May 30th, 2012 3:22 PM by Gregg Mower
Being in the mortgage business we tend to see the potential home buyer first before any statistic can be posted anywhere. So from time to time I get curious on why the potential home buyers we have in our inventory of pre-applications are not turning as fast as I would like or expect. So I do a little research in the usual places and draw conclusions based on past history and trending future markets. This little blog can provide you with a wealth of information from a guy that has been in the local real estate industry for 28 years.
I am seeing the average Sales Price in the Greater Sacramento region going up ever so slightly to $196,000 up from $187,000 from March to April of 2012. The inventory numbers which represent how many months of inventory of homes we have has steady at 1.2 months. Trending with number of homes for sale vs number of homes sold shows a slight decline March to April. This is an interesting situation as we have inventory way down and the prices are about even and demand is growing by the number of sales we see happening. From an economic point of view prices should rise to offset demand and supply. This a classic case of Disequilibrium, where prices have to increase to offset demand. Supply can’t increase fast enough to offset demand in the Greater Sacramento area so prices have to increase. The factor that we are missing here is the “shadow inventory” where the banks have not foreclosed on a large number of homes. Those homes have the original owners in them either renting from the bank or living in them rent free as the bank takes its time to get to them. In the greater Sacramento area I have heard of Banks making deals with owners to rent back in lieu of foreclosure so the markets can stabilize before the banks sell the properties. This practice is also new to the lending industry, but it has been thought up before indirectly within the deed of trust in the form or the assignment of rents clause which allows the lender to collect rents from the occupant of the property they hold the security interest in. Very interesting times and out of all this we will end up with not only more laws and regulations but we will have learned were the breaking point is in the money cycle from the lending and securitization end.
What does this mean if you are in the market to buy a home? Well it shows that we are pretty much at the bottom of the price decline in the Real Estate Cycle, in theory. Unemployment is the big unknown in the equation. If unemployment rises and more Americans are out of work then demand will fall and there would be enough supply of housing. Again back to theory, the biggest industries of employment in our region is either Government, Tech , or Real Estate Related services from construction to home improvement . Government will never layoff so we are safe there, Tech HP just released that they are giving 30,000 pink slips out and that could impact our economy, but Real Estate as we stated earlier is poised as people will now need to start putting money into their homes as things wear out. The last home improvement cycle was from 2002 to 2006 so for the last 6 years most folks have not had the means to improve on extra items but now those same people are going to have to find the means to up-keep the existing items in their home as things wear out. There has been virtually no building going on for the last 6 years so there could be a demand for spec homes as existing inventory continues to drop. The most important aspect to all of this is jobs, in order for our local economy to strengthen. If people feel comfortable with their income they will part with more dollars and that is how an economy will survive and thrive.