Diego houses had jumped recently, and a reader wanted to scale it down to local markets.
You can see in this Carmel Valley graph that last year the list pricing never picked up any momentum during the prime spring selling season – the average list-price-per-sf was in a downward trend for the first three quarters of the year. But there has been a surge over the last four months, though still well under all of 2010.
Also note that the buyers have stayed under control the last two years – the average sales price stuck right around Carmel Valley’s magical $330/sf , until recently:
Sales during the prime spring/summer selling season weren’t as successful either, staying well below those in 2010. They tapered off early too – the late-summer plunge in sales looked like totals from winter months, even though inventory had been on the rise through June/July.
But it appears that there must have been a lot of market-testers, because the inventory dropped steadily in the second half.
Here are the same two graphs for SE Carlsbad’s 92009 zip code, which is about the same size as Carmel Valley.
This graph shows how committed buyers were to staying in the tight $240/sf-to-$250/sf range last year, as they watched sellers go nuts with their list-pricing during the spring kick.
Buyers were very patient, just picking off the good buys; and as the inventory of seller/dreamers thinned out heading into the holidays, so did sales:
What will it be this year?
Buyers have waited this long, they aren’t going to pay a lot more than the last guy – maybe a little. If so, they’d still be in line with 2010 pricing on these two graphs.
“Consumer attitudes have gotten a lot more negative about long-term commitments, and the No. 1 long-term commitment most people in this country made is buying a house,” David Blitzer, chairman of the S&P Index Committee, told CNBC.
Prices in August were also revised to show a decline of 0.3 percent after originally being reported as unchanged. The index has leveled off in recent months and analysts are hoping the market is at least stabilizing.
“Over the last year home prices in most cities drifted lower,” Blitzer said in a statement.
“The plunging collapse of prices seen in 2007-2009 seems to be behind us. Any chance for a sustained recovery will probably need a stronger economy.”
This was probably the more pertinent comment from the same article:
The number of U.S. homeowners who are underwater on their mortgages decreased modestly in the third quarter, though levels remained high, data analysis company CoreLogic said Tuesday.
The number of properties with so-called negative equity — in which the amount owed on the mortgage exceeds the property’s value — was 10.7 million, or 22.1 percent of all residential properties with a mortgage.
That is a slight decrease from 10.9 million, or 22.5 percent, in the second quarter, CoreLogic said.
“Although slightly down, negative equity remains very high and renders many borrowers vulnerable when negative economic shocks occur, such as job loss or illness,” Mark Fleming, chief economist at CoreLogic, said in a statement.
As the housing market struggles to recover, the large number of underwater homeowners has prompted concerns of more foreclosures to come if borrowers become unable to keep up with their payments or decide to walk away.
MANY of the world’s financial and economic woes since 2008 began with the bursting of the biggest bubble in history. Never before had house prices risen so fast, for so long, in so many countries. Yet the bust has been much less widespread than the boom.
Home prices tumbled by 34% in America from 2006 to their low point earlier this year; in Ireland they plunged by an even more painful 45% from their peak in 2007; and prices have fallen by around 15% in Spain and Denmark. But in most other countries they have dipped by less than 10%, as in Britain and Italy. In some countries, such as Australia, Canada and Sweden, prices wobbled but then surged to new highs. As a result, many property markets are still looking uncomfortably overvalued.
Since American homes now look cheap, are prices set to rebound? Average house prices are 8% undervalued relative to rents, and 22% undervalued relative to income (see chart). Prices may have reached a floor, but this is no guarantee of an imminent bounce. In Britain and Sweden in the mid-1990s, prices undershot fair value by around 35%. Prices in Britain did not really start to rise for almost four years after they bottomed. Some 4m foreclosed homes could come onto America’s market, which may hold down prices.
The second question is whether home prices in markets that are still overvalued are likely to fall. Some economists reject our measures of overvaluation, arguing that lower interest rates justify higher prices because buyers can take out bigger mortgages. There is some truth in this, but interest rates will not always be so low. The recent jump in bond yields in some euro-area countries has raised mortgage rates for new borrowers. And low rates need to be balanced against the fact that tighter credit conditions make it harder for homebuyers to get mortgages.
Another popular argument used to justify sky-high prices in countries such as Australia and Canada is that a rising population pushes up demand. But this should raise both prices and rents, leaving their ratios unchanged.
Prices do not necessarily need to drop sharply to return to fair value. Adjustment could come through higher rents and wages. With low inflation, however, it could take a decade or more before price ratios return to their long-run average in some countries.
American prices fell sharply, even though homes were less overvalued than they were in many other countries, because high-risk mortgages and a surge in unemployment caused distressed sales. In most other countries, lenders avoided the worst excesses of subprime lending, and unemployment rose by less, so there were fewer forced sales dragging prices down. America is also unusual in having non-recourse mortgages that let borrowers walk away with no liability.
An optimist could therefore argue that our gauges overstate the extent to which house prices are overvalued, and that if markets are only a bit too expensive they can adjust gradually without a sharp fall. It is important to remember, however, that lower interest rates and rising populations were used to justify higher prices in America and Ireland before their bubbles burst so spectacularly.
Another concern is that Australia, Britain, Canada, the Netherlands, New Zealand, Spain and Sweden all have even higher household-debt burdens in relation to income than America did at the peak of its bubble. Overvalued prices and large debts leave households vulnerable to a rise in unemployment or higher mortgage rates. A credit crunch or recession could cause house prices to tumble in many more countries.
Mish’s take on this article (he likes it, but thinks that it has some holes):
Mortgage rates are great for now, and if QE2 goes quietly in the night, it could cause some potential buyers to stay engaged for the rest of the year.
Here’s the recent history of monthly detached sales:
We got off to a good start this year, but with the new pendings starting to drift, I think we can expect sales to trend downward for the remainder of 2011 – unless more sellers start drastically reducing their inflated list prices. BTW, July starts next week.
The average pricing has been steady lately:
Generally, I think people are willing to pay these prices, they just want more bang for the buck – are they getting it? It’s hard to measure, but the general consensus among buyers seems to be, “if I have to pay this much, I’m going to be very picky and push for top quality”.
There has been a slight upward trend in average square footage:
If bigger/nicer houses are selling in better-quality locations, but the averages stay about the same, will we notice? Let’s keep breaking down the stats into smaller increments, and see.
As CR pointed out yesterday, there are now several home pricing indicies.
The one developed by FNC attempts to overcome the problems with the repeat-sale measurements – here is their explanation:
One possible approach to address this dilemma is to consistently use all of the housing stock for each period. To do this it is necessary to have a market price for each house in each period.
Since all the properties do not sell, a model must be created to price all of the major attributes of a house (i.e. location, gross living area, age, lot size, bedrooms, bathrooms, etc.) and then compute an estimated market price for each property. The value of each of the attributes is estimated based on the observed properties that do sell over an extended window.
This approach allows all of the properties to be included in the index which then provides a stable broad based index for each period. Models of this type are referred to as hedonic models and have been used for many decades to estimate the value of a property. The limitation to using this approach for an index has been the general lack of availability of characteristic information about residential properties.
FNC has developed a hedonic index based on the data collected from public records and blended with data from appraisals. The addition of the appraisal data provides the physical property characteristic data that is often missing from public records.
Here is their San Diego Residential Price Index, which has a familar shape to it:
Here is an excerpt from Rich Toscano’s November report at the Voice.
Despite somewhat unfavorable supply and demand situation, home prices held their own in November. As measured by the median price per square foot, resale single family home prices were unchanged for the month while resale condo prices leapt by 7.4 percent. The condo increase brought the aggregate of the two price series up by 1.8 percent from October. The median condo price per square foot is quite a bit more volatile, and thus less meaningful, than the single family price, but nonetheless I’d consider November a positive month for home prices on the whole.
Here’s a look (below) at the more accurate, but less timely Case-Shiller index, which is only current through September. That index peaked in July and had dropped by 1.6 percent over the following two months.
Based on the median price data, I am projecting a further drop of about 1 percent for the Case-Shiller index in October, and then a flattening in November. (These projections are not pictured in the chart above).
Bank of America hasn’t started up their foreclosure machine yet – here are the number of San Diego County properties they have foreclosed on recently:
September: 259
October: 56
November: 1
You can see below that the REO results were building some momemtum between June and September, only to have the robosigningforeclosuregate be the latest excuse to slow down the pace:
The stats look similar across the state – flippers were cooling off because the prices were getting too high, and banks/servicers were taking back an increasing load of properties between June and September. Here are the California results:
Will they devise a new crisis every time they start taking back too many REOs?
Five major lenders made announcements last week that they would be suspending certain foreclosure activities in various states. These lenders included Ally (GMAC), JPMorgan Chase, Bank of America, Litton and PNC.
While this report is primarily focused on September foreclosure activity, it is important to note that we have yet to see any impact to foreclosure sales within our coverage area through Friday, October 8, 2010 by these lenders.
“We regularly see lenders make minor mistakes in foreclosure filings” says Sean O’Toole, CEO and Founder of ForeclosureRadar.com. “But the reality is that far more homeowners are behind on their mortgage payments than are even in foreclosure. The clear problem in the housing market today is not foreclosures, but negative equity; and as long as the focus remains on the symptom rather than the disease we will see little progress towards real solutions and this crisis will drag on for years to come.”
Sellers, and their listing agents, have been manufacturing the double-dip experience.
Because the local real estate market had the illusion of being “healthier”, they figured it was time to push their list price to see what the market would bear. A few got lucky and sold too, but the backlog has been building all year, especially on the higher-end.
Buyers are paying close attention though, and you can see it in the trends below on the housingtracker.net graphs. Look at the last year, the only part that might matter to buyers.
Let’s be specific too – in the upper tier the graph shows that the median asking price was going down dramatically the second half of 2009, which could indicate that prices were actually going down, or that the mix of active listings was adjusting. A review of the mix didn’t show any remarkable differences, so most of the decline must have been due to actual price reductions:
Look what’s happened since February, when sellers started getting (overly) confident again. The collusion of higher pricing didn’t impress the buyers, and inventory has increased 30% since January, meaning that the number of wrongly-priced homes is rising:
Once the sellers (and their listing agents) who want/need to sell, begin to run out of hope and start lowering their price, it’s going to look and feel like the double dip.
A second note: The inventory between May, 2009 and January, 2010 was practically flatlined, in a tight range of 11,500 to 12,013. With list pricing adjusting steadily downward in the upper tier, we had fairly stable market, with listings exiting the system at an almost identical pace as they were coming on. A good indicator to watch for the trend of pricing accuracy.
