Redefining Success: One Year of Inventory and 27 Percent Annual Drop for Southern California. Is This the Elusive Bottom?

20 06 2008

Redefining Success: One Year of Inventory and 27 Percent Annual Drop for Southern California. Is This the Elusive Bottom?

Posted by: admin in Real-estate news

Once again, for the umpteenth month in a row bottom fishing housing pundits were blown right out of the water. You need to realize that this is the first summer in many years that we are dealing with a very limited plate of mortgage products. Even last year before the August credit market pyrotechnic parade, many lenders were trying to squeeze in a few toxic mortgage products before the door entirely closed. This spring and upcoming summer we can already see that it is going to be brutal not only because $500 billion in option arm mortgages are set to start recasting, but the consumer is ultimately tapped out.This tapping out is coming at the behest of the great debt chokehold of this decade. Borrowing has gotten more stringent and this has put the breaks to our economy. If anything, the credit crack has been taken away from the consumer and it is now going into a full fledged withdrawal. The housing numbers for Southern California were released today and the results were once again horrific. Let us take a look:

SoCal	Median Sales Price
All homes	2007-May	2008-May	% Change
Los Angeles	$550,000	$422,000	-23.30%
Orange	$635,000	$485,000	-23.60%
Riverside	$406,000	$290,000	-28.60%
San Bernardino	$361,750	$250,250	-30.80%
San Diego	$492,000	$380,000	-22.80%
Ventura	$590,000	$435,000	-26.30%
SoCal	$505,000	$370,000	-26.70%

*Source: DataQuick

Does that look like a bottom to you? Southern California now has a median home price of $370,000 which makes all that preposterous push for $729,000+ mortgages rather pointless unless you are trying to bailout Ed McMahon. Even the elite Orange County is now at $485,000. Sure is a far cry from the $642,000 median price that was reached in August of 2007. Yet this decline is already set in stone. We already know the California housing market across the board is in the dumps. But how are sales looking for the most populated county of all, Los Angeles?

Keep in mind that bounce we are seeing is your typical spring and summer bounce. You can see that each previous year during this time, sales always jump up. Yet this summer we aren’t seeing the typical pizzazz accustomed to the Southern California market. If we have a few more months like this given the onslaught of option arms facing us, this will be a round two that will be absolutely worse than what we have seen with the current round of housing distress.

You also have to remember that many of the current sales are distressed properties being sold. We have a lot of bottom chasers hopping into the market thinking this is the absolute bottom. They will quickly realize that they over paid given that housing is still heading lower. How do we know this? Let us take a brief look at the current inventory for Southern California:

Total SoCal Inventory: 143,218

Total Sales for May 2008: 16,917

Total Months of Inventory: 11.8 months
Yet this number is flat out under representing the amount of inventory out there because many REOs are not placed in the MLS. Also, many notice of defaults are still technically owned by the current owner but they have no desire to keep the mortgage current. Take a look at the current data for California:

May 2008:

NODs: 41,965

NTS: 9,728

REOs: 20,237

Total for California: 71,930

Source: RealtyTrac

What is incredible about these numbers is that inventory from the MLS is steadily decreasing yet sales haven’t jumped up that drastically (see above chart). Yet we look at NODs and REOs and they are through the roof. So we can deduce the following:

-People that don’t need to sell right now are pulling their properties off the market hoping for a brighter day thus reducing elective inventory.

-Many REOs are not making it to the MLS thus making the numbers look artificially low.

-NODs are sky rocketing and many of these are simply zombie properties waiting to become REOs.

That is where we stand. The massive price declines in Southern California are simply reflecting the reality of the situation. My feeling is the option arm debacle will impact California beyond what anyone can currently imagine. Keep in mind that 60 percent of the $500 billion time bomb is here in the state. If numbers are this bad without hitting the option arm stride, can you only imagine once that happens?

A 50 percent decline which only a few years seemed out of a tin foil hat manual is seeming more and more possible. After all, the state is down 30 percent on a year over year basis and we have yet to face the biggest mortgage risk. Why in the world would prices stabilize given the above data? Does anyone really think this is the bottom?

Did You Enjoy The Post? Subscribe to Dr. Housing Bubble’s Blog to get updated housing commentary, analysis, and information