Posted by: Timothy Ellis (The Tim)

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market.

25 responses to “NWMLS: Inventory Hit Another New Low in November”

  1. softwarengineer

    We May Beat Out San Jose for the #1 in the Nation Spot if This Keeps Up [perhaps we already have?]

    For low home sales inventory.

    Buyers beware in this market.

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  2. drshort

    That months of supply number is rediculously low.

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  3. Kary L. Krismer

    RE: drshort @ 2 – Yes it is, but it would tend to contract somewhat this time of year. Still, very very low.

    FYI, both the median and mean are the highest since July 2010. The median pending is now about $36,000 below the median sold, which ordinarily would indicate downward pricing going forward. It might also mean a number of short sales went pending, and those would not affect the median sold for months, or ever if they don’t close.

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  4. chuck c

    “He also noted a “definite uptick” in the number of cash buyers, “many of which are investors.”

    I’m certanly no expert (heck, I’m barely a novice), but it seems absurd to me for anyone to buy a house with cash these days, investor or not, unless it’s at a truly great deal. I know the subject of interest rates vs. asset value has been “blogged about” previously by The Tim, but I still believe that most folks are in essence “monthly payment buyers” – so what happens when interest rates go up? Unless there’s huge inflation around the corner, asset value will have to go down. Gen X is struggling today and Gen Y is having to dig themselves out of a hole and will be middle-aged by them time they reach ground level. Buying with cash today is really exposing yourself, IMO. (and not exposing yourself in the good way, lol).

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  5. whatsmyname

    Interesting trend in the home price chart since the 2nd quarter. If you bought the median home in the last 8 months, it was about equivalent to buying the median in the same month of 2005… Except you didn’t have the selection of 2005, and you haven’t amortized 7 years off of your mortgage.

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  6. Kary L. Krismer

    RE: chuck c @ 4 – You’re only looking at one factor–the chance prices will drop. There are really many factors which come into play.

    First, the low interest rates you mention mean that returns elsewhere are not great. Perhaps putting money into a house and getting rental income and the depreciation tax shelter is seen as a better alternative to other investments. [Edit: That seems to be what your friend is doing that you mentioned in the cheapest homes thread right after posting this post.] Or for the homeowner such as myself, avoiding paying interest might be seen as better than dealing with investing money, as an inflation hedge, or as a way of diversifying assets.

    Second, if the property is a fixer, cash might be a way to avoid higher cost loans, or any loan costs if the property is going to be fixed and sold quickly.

    Third, if you’re just looking at rate of return, it would be better to borrow and be leveraged. But if you’re interested in nominal return of actual dollars, having no interest paid and no loan costs would give you the highest return. So it’s all about whether you want to brag you made 200% return of capital, as opposed to actually bringing more cash in the door.

    Fourth, you’re assuming that if there’s a downturn in the market, a non-judicial foreclosure is a better “less risky” alternative. Many people do not want to be involved in foreclosures. Foreclosures are forever, even after they drop off your credit report. If you’re in that camp, your loss is the same regardless of whether you borrowed 100% or nothing.

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  7. Kary L. Krismer

    By whatsmyname @ 5:

    Interesting trend in the home price chart since the 2nd quarter. If you bought the median home in the last 8 months, it was about equivalent to buying the median in the same month of 2005… Except you didn’t have the selection of 2005, and you haven’t amortized 7 years off of your mortgage.

    As someone here said, the bottom isn’t as fun as we thought it would be.

    Expanding on that thought, the non-distressed median has been over $400,000 most of the past two years, so compare that to the 2005 numbers, where the median was hardly impacted at all by REOs and short sales.

    On the other hand, keep in mind that’s the median. In 2012 even with the lower inventory you probably have better options to pick up properties at bargain prices because in 2005 there were very few short sales and few REOs.

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  8. S-Crow

    Tim mentioned: “Unfortunately, many would-be sellers are still “uniquely” low on equity.”

    And, yet, it appears that many in the industry still “forget” about that minor “low on equity” detail bouncing around back in the brain cell cabinet filed in 2006-7 under “there is no bubble” filed right next to the folder “listen to the experts, not the bloggers,” filed near the the new folder from 2009 “how to become a blogger,”

    (Humor brought to you by Ira Sacharoff.)

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  9. wreckingbull

    RE: Kary L. Krismer @ 7 Kary, look at the graph again. Does this look like the bottom to you? The bottom was quite fun for many of us. If you don’t believe me, just as our resident D-nozzle, corndogs.

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  10. Kary L. Krismer

    RE: wreckingbull @ 9 – LOL. BTW, I wasn’t intending to predict we’ve been past the worst by repeating the bottom fun comment. I just think that comment, whoever made it originally, is one of the more memorable comments made here.

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  11. softwarengineer

    RE: chuck c @ 4

    I Don’t Know How Long Zombie Interest Rates Propping Home Sales Will Last

    But it looks like at least a few more years until 2016 from Bernanke.

    That means the stock market’s 16% current YOY return could last as as long as zombie interest rates subsidized by the fiscal cliff deficit endure….assuming the two are related, IMO they are.

    Once investors can sink their teeth into like 8% Money Markets again, and the zombie money debt disappears for housing; that’s when investor cash will be pumped into collapsing home prices due to higher interest rates. In the mean time, its stocks. Someone else got a better thesis or do the “Idiocracy thing” and just down thumb me for being pragmatic without replying a opinion that makes sense to this witches brew.

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  12. Plymster

    I’ve been perplexed by the nation-wide record low inventory rates. After hearing the typical explanations about shadow inventory not being real, underwater homeowners not wanting to sell, and a “recovery” with a collapsing labor participation rate, I’ve finally found an article with data and decent analysis. I’d be curious to know what folks on here think…

    http://ochousingnews.com/news/the-failure-of-loan-mods-will-cause-a-new-wave-of-foreclosures

    To summarize, the banks and the government are working together to try to slowly handle the foreclosures with minimal impact to bank balance sheets. They do this two ways: Ignore defaulted mortgages and make them appear money good (I have an acquaintance who has lived in her $440k townhome for 2 years without making a payment and receiving no notice of default, so I have some secondhand, anecdotal evidence of this), and modifying existing loans. The problem is that the modifications are failing at high rates, and just getting re-re-modded. Eventually, these will have to be deemed defaults (which will need to be ignored), and the Fed will need to ride to the rescue with more cash for the banks (which seems to be what’s happening with the constant QE injections).

    Meanwhile the banks (well, the FHA, GSEs, and the Fed, who basically seem to hold most of the MBS market) will only dribble out as many foreclosures as they can afford. This could mean decades of inventory drought and housing blight replete with squatters.

    Does this seem likely?

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  13. Kary L. Krismer

    RE: Plymster @ 12 – What I would agree with is modifications are often doomed to failure. The National Mortgage Settlement may change that for a few, but in general lien stripping through Chapter 13 is a better option for those with a first and second mortgage. If Congress would wake up and change the law to allow it in more cases, it could be a great option for a lot of people.

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  14. wreckingbull

    RE: Plymster @ 12 – Great article. Refreshing to see someone actually ask where the inventory went. The answer of course is that existing deadbeat homeowners are living in the inventory. And I can’t blame them. Why not ride the hamster wheel as long as you can. When this is all said and done, I expect you will hear stories of people who lived rent free for decades or more.

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  15. whatsmyname

    RE: Plymster @ 12
    Wonderful article. Note that the ownership of mortgages flows back and forth between banks and mbs holders according to the needs of a particular paragraph’s argument.

    OCHousingnews is a delightful interior rage tour of a frustrated vampire with no juicy neck to bite. I particularly like the idea that mortgage holders are doing “harm” to future buyers by not selling cheaply now what is inferred to be more expensive later. A conspiracy, I tell you. Imagine an asset owner making a hold/sell decision according to his own benefit. What has become of the free market?

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  16. David Losh

    RE: Plymster @ 12

    I read the article a couple of days ago, and what it doesn’t mention is debt forgiveness. Millions of second mortgages are in default, the first may be getting payments, but the second goes into the garbage. It could be stripped in bankruptcy, but why bother? The first is underwater already, so what is the second to do?

    The other thing is there are huge pockets of the United States where the mortgages far exceed what a property could, or will sell for. So even with a loan modification there is a very slow realization that all the good news we hear is for other people, and not for our modified loans. People are still paying on a mortgage that is $100K under water. No matter how cheap the payment is that’s gotta hurt.

    Foreclosure won’t fix any of it. If Fair Market Value is below what is owed it makes more sense for the bank to work with the current mortgage holder for principal reduction to go along with that loan modification. Take the loss, but you have a performing loan.

    It’s a bank problem, they made the loans, they need to make the loans work moving forward, and stop digging in.

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  17. wreckingbull

    RE: whatsmyname @ 15 – I think you missed the entire point of the article. The whole reason that hold/sell decision exists to banks today is due to terrible public policy. Your response to the article is exactly my point. Rather than name calling, he actually presents data on such issues as mod re-default and delinquency rates. Do you really consider propping up banks and allowing them to borrow indefinitely at 0% ‘the free market’????

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  18. whatsmyname

    RE: wreckingbull @ 17
    No, I got the point of the article. Public policy to stabilize the housing market and banking system is bad for hungry coyotes. To the coyote, this is terrible policy. But most things in the public interest are not in the coyote’s interest.

    If you follow the links, the loan mod re-default information is from private, non-taxpayer funded, non public policy, as he will plainly state for you. On top of that, the 24% jump and 20-some thousand per month is interesting, but lacks context of how big is this in the world of loan re-mods.

    The delinquency rate chart is interesting, but all delinquencies are clearly not equal. I do not know that there is anything definitive to be taken from this chart.

    I see that you missed my first sentence. The sell/hold decision is much more in the hands of mbs holders (including quasi-governmental agencies) than with the banks. They have a different appetite for long term fixed rate debt, and are not subject to the same regulations. They know that time will fix more of this problem than not, which makes rushing to take the losses a dubious proposition for everyone but the bargain hunters. OCHousing knows this too. That’s why he’s so mad.

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  19. apartment boy

    RE: wreckingbull @ 17
    Indeed, this was a balanced article. Calling Dimon a terrorist w/ his picture next to Osama Bin Laden is nothing, if not balanced, right?
    No doubt, it’s cool to bash the financial industry(I prefer Goldie), but bear in mind that most banks would like Uncle Ben to end ZIRP, so they could manage their NIMs more profitably.

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  20. wreckingbull

    By whatsmyname @ 18:

    I see that you missed my first sentence. The sell/hold decision is much more in the hands of mbs holders (including quasi-governmental agencies) than with the banks. They have a different appetite for long term fixed rate debt, and are not subject to the same regulations. They know that time will fix more of this problem than not, which makes rushing to take the losses a dubious proposition for everyone but the bargain hunters. OCHousing knows this too. That’s why he’s so mad.

    Whether you like it or not, Federal Reserve policy has created an overabundance of credit. Whether that credit is consumed by banks themselves or indirectly by other MBS holders, the effect is the same. I will agree with aparment boy – ZIRP is killing banks – your regional and community banks that actually try to make a living, you know…… banking.

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  21. Mike

    By wreckingbull @ 14:

    RE: Plymster @ 12 – Great article. Refreshing to see someone actually ask where the inventory went. The answer of course is that existing deadbeat homeowners are living in the inventory.

    It’s also why I’m convinced that the properties in default can’t flood the market the same way they did prior to 2009. Back then much of the inventory was already vacant, whereas now each foreclosure creates a tenant. Combine that with a fairly even rent vs buy cost, lower prices plus several years of consumer de-leveraging and we’re in a situation where most owners actually can afford to rent back the homes they just lost to foreclosure. No doubt some will suffer payment shock after years of living rent free.

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  22. whatsmyname

    By wreckingbull @ 20:

    Whether that credit is consumed by banks themselves or indirectly by other MBS holders, the effect is the same.

    I will confess that I may be missing your point, or at least your linkage. When you say above that the “effect is the same”, exactly what effect is that, and how does that effect become “The whole reason that hold/sell decision exists today”?

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  23. Jonness

    RE: Plymster @ 12

    This could mean decades of inventory drought and housing blight replete with squatters.

    Does this seem likely?

    Bernanke is doing everything in his power to cause asset inflation to reverse the trend. But he has to do it in a way that doesn’t completely collapse the country’s economic system. Thus, he’s limited to using the same tools he criticized Japan for using, when in a similar situation, that led to a multi-decade low-growth disinflationary environment while stuck in a horrific liquidity trap.

    Japan has a much worse demographic problem than the U.S. that continues to exacerbate its situation. The U.S. has some demographic issues of it’s own, along with other problems. But due to it being somewhat better off than Japan, asset inflation could eventually prevail (or not).

    For now, you can get a 30-year zero-point loan at 3%. And it wouldn’t surprise me to see a 2.5% rate before the nightmare is over (the horrific liquidity trap could get worse). Not that it will happen, but at this point, it’s far less crazy than the idea in 2007 that my neighbor could have pulled $300K in equity, stopped making payments for 5 years, and the bank would not kick him out.

    The U.S. will continue to print until it can’t print anymore. And that’s when things will get really ugly compared to our current picnic.

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  24. corndogs

    RE: Mike @ 21 – “It’s also why I’m convinced that the properties in default can’t flood the market the same way they did prior to 2009″.

    It’s flattering that you took a spring board off Corndogs original post of knowledge… but let’s not mess it up through the grapevine.. Foreclosed properties will not affect inventories going fwd… NOR did they affect inventories prior to 2009.

    This whole idea of foreclosures driving up inventories is one of the typical SeattleBubble brain fart assumptions that gets passed around here and smoked as if it were good weed… it’s stupid…forget about it.

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  25. whatsmyname

    By Jonness @ 23:

    The U.S. will continue to print until it can’t print anymore. And that’s when things will get really ugly compared to our current picnic.

    Not agreeing or disagreeing, but please describe what that ugliness would look like.

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