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camping: Inventory numbers are better than sales numbers in analyzing housing market conditions. But I do not have a history of inventory numbers available. If you have a good source let me know.
Also both inventory numbers as well as sales numbers are very seasonal so you cannot compare July 2009 figures with March 2010 figures and say the market is improving. What would be ideal is if we could compare inventory in the same month every year for the last 10 years.
thomas.wong1986: The increase in prices before 2000 was partly justified. Incomes were rising rapidly and so were rents. It was after 2000 that incomes and rents went in a different direction from house prices
Currently the median price of a home in Belmont is $800,000. The median price in the 9 county Bay area is only $350,000. What would you call a city with prices more than double the median?
gavinln,
Yeah, I wish I had inventory history numbers too. The only thing I have as far as inventory goes is what I wrote down over the summer. And yes, you certainly can't compare July numbers against early March numbers to determine a trend. I was just pointing out that the numbers seem quite low - if there are only 43 houses for sale in all of Belmont, depending on how quickly new ones come on and are sold, it seems pretty unrealistic to expect over 50 sales in a given month.
camping: The question is whether sales will recover and if so how.
In Hayward it is easy to explain how sales recovered. Prices fell significantly. The government is supporting the low end of the market. Subprime loans with shorter fuses blew up quickly forcing banks to foreclose and put houses on the market. Prices are so low that even cash flow investors who buy rental property are interested.
In Belmont prices haven't fallen as much. The government is not supporting the high end of the market. Option arms loans have longer fuses and take longer to reset/recast. Prices are not low enough to attract cash flow investors to buy rental property.
But how do you know sales haven't recovered proportionately in Belmont? If normally there are 100 houses for sale in a month and 50 sell, is that necessarily different than if 43 are for sale and 21 sell? What matters is that the price is holding steady because of the reduced supply. What if the supply doesn't increase back to 100?
As far as Hayward sales recovering, that also is because there was an increase in the supply. Lots of people in Hayward lost their homes to foreclosure or sold in a shortsale. There's no guarantee that is going to happen in a place like Belmont.
I disagree with "the gov't is not supporting the high end." Low mortgage rates are more helpful to people buying $800k and $900k houses than investors buying crappy places in Hayward for cash. And options arms may not have as much of an effect as people hope/think.
P2D2
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2010 Mar 8, 9:31am
But how do you know sales haven’t recovered proportionately in Belmont? If normally there are 100 houses for sale in a month and 50 sell, is that necessarily different than if 43 are for sale and 21 sell? What matters is that the price is holding steady because of the reduced supply. What if the supply doesn’t increase back to 100?
I would call recovery if
- Normal sale volume in normal inventory level. When price starts sliding down it is not unusual for inventory to go down, especially in the well-off area. Because sellers wait for market to turnaround.
- Price holding steady.
Check the Belmont Market Trends chart in redfin.
Inventory dropped. So did price per sqft. That's not recovery. It's just an stanoff between potential sellers and potential buyers. Buyers are not coming to market because they cannot afford. The sellers are not listing their home because they are hoping for better time.
Someone making more money usually has more ability to belt-tighten. E.g. family 1 has $200k income, family 2 has $50k. But, baseline food, car, energy, etc is the same. So family 1 could reduce their discretionary expenses to family 2's level if need be, and use the remainder for paying the mortgage. (e.g. Lexus lease expires, turn it in and buy a used car for $5k. Drop the iphone and get a prepaid. etc) Family 2 would have a tougher time reducing discretionary spending since they already are doing those kind of things.
So the higher end will fall slower because fewer people will exhaust backup resources and be forced to sell. And eventually the economy will recover. (probably, perhaps we will enter Mad Max). Not immune to falling of course. And when the economy recovers I'd imagine that Hayward would go up faster than Belmont, so for investment purposes Hayward is better.
These charts show something else interesting - the peak compared to 2000 was higher in Hayward than in Belmont. Hayward peak/2000 = 2.56. Belmont = 1.97. Belmont didn't go up as much, so won't go down as much.
grywlfbg
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2010 Mar 10, 3:08pm
Someone making more money usually has more ability to belt-tighten. E.g. family 1 has $200k income, family 2 has $50k. But, baseline food, car, energy, etc is the same. So family 1 could reduce their discretionary expenses to family 2’s level if need be, and use the remainder for paying the mortgage. (e.g. Lexus lease expires, turn it in and buy a used car for $5k. Drop the iphone and get a prepaid. etc) Family 2 would have a tougher time reducing discretionary spending since they already are doing those kind of things.
But family 1 likely has a much higher mortgage payment than family 2. Most of the "family 1's" cannot afford their mortgage without 2 incomes. If one person loses their job they'll fall behind on their payments immediately. Or if their Neg-Am loan recasts they still might not make it.
Yes, it is taking longer for the higher-end areas to fall but they will.
Only an idiot would pay $800K for a home in Belmont thats only worth half.
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Yes at the low end, no at the high end.
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To illustrate how the housing market has recovered in some cities in the Bay Area and is still in poor shape at the high end, I have chosen two cities. Hayward to represent the low high end (median price $260,000) while Belmont represents the high end (median price $800,000).
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The sales over the last two years have been the highest in the last decade in Hayward. Belmont shows a completely different pattern. The sales figures over the last two years are the lowest in the last decade.
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Another interesting difference is the lowest sales in Hayward occurred in late 2007, early 2008 around the time sub-prime loans stopped being made. The lowest sales in Belmont occurred in early 2009 when jumbo mortgages became very expensive.
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To explain why sales recovered in Hayward we could look at prices. From January 2000, prices increased 2.5 times before falling about 50%. Currently houses in Hayward are the most affordable they have been in the last 10 years. With interest rates at 5% below the 8% they were in the year 2000 and houses priced 15% higher, the monthly payments are relatively affordable. No wonder sales have taken off.
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In Belmont by contrast prices have fallen only 20% from the peak. They were about 2 times the year 2000 value at the peak and as the rose less you would expect them to fall less. However they are not very affordable as they are still 50% above the January 2000 prices and even with lower interest rates this year, the monthly payment is higher. Sales have remained at the lowest levels of this decade.
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There are three ways the Belmont market can return to normal with sales increasing to the typical level
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It is easy to dismiss the first possibility above. With interest rates at the lowest level in 40 years it is unlikely that they will fall further. The second possibility is also unlikely as currently both California and more specifically the Bay Area have the highest unemployment rates in decades which would keep a lid of pay raises. The third option is the most probable.
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Why have prices held up relatively well in Belmont? Any suggestions?
#housing