Andrew Hartland's Blog

HIGHLIGHTS for November/December 2010

- Sales momentum faltering.

- Median price up year-over-year for the third month in a row.

- Plus, Statistics: Tracking Momentum

Sales momentum for single-family, re-sale homes in Santa Clara County continued to drop in November: down 5%.

WE CALCULATE…
sales momentum by using a 12-month moving average to eliminate seasonality. By comparing this year’s 12-month moving average to last year’s, we get a percentage showing market momentum.

PRICING MOMENTUM…
after peaking in September at +16%, has also started to drop, and is now down to +14%.

PENDING MOMENTUM…
while still positive, has also been trending downward. This is due, in large part, to investors leaving the market because of concerns over who actually holds, and can produce, the original mortgage note.

MORE STATISTICS…
The median sales price for single-family, re-sale homes reversed course in November, after gaining 1.8% in October. The median price plummeted 7.7% from October and went below $600,000 for the first time since February. After thirteen months in a row of being higher than the year before, the median price was down 2.9% year-over-year.

Inventory of single-family homes continued dropping: down 12.4% from October. Year-over-year, inventory was up for the fifth month in a row: 31.8%.

The sales price to list price ratio continued slipping last month, down another 0.2 of a point to 98.8%. This is the seventh month in a row the ratio has dropped. Since January 2000, the median ratio has been 99.8%, which is incredibly high. A falling ratio also indicates that momentum is faltering.

IN THE CONDO MARKET…
The median price was off 9.9% compared to last November, while the average price was down 5.4%.

Condos sales were down 16.7% year-over-year. Pending sales, a harbinger of future sales, were down for the fourth month in a row: 10.8%. Inventory, on the other hand, increased for the sixth month in a row: up 72.1% year-over-year.

Go to my on-line site SCVReport.com for the full report, plus a city-by-city breakdown.

If you would like to search for properties in the Santa Clara Valley, go to my online search form at: MLS Search

If you find the Santa Clara Valley Real Estate Report useful and know someone else who might, please feel free to forward this e-mail to them. There is also a four page printable version with more articles here:
Printable Report.

Sales momentum for single-family, re-sale homes in Santa Clara County dipped into negative territory in October for the first time since November 2008.

We calculate…

sales momentum by using a 12-month moving average to eliminate seasonality. By comparing this year’s 12-month moving average to last year’s, we get a percentage showing market momentum.

In the chart on my on-line site…

are two of the most important statistics determining market momentum. The blue shows momentum for home sales while the red line shows momentum for pending home sales.

Sales momentum peaked last July and has been trending down ever since. Pending sales, which normally track closed sales closely, have jumped out of the norm due to the large number of foreclosure and short sales in the past two years.

In a normal market…

pending sales close within 60 days. In today’s market, pending sales are taking much longer due to the high number of foreclosure and short sales, which require lender approval. This has pumped up the number of pending sales, which, in a normal market would indicate increasing sales in the coming two months. But, because a majority of pending sales are foreclosure or short sales, a greater potion of these sales never close.

Pricing momentum…

on the other hand, generally lags the buying and selling indicators provided by the sales momentum trend. In the chart below, the purple line shows the median price momentum indicator.

As you can see, when the sales momentum indicator changed to a sell signal in June 2005, prices didn’t peak until November, when they started a gradual decline. The median price indicator really started falling when it crossed the 0 axis in August 2008.

The sales momentum indicator turned up in December 2008 and the price indicator kept falling until sales momentum peaked in July 2009, when pricing momentum started picking up.

More statistics…

The median sales price for single-family, re-sale homes, after falling for the previous three months, turned upward in October by 1.8% from September. Year-over-year, the median price was up 7.4%. This is the thirteenth month in a row the median price has been higher than the year before.

Inventory turned downward, as is its wont this time of year, dropping 8.4% from September. Year-over-year, inventory was up for the fourth month in a row: 30.7%.

The sales price to list price ratio continued slipping last month, down 0.2 of a point to 99%. This is the sixth month in a row the ratio has dropped. Since January 2000, the median ratio has been 99.8%, which is incredibly high. A falling ratio also indicates that momentum is faltering.

Statistics: Tracking Momentum

As we mentioned last month, the Internet is strewn with statistics, some good, some bad, and some downright ugly. So, what are statistics for?

Statistics are for…

determining the best time to buy or sell real estate. If the statistics you are tracking do that, they’re good. If they don’t, they’re misleading, at best.

Tracking momentum…

is the best way to determine when to buy or sell real estate. The question becomes which statistics to track.

Robert Campbell, a San Diego based real estate investor, in his 2004 book “Timing the Real Estate Market”, lists five “vital signs” he tracks to time the market, in order from strongest to weakest:

1.  Existing home sales

2.  New home building permits

3.  Mortgage loan defaults

4.  Foreclosure sales, and

5.  Interest rates

He uses the same basic formula for all five: (current 12-month moving average—previous 12-month moving)/current 12-month moving average.

Finding the data…

means tapping into a variety of sources.

Sales data is the easiest to track. Local newspapers publish this data each month. If you want historical sales data, you can call us and we’ll provide it for you.

In California, new home building permits are tracked by the Construction Industry Research Board. The board charges for their data. (http://cirbdata.com)

There are a variety of sources for mortgage loan default and foreclosure sales data starting with the county recorder’s office. Other sources, for which you will have to pay are: http://dataquick.com, and http://foreclosureradar.com.

Interest rate data can be had at a number of different sites: http://hsh.com, http://bankrate.com, or http://federalreserve.gov. While Campbell tracks 1-year t-bills, monthly mortgage rates can also be used.

Next month, we will review the timing method Craig Hall uses in his 2003 book, “Timing the Real Estate Market: How to Buy Low and Sell High in Real Estate.”

This author identifies seven trends to track to determine when real estate cycles are about to turn.

Go to my on-line site SCVReport.com for the full report, plus a city-by-city breakdown.

Prices for single-family, re-sale homes were up in August, year-over-year, for the eleventh month in a row. The median price rose 13.7%, while the average price was up 15.4%, reflecting a higher share of $1,000,000+ home sales.

Sales of single-family, resale homes continued to slide and were lower than the year be- fore for the third straight month: -13.1%.

In a turn, pending sales were also lower than the year before for the first month since March 2008: -6.9%.

Inventory was higher than last year for the second month in a row: 18.4%.

The sales price to list price ratio for homes dropped below 100% for the first time since June 2009: 99.6%.

The median price for condos was up 5.3% year-over-year. This is the tenth month in a row the median price has been higher than the year before. After nine straight months of year- over-year gains, the average prices for condos dropped 1.7%.

Condo sales were up 0.4% compared to last August.

Pending sales were down from June, and were lower than the year before for the first time since March 2008: -11.2%.

Inventory for condos was higher than the year before for the third month in a row: 40.9%.

Sales of both single-family, re-sale homes and condos fell in July with the expiration of the Federal tax credit.

Home sales were off 15.6% compared to last July, while condo sales were down 18.8%.

The new state tax credit has pumped a little life into the high-end market. With more sales in that segment of the market, the average price for homes in July went over $800,000 for the first time since August 2008.

The high-end market has been helped by increasing access to jumbo and super-jumbo loans. Historically, and until July 2007, the spread or difference between conforming mortgage rates and jumbo rates moved within a narrow range of about 0.20%. At the trough of the market, the spread was 1.9%. Now, the spread is down to 0.5%, and the secondary market for jumbo loans is awakening.

The median price for homes was off 1.1% from June, but it was up 7.2% year-over-year. The average price was up 2.4% from June and up 12.3% compared to last July. This is the tenth month in a row prices have been higher than the year before.

The sales price to list price ratio for homes stayed over 100% for the thirteenth month in a row: 100.2%.

The median and average prices for condos were up 3.3% and 9.5% respectively year-over-year.

Pending sales were down from June, but were still higher than the year before. Pending home sales were up 44.2%, while pending condo sales rose 44.7%.

Inventory for homes rose 9.6% year-over-year. This is the first month since November 2008 inventory has been higher than the year before.
Speaking of inventory, Leslie Appleton-Young, chief economist for the California Association of REALTORS® (C.A.R.), said, at a recent Silicon Valley Association of REALTORS® (SILVAR) meeting in Palo Alto last month, in five to ten years California will experience a housing shortage.

She said household growth for the state is expected to be 200,000 a year. The CBIA reports only 13,000 permits pulled in the first six months of the year.