Sacramento Area Price Level Inventory For May 25, 2006

A new feature I am adding to the blog is inventory plots for different price ranges. Hopefully they will help us see any emerging pricing trends as they develop a give us a feeling as to the markets direction.

For the most part, each price range seems to be following the general market trend of consistent inventory increase, although the price levels with the highest inventory seem to be growing fastest. It will be interesting to see if any solid trends develop in the next few weeks.

Sacramento Area Flipper Inventory For May 25, 2006

Flipper inventory continued to show an overall increase at about the same rate as the rest of the market over the last week. In Sacramento County, flippers of resale homes represented 20% of the total market, including 2% who are losing money.

El Dorado County is showing a downward flipper trend even as overall inventory levels are increasing. Inventory has gone up by 24% since April 9, while flipper inventory has only increased by 10%. This has led the flipper market share to decrease to 14% from 15% during the same time period.

Flipper inventory in both Placer and Yolo counties continued to increase along with market inventory, with each showing a 21% flipper market share.

Sacramento Inventory Movie

I put together a Google Earth movie of the Sacramento RE market for the last 40 days or so. ocrenter and some others had suggested this in the past, and I thought it was an excellent idea once I had enough data. I'll be updating this in the weeks ahead as inventory levels change.

You'll need to download the DivX codec to play this. My advice is to download the video and try to play it. If it doesn't work, go to www.divx.com and download their free player/codec package.

Download the video
Download DivX

Flipper vs. Market, Round 1: Pricing Psychology

Finding which houses are being sold as flips is easy. You just compare current listings with recent sales. What is not easy, is breaking out any pricing differences between flips and the market as a whole.

There are just too many variables to control for when you try and compare homes. Zip code and size are just two factors that determine price. Also, flipper inventory varies widely by zip code:



So rather than compare prices directly, I have chosen compare performance over time between flippers and the rest of the market. In other words, if a house doesn’t sell, do they lower the price, and by how much?

The answer is shown in the following chart. The chart compares houses on the market as of May 20 that were on the market in the past. The right axis plots the percent of inventory on market at the time that is reduced today, and the left axis plots the magnitude of the reduction:


What did not come as a surprise was that flippers were much more likely to reduce their price if a house didn’t sell. Flippers are 20% more likely to reduce after 30 days without a sale than the rest of the market.

What did surprise me was the magnitude of the reduction. Flippers were only willing to drop prices by an average of 2.5% after around 30 days, while the rest of the market was willing to come down nearly 3%.

Another interesting thing to note is how price reductions and the willingness to reduce both level off by 30 days on the market. Between 29 and 41 days on market, there was almost no change. In fact, between May 18 and May 20, there was a 0.5% increase in prices!

So, this leads to some questions:

· Why aren’t flippers willing to lower their prices as much as the market? Are they not able to do so, or do they think the market will go up again?

· How much room do the flippers have to reduce before they become a “Flipper in Trouble”?

· If flippers continue to follow market trends rather than lead, should they really be considered “smart money” after all?

Clearly, a game is afoot here.

Max

Flipper Inventory & Flippers in Trouble

Flippers are interesting because presumably, they are purely economic in their motivation. They generally aren’t people ready to retire hoping to get the most for their empty nest, or people pulling up stakes to start a new life in Iowa or Boston. They are people who make a living buying and selling homes, and they need to turn a profit, or they’re out of business. In other words, flippers are to real estate what “smart money” is to the stock market. Because of this, we should be able to learn a lot about what the market is doing by observing flipper behavior.

So, how do you figure out if a home is being sold by a flipper, instead of by a regular person? One way is to look at previous sales. For the purposes of my calculations, I’m using a resale cutoff of two years. In other words, if the house was sold once before within the last two years, the current seller can be defined as an investor or flipper. You can also find a flipper in trouble if she’s selling a house for equal or less than what she paid for it.

For the purposes of this discussion, I’ve taken a slightly more nuanced view. I’m assuming these two things about our flipper:

· She’s a real estate insider, so she doesn’t pay the typical 5%+ in commissions a regular seller does.

· She’s got a lot of cash, so she has almost no carrying costs other than taxes, insurance, and upkeep.

In other words, what she paid for a property is roughly what she needs in order to break even. I’ve added a 2% “trouble bias” to take into account the intangibles like time and listing costs.

Using these criteria, I’ve compiled the following charts for the Sacramento Region. Two caveats: Since these data don’t take into account homes that were purchased new and are now being “resold” for the first time, the Flipper Market Share is almost certainly much higher than the numbers I have. (I’m working on a way to incorporate new home resales into the data, and I’ll report back in the future if I get any results.) Secondly, I have no idea how these data compare historically to flipper market share. Is 20% a high number? I have no idea. If anybody has a way to put this information into context, please email me.

Next post: Flipper Pricing vs. Market Pricing.

Max

Welcome to my new blog!

Welcome to my new blog! I think it makes sense at this point to have a seperate blog for the real estate stuff, since it doesn't mix well with some of my other interests. I plan on updating this blog at least once a week with the latest data I gather, so come back once in a while. You *shan't* be disappointed.

Also, feel free to email me here:



with any suggestions. If there is a stat you would like to see, I can try to add it in.

Max

Sacramento Home Listings & Inventory Numbers

I’ve been trying to get explicit clearance to post my browsable Google Earth files, but no dice so far. Instead, I have some aggregate data and more pretty pictures.

I have been working from two data sets. One is taken from active listings for Sacramento, Yolo, Placer, and El Dorado counties, and contains active listing data only. (Pending sales are not included.) The second data set contains pending sales and active listings, and is where I get my daily inventory stats. Although the active listing data set is more conservative in absolute terms, they compare very well trend-wise. (Interestingly, if you subtract the totals from both data sets on any day, you come up with a difference of around 1500. Presumably this is the number of pending sales. I will keep my eye on this and report back later.)

Anyway, to the data:



The median asking price in all counties has been firm with a slight upward trend for the last five weeks, while the average price per square foot is holding steady. Inventory surpassed the April 1992 record of 13,507 on May 4th, and should surpass the population adjusted record of 17,913 by mid August if the accelerating upward trend holds:



During the first three months, inventory grew an average of 22 listings per day:



That trend has accelerated, and inventory is growing by about 28 listings per day. We are already about 600 listings over the peak from October 2005, and on the last two weekends alone Sacramento inventory grew by 510 listings:



So, what does this market actually look like? I put together some Google Earth images of the latest data set to answer that question. Unfortunately, I am unable at this time to offer the actual data file.

I would also like to thank Patrick Killelea for posting this blog on his widely read housing news site. Without him, nobody would read this.

Max

Note: The large dots designate that a price change has occurred.

El Dorado Hills/Cameron Park:



Folsom / Orangevale / Citrus Heights:



North Highlands / Fair Oaks / Carmichael:



North and East Sacramento:



South Sacramento:



Elk Grove:



Natomas / Rio Linda:



Roseville / Rocklin:



Woodland:



Davis: