California Real Estate Market Is Up

The chart above from this CD post was featured Wednesday night on CNBC's "The Kudlow Report," and was also discussed Thursday morning in The Gartman Letter. As Dennis Gartman pointed out:

What we found interesting is that when one multiplies the data through, the total dollar amount of homes sold in 2008 was above that of 2007. In 2008, $1.53 billion was “done” in the housing market in California’s existing single family homes, up from $1.42 billion in ’07. We suspect that few… if any… would have bet that more money was spent on single family houses in California in 2008 compared to 2007. Certainly we would not have. Now we know… and we find it rather interesting.

And here are some additional interesting items from the California Association of Realtors (CAR) housing report for December 2008:

1. The unsold Inventory Index for existing, single-family detached homes in December 2008 was 5.6 months, compared with 13.4 months for the same period a year ago. The index indicates the number of months needed to deplete the supply of homes on the market at the current sales rate.
   
2. The median number of days it took to sell a single-family home was 46.1 days in December 2008, compared with 66.7 days for the same period a year ago.

In other words, the Inventory Index in California decreased by almost 8 months, and the median number of days to sell a single-family home decreased by almost 21 days, from December 2007 to December 2008. The way the media reports it, you would think we were years away from a solid recovery in the real estate market, when some of the housing data suggest otherwise. The fall in home prices is helping to stimulate home sales, as the Law of Demand would predict. In other words, market forces are working in the California real estate market.

Comments

[Urbane Gori...:]

I'm not sure if you live in California, but apparently authors are eager to layer a coat of paint onto our depressed RE market here.

First: Anything that comes from CNBC is suspect.

Second: Anything. And I mean **anything** issued by that peculiar gasbag Kudlow is beyond suspect.

Third: Sales volume is up almost double, but the median price is halved. And that does not even touch on the subject of 'shadow' inventory. These are the foreclosed homes that were not on the MLPs before the tacit moratorium.

Anecdotal:

I just received my Zillo.com report. My rental in Sacramento keeps dropping every month. The **only** competition are foreclosures. What was a $230,000 home 2 years ago can now be bought for $90,0000.

My neighbor here in Grass Valley, CA (a nice retirement area), could have sold last year for $430,000. Due to divorce, he put his remodeled home on the market for $250,000. In 3 months, he's had one offer: $200,000. There are an increasing number of 'for sale' signs up here. Now we're beginning to see a proliferation of 'REPO auction' signs.

Sorry. There ain't no good news on the California front.

jegan

Feb 20 08:37 AM

[Worried?:]

Great insight Urbane....

One only needs to look at the source of the data to realize this is an attempt -- and a noble one, I might add -- by the California Association of Realtors to help find a "bottom" to the housing market.


On Feb 20 08:37 AM Urbane Gorilla! wrote:

> I'm not sure if you live in California, but apparently authors are
> eager to layer a coat of paint onto our depressed RE market here.
>
>
> First: Anything that comes from CNBC is suspect.
>
> Second: Anything. And I mean **anything** issued by that peculiar
> gasbag Kudlow is beyond suspect.
>
> Third: Sales volume is up almost double, but the median price
> is halved. And that does not even touch on the subject of 'shadow'
> inventory. These are the foreclosed homes that were not on the MLPs
> before the tacit moratorium.
>
> Anecdotal:
>
> I just received my Zillo.com report. My rental in Sacramento keeps
> dropping every month. The **only** competition are foreclosures.
> What was a $230,000 home 2 years ago can now be bought for $90,0000.
>
>
> My neighbor here in Grass Valley, CA (a nice retirement area), could
> have sold last year for $430,000. Due to divorce, he put his remodeled
> home on the market for $250,000. In 3 months, he's had one offer:
> $200,000. There are an increasing number of 'for sale' signs up here.
> Now we're beginning to see a proliferation of 'REPO auction' signs.
>
>
> Sorry. There ain't no good news on the California front.
>
> jegan
>
>

Feb 20 08:47 AM

[Tim Plaehn:]

The bottom in the CA housing market will come when the bankers realize they do not have to keep dropping the prices to move the REO properties.

Feb 20 09:30 AM

[Griz:]

I heard that the California MLS includes foreclosures in their sales counts, i.e. when a bank forecloses on a home it get counted as a sale. If this is the case then that would explain why the number of transactions is way up. Also, it appears that some banks are "sitting" on their REOs and not putting them back onto the market, which would explain the drop in inventory levels... I'm still thinking bottom Fall 2010 or later.

Feb 20 09:31 AM

[walters:]

Mark, you are just full of good news; I hope we are not headed toward another bubble. But cheerleading won't work, the process of de-leveraging must take its course. You might have done some good if you had sent some warnings during the irresponsible run-up.

Feb 20 09:33 AM

[notsosmart:]

dont bother with this guy.waste of time.he should get together with kudlow's goldilocks & plant mustard seeds.

Feb 20 10:01 AM

[a. palmer jr.:]

I would think that California's housing market would be skyrocketing...where do all the illegal immigrants live?

Feb 20 10:43 AM

[Mad Hedge F...:]

In case you missed the business section of the San Francisco Chronicle last week, there is a fabulous graphic illustrating the hard times for the city’s commercial real estate market. The epicenter of the melt down is Tishman Speyer’s 556,000 sq. ft. 555 Mission Street, which opened in late 2008 during the worst possible market conditions, and remains 70% empty. What is really impressive is how bad the implosion of the legal profession is hitting landlords. The dissolution of Heller Ehrman has emptied 350,000 sq. ft. 333 Bush Street, while 388,000 sq. ft. 101 Second Street has been vacated by the dissolution of Thelen LLP. Conditions will worsen as more new buildings started during better times come on the market.

Feb 20 11:10 AM

[Russ Winter:]

Gosh, what I read here is this, "The fall in home prices is helping to stimulate home sales, as the Law of Demand would predict."

Although that hardly constitutes a boom or "go run out and buy before prices go up", it does suggest some healing taking place.

Feb 20 12:01 PM

[scotty1560:]

Mark, we are just starting the serious level of foreclosures...
watch out for the jumbo and high end market collapses coming.
watch out for commercial real estate..

I expect California, Phoenix, Florida, Nevada to take 75% haircuts on land cost
from top to bottom.. roughly 40-50% down from here. This will take another
24-30 months.. Sellers are expecting a turn that is frankly not in the
cards. Ditto with the Dow.. look for $3500-4000 at bottom.

Depressions are not fun.. wiping out every asset from every angle and
wipes out our incomes as well. Cash and a bit of gold..Be very careful who
you bank with.. many banks will not survive..

Feb 20 12:44 PM

[henarl:]

California housing market up? Up the creek is more like it. Obviously the author doesn't live in Stockton - or the vast majority of other CA communities.

Feb 20 01:03 PM

[John Lounsbury:]

Let's look at the numbers:

From December 2007 to December 2008, California prices are down 42% (California Association of Realtors (CAR) data in this article). This is well after the peak in house prices in the summer of 2006 (Case-Shiller) at about $226,000 (national average). Therefore, it is likely that the California drop from peak prices, as reported by the CAR, is significantly more than 42% as of December, 2008.

If we apply the 42% (admittedly too low for the entire drop from 2006) to the Case-Shiller national average peak ($226,000), we get a national average price of of $131,000. This is far below the latest national average prices (November Case-Shiller values are $166,050 (CSXR Composite-10) and $154,590 (CPC20R Composite-20)). The December Case-Shiller numbers are expected in another week.

I have averaged the median home prices for all California markets in July, 2006 (from the CAR web site). The value is $563,280. That is double the December, 2008. Therefore, California prices are down about 50% from the high using CAR numbers.

So this means that California houses have fallen far further than the national averages and one would expect that sales would be doing much better than elsewhere.

All that said, how do we know what the foreclosure overhead (further foreclosures not currently in the market) is in California? Is the foreclosure tsunami ended there?

By the way, Case-Shiller (CS) prices for the three largest California markets (Los Angeles Area, San Diego Area and San Fransisco Bay Area) are much lower than the California Association of Realtors (CAR) numbers. This has, among other reasons, the following contributing factors:

1. CS reports average prices and CAR reports median prices.

2. CS reports the three major metropolitan areas and CAR covers the entire state.

3. CS uses only paired data (properties with two sales) in an attempt to eliminate all factors other than directly comparable sales. Thus CS excludes first time sales for new construction.

Feb 20 01:39 PM

[P. Kalven:]

All points of view here have some validity, but the central factor of good news with in this is twofold, albeit home values have taken a beating, and those owners without any equity are in the cold; for those owners who have equity the real question is did the home sell above what was paid for it?

Volume of sales means that money is moving into other sectors of the economy, through all the fees attached to the transactions, and the liquidity these transactions represent, at least something is happening in this market and up or down it is not stagnant. The movement of money through the marketplace is a stimulus in and of itself. As any Realtor can tell you never plan on what you don't have; the value of a home is what the market will pay for it, not what it was worth last year and if you bought it below what it is worth today there is little cause to complain. If you bought it for more, chances are you took out a sub-prime mortgage, unfortunately no one warned you at the time, what you reap you shall sow.

The other consideration here is that more money has been liquidated than the previous year; I can hear the gripers now, “Yeah Liquidated, as in dead,” not quite; again it is money moving into other sectors and that is important.

Even a little upward movement in all this bleak news is worth noting.

Feb 20 02:18 PM

[EEB:]

I was looking at some Census Bureau reports on vacancy rates and household formation rates yesterday, and the numbers were not good for the housing market. The vacancy rates are higher than in the early 1980's and the early 1990's, and it looks like household formation has stalled. But we are still building housing units. That means demand is likely not increasing and supply still is. If unemployment continues to increase, then I doubt if household formation will pick up suddenly. It seems to me, that housing is in for a few more rough years.

Feb 20 10:26 PM

[Did U Think...:]

On Feb 20 09:30 AM Tim Plaehn wrote:

> The bottom in the CA housing market will come when the bankers realize
they do not have to keep dropping the prices to move the REO properties.

If they didn't have to drop the price to move it, they wouldn't. Banks are insolvent and so they need to raise cash whatever it costs them. They have houses on the market for 180-400 days, paying taxes on them no less at the bubble price tax rate. it's bad enough to lose money on the principal but an outright insult to get slapped with high taxes as holding costs. Banks simply cannot afford to watch the economy go down while they hold onto houses.

Here's a little hint for everyone on this board: 300k used to be a lot of money for a fracking house. At some point houses became investments to people because they thought the prices would go up forever. Soon they will return to their historical role as "just shelter" because of several things:
1) nobody is making money on appreciating housing anymore and will not do so for a loooooong time to come. Thus, people looking to buy a house for shelter will not have to compete with speculators looking to make a profit anymore.
2) credit has evaporated so that it will become harder and harder to get big loans
3) Interest rates will soon have to rise. Interest rates are set by the 10 and 30 year treasuries. If the fed keeps the rates too low for too long then nobody will buy them and our government will BK. So they will have to allow the rates to rise at some point and then the "cheap" part of "cheap and easy credit" will evaporate.
4) jobs are evaporating and taxes will have to be raised soon to help our overbloated and insolvent government retain its ridiculous spending addiction on military toys, foreign wars, wars on "everything": drugs, terror, poverty, blah blah blah.

This is not going to recover any time soon. The great Ponzi scheme has gone bust. Game over for many years now.

Feb 21 04:49 PM

[Mr. Ed, Jr.:]

I guess it must be true-- no matter how much things change, they stay the same.

After all these years, the mainstream media (and others) still treat the NAR and the affiliate boards as though they are presenting "Just the fact's, ma'am".

The NAR has a job to do -- sell homes. It is not their job to present unvarnished statistics for objective analysis. When you read their website about how they gather the information, you will see the words "survey, sample, unreported data" and any number of choice words that will leave you wondering exactly how precise the data collection process is.

And local boards and realtors do not have to report their data. It is voluntary. (You can decide for yourself the odds of favorable data going unreported)

From the article :

"The unsold Inventory Index for existing, single-family detached homes in December 2008 was 5.6 months, compared with 13.4 months for the same period a year ago. The index indicates the number of months needed to deplete the supply of homes on the market at the current sales rate."

You probably read that and wondered if that was because so many sellers just took their homes off the market. Could it be that it was because they were tired of getting "foreclosure type" offers ? Or no offers ? Or that they no longer can afford to sell the home at today's prices ?

But that is the reality-- not that the home sales are so good that they are drastically reducing the inventory. Sure, there probably has been an increase in sales, because people have been waiting it out and there is at least a little pent up demand. But leave it to the NAR to word it in such a deceptive way.

When there were not so many foreclosures, agents tried every trick they knew to keep prices up-- for the comparables. Sellers paid closing costs, included the furniture, even threw in cars. Nothing mattered but keeping the comps up, for the next sale in the neighborhood. But that was not something they were reporting to the NAR for the monthly data. I doubt if bankers are playing that game with the foreclosures, so the NAR year-over-year price declines have become more realistic. Funny how that happens.


The NAR data (and accompanying cheery press release letting you know "it's a great time to buy") have not at any time been in synch with the reality of this housing crisis. And yet, mainstream media just shakes their collective heads and says "That new data may be an indication the housing market may be nearing a bottom".

Every month. Like clockwork.

Feb 22 03:33 AM

[Mad Hedge F...:]

In case you missed the business section of the San Francisco Chronicle, there is a fabulous graphic illustrating the hard times for the city’s commercial real estate market. The epicenter of the melt down is Tishman Speyer’s 556,000 sq. ft. 555 Mission Street, which opened in late 2008 during the worst possible market conditions, and remains 70% empty. What is really impressive is how bad the implosion of the legal profession is hitting landlords. The dissolution of Heller Ehrman has emptied 350,000 sq. ft. 333 Bush Street, while 388,000 sq. ft. 101 Second Street has been vacated by the dissolution of Thelen LLP. Conditions will worsen as more new buildings started during better times come on the market.

Feb 23 01:13 AM

[Lightway:]

California Association of Realtors AND CNBC as sources? Highly questionable. Things here continue to deteriorate.

Irvine Housing blog has correctly predicted both the timing of the bubble collapse along with percentage decreases by year. We are still looking at another 15-20% drop in prices this year, followed by 2 years of mild declines. Prices stabilize in 2011-2012.

Keep in mind also there is a tremendous inventory the banks have not put back on the market.

I have no affiliation with the blog other than being a reader:

www.irvinehousingblog..../

Feb 24 02:26 PM