SocketSite’s San Francisco Listed Housing Update: 3/16/09March 16, 2009
Inventory of Active listed single-family homes, condos, and TICs in San Francisco rose 8.7% over the past two weeks (versus an average of 4.3% for the same two week period over the previous three years) and is now running 24% higher on a year-over-year basis (up 8.8% for single-family homes and 34.8% for condos/TICs) and 80% higher than at the same point in 2006.
On the demand side, sales volume over the past two weeks in San Francisco appears to have been off by at least 20% on year-over-year basis despite a much ballyhooed and incorrectly interpreted seasonal uptick in activity.
The standard SocketSite Listed Inventory footnote: Keep in mind that our listed inventory count does not include listings in any stage of contract (even those which are simply contingent) nor does it include listings for multi-family properties (unless the units are individually listed).
∙ SocketSite’s San Francisco Listed Housing Update: 3/02/09 [SocketSite]
∙ SocketSite Sees Seasonality (Versus Signs Of A Rebound) [SocketSite]
Comments from Plugged-In Readers
This just proves that the real issue is prices. Higher inventory and less sales volume.
I wonder how big the “phantom inventory” is: potential sellers restraining from putting their homes on the market waiting for a turnaround. My opinion is they’re missing on the last occasion to sell at 2004-2005 prices.
There are still a few buyers ready to pay bubble prices apparently. Better jump on those generous souls while they’re still around!
Check M2 recently? it’s EXPLODING…that will certainly have some consequences.
Jessep, M2 does its best to soak a bit of the bubble debt trying to prevent it to fall into the big black hole of deflation.
If I understand the meaning for Realtors, only hyper-inflation can save prices, right? If this is the case, then sure bulls will have “won” the rhetoric game but what victory will it be? The idea is still to get back price and rents in sync and this depends on salaries.
For now, I see good people hired today cheaper than 2 years ago… So far, deflation is the name of the game.
“that will certainly have some consequences.”
Indeed, but to save house prices money has to be put in peoples hands to buy houses with. Right now the explosion in M2 is being used to write off previous bad debt, not make new loans with.
And when/if narrow money growth translates into increased velocity, prices on essentials will rise, interest rates will rise, and housing will take another leg down.
Strap in, folks, this is just getting started. There are no easy answers in a credit deflation (actually, there are easy answers, they’re just murderously hard to implement for politicians).
San FronziScheme – somewhat related to your question, I took a look over the weekend at MLS records that went to Expired or Withdrawn status since 2007. To get a unique count by address, I didn’t count multiple instances for the same address and then eliminated listings that sold or went Active (or Contingent or Pending) subsequent to the expired or withdrawal date. So the following counts show the number of expired or withdrawn listings since 2007 that have not subsequently been sold and are not currently active (or contingent or pending):
Compare these (or add them) to the Active count shown in the graph above:
SFH: 602 active
Condo: 1,046 active
Total: 1,648 active
This analysis indicates that for every current active listing there are more than two other properties that have been withdrawn from the market (and have not returned) in the past 2 years by discouraged sellers.
Of course listings have always been withdrawn for many reasons – but the total number since 07 has been about 50% higher than the 00 – 06 period.
I agree with you that there is a huge “phantom inventory” from discouraged/discretionary sellers in addition to those who haven’t yet put their properties on the market. Pent-up supply must surely exceed pent-up demand – at least from qualified potential buyers. The 3,984 properties from my analysis would take 20 months to be absorbed at the current sales pace.
I don’t agree that this money growth is “narrow”, we are doing everything we can to grow money.
The question is about velocity.
LOL, jessep. Please tell me you are not doing any analysis at the investment firm that you own 🙂 Narrow money is a term of art for the narrow aggregates (M0, M1, M2 to a much lesser degree) and is distinguished from broad money aggregates (typically M3 – although it is no longer published – and M4).
BTW, you’ll also often hear the terms “near” money and “far” money, which depending on the context are pretty much used in the same ways.
I simply misread your terminology, get your panties out of a bunch.
That is excellent analsysis and data, FSBO.
I think it is important to consider this info on withdrawn and expired listings when thinking about sales price statistics. I’d argue that the value declines have been a bit greater than any of the stats indicate because (as the number of failed listings indicate) some portion of potetial sellers either can’t take the loss – either in absolute terms (seller would have to bring a check to the closing) or in terms of what the potential seller imagined the property was “worth”.
The clue that this “beauty pageant” effect is in the data is the lower volume numbers. Only in the most distressed neighborhoods/cities would reported sales prices overstate the value decline, and I don’t think there is anywhere in the entire SF MSA that would meet that criterion yet (perhaps a few parts of Oakland/Richmond, but that’s it I’d bet). Merced and Stockton might be there already.
FSBO: I’ll second LMRiM’s comment above. Your data and insights are really informative.
One question I have about this so-called credit clog is this: is it true that banks aren’t making loans, or is it more accurate to say there is little demand for loans because would-be home buyers aren’t stupid enough to buy an asset that is likely to fall another 20-40%?
So if the M2 swimming pool is now much bigger, but all the swimmers still splash around in one small corner of the pool, the pool still feels crowded, right? In other words, increasing the size of the pool only helps if swimmers spread out, or if more people are enticed into the pool. Is this what’s meant by “velocity”–that swimmers need to spread out, or more need to enter the pool, otherwise the size doesn’t matter?
(I hope my analogy isn’t too far afield). LMRiM maybe you can shed some light? Many thanks.
I suspect that the only real “clog” in the system is that there are fewer credit-worthy borrowers who actually want to borrow money to purchase assets. By “credit worthy” I mean borrowers who are judged by newly-chastened banks as being both able and willing to pay back the money. The USG still doesn’t care too much, so the FHA crowd will contain a lot of deadbeats, but it’s all a very far cry from the freewheeling “fog a mirror” days of a few years ago.
About velocity, intuitively it’s just a measure of how fast money is “turning over” in the economy. Whenever money is spent, the money is usually re-spent (or placed in a bank where it is lent, and then re-spent, etc.).
There are a lot of subtleties of course that I am ignoring, but think of the difference for economic activity and prices in these two scenarios: the Fed gives everybody $100K and each person immediately takes it and buries it in his backyard, or the Fed gives everyone $100K and it is immediately spent (and re-spent, etc.). In between those extremes, measures of velocity try to capture what’s happening with the monetary aggregates insofar as they affect the real economy and prices.
That’s really all you need to know IMO, but if you want the tabula rasa, look here at the definitions of the major aggregates and really puzzle through them:
You can see the most typical chart of velocity (nominal GDP/M2) here:
In fact, that whole publication is a fun read (updated every two weeks):
When people talk about the “collapse” in velocity, it is generally because that is what happened in Japan’s attempt to “reflate” their economy through zero interest rates and quantitative easing (“printing money”), and in the US it can be seen in charts like this (this is the multiplier relating to base money, not M2/GDP velocity, but if you think about it you can see the relationship):
I hope that helps!
Thanks indeed for this very valuable research.
One thing about the pent-up buyer demand is that it’s pretty hard to determine. Who knows how many people want to pull the trigger when prices are down 20%, 30%, 40%? In some foreclosure land, volume really picked up at 50% under peak.
My rule of thumb is friends around me. Some have been waiting for a good time to jump. Others jumped the gun too fast. All are freaked out by job losses, though.
“I wonder how big the “phantom inventory” is: potential sellers restraining from putting their homes on the market waiting for a turnaround. My opinion is they’re missing on the last occasion to sell at 2004-2005 prices. ”
Oh, the people who decided not to sell their properties right now should somehow be counted? “Phantom inventory” ? What about the “phantom” sellers who decided not to sell their houses in years past? Ridiculous as usual, DOM-bag.
Also, “phantom inventory” by itself proves that captitulation as many bears have interpreted it will not happen. If you CAN pull your house back off the market, it means you don’t HAVE to sell. Thereby obviating REO, foreclosure and other capitulation tides.
Also, on the “misreported” uptick — purely March’s seasonality, right? How many of you who went to the seasonality card previously had casted doubts upon any spring bounce this year whatsoever? I’m thinking, like, all of you?
The question is about velocity.
yes. as I have argued, there are inflationary forces building. However at this time they are nowhere near the deflationary forces.
At some time the inflationary forces could be unleashed and it all relates to the velocity of money which is quite “slow” right now.
LMRiM and I have argued about this quite a bit (we’re on opposing sides sort of).
However, I don’t think many people believe that the inflationary forces will dominate anytime soon. perhaps in a 1-4 years or so.
is it true that banks aren’t making loans
no. the banks are lending slightly more than they did last year.
However, up until last year much more “lending” was done by NONBANK entities and the “shadowbanking” realm.
Thus far the slight increase in bank lending is way more than offset by the severe decrease in lending from the non-banking entities.
the banks are accused of “not lending” because they aren’t lending up to their potential. Banks in theory could lend up to 10x the capital they get from the Govt. So $1T of capital from mama govt should in theory be multiplied to an extra $10T in lending.
but it’s not happening, because the banks are using that money to plug OLD holes in their balance sheets, using it to try to “Trade” their way out of this mess, using it to buy their competitors, and using it to pay themselves fat bonuses.
So if the M2 swimming pool is now much bigger, but all the swimmers still splash around in one small corner of the pool, the pool still feels crowded, right?
I’m not sure if I can give a good answer here.
Basically the velocity of money increases as people spend the money, and slows as they “hoard” it.
Let’s say I buy a car for $1000. Then the next day the car dealer takes that money and buys himself a watch for $1000. then the next day the watchmaker takes that and buys a computer for $1000. Then the computer seller takes that and puts it in his mattress.
there was only $1000… however 3 different people spent that $1000 over 3 days, so there was $3000 worth of activity with only $1000 physical dollars.
The VELOCITY would be $3000/$1000 or 3.
Let’s say now I buy the car and the carmaker buries the money in the mattress for 60 years.
Now the velocity of money is only $1000/$1000 or 1.
back to the banks:
Basically (very very simplified):
if banks LEND then they can turn $1 into $10 through fractional reserve lending and the mechanism above.
If they DON’T lend then that dollar stays a dollar.
So the velocity of money in when they lend is 10, and when they don’t it’s 1.
the higher the velocity of money, the higher inflation happens.
hope that made it clear as mud!
How many of you who went to the seasonality card previously had casted doubts upon any spring bounce this year whatsoever? I’m thinking, like, all of you
fluj: that’s patently untrue.
I’ve said COUNTLESS times that the winter numbers are essentially meaningless and that we’d need to wait for May (the spring bounce) to see what the damage really is.
I just wrote this 2 weeks ago:
but again, I don’t make too much of January/February numbers even though inventory today is running 76% higher than 2007 levels… just too few transactions due to seasonal issues… we may also be seeing increased inventory right now as people rush to get their homes to market before others for the spring rush…
the real tell will be when the May numbers come out (in June). that will be sufficient numbers to give us some better info.
and this on March 16, 2008 I wrote:
1) I agree with you (and others) that one must not make too much of this data.
over the last few months I have CONSISTENTLY stated that one mustn’t make too much of the winter numbers, unless one wants to compare them to the prior season, and even then it’s difficult given the low numbers of transactions.
how many times Have I said that we need to wait until June/July when we get the May/June numbers before we can say how “strong” things are?
@ LMRiM – THANK YOU! You are always dependable, and I appreciate the links.
@ San FronziScheme
“One thing about the pent-up buyer demand is that it’s pretty hard to determine. Who knows how many people want to pull the trigger when prices are down 20%, 30%, 40%?”
Agreed. While this isn’t scientific, here are some indications:
1) Are offers to purchase homes being written at 20%, 30%, 40% below asking price, and refused by seller? Only realtors would know this, and I don’t know if they formally track or aggregate these results.
2) Some houses are priced at 10-30% off 2007 peak prices, and they still aren’t selling, which suggests buyers won’t step in until things are reduced more than 30%.
3) While anecdotal, many of the apples-to-apples sales we’ve seen here at SS suggest prices have rolled back to 2004 levels or earlier. That means that for remaining inventory, the fair market value–the price required to get a buyer to step up to the plate–is well below 2004 prices.
Is general consensus that SF prices are at 2004 levels (for apple sales), or are we at 2001-2002 prices or earlier (pre-dot com bubble)?
Um, what’s the M2?
any update on the status of socketsite’s own CII? i seem to remember it was coming out “very soon” last month. i’m just anxious because i really like it and have been waking up excited to see it every day for a year.
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