Tag Archives: Inventory

CR: Existing Home Inventory up 3.6% year-to-date in late February

Existing Home Inventory up 3.6% year-to-date in late February

by Bill McBride on 2/25/2013  

Weekly Update: One of key questions for 2013 is Will Housing inventory bottom this year?. Since this is a very important question, I’ll be tracking inventory weekly for the next few months.

If inventory does bottom, we probably will not know for sure until late in the year. In normal times, there is a clear seasonal pattern for inventory, with the low point for inventory in late December or early January, and then peaking in mid-to-late summer.

The NAR data is monthly and released with a lag.  However Ben at Housing Tracker (Department of Numbers) kindly sent me some weekly inventory data for the last several years. This is displayed on the graph below as a percentage change from the first week of the year.

In 2010 (blue), inventory followed the normal seasonal pattern, however in 2011 and 2012, there was only a small increase in inventory early in the year, followed by a sharp decline for the rest of the year.

So far – through late February – it appears inventory is increasing at a sluggish rate.

Exsiting Home Sales Weekly dataClick on graph for larger image.

Note: the data is a little weird for early 2011 (spikes down briefly).

The key will be to see how much inventory increases over the next few months. In 2010, inventory was up 8% by early March, and up 15% by the end of March.

For 2011 and 2012, inventory only increased about 5% at the peak.

So far in 2013, inventory is up 3.6%.   If inventory doesn’t increase more soon, then the bottom for inventory might not be until 2014.

Read more at http://www.calculatedriskblog.com/2013/02/existing-home-inventory-up-36-year-to.html#sY2JS9L3XSYtKg8I.99

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The lingering legacy of the shadow inventory

The lingering legacy of the shadow inventory – homeownership rate will bottom in 2014. Goldman Sachs predicts homeownership bottom. 

The banking system is starting to clear out shadow inventory and nationwide, prices are inching closer to a nominal bottom.  It is important to understand how crucial a healthy housing market is for the stability of household balance sheets.  Most Americans derive the bulk of their net worth from housing.  The fact that nearly 10,000,000 Americans are underwater is a major drag for the economy moving forward.  Goldman Sachs recently released a study looking at the housing market and attempted to analyze a bottom in regards to the homeownership rate.  One of their major key figures dragging the rate lower was of course, the shadow inventory.  Certainly banks can leak out properties via a variety of mechanism through short sales, REOs, rent-to-own programs, and bulk sales to big investors.  The “throw everything at the wall” approach is likely to be the status quo for the housing market moving forward.

Homeownership forecast bottom at 2014

The drag of distressed inventory is definitely being felt in the homeownership arena.  Think about what is happening right now.  Over a decade of stagnant income and weak employment growth has created a major gap in the demand for housing.  On one side, you have new household formation but many younger families are less affluent than the big baby boomer cohort that owns a good portion of current housing.  The younger families are demanding lower priced homes and baby boomers are looking to cash out at higher prices.  The gap is created especially with so many legacy loans still priced at face value peak prices.  The report put out by Goldman Sachs understands this drag being created by the shadow inventory:

homeownership forecast

In other words, the biggest pull to the downside for the next three years is going to be the shadow inventory.  So let us review the mechanisms in which shadow inventory is being cleared out:

-1.  Short sales

-2.  REOs

-3.  Rent-to-own programs

-4.  Bulk sales to investors

-5.  Controlled low rate mortgage programs to help aid people underwater (i.e., HARP 2.0 etc)

All these programs essentially are part of the buffet to rectify the value disconnection brought on by the housing bubble.  Yet where does the income or employment growth come from?  The demographic question is important and crucial to understand.  We also have data that simply does not measure reality.  For example, in the latest data the California unemployment rate fell from 11 to 10.9 percent but in the process lost 4,200 jobs.  This happens because people are dropping out of the labor force.  Did the pool of qualified potential home buyers just increase?  Unlikely.  This is why with interest rates in the insane 3% range home values are still just bouncing along the bottom and sales are simply moving sideways.

With a bottom in 2014 we would be back to the homeownership rate last seen 20 years ago:

home ownership rate in the past century

Is this a positive development?  Since the Great Depression housing has been the bedrock for wealth for most Americans deep into retirement.  So this decline is likely to make it tougher for most to build wealth since very few Americans actually own any sizable amount of stocks or bonds for that matter.  Even at the 2014 estimated bottom, some 64 percent of Americans will be considered homeowners.  That is a sizable portion but lower from where we are even today.  At retirement many can rest assured (assuming they paid off their mortgage) that their home is now fully owned or can go for a reverse mortgage if they are on the verge of eating off the dollar menu at McDonalds.  It is troubling that the projections for Social Security not being able to pay out full benefits hits when many of these younger buyers will enter into their own retirement although their rate of paying into the system is the highest on record.  The scary thing is that as we enter the peak of baby boomer retirements, the housing market is at its nadir in terms of price:

real house prices

Real home prices adjusting for inflation are back to levels last seen in 1997.  Japan has faced over two lost decades and we are well into our second lost decade in terms of prices and homeownership rates.  Obviously each market is unique in its own respects and the above is merely looking at the nation as a whole.  For well over a year I have mentioned that it is likely that nationwide we are reaching a bottom with the median home price being $163,000 and the typical household pulling in $50,000.  Historically this seems to work fine and given current mortgage rates, there are many good deals to be had across the country.  Yet many areas including many cities in California are still in micro-bubbles.

The comparison with Japan is apt in the following ways:

-Quantitative easing and major central bank action to keep interest rates artificially low after a housing bubble

-Younger less affluent generation needing to support older generation

-Home values losing a decade or more of worth (real adjusted prices)

Every country is different obviously but this push for a lower homeownership rate is going to come because of lingering distressed inventory but also, a new home buyer that is less affluent than the previous baby boomer generation.  Is it any wonder why so many young college graduates and younger folks are moving back home with mom and dad after being on their own?  Many of these actually are working in part-time gigs pulling in some income but certainly not enough to buy a home and in many cases, not even enough to rent a place of their own.  The above charts merely reflect this sobering trend

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Existing Home Inventory declines 20% year-over-year in early April

Existing Home Inventory declines 20% year-over-year in early April

by CalculatedRisk on 4/05/2012  

Another update: I’ve been using inventory numbers from HousingTracker / DeptofNumbers to track changes in inventory. Tom Lawler mentioned this last year.

According to the deptofnumbers.com for (54 metro areas), inventory is off 20.4% compared to the same week last year. Unfortunately the deptofnumbers only started tracking inventory in April 2006.

This graph shows the NAR estimate of existing home inventory through February (left axis) and the HousingTracker data for the 54 metro areas through early April.

NAR vs. HousingTracker.net Existing Home InventoryClick on graph for larger image.

Since the NAR released their revisions for sales and inventory, the NAR and HousingTracker inventory numbers have tracked pretty well.

Seasonally housing inventory usually bottoms in December and January and then starts to increase again through mid to late summer. So seasonally inventory should increase over the next several months.

The second graph shows the year-over-year change in inventory for both the NAR and HousingTracker.

HousingTracker.net YoY Home InventoryHousingTracker reported that the early April listings – for the 54 metro areas – declined 20.4% from the same period last year. The year-over-year decline will probably start to slow since listed inventory is getting close to normal levels. Also if there is an increase in foreclosures (as expected), this will slow the year-over-year decline.

This is just inventory listed for sale, there is also a large “shadow inventory” that is currently not on the market, but is expected to be listed in the next few years. But this year-over-year decline remains a significant story.

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The monster lurking in the shadow inventory–Dr. Housing Bubble Blog

The monster lurking in the shadow inventory – 12 million Americans underwater with nearly 6 million delinquent or in foreclosure with their mortgages. The hidden benefit of not paying your mortgage.

Shadow inventory coming online in 2012 is going to have the biggest impact on the housing market.  With a weak jobs report that shows a labor force that declined by 164,000 you realize that demographic trends are now in full play here.  With banks now moving on delinquent properties the supply will be moving higher while traditional inventory remains low.  This is happening.  We noted that in Southern California, over 50 percent of all MLS inventory is now composed of short sales showing that banks are now willing to sell homes for less than the original mortgage balance.  One of the more interesting trends is the aggressive pricing we are seeing on some of these listings.  Of those in actual foreclosures, nearly half have made no mortgage payment in two years.  Now that banks are moving on these properties that hidden stimulus will be pulled away.  Think about not paying rent or a mortgage for two full years.  Let us take a look at the current state of the shadow inventory.

 Distressed inventory pipeline

Over 5,800,000+ homes are either delinquent or in the foreclosure process:
shadow inventory 2012 chart

You need to remember that the first two columns rarely show up on the MLS.  These homes have yet to even hit the foreclosure process so do not show up as inventory.  These are simply home owner’s not making payments on their home for a variety of reasons.  Cure rates have been pathetic so most of these will end up as foreclosures.  Then you move to the loans in foreclosure category and many are not on the MLS as well.  You have the three stages of foreclosure:

-Notice of default is filed (at least three missed mortgage payments)

-NTS (scheduled for auction)

-REO (bank owned)

Even when a property becomes bank owned, it may take months (a year) to get it on the MLS.  In total over 5,800,000 properties are delinquent or in some stage of foreclosure.  When the existing inventory is looked at only a small part of the picture is shown:
Shadow Inventory

Existing inventory has trended lower since 2007 and many analysts simply look at this as if this was the only measure of housing inventory.  This only reflects roughly 2 million properties while another 7 million properties are either:

-90+ days delinquent

-In the foreclosure process

-Bank-owned real estate

-Current but underwater

So what you have is a giant pool that isn’t viewable to the public but is slowly leaking into the blue category.  That is, the existing category has room to grow simply because the other pipelines are so enormous and one option is to get out ahead of the curve by allowing short sales.  With home prices making post bubble lows and household incomes stagnant for well over a decade, there is little reason to see pressure for higher prices.  As we noted with a shrinking labor force because of lower paying jobs or people dropping out of the labor force where will pressure for higher prices come from?  Mortgage rates are artificially low thanks to the Federal Reserve and with low down payment loans like FHA insured loanproducts the leverage capacity is at a maximum for buyers to stretch into a property.  Rates are unlikely to go lower and we know FHA loans will get more expensive in the upcoming months because default rates are soaring.  What a shocker that allowing people with almost no down payment to buy expensive homes is causing further issues.

A mini stimulus will also be lost as more of those living in their homes payment free will lose that advantage:

“Vigeland: So first of all, can you give us a sense of how prevalent this is? What are the numbers of people who are squatting in their own homes?

Feroli: Well, right now you’re looking at about 8 percent mortgages outstanding are past due and there are about 44 million mortgages out there. So you’re talking about a pretty significant number of people who right now are not paying their mortgage.

Vigeland: Wow. So how did you come up with the estimate of a $50 billion impact here?

Feroli: Right. So there’s about $10 trillion in mortgage debt owed by the household sector. So you’re looking at about $800 billion in mortgages, which are past due — average interest rate of about 6 percent or a little above. Most of those mortgages, of course, are in the early stage when it’s mostly interest that you’re paying. So 6 percent on a little over $800 billion comes out to about $50 billion per year that are free for other purposes.”

$50 billion is nothing to sneeze at.  As more short sales pop up on MLS searches every day it looks like this trend will be coming to an end.

Underwater nation

Take a look at how many Americans are underwater on their mortgages:
homes with negative equity

Approximately 12 million Americans who “own” their home owe more on the property than what the property is worth today.  So as more properties enter the pipeline there is little reason to believe the demand curve will shift up.  For the short-term, we will likely see a move for the supply side:

supply and demand housing

This is exactly what is happening and why home prices continue to fall.  For example, the mid-tier market in Southern California has seen home prices fall by 8 percent in the last 24 months.  Why?  This is partly due to more short sales hitting the market and a large demand for lower priced properties based on stagnant household incomes.  So as more of these homes leak into the inventory why should we expect some sort of reversal of the trend?

It seems like many in the press are acknowledging this second test for the housing market.  Now what can mitigate this from happening?  If we see strong job gains in good paying fields and household incomes rising then there is reason to argue for higher home prices.  Simply to argue that home prices will go up because “inflation” will pick up is missing the point.  We are seeing global goods like fuel and food going up because these can be shipped anywhere and thanks to the Fed, the dollar is getting hit.  With housing however, it is a local good so therefore local household incomes do matter and this is what we are seeing.  A place like Las Vegas with a large number of low paying service sector work is now seeing homes sell way below $100,000.  This makes sense given their local demographics.  Here in California every segment of the market has seen major price declines.

As more shadow inventory hits the market the supply curve is likely to increase even though some analysts might only narrowly focus on the existing MLS inventory that only highlights a small part of the total picture.  This is missing the next trend like arguing Alt-A and subprime loans were a good thing just because defaults initially were extremely low.  The demand side can shift but only if incomes go up and employment really picks up.  Also, many younger Americans are saddled with high levels of student debt and are making less money.  So who will many of these older home owners sell homes to?  Certainly not at price levels they would hope to get.  Yet banks control a large part of the inventory and short sales and foreclosure sales will dominate in many markets because prices are more set to what the market will support.  After half a decade and with housing making nominal lows it looks like some are finally getting it that those nostalgic high prices are unlikely to ever come back again.

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The Excess Vacant Housing Supply

The Excess Vacant Housing Supply

by CalculatedRisk on 12/14/2011 

Over the last few days, there has been some more discussion on the current number of excess vacant housing units in the United States.

There are always a large number of vacant housing units – this includes second homes, housing units for rent, homes sold but not yet occupied, and several other categories. The key is the “excess”. Once the excess is absorbed in a local area, then new construction will pickup (we are already seeing an increase in apartment construction in many areas).

Here is the recent discussion, first from an article by Catherine Rampell over the weekend in the NY Times:

Household formation has slowed dramatically since the recession, as cash-strapped families double up and unemployed recent college graduates are unable to leave behind their parents’ couches. To judge just from demographic statistics, more than a million households that should have been formed in the last few years weren’t, according to Mark Zandi of Moody’s Analytics.

The tally of missing households is approximately equal to the country’s current surplus of vacant homes.

Dean Baker responded: Mark Zandi and the NYT Hugely Underestimate the Number of Vacant Homes

The NYT cited Mark Zandi as saying the number of vacant homes is roughly 1 million, which he puts as equal to the gap in household formation that resulted from the recession. According to the Commerce Department, if the vacancy rate was back at its pre-bubble level, there would be 3 million fewer vacant units.

Unfortunately Dr. Baker is using the Census Bureau’s Housing Vacancies and Homeownership (CPS/HVS) survey, and there are serious questions about this survey. See Be careful with the Housing Vacancies and Homeownership report and Lawler to Census on Housing Data: “Splainin” Needed Not Just on Vacancy Rate. The HVS is based on a fairly small sample, and does not track the decennial Census data. Dr. Baker’s estimate of 3 million excess vacant housing units is probably far too high.

Using the Census 2010 national data, Tom Lawler estimated “a number in the 1.6 to 1.7 million range seems about right.” (as of April 1, 2010) and “probably in the 1.2 to 1.4 million range on May 1, 2011.”

Using the Census 2010 state data, I estimated that the number of excess vacant housing units was above 1.8 million on April 1, 2010 (the date of the Census). See: The Excess Vacant Housing Supply. The number of excess units is lower today – even with sluggish household formation – because thebuilders are completing a record low number of housing units this year.

Lawler’s most recent estimate was as of May 1, 2011. We can walk that forward to today. The decline in the excess vacant housing units is equal to new households formed, minus completions, minus scrappage (demolitions). Completions are still at record lows, and the excess vacant housing supply has probably declined conservatively by another 200 to 300 thousand units over the last seven months – so the excess vacant housing supply is probably close to 1 million or so as the NY Times reported.

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Existing Home Inventory continues to decline year-over-year in October

Existing Home Inventory continues to decline year-over-year in October

by CalculatedRisk on 10/10/2011 

I’ve been using inventory numbers from HousingTracker / DeptofNumbers to track changes in inventory. Tom Lawler mentioned this back in June (Tom also discussed how the NAR estimates existing home inventory – they don’t aggregate data from local boards!)

A few key points:
• In a few months, the NAR is expect to release revisions for their existing home sales and inventory numbers for the last few years. The sales revisions will be down (the NAR has pre-announced this), and the inventory is expected to be revised down too. From the NAR last month: “Publication of the revisions is expected in several months, and we will provide a notice several weeks in advance of the publication date. … Although there will be a downward revision to sales volume, there will be no notable change to previous characterizations of the market in terms of sales trends, monthly percentage changes, etc.”

• Using the deptofnumbers.com for monthly inventory (54 metro areas), it appears inventory will be back to late 2005 / early 2006 levels this month. Unfortunately the deptofnumbers only started tracking inventory in April 2006.

• Existing home inventory surged in the 2nd half of 2005 and that was a key indicator that the housing bubble was about the burst (I was able to call the top in activity mid-2005, and predict prices would start to decline in 2006).

NAR vs. HousingTracker.net Existing Home InventoryClick on graph for larger image.

This graph shows the NAR estimate of existing home inventory through August (left axis) and the HousingTracker data for the 54 metro areas through early October. The HousingTracker data shows a steeper decline in inventory over the last few years (as mentioned above, the NAR will probably revise down their inventory estimates in a few months).

HousingTracker.net YoY Home InventoryThe second graph shows the year-over-year change in inventory for both the NAR and HousingTracker.

HousingTracker reported that the early October listings – for the 54 metro areas – declined 16.4% from last year. Inventory was down 16.7% year-over-year in September.

This is just “visible inventory” (inventory listed for sales). There is a large percentage of distressed inventory, and various categories of “shadow inventory” too. But the decline in listed or “visible” inventory is a key story in 2011 – and listed inventory for October is probably down to the lowest level since October 2005.

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Existing Home Shadow Inventory Declines to 1.6 million units

CoreLogic: Existing Home Shadow Inventory Declines to 1.6 million units

by CalculatedRisk on 9/27/2011 

From CoreLogic: CoreLogic® Reports Shadow Inventory Continues to Decline

CoreLogic … reported today that the current residential shadow inventory as of July 2011 declined slightly to 1.6 million units, representing a supply of 5 months. This is down from 1.9 million units, a supply of 6 months, from a year ago, and follows a decline from April 2011 when shadow inventory stood at 1.7 million units. The moderate decline in shadow inventory is being driven by a pace of new delinquencies that is slower than the disposition pace of distressed assets.

CoreLogic estimates the current stock of properties in the shadow inventory, also known as pending supply, by calculating the number of distressed properties not currently listed on multiple listing services (MLSs) that are seriously delinquent (90 days or more), in foreclosure and real estate owned (REO) by lenders.

Of the 1.6 million properties currently in the shadow inventory, 770,000 units are seriously delinquent (2.2-months’ supply) [down from 790,000 units in April], 430,000 are in some stage of foreclosure (1.2-months’ supply) [down from 440,000] and 390,000 are already in REO (1.1-months’ supply) [down from 440,000].

Mark Fleming, chief economist for CoreLogic, commented, “The steady improvement in the shadow inventory is a positive development for the housing market. However, continued price declines, high levels of negative equity and a sluggish labor market will keep the shadow supply elevated for an extended period of time.”

CoreLogic Shadow InventoryClick on graph for larger image in graph gallery.

This graph from CoreLogic shows the breakdown of “shadow inventory” by category. For this report, CoreLogic estimates the number of 90+ day delinquencies, foreclosures and REOs not currently listed for sale. Obviously if a house is listed for sale, it is already included in the “visible supply” and cannot be counted as shadow inventory.

So the key number in this report is that as of July, there were 1.6 million homes seriously delinquent, in the foreclosure process or REO that are not currently listed for sale.

Note: The unlisted REO seems a little high since total REO has dropped sharply over the last couple of quarters.

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