Indicators
No BS Real Estate
No BS Real Estate Indicators – December 2009
The year went out like a lamb. But comparing it to 2008, it was a loud lamb with sharp teeth. Maybe it was the corrupting forces?
The indicators and charts below (through December 2009) have grown, evolved and improved over this last year. No single piece of data can tell the whole story nor do these specific indicators predict the future. Remember, the “momentum” of a trend is important in understanding the force and direction of an underlying data element. A commodity trader watches momentum indicators to more accurately (but still with no guarantees) foretell a future data point. These are million-dollar decisions so momentum is important. Also important to remember is that real estate supply, demand, and pricing is even more local than the County-wide perspective. You can get down to the zipcode level on my Communities web page.
Major Indicators
1 – Existing Home Sales
The media is telling us December was a bad month. I say they’re wrong. Not only have we sailed through the seasonal “valleys” with relatively minor variation, it was a historically magnificient December. It just goes to show you, be careful of what you hear. See the data. The momentum is almost at its Zero Axis — this would trigger a “SELL” action if a price was being charted. In the case of this data element, it depicts the typical valley that “should” occur in a real estate cycle.
Opinion: Look for sales to increase once nature has finished her winter punch.
2 – REO Sales
It is natural that the percentage of homes sold by banks is down but this is a marked decrease. This becomes more obvious by understanding the foreclosure trends in our local area. Banks are simply not foreclosing. Whether due to accounting practices or “deer in the headlights” syndrome, the movement of product through the pipeline has stalled. Now the supply is low except for contingent short sales. And I don’t mess around with those. The momentum is negative. We hope the REO Sales momentum increases — it would signify the availability of supply.
Opinion: Look for REO sales to rise in raw numbers and as a percentage of total sales in the area.
3A – Median Price, Sacramento County
The median price for all of Sacramento County has shown a slight improvement — we’re back to March 2002 price levels. With an artificial choke on the supply while demand does not decrease, the price will rise. Momentum is serious about getting back to positive territory.
Opinion: The area price will decrease slightly while some high-priced areas/zipcodes will see a material reduction in comparable sales.
3B – Median Price, El Dorado County
The choppiness of this El Dorado County chart really just signifies the variation of homes, prices, and supply of sales comparables. Even the momentum cannot decide which direction to go.
Opinion: This general price will decrease due to the high-end which will experience most of the impact in 2010.
3C – Median Price, Placer County
The slide of prices in Placer has been slower and smoother. There also may be some corrupting forces at the County and City levels which we don’t see. For some, the local pride is too sensitive and they won’t accept their just deserts. Much of Whitney Ranch is entering the “short sale” zone. This will help supply for some.
Opinion: The price here will also decline to the squeeze at the higher end of home prices.
3 – Median Price, three counties
This chart shows the comparison of the 3 counties. It doesn’t include the momentum indicators but it’s interesting to see the responsiveness of Sacramento’s price changes compared to the other 2 counties.
4 – Notices of Default (Sac County)
Notices of Default have hit a major stoppage in the pipeline. The indicator that is missing is “borrowers in distress”. That would be a difficult piece of information to collect.
Opinion: The number of NODs will increase as will Auctions and foreclosures — see recent foreclosure report.
5 – New Home Permits (Sac County)
If they are still building, the homes are smaller and more sensibly designed. Gone (temporarily?) are the massive walk-in closets and master bathrooms. Gone are the 4-car garages and bonus rooms. We have entered and exited the “McMansion Era”. Some builders died before they could exit.
Opinion: Population increases generally require more housing. It only seems we have enough.
6 – Mortgage Rate
Free money!!! If you can get a loan, don’t miss this window of opportunity. But rules have changed so you better know your buying power and options.
Opinion: Rates will increase slightly over the year although other lending restrictions will corrupt the market making the rate change less important. This cannot last for much longer. China will inevitably call us on it.
7 – Inventory
Let’s invent another listing status that makes this data point unimportant! When MetroList said we should have a status of “Active Short Contingent”, the consequence is an over-inflated Inventory. The use of the word “Active” in that status means they are counted in the chart below but they are not truly available to buyers. It is akin to a Pending status with regard to how Realtors treat them. If it’s “contingent”, Realtors and buyers know the home has a soft deal with a prospective purchaser. I think MetroList should make it a “Pending Contingent” status. It will make the numbers stop lying.
Opinion: MetroList won’t heed my suggestion. Inventory will increase but so will Active Short Contingent listings. So who knows!
8 – Months’ Inventory
The Inventory is over-stated so the true turn-over rate (Months’ Inventory) is a little different than depicted below. Since this depicts the months required to sell all inventory (at the average Days on Market), this too is over-stated. Mitigating that variance is the fact that many of these “active” listings are actually “pending contingent” and can remain on the market for many months without a bank approval or change in status. In other words, this indicator is low but not necessarily 3.3 months.
Opinion: See opinion on “7 – Inventory” above.
9 – Short Sales
This is a new indicator showing how many Short Sales were successful. The momentum cannot be charted until at least 12 months of raw data have been collected.
Opinion: This number will stay relatively flat, with a slight increase. Many banks have already concluded they will not entertain short sale offers. Some borrowers purchased mortgage insurance with their loans which means the lender doesn’t care if they foreclose (insurance pays them about 80% of loan value).
10 – Swing Indicator
My favorite indicator since it shows the oscillation of the market — much like a EKG machine. Let’s hope the market doesn’t flatline. Except for January ‘09, Up-Ticks outpaced Down-Ticks. For this last month, 41 zipcodes had a momentum up-tick.
Opinion: The up-ticks will retreat to a lower level but most of the zipcodes will be Unchanged rather than down-ticks.
No BS Real Estate Indicators & Chart Education Videos
– Part 1 — Part 2 — Part 3 — Part 4 — Part 5 –
These charts depict the momentum of changes in the underlying raw data to help forecast direction. These are not a guarantee of future direction but aid in the prediction of cause/affect in the various market forces. No single indicator tells the whole story. Also charted is the raw data itself. For an explanation or for a monthly subscription to this periodic report, call or email Jay Emerson (916-517-9606, Jay@JayEmerson.com). The data is deemed reliable but not guaranteed. Sources include DataQuick, CBIA, Sac MetroList, and other public information.
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Jay Emerson