10-16 Sacramento Sept House Pendings / Sales Volume Collapse…Say What?!?

by Mark on October 16, 2012

(Another) Crash Alert….September Sacramento CA Home Sales Data Reveal a Full-Blown Sales Volume Collapse Taking Place

Note, this note goes well with the previous post…10-9 Housing…”Recovery” Theme Inconsistencies Abound

In our effort to scour the country in search for data that either confirm or deny the consensus opinion of a “durable recovery” with “escape velocity” I bring to you today Sacramento CA, which like Phoenix and Las Vegas is in the midst of a sales demand collapse.  A supply/demand paralysis if you will.  This type of volatility is not consistent with a full-blown recovery;  the back side of a full-blown short squeeze perhaps.

Like many other “recovery” regions I have highlighted in the past few months — that led the crash in 2006; the first bounce in 2009; the double-dip in 2011; and the latest stimulus-induced bounce in 2012 — Sacramento is in the midst of a demand void / hard landing that will not make for pretty headlines for the remainder of the year through September 2013 at least.

Bottom line:  The greatest stimulus ever to hit housing — rates going from 5% to 3.5% YoY and the artificial lack of supply created through millions of high-risk loan modifications and the servicer settlement foreclosure abatement – is creating the greatest hangover to ever hit housing into 2013.

1) Sept Pendings DOWN 32% YoY and at record lows. This is not consistent with “durability” or “escape velocity”. 

Bottom line, in September housing crashed very similar to when the tax-credit stimulus ended in July 2010.

 

2) Sept Home Sales back at 2010 post tax-credit expiration lows. However, this is from August Pendings.  October Sales will follow September Pendings to lows.

Into 2013 — when the servicer settlement is fulfilled and high-risk mortgage mods redefault at ever-increasing frequency — I think sales volume will level out but at the expense of prices, which will also start going negative YoY making for some real fun in headlines.

Number of days in the month misnomer:  You will hear arguments there were fewer days in September, which is why sales crashed in many regions.   Of course, this has some impact but not as much as most think.  In reality, fewer days in the subject month when it comes to ‘Existing Home Sales’ specifically sales does not matter as much as fewer days does to ‘New Home Sales’ for example.  That’s because Existing Sales are generally contracted a month or so prior and there is a large percentage of buyers and sellers who benefit by closing as near to month end as possible for a number of reasons.

Bottom line:  Fewer days in a particular month as it relates to Existing Home Sales ‘closings’ specifically means people that work to close these escrows have more to close each day of the short month going into month end.   By contrast, builders selling ‘New Homes’ — which are counted at contract not closing — physically have fewer days in which to get buyers into contract, which has more of a direct impact on sales counts.

 

 

{ 16 comments… read them below or add one }

Logan Mohtashami October 16, 2012 at 3:58 pm

A men

We have seen No increase in pure demand for homes here in Southern California for 2012 even with the big drop in rates. Still running 85-15 ratio of refinances to purchases even with the so called better buying power. Still hear the crying and complaining about Lending Standards even with FHA core requirements are very low

http://loganmohtashami.com/2012/09/26/stop-crying-about-lending-standards/

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Kevin October 16, 2012 at 4:06 pm

Housing sale is going down due to choke in (perhaps artificial) supply and price has gone up (10-15% since 2011) as the result. If the supply resumes in 2013 would price just goes side way or back down to 2011 level. How would this make a “hard landing” in 2013?

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Advisor October 17, 2012 at 12:12 pm

This appears to be the next leg down for housing prices. Considering housing prices are still at the grossly inflated levels of 2004, prices have a long way to fall. A very long way to fall.

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Jack October 18, 2012 at 2:54 pm

Google Sacramento Vacant Homes and you will see that only Oakland has more vacant homes than Sacramento. that itself is a telling sign – for “the time being” they remain off the market.

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David October 20, 2012 at 10:09 am

The current uptick in market prices and multiple offers is of no surprise because it is not really based on any market realities. The concept of supply and demand is founded on a basis of getting to a Market Equilibrium, a situation in a market when the price is such that the quantity that consumers wish to demand is correctly balanced by the quantity that firms wish to supply.

Market Equilibrium does not exist. The supply side has been manipulated in several ways. First, the zombie inventory (thanks Mark for a great term, adds new meaning to the Walking Dead), those homeowners who are locked into their homes because they owe more than it is worth and continue to pay [majority] or those homeowners who have some sort of loan modification are completely out of the market. Therefore, that inventory does not feed into the supply side in a normal market. Second, foreclosures are way down not because of loans performing but because servicers are just not foreclosing, I base that assumption on several of my clients who want to walk and are over 4 years delinquent on their loans and the lenders will not foreclose. Finally, the demand side is heavily fueled by investors, primarily from Asia, who are paying cash for almost anything in the 100k-250k range thereby driving prices up in those ranges competing against itself.

The real boogey man in the room is vacancy factor for apartment owners. Those are on the rise as investors buying houses attract apartment dwellers to houses. This will cause a war. Apartment owners will soon counter this by lowering rents putting a squeeze on investors… paying too much and watch their rents go down. You can call it a dead cat bounce or whatever you want… in the end, this is all a fools journey because all are not paying attention to the fundamentals of a market.

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az_lender October 30, 2012 at 2:51 am

What is your point? Some houses are occupied by people still paying on loans that exceed the present market value of the houses, and other houses are being bought by Asian investors; do you think this means there will be a further price decline? My personal opinion is that a further price decline on the order of a few percent per year is possible, but that just bumping along the bottom is more likely.
I own (and summer in) an apartment building that I bought in 2010. There is certainly no problem keeping the apts filled at the 2010 rent rates. House sales in our coastal Maine area are quite slow, but the buyers are retiring people from Eastern cities, not the same blue-collar population who inhabit the apartment building. Far from having to reduce rents, I experience pressure to rent out my own apartment during the “off” season (Nov-Apr). In what region are apartment vacancies increasing? Or are you several years behind the news?

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Colt October 21, 2012 at 6:34 am

There’s no inventory in the Sacramento mls – and prices are going up

Sucks because I want to buy some rock bottom homes with cash

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Advisor October 22, 2012 at 1:05 pm

No inventory is Sacramento huh?

Here’s over one thousand within city limits alone.

http://www.realtor.com/realestateandhomes-search/Sacramento_CA

Why buy a house at these grossly inflated prices? Rent for half the monthly cost.

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yeldon October 26, 2012 at 9:36 am

Mark – no offense but who the hell is arguing “escape velocity”???

Sure there are a few fringe lunatics arguing for prices to the moon. But there are also some fringe lunatics calling for a -90% drop in nominal pricing. Far as I can tell, the consensus is for a long protracted, agonizingly slow, government induced, underperforming inflation recovery, but a recovery (i.e. nominal prices hit bottom, and go higher) nonetheless. Do you disagree? If so, how? How much lower (nominally) are they going to go?

Sorry, but this looks too much like tilting at windmills in order to make yourself feel better given that the nominal price bottom is much higher than anything you ever could have anticipated.

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Advisor November 12, 2012 at 8:31 pm

“How much lower (nominally) are they going to go?”

Prices will continue to fall to early 1990′s levels.

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D October 29, 2012 at 2:36 pm

It is another attempt by realtor, media, investors, federal reserve to pump u housing recovery. This is attempt 10,000. How many have we seen before that failed? Now they are getting QE3 to buy at inflated prices with no risk. Purposly overpaying to create a fake histeria. Don’t drink the cool aid.

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Tom Lawler November 1, 2012 at 2:54 pm

Number of REO Sales 229 15.5% 287 -20.2% 16.6% 602 37.3% -62.0%
Number of Short Sales 516 34.8% 602 -14.3% 34.9% 423 26.2% 22.0%
Conventional Sales 737 49.7% 836 -11.8% 48.5% 590 36.5% 24.9%
Total Number of Closed Escrows 1,482 100.0% 1,725 -14.1% 100.0% 1,615 100.0% -8.2%

Non-distressed sales vs a year ago up 24.9%; short sales up 22.0%; REO sales down 62.0%; yes, total sales down 8.2%, but why is this “negative”? Just so confused.

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Mark November 12, 2012 at 5:41 pm

You have all these facts but you never ask why? Foreclosures at a 5-year low is because foreclosure timelines are at record highs and modification / workout volume over the past 2.5 years surpassed 6 million. Going into 2006 there were 4 million subprime loans. Now there are 6 million worse than subprime loans (ie, mods). Inventory is at record lows…but it’s not because sales volume is anything special. It’s because over 50% of all Americans do not have the euqity to pay a realtor 6%, put 10% to 20% down on a new house or have the income to qualify for a loan. They are zombies. That’s not a healthy market no matter how many times you say it is.

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Advisor November 12, 2012 at 8:32 pm

Housing demand is at 15 year lows and falling. That’s your sales volume. 15 year lows…. and falling.

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AJ December 25, 2012 at 9:02 am

Hi Mark,

I recently moved to San Francisco and purchased a condo there – to my surprise, I’ve discovered the market has risen around 12% over the 2012 calendar year. As you’d mentioned, being able to get a 30-year FRM at 3.5% was a big incentive for me to buy. I had actually just relocated to the US and all I had heard about was that the national market was still in a trough. Fundamentally, I’m assuming the “job growth prospects” have picked up the SF market earlier than others. Basically two things I’m curious about:

1) Will other pockets or the US as a whole see anything like what SF saw this year?
2) SF still seems to be many analysts’ prediction for a “hot market” for 2013 – any thoughts on that?

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Advisor January 9, 2013 at 2:10 pm

Nonsense.

Sales in the bay area collapse by 25% in a single month with unemployment hovering at 10% and creeping higher.

You’ll regret borrowing a boat load of money for a house considering prices are still wildly inflated.

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