Jul252013

House listings increase, but MLS inventory still at very low levels

The good news is that house listings are up. The bad news is that they are still very, very low. It’s still a sellers market.

I recently reported that housing inventory is up: Buyers aggressive, not stupid-aggressive. We have passed the extreme of the sellers market, but there are still far too few properties available for sale to believe deals are to be had.

Ordinarily, housing inventory peaks during the summer and falls off the rest of the year. I don’t foresee that happening this year. First, there are so few houses for sale and the market is so strongly in favor of sellers, that potential sellers won’t be dissuaded from listing for fear that they missed the selling season. Further, rising interest rates will cool demand, and many of the WTF listing prices that came on the market over the last 60 days will likely sit there for quite some time. Although many of these properties are not likely to sell, they will contribute to overall listing numbers until the sellers give up and remove their listings.

Listings in Irvine and Aliso Viejo (courtesy of Irvine Housing Blog) show a dramatic percentage increase this year. Both are up more than 100%, but considering the very low level that forms the base of that calculation, it sounds more dramatic than it is. Taken in a historical context, current listings are still very low, approximately the previous low listing count recorded over the previous six years (see below).

Housing Listings Multiply in June

By Nick Timiraos — July 15, 2013, 6:01 AM

Here comes the housing inventory.

The number of homes listed for sale increased by 4.3% in June to 1.9 million homes, the highest level in the last year, according to data released Monday by Realtor.com.

Housing inventory has steadily declined over most of the past two years. Listings typically climb heading into the spring and summer, when housing activity hits a seasonal peak. But inventories appear to be posting larger-than-usual gains in many markets right now as they rise from their lowest levels in at least a decade.

Percentage changes off a small base always look dramatic. Given how low the inventory dropped, it’s understandable that it looks like many more are coming to market.

Economists say rising home prices could convince more sellers to test the market if price increases keep up.

We have seen that here in OC. The new listings are priced 30% to 40% off the bottoming value from last spring. Anyone who owns a house that they believe they can sell for that much more than a year ago will be tempted to try their luck. It only takes one overly motivated buyer to cash their lottery ticket.

Nationally, the number of homes listed for sale stood 7.3% below their levels of one year earlier. The year-over-year decline stood at 18.6% in February, by contrast.

Among the nation’s 30 largest markets, listings were above the levels of a year earlier in four places. All four of those markets had seen big inventory declines over the past two years. Housing inventory was up by 11% in Sacramento, Calif.; by 10.9% in Atlanta; by 6.2% in Phoenix; and by 2.2% in Miami.

Another five cities posted declines of less than the national average decline of 7.3%: Los Angeles, Philadelphia, Baltimore, Chicago, and Charlotte, N.C.

By contrast, inventories were far below last year’s level in Boston (-35.1%), Denver (-30.1%), Detroit (-25.7%), Seattle (-23.2%), and San Francisco (-21.7%).

A mix of the best and worst performing housing markets still have low inventory. In the best performing markets like San Francisco, the low inventory is likely the result of brisk sales. In the worst markets like Detroit, its probably the result of lender can-kicking and a large slowdown in foreclosure processing.

For the last two years, real-estate agents in a growing number of markets have complained that the low supply of homes for sale has limited the number of transactions—even though the supply constraints have propelled home prices higher.

This is true. We would have had more sales this year if more inventory were on the market. Many people who contact us are frustrated potential buyers who can’t get a property. There is a significant amount of currently active demand that has not bought a house. I believe it’s this group of people who will carry the market through this fall and winter with little slowdown in sales and steady house prices, despite the higher interest rates.

The question now is whether higher inventory will lead to higher sales volumes, and whether it will also slow the pace of home-price gains.

It will do both.

Another wild card: how homeowners respond to mortgage rates that have jumped by at least a percentage point over the last two months.

Compared with May, inventories rose in 20 cities, according to Realtor.com. The data showed a spike in listings in Southern California, with inventories rising by 51.5% in Orange County, by 45.7% in Los Angeles and by 18.1% in San Diego. …

An anecdote on inventory and interest rates

I recently had a conversation about real estate with a gentleman who lives in San Diego. He relayed to me a story about some listings in his condo complex. One of this neighbors listed their property for $450,000 in April. Within a few days, they received multiple offers with the highest being $50,000 over their asking price. They were concerned about finding another property, so they turned the deal down and took their property off the MLS. In June, they found a property the wanted to buy. They relisted their property at $450,000, but several competing listings have since come on the market. The property has sat there with no offers since. The rising borrowing costs may be having more of an impact than many realize.

$3,018 down, $340,018 out

If you calculate the return on investment for Ponzi borrowers, nothing beats California real estate. The former owners of today’s featured REO put $3,018 down to buy their property. Over the nine years that followed, they extracted $340,018 in mortgage equity withdrawal.

  • The property was purchased for $150,000 on 5/6/1998. The owners used a $146,982 first mortgage and a $3,018 down payment.
  • On 2/27/2002 they refinanced with a $176,000 first mortgage and a $22,000 stand-alone second.
  • On 4/6/2005 they opened a $100,000 HELOC.
  • On 7/18/2005 they opened a $137,000 HELOC.
  • On 3/29/2007 they refinanced with a $417,000 first mortgage and obtained a $80,000 HELOC.

They quit paying in January of 2011, and they squatted until the lender finally foreclosed in May of this year.

[raw_html_snippet id=”newsletter”]

[idx-listing mlsnumber=”PW13144964″ showpricehistory=”true”]

316 West ERNA Ave La Habra, CA 90631

$324,900 …….. Asking Price
$150,000 ………. Purchase Price
4/6/1996 ………. Purchase Date

$174,900 ………. Gross Gain (Loss)
($25,992) ………… Commissions and Costs at 8%
============================================
$148,908 ………. Net Gain (Loss)
============================================
116.6% ………. Gross Percent Change
99.3% ………. Net Percent Change
4.4% ………… Annual Appreciation

Cost of Home Ownership
——————————————————————————
$324,900 …….. Asking Price
$11,372 ………… 3.5% Down FHA Financing
4.37% …………. Mortgage Interest Rate
30 ……………… Number of Years
$313,529 …….. Mortgage
$87,734 ………. Income Requirement

$1,564 ………… Monthly Mortgage Payment
$282 ………… Property Tax at 1.04%
$0 ………… Mello Roos & Special Taxes
$68 ………… Homeowners Insurance at 0.25%
$353 ………… Private Mortgage Insurance
$0 ………… Homeowners Association Fees
============================================
$2,266 ………. Monthly Cash Outlays

($281) ………. Tax Savings
($423) ………. Principal Amortization
$18 ………….. Opportunity Cost of Down Payment
$101 ………….. Maintenance and Replacement Reserves
============================================
$1,682 ………. Monthly Cost of Ownership

Cash Acquisition Demands
——————————————————————————
$4,749 ………… Furnishing and Move-In Costs at 1% + $1,500
$4,749 ………… Closing Costs at 1% + $1,500
$3,135 ………… Interest Points at 1%
$11,372 ………… Down Payment
============================================
$24,005 ………. Total Cash Costs
$25,700 ………. Emergency Cash Reserves
============================================
$49,705 ………. Total Savings Needed
[raw_html_snippet id=”property”]