Jun172013

Housing inventory up: Buyers aggressive, not stupid-aggressive

Housing inventory nearly always bottoms on January 1 and increases steadily until July or August. In early 2013, inventory bottomed at levels 50% to 90% below normal depending on the market. This shortage of inventory, engineered by lenders, forced buyers to compete over the remaining for-sale homes. This made nearly every sale a multiple offer situation, and as buyers became more frustrated, they also became more aggressive.

Finally, in April and May of 2013, aggression gave way to complete stupidity as buyers bid 15% to 20% over recent comps with all-cash or heavy cash offers and waived their appraisal contingencies. Even if these buyers believe prices will continue to rise 10% or more a year (which they likely won’t), paying 20% over recent comps is hardly a bargain or a bright financial move.

I speak with Shevy often about the state of the local housing market. In his most recent report, he said that inventory is up slightly but noticeably. Buyers still have to be aggressive, particularly on more desirable properties, but the need to be stupid-aggressive is behind us. Properties in weaker markets are sitting on the MLS longer and price reductions are becoming more common. It’s still a seller’s market, but the extreme of earlier this year is past.

Dr. Housing Bubble recently noted that Irvine inventory is up 88 percent from March. While the headline is dramatic, the current inventory is still below the lowest low of the last six years prior to this most recent decline in inventory.

Housing-Inventory Crunch Could Be Easing

By Nick Timiraos — June 13, 2013, 6:00 AM

Housing inventory has jumped by 25% so far this year, outpacing normal seasonal increases, according to figures released Thursday by Realtor.com.

There were some 1.85 million homes listed for sale at the beginning of May, which is still historically low. May’s listings rose by 5.8% from April’s level but stood 10% below year-earlier levels. They were still the lowest for the month of May since Realtor.com began its count in 2007.

Still, the upturn in listings so far this year suggests rising home prices are encouraging more buyers sellers to test the market.

Rising home prices are finally allowing more sellers to test the market. The bank’s attitude toward struggling loanowners toughening as prices rise, and they simply aren’t allowing many underwater borrowers to get out from under their debts with short sales. This is forcing many who might want to sell to stay trapped in their underwater homes.

So far this year inventories have increased by around 375,000 through April compared to increases of just 45,000 for the same period in 2011 and 108,000 in 2012. Still, the increase is lower than the jump of 442,000 in 2010, when tax credits fueled a surge in housing demand. …

In 2010, banks were not denying short sale requests or demanding borrowers repay the losses, so more loanowners were willing and able to sell their houses. This year, banks are taking a harder line on underwater borrowers, and although price are rising, a great many borrowers are still underwater.

Inventories have dropped over the past two years as banks have slowed down foreclosures and as investors have bought more homes with an eye towards renting them out.

As I’ve pointed out many times, the increase in demand over the last year and a half has been entirely due to investors.

Many sellers, meanwhile, have held their homes off the market because they’re unwilling or unable to sell at big discounts.

Unable being more common than unwilling…

A survey released earlier this week by Fannie Mae found that 40% of Americans believed it was a good time to sell, up from 30% in April. That was the highest reading since Fannie began its survey three years ago.

This survey began in the depths of the housing crash, so comparing it to past history doesn’t mean much. That being said, realtors must be frustrated that only 40% of sellers believe it’s a good time to sell. After all, it’s always a good time to buy or sell a house, right?

In all seriousness, given the extreme of this seller’s market, this is a great time to sell and obtain top dollar in a short time. It doesn’t get any better than this for sellers.

Even with the increases, inventories in many markets remain tight, but any easing in the extreme shortages of the past year could ultimately cool the pace at which home prices have been rising. …

Corelogic believes home price appreciation will wane in 2013.

The six markets with the largest year-over-year inventory declines were all in California. Listings were down by 43.4% in Orange County compared with last May, though they increased by 16.5% from April. Listings fell by 36.5% in Los Angeles; 35.3% in San Jose; 34.7% in Oakland; 33% in Ventura; and 32.2% in San Diego. …

Listings are up significantly, but still well below normal. If it weren’t for the historic lows of inventory last winter, the low inventory would be the story. It’s still a seller’s market, and buyers who are active still have to be aggressive to get properties — not stupid-aggressive — but still aggressive. Since the conditions that spawned the low inventory aren’t likely to change any time soon, low inventory and aggressive buyers will be the norm for a while.

Four years as REO inventory

Today’s featured property was bought near the peak by a borrower using an Option ARM. The borrower imploded, and the bank took it back in July of 2009 — you read that right — 2009. What have they been doing with the property for the last four years? If they’ve been waiting for the market to come back, they’ve been very, very patient.

[raw_html_snippet id=”newsletter”]

[idx-listing mlsnumber=”NP13112292″ showpricehistory=”true”]

224 COTTAGE Pl Costa Mesa, CA 92627

$772,500    ……..    Asking Price
$911,000    ……….    Purchase Price
9/30/2005    ……….    Purchase Date

($138,500)    ……….    Gross Gain (Loss)
($61,800)    …………    Commissions and Costs at 8%
============================================
($200,300)    ……….    Net Gain (Loss)
============================================
-15.2%    ……….    Gross Percent Change
-22.0%    ……….    Net Percent Change
-2.1%    …………    Annual Appreciation

Cost of Home Ownership
——————————————————————————
$772,500    ……..    Asking Price
$154,500    …………    20% Down Conventional
4.02%    ………….    Mortgage Interest Rate
30    ………………    Number of Years
$618,000    ……..    Mortgage
$146,632    ……….    Income Requirement

$2,958    …………    Monthly Mortgage Payment
$670    …………    Property Tax at 1.04%
$0    …………    Mello Roos & Special Taxes
$161    …………    Homeowners Insurance at 0.25%
$0    …………    Private Mortgage Insurance
$0    …………    Homeowners Association Fees
============================================
$3,788    ……….    Monthly Cash Outlays

($678)    ……….    Tax Savings
($887)    ……….    Principal Amortization
$216    …………..    Opportunity Cost of Down Payment
$213    …………..    Maintenance and Replacement Reserves
============================================
$2,652    ……….    Monthly Cost of Ownership

Cash Acquisition Demands
——————————————————————————
$9,225    …………    Furnishing and Move-In Costs at 1% + $1,500
$9,225    …………    Closing Costs at 1% + $1,500
$6,180    …………    Interest Points at 1%
$154,500    …………    Down Payment
============================================
$179,130    ……….    Total Cash Costs
$40,600    ……….    Emergency Cash Reserves
============================================
$219,730    ……….    Total Savings Needed
[raw_html_snippet id=”property”]