Monday, November 24, 2008

Daily Progress Article - "Our Economy: The Good, the Bad, and the Ugly" - And Some Perspective

Sunday's DP has a feature about the local economy. We offer some perspective on the numbers relating to housing.

The bolding is ours, as are the comments in parentheses and the color red. Otherwise, the material is from the article, which categorizes the local economy as a "mixed bag" and then subdivides issues into the good, the bad, and the ugly.

*11:30 a.m. There's an update at the bottom of this post.

The Good:

(Low home sales in the region were contrasted with low sales in other areas of the Commonwealth; therefore the drop qualifies as "good news" because it's not as bad as NoVa or Norfolk, etc. Hmmm.)

The Charlottesville region’s sales fell by 21.7 percent in the third quarter to its lowest point in seven years, compared with the third quarter of 2007, according to a market report by the Charlottesville Area Association of Realtors.

(Sales are at the lowest point in seven years: seven years ago was just about the beginning of the bubble.)

Yet real estate industry professionals see some signs for optimism. Jeff Gaffney, chairman of the new homes division of Real Estate III, said the Charlottesville region’s glut of housing is beginning to be whittled away and the average number of days it takes to sell a home has decreased. The number of homes listed for sale has dropped from 3,530 last month to 3,427 on Thursday. The average number of days on market fell from 128 in October to 113 last week, according to CAAR.

(A drop of 100 properties is seen as "good" news? This is how disastrous the market is right now. And fwiw, we're not confident that the decline in available properties is due to sales. More properties come on the market every day, especially in Albemarle and the other counties, which balance out the "solds." There's been nearly 15 months of inventory (and see update, below) on the market for the past few months. In September and October there were about +/- 145 sales EACH MONTH out of 3,550+ available properties.

Is a reason there's been a decline in numbers that some houses formerly for sale have been rented or made available to rent? And that others have been pulled off the market? Even casual observation and looking at Craigslist can give one this idea.)


“We’ve had a decline of inventory of housing for the last four months straight,” Gaffney said. “It’s still certainly a buyer’s market, but it’s headed toward balance. Maybe we’re turning a corner.”"

(This comment the only kind one would expect from a REALTOR in such a terrible market: "spin." The reality is, we're not "turning a corner" any time soon. Where are the buyers supposed to come from? NGIC isn't panning out to provide lots of househunters, unemployment will continue to rise, wages are freezing at UVa, and the price-to-income ratio in this area remains bubble-high, especially in the City proper.

The only way there will be a "corner" turned in this market is A) If sellers get realistic about what their property can fetch in this market from this point forward (sold comps hold less weight now)
and/or B) If suddenly mortgage rates drop below 5%, there are no downpayments, and mortgages are now 40-yr fixed. Hey, stranger things have happened. The reality? More properties will be coming on the market in the Spring and Summer because people who have been "waiting out the market" will realize that "waiting out" isn't an effective business strategy.)

(And BTW, we can't help but notice that reporter Brian McNeill didn't interview, or quote, Charlottesville Area Association of Realtors CEO Dave Phillips, who is usually the spokesmodel for local RE, after this debacle earlier in the Fall. Any connection? (Be sure to read the comments that follow the first link.))


The Bad:


Despite a few somewhat positive signs (???) for the real estate market, the Charlottesville area’s home sales are unquestionably slow.

Yet home prices have not fallen, making homeownership a still out-of-reach dream for many residents. At the end of 2004, the median home sales price in the region was $247,250. So far in November, the median sales price has been $257,883.

(As of the 23rd, it's $259K; these figures change daily at www.caar.com, as do DOM (days on market), depending upon what has been sold.

It's important to note that this figure is for the REGION, which is a five county area, the City, and in some cases The Valley. Median prices and Asking Prices in the City of Charlottesville are higher, sometimes significantly so, sometimes so inflated that one questions the judgement of the Seller or the Seller's Agent. See: MLS #459503, #459498, #459485, 459452, all "new" listings last week, months into a slow market, not to mention in the middle of a national economic crisis and global recession.)


At the same time, the financial industry meltdown has led to banks tightening lending requirements, making a mortgage loan significantly harder to obtain.

(Mortgages are "harder to obtain" because the applicant has to actually be qualified for the loan: stable job, down payment of actual money, good-excellent credit score.)

Along with the real estate slowdown, the pace of new home construction in the region has fallen to a level not seen in at least 16 years. Albemarle County issued only 360 residential building permits during the first nine months of 2008, down from 831 during the same period in 2007.

"The slowdown has led to layoffs by companies in the homebuilding and overall construction industries, including firms such as Church Hill Homes and other prominent builders.""

(Church Hill Homes didn't just have "layoffs." The two principals let major assets go into mass foreclosures, while they saved themselves with jobs at Eagle Construction (btw, don't miss the comments if you click on the link)).


The Ugly:

... (A) growing number of Charlottesville-area families have defaulted on their mortgage loans.


Shelley Murphy, director of program services for the Piedmont Housing Alliance, said she has seen an average of 10 people facing home loan default or foreclosure each week.


“We are seeing an increase,” she said. “We used to just have one person handling the default calls. Now we’re all taking those calls. There are four of us. I’m the supervisor and I’m taking those calls too.”"

(Anybody who reads The Hook will have observed that the weekly list of property auctions gets longer every issue.)

UPDATE, 11:30 a.m.  REALCentralVA has a post about the DP article.  Realtor Jim Duncan points out that there is actually 18.08 months of inventory in the Charlottesville, Albemarle, Fluvanna, Greene, and Nelson Counties.

He says, "I think that sales are down nearly 50% in Albemarle County and 25% in the City of Charlottesville...but median sales price is up $75K.  Really?"

To see graphs and learn more details, check out the post.

The entire DP article is here.

17 comments:

Jim Duncan said...

We actually have seen a reduction in inventory over the past several months - albeit very small - it may indicate that we're close to a corner. But ... I don't think so, for many of the reasons pointed out here (in addition to the shadow inventory - post coming this week, I hope)

I'm speculating that there are (at least) two reasons for the reduction -

1) New construction/building permits are down dramatically - and this is a good thing
2) Some sellers are reasonable and are lowering their prices to market levels.

Time will tell.

Real C'ville - The Bubble Blog said...

Existing home sales record drop:

http://www.ritholtz.com/blog/2008/11/record-price-drop-existing-homes/

Nationwide, the inventory stands at about 10 months. Stark contrast to this area.

Anonymous said...

OK, so Charlottesville really IS a protected market.

It's protected from buyers.

Montpellier said...

So, just two small comments:

- I think Jim is right: the shadow inventory is enormous. Charlottesville is only "protected" in that some properties are owned by folks who can afford to carry them, indefinitely if necessary. That doesn't mean they will, but it means the foreclosure 'forcing function' isn't as much of an issue here as say, the central valley in CA.

- I have been shocked to watch Jefferson Area Builders put up a house out in North Garden, on my commute, next door to one that's been languishing on the market for over a year, and another which is in foreclosure. WTF? Who is building this? There are two other lots being graded and prepped right now, just a quarter mile further down US 29.

I'm betting the real stuff hits the fan in our MSA this spring; by then the ALT-A resets will really be picking up steam.

Anonymous said...

People in the $500000+ market here have a lot of choices, but a lot of them are still not great choices. When you can pay $518000 for something that would still require renovation, you have some sellers who go beyond optimism into the realm of hysteria. But then again, it's not THAT hard to get a jumbo mortgage these days right?
Statistically speaking don't most families in Charlottesville earn more than enough money to support a mortgage this size anyway? These sellers must have information the rest of the market watchers don't have. There must be a huge number of qualified and willing buyers out there that will be buying all of these homes shortly.

larsen b said...

23% of residents in the City live in poverty fwiw. But as for people who do have a job income or income stream for a jumbo, well, these are people who also most likely just lost some big cash in the market crashes.

Thinking that the # of people who want jumbos in the mid-500's is probably limited. If you have to put money down for a $500k mortgage, that's either $50 thou or $100 thou out of pocket. And in the City, the quality often isn't there (as in the house mentioned in this post). If you have to cough up cash AND the quality is just average AND a jumbo for 30 yr fixed apr is 7.4%, all I can say is ouch. And why bother right now.

But LOL on your last two sentences, anon. :0)

And all I keep thinking: EIGHTEEN MONTHS OF INVENTORY. WTH.

seth speaks said...

not WTH, but WTF.

I guess it would be a "buyer's market" if there were any buyers.

Personally, I'd like to move out to the county just to have a couple of acres for the kids. Garden and lots of room to play. But I know I have no hope of selling right now.

I bet there are lots of potential buyers like me who have the means only with a sale. No lateral moves or moving up without selling first.

This sucks.

brigadoom said...

MLS# 459638

New listing today.

1606 Mulberry Avenue off Cherry and Shamrock

ASKING PRICE: $299K.

Last sold in 2003 for $165,500

What could possible justify this asking? Nothing in the listing seems to.

Anonymous said...

The only justification you need is that this property is in Charlottesville. The only other place where you could demand this kind of price in this economy is Xanadu or Brigadoon, although doom is certainly more appropriate at this point.
The madness just rolls along.

brigadoom said...

See this week's Hook (w/Halsey Minor on the cover (it's out today, Tues, due to TG).) pg. 50 in the On the Block series (not avail online yet)

118 Monte Vista

SOLD $197K in 2003.

ASKING now: $329K.

Redid kitchen, added bathroom & hvac and a bit more.

Article says owner wants to sell to open a b&b.

Meanwhile, the agent told a buddy of mine that owner needed to sell in order to move out of town to take care of elderly parents.

Both could be true. But it sure sounds like a flip to me.

There's a house for sale at end of block on JPA, and two more nearby on Mobile Lane.

All of them too expensive for Fry's Spring. Originally a working class neighborhood now partially gentrified and partially split up into multi-units.

michael guthrie said...

Seth,:
If you really want to sell your home so that you can find something in the county wih acreage, here is a strategy to consider if your desire to buy something at a higher price:
Determing the fair value on your existing home and market it @ 10% less. contrary to what you read and hear, there are buyers out there. they are rightfully being very picky and consersative with their purchase offers. Once you get yours sold, go out and buy a home you desire at at least 10% less that its value. That way you realize a net gain vs a loss.
Here is an example:
Your home is worth $400,000 and you sell it for $360,000 (a $40,000 hit on paper). You go out and buy a home valued at $550,000 for $495,000 (a $55,000 reduction). You therefore realize a $15,000 net gain.
One word of caution;
When you sell your home, place a contingency on it that says you have the right to withdraw from the contract if you can't find the right home to purchase. that way, should you not find that perfect home or can't negotiate the right price, you haven't sold your home with nowhere to go.

Anonymous said...

According to DP, sales are at a seven year low.

According to bubble blog, that figure = 15 months of inventory.

According to realcentralva the figure in cville/alb is actually 18 months of inventory.

When was the last time there was this much inventory?

Jim Duncan said...

One note on the 18 month inventory number - as I said on RealCentralVA - while sales dropped in October, I'm thinking (hoping) that they didn't drop so much that we're at 18 months inventory ...

That said, sales are low and inventory, while dropping mildly, is still high.

Real C'ville - The Bubble Blog said...

Jim,

How do you figure this out? Will there be a further confirmation of numbers later?

Or will this just exist as the number, erased later by the November #s, the December #s, etc?

Jim Duncan said...

I'm going to re-visit them in December and do spot-checks of data in the interim. That's why I posted them with the hedge that I'm hoping for some anomaly - sales dropped, but by that much ...

solon said...

michael's strategy sounds like a good one in a market that isn't stalled.

but if seth doesn't have to sell, just "wants" to, he seems to know that it's not a great time to buy or sell, even with a contingency clause.

whether there's a 15 month or 18 month supply of inventory, the number is still a lot higher than the national number of 10 months.

plus, what his house is "valued" at by a realtor and what a buyer is willing to pay might be very different numbers.

maybe the lower mortgage rates will help this area. after a while.

michael guthrie said...

Solon,
You are absolutely right. We are in a price sensitive market and the price is ultimately determined not just by what the buyer is willing to pay but also what the lender is willing to lend. That is why I recommend the "home of choice" contingency" so that the seller knows exactly how much money they will have when they negotiate a purchase on the home they want to purchase. That way, if things don't go right, they can stay in their existing home.