Back in July I wrote about tracking the median sales price by watching the pending sales. My theory is to look at the LIST price of pending sales and try and use that number to predict the future median sales price. When I first ran the numbers at the end of April I found the median LIST price of the pending sales was $475,000. When the June sales figures came out in July the median sales price was $495,000. That’s not as close to my number as I thought it would be but I always assumed the median sales price was about a two month lagging indicator.
There were over 4,000 pending sales when I ran the numbers in April and perhaps it takes the properties longer to run through the system than I had thought. When the figures for July came out in August the median sales price was $466,000. Perhaps the median sales numbers are a three month lagging indicator.
Another factor is that the sales numbers as reported in the OC Register from Data Quick include new home sales. That definitely skews the median upward.
In July I wrote “For the 4,183 pending sales as of July 7, 2008, the median list price is $439,000.” Today, September 3, 2008, I looked at closed sales reported in the OCMLS and found 2,351 closed sales reported with a median sales price of $439,000.
$439,000 seemed like an awfully big drop 2 months ago but I have been shocked at how far and how fast the market has dropped.
I also ran pending sales as of September 3, 2008, and as of today the median LIST price of all pending sales is $411,000. That is another big drop and it looks like a cold winter for the housing market.
It’s nice that it’s dropping, but I suspect the numbers are being skewed by the low-end sales and virtual death of high-end sales. You can see it when stats are broken out by pending sales and listings per price bracket: the low end has more pendings, the high end has more listings (relative to 6 months ago, seasonally adjusted). Reality is starting to move up the food chain.
Ironically, as the correction moves up, the median price will probably slow its decline, if not go up slightly. It just demonstrates the need to know where the numbers are coming from to be aware of what’s going on.
True, but consider also that what was previously the middle-end and high-end is now considered the “low-end”. There are bank owned properties that are really quite nice, built within the last few years that are selling for less than half of their bubble purchase price. When a house that formerly sold for 800K is now selling for 400K, that means there has been a momentous shift in purchases AND prices, not just shifting to the cheaper version.
It’s only a matter of time before these need to reconverge.
As of right now, the entire move up market since 2002 is DOA. Basically, if you bought 2003 or later, you are either trapped in your home, or facing foreclosure. You have ZERO equity.
What that creates is a buyer environment that supports only limited downpayments. Meanwhile, the lending environment is demanding higher downpayments. The first part of the burst is herd-driven with drying up volumes at higher prices. The second part is returning volumes at lower prices. The final part is capitulation for all price levels. Anyone who can sell will. Anyone who can’t will foreclose, and there is a veritable tsunami of foreclosures coming in the next 18 months.
Chuck Ponzi
That’s not true about the entire market, and a good example of what I’m talking about. People can get a warped perception of the “entire” market based on the averages/medians, when particular areas are different.
For example, I bought on the west side in ’03, and I’m neither underwater nor facing foreclosure (20% down, 3-yr fixed for reference). At peak my place was ~630k, now probably ~525k, but still well above ’03 price of ~370k. And I’m on the low side of the high end (low-end property in a higher-end area).
So far the high-end areas haven’t dropped much; they are progressing slower through the first phase (sales slowdown) than the lower-end areas did. There’s not much in the high-end areas (beach or expensive areas) which are down more than 25% from peak, compared to some inland and inexpensive areas which are down 50% or more.
It will happen, just slowly, and creeping up the food chain as people have more ways to stall the inevitable; that’s all I’m saying.
I agree with Nick’s assessment. I’ve been watching Huntington Beach and the same thing is happening there – a mild (compared to other areas) slowdown. Nothing drastic like 40-50%+.
I’d like to hear Chucks take on exactly what the AltA implosion will do to these markets? I have two thoughts:
1. Where the inland empire dropped quickly, then seems to be slowing the rate of decline – will the higher end areas see a slow rate of decline (now) and then see a fast drop? or
2. Higher end areas maintain their slow slide, and eventually reach (comparable) affordability – but many years after places like the IE have reached bottom.
Those areas that Nick is talking about wasn’t really about subprime or Alt-A. It was prime, but a very specific type of prime, the pay-option ARM.
Here’s the Map of Misery:
http://www.socalbubble.com/for.....c.php?t=18
Many of these are going to be hitting their recasts (not even resets) early due to the burgeoning negative amortization. This will have several effects:
1. Many owners’ payments will jump substantially, both the rates are substantially higher than before AND it will begin amortizing over a shorter than 30 year period (27 to 23 years)
2. Because more than 90% pay only the minimum, balances will be 15-20% higher than they were when they began the pay option. This means payments could jump as much as 100% or more.
3. Pay options are no longer widely available, and much more scrutiny is being put on appraisals, effectively locking out most of the previous pay option customers from rolling over into another one.
4. This will not only result in a much more significant wave of defaults and foreclosures, but also a significant drain on local economies as money previously spent in the local businesses is now routed to saving their homes.
5. The already extremely slow sales pace will prevent those rushing for the exits from ever reaching their destination. There just aren’t that many people who can afford an 800K fully-amortized loan. endgame.
This is all going to be happening over the next 18 months. No recovery until 2011, if even then. Banks are still screwed, especially those that have been loading up on Neg-am products.
Most places will drop below 2002 pricing, but real estate is highly local. Some people can and will rather sit it out or rent it out rather than taking a loss.
Either way, jobs tied to the local economy are not going to be as plentiful as during the bubble. We will likely see much more outmigration.
Chuck
will the prime areas ever truly fall to the degree that the others did? or will they not fall, but move sideways for a long time?
I’m thinking the alt-a and subprime implosions remove the move-up ability to the prime areas, so prime eventually has to come down too?
Yes,
Like my long-winded dissertation above, the reason they are taking longer is twofold.
1. Reset/recast periods on subprime are shorter at 2-3 years vs 5-7 years for neg-am. This is their time to fail from peak prices.
2. Many Negam owners have a larger financial buffer to withstand payment shock.
However, the social repercussions of walking away are now fully removed, we’ll see a similar (if not higher) percentage of negam owners walk away than subprime, in my opinion.
I’ve been watching high-end areas of huntington beach as well. The volume of homes for sale is way down since the summer months and the discounts were minimal(5-10%). But in the last 3 weeks I’ve seen huge cuts(averaging 10k/week). I’m now in a position where in a year I’ll have 30% to put down instead of just 20% had I purchased at the beginning of the year.
The Walmart rollback special has hit most everyone…. With the slowing economy and the end of Subprime/Alt A lending, it looks like things will get worse over the next 6 months. I am curious though on Zillow’s estimate in most area’s providing a 16-18% down side and about 6% up side of their estimate range… Is this saying that the housing market still has more down side potential??
Nick said,
“At peak my place was ~630k, now probably ~525k, but still well above ‘03 price of ~370k.”
I find it interesting that when the rest of CA is seeing 30-40% price declines from peak Nick’s neighborhood is only down about 15%. I guess it must really be “different there.” Maybe Suzanne researched it.
How much is any home really worth?
Here is how to figure it out.
How much monthly rental income can the home generate? Don’t guess. How much do similar homes rent for in the area. Take that figure and multiple by 12 for the yearly rental income. Then multiple that yearly rental figure by 12 to get the maximum value of the home.
Example:
Monthly rental income $2,000.00 per month. 2,000.00 x 12= $24,000.00 x 12 = $288,000.00. That is the maximum value.
Is the house overpriced or undervalued? You now have figure to work from.