Wednesday, April 14, 2010

Here's What's Missing From CAAR's Market Report, First Quarter 2010: Info Buyers and Sellers Need Right Now

There were just 18 more sales in Q1 2010 than there were in Q1 2009, in all of Central Virginia (7 Counties and C'ville).  That's bad.  Was it "snow"?

Yes,  there were 18 additional sales in Q1 2010 over 2009
  • despite Q1 '09 being the depths of the "Great Recession" 
  • despite  historically low interest rates 
  • despite the expanded Homebuyer Tax Credit for "First Time" and "Move-Up" buyers
  • despite FHA loans pretty much available to anybody with a pulse, for amounts up to $437k, with a 3.5% downpayment
Probably not snow.  So what kept the sales lowThat pesky nationwide housing crash.  And buyer knowledge that this area remains overvalued, at all price points, and hasn't had the "correction" of surrounding locales.  The further the area moves away from the bubble years, there are fewer and fewer new and move-up buyers, just a handful of "short term" buyers, and a host of reasons why there will be continued price declines.  Buyers know this.  And so do Realtors.

The only cause for optimism right now in the Charlottesville Area RE market is that there are 16 days before the Homebuyer Tax Credit expires.  Sellers with equity can drop their asking prices. 

So what's missing from the Charlottesville Area Association of Realtors  Q1 '10 report?  Some vital details about inventory, pricing, sales, as well as some broader perspective.  

Buyers and sellers need more information so they can either make offers, or create reality-based asking prices, or just sit out the season.  The CAAR report is, after all, the product of a trade association and sales people, and thereby an overview.  Still, it is widely reported in media venues, some of which present the information as if it's a complete picture.  

So here's some of what's missing: 


The number of sales stated in the report --436-- (418 in '09)  is for  all property types rolled together--single family, condo, townhouse for all of Central Virginia. The percentage of sales of all types is reported as follows for 2010 over 2009:  

Charlottesville -26.1%
Fluvanna +12.5%
Albemarle +13.1%
Greene +22.5%
Louisa +19%
Orange -26.8%
Nelson +104%

But the numbers need the context of earlier years.  The numbers below are 2009's declines over 2008 for Q1

Charlottesville -40%
Albemarle -18.7%
Fluvanna -32.4%
Greene -50%
Louisa -59.6%
Nelson -51.2%
Orange – 36.7%

1.  There's been a huge drop in sales since 2005.  And for some property types and areas, the drops have been more significant, when individual categories are examined. 

2.  For Q1 2010, Charlottesville had a drop in sales of -26.1% over 2009.  Albemarle County has had a rise of +13.1% over 2009. 

3.  The "American Dream" category, single family homes, is the "indicator" of economic health, used by the Case- Shiller Index, the FHFA, the NAR, to track the housing market.  But info about this category is missing.    (Here's  a bubble blog post for  Albemarle's Q1 2010 numbers.)  

4.  Condos and townhouses are broken out in a separate category for Albemarle and C'ville--even though the sales and pricing have already been included in the numbers for "sales" and to calculate the area's median price.

5.  New Home Sales:  The report has a graph with a line moving from top left corner to bottom right...there's been a 75% decline in new home sales since 2006.  This is actually the most devastating part of the report for those connected to the industry, as this is the only sector of RE that creates jobs.  Sales create commissions, but building has a ripple effect.

6.  How many closed sales were "short sales"?  Is it 50%?  25%?

7.  How many closed sales were foreclosure resales

8.  How many pending contracts failed to close


There's a statement in the report that inventory for all of Central Virginia has declined this year compared to last year.

But in certain areas, and for certain types of property, inventory has risen. Inventory for the largest sector of sales in Charlottesville and Albemarle County, detached, single family homes has climbed significantly:  
  • In the City of Charlottesville in April 2009 there were 204 homes for sale.
  • In 2010, there are 248, an 18% increase.
  • In Albemarle County in April 2009, there were 666.  
  • In 2010, there are 798, a 17% increase
And of this inventory, vital details are missing:

1. How many of the listings are "short sales"? 
2.  How many listings have asking prices less than what the seller paid, but are not, technically, "short sales"?
3.  How many listings are foreclosure resales
4.  How many of these are "relistings"?
5.  How many listings are vacant?


The "area median" of $235k given by the report is an aggregate of all types of housing units (condo, townhouse, single-family) and compilation of all geographic areas (7 counties and the City).    

Medians for 2001-2009 are here. 

But the aggregate number is way off indicating the much higher figures for single family homes, especially in comparison:
  • City of C'ville - $349k (this week) 
  • Albemarle County - $465k (this week) 
  • National median of $164k for a single family home
1. The median or average prices of a detached, single family home in C'ville, Albemarle, Greene, Louisa, etc, is not given.

2. There's no mention that the average sale price of a single family home in Q1 2010 in Albemarle County  was $522,827; this is $55k less than in 2009. 

3.  The condo market is having a price (and sales) collapse.  There's no mention of the extent of the problem, nor the reasons.

4.  What's with the asking prices divorced from tax assessments? Sure, an assessment is not an appraisal.  But Mr. Greedy Tax Man is using similar "solds" from last year to get his number.  Last year, houses were worth more.  When many buyers see an asking price above a tax assessment, the property is automatically crossed off the list.  (2004 tax assessments are more realistic as a starting point.)
5.  To suggest pricing is "stabilizing" in the area, when months of available inventory is in the double digits, is a disservice to buyers as well as to sellers.

Perspective:  The CAAR has brought in Virginia Housing Development Authority Senior Analyst Barry Merchant several times to tell members where this market is going over the next couple years.  But the Q1'10 report doesn't put into context any of that information...because it's a marketing report, a tool to inspire confidence to buy; it's not giving buyers nor sellers, enough hard data to make an offer or to price the property to sell.

Bottom Line: It's not a "great time to buy."  It won't be a "great time" to buy for years.  It might be a necessary time to buy for some people who need a roof over their heads.  But it wasn't the snow that was inhibiting sales: it's pricing and lack of qualified buyers.  And April will be disappointing, even with the tax credit.  And when the cred expires April 30, uh oh.

To Sum Up: Yes, it was just a marketing report.   But it gets more news time than any other "marketing report" in this area.  The Devil's in the details, as the old saying goes, and there were a lot of details left out.  Buying a home is typically the largest investment of one's life...and buyers need all the help they can get nowadays.  (Reported in local news here, and here, and here.)

Update: Some Current Market Reports (2nd Week of April) from @JimDuncan, RealCentralVA, can be found here and here.

Related Reading
Nest Realty Group's Double Digit Depreciation Forecast For Albemarle County
Zero Hedge: It's Impossible to "Get By" in Charlottesville...or Anywhere
Robert Shiller:  Don't Bet That There Will Be A "Housing Recovery"
SeekingAlpha: National Home Prices Set to Decline 
Robert Reich: Jobs Outlook Bleak--8 Million Lost, and Most Not Coming Back
Fannie and Freddie Set For More Foreclosures
One in 10 Virginia Mortgages Delinquent or in Foreclosure
The Automatic Earth: The Dorothy Theory Run Amok 


rfs said...

To add to this post, take a look at this...

Basically purchase mortgage applications are way down the first week of April. Now folks can pay cash and not get any financing reported by the MBA (mortgage bankers association) but most who pay cash are at the lowest price point.

Debaser said...

Thanks Bubble Blog for the extra info and data. The CAAR reports break down some of the data by locality and/or property type but not all.

CAAR have reported an overall drop of 255 homes on the market compared to Q1 2009 (3608 v 3353). It would be interesting to know what localities/property types have seen inventory drop to offset the 176 unit increase you report for Albemarle and Charlottesville detached, single family homes.

From the Q1 2010 report:
"The median price is now a little above where it was at this point in 2005, before the housing prices started increasing dramatically."

Comments like this make it hard for me to give the CAAR reports the benefit of the doubt on the Bubble Blog's claim that they are just a marketing tool to inspire confidence to buy.

In 2009, the CAAR Market Reports stopped including historical data prior to 2005 (earlier reports had data extending back to 2002). Quotes such as the one above make it seem like they have not just stopped including the data but have decided to ignore it altogether.

Following a discussion about the CAAR 2009 1st half market report where Michael Guthrie wrote about prices following a bell shaped curve (between 2005 and 2009), the Bubble Blog posted
Median Home Prices Charlottesville MLS 2001 - 2009

Surely CAAR is as aware as the rest of us that local house prices started "increasing dramatically" well before 2005?

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

Thanks for including that link, Debaser. It's going into the post.'s telling how cash-strapped folks are if the FHA insurance premium is leading to fewer mortgage apps. For a $300k property, that's an increase of about $1500.00 in costs. A one-time fee.

City Dweller said...

Sellers: the best way to price your house? Use a flyer. If passersby are laughing out loud and stuffing it back in the box, you know you're not selling.

Happening to my neighbor every couple of hours.

Anonymous said...

I'm a lender and I'm noticing that FHA loans are not so easy to get anymore. Automated underwriting is getting tighter and underwriters are hesitant to sign off even if AU has okayed a high ratio. So debt ratios of 45% to 50% seem to be a trend. May sound high still, but will cut out a lot of prospective buyers.

Anonymous said...

Thank you Bubble. With the bottleneck in C'ville, makes one wonder what skills the real estate agent brings to the table. Certainly the multilist doesn't provide much information. As recently as last weekend Realtor(s) were informing me this was the 'time to buy' and there were no foreclosures in the C'ville area thereby keeping the prices from falling further. I fear the agent has become an order taker with access to an on-demand marketing tool and a house key. Perhaps the FED will start clearing the inventory since they ultimately own the mortgages.

Star Chamber said...

Anybody want to have a go around about the CAAR Star Chamber? I'm listening.

Anonymous said...

WTF is going on here? I was just reading last year's post.

Charlottesville (the city) sales at this time last year
2009 DOWN 40%
and this year sales
2010 DOWN 26%

So what's with the pricing?!? There's too much inventory even if there aren't lots of foreclosures for sale.


Humpty said...

Excellent Analysis! Thank you.

Anonymous said...

Maybe EBAY is the answer . . . :)

Anonymous said...

FHA Lender Question for Anonymous at 9.29pm, when you say 45-50% debt ratios, do you mean total debt ratio? Or is that just housing costs?

And if applicant has a high debt ratio, will high credit score make a difference with FHA?


Jason Crigler said...

Late to the game here, but I second what Anonymous 9:29pm said
about FHA loans. Easy mortgages are the rare exception and FHAs are no different. Guidelines, in general, are more restrictive now than a year ago and appraisals (not necessarily appraisers!) are still giving us major headaches.

And to answer Anonymous 10:30pm:
DTI (debt-to-income ratio) is based on total monthly debt (minimum payments) to gross monthly income. For FHA, high credit scores will get you to 50% or maybe just above. For low(er) scores, you're looking at 45% DTI or less.