Wednesday, November 10, 2010

October 2010 Blows: Charlottesville Sales Down 67% yoy, Albemarle Down 22% yoy, and Area Inventory Highest Since 1990

It's not the time of year:  it's the economy.  Local and National.  And  in this area, the issue remains pricing.  There simply aren't enough jobs here to supply the demand needed to re-balance the market.  Additionally, the "Double Dip" in the national housing market has begun.  In the coming months, more sellers  are going to take this guy's advice.

Nest Realty has all the poor performance details for the Charlottesville Metropolitan Statistical Area, which includes City of C'ville, and the counties of Albemarle, Fluvanna, Louisa, Greene, and Nelson.  2010 is shaping up to be worse than the Great Recession year of 2009.

*Total Sales MSA 2010: 137
*Total Sales MSA 2009: 197
* = a drop of over 28%

*This is the fourth straight month that sales have been down, since expiration of Homebuyer Tax Credit on April 30, 2010, with sales closed by June 30, 2010.

*Charlottesville Total Sales Oct 2010 - 9 Single Family, 1 Townhouse, 1 condo
*Charlottesville Total Sales Oct 2009 - 34
 * = a drop of over 67%

*Albemarle County Total Sales Oct 2010 -54
*Charlottesville Total Sales Oct 2009 - 69
* = a drop of over 22%

*Inventory levels in City of Charlottesville = 32 months
*Inventory levels Albemarle County = 22 months
*Inventory in MSA: 20.8 months


*This is the highest inventory for an October since 1990
*October 2010 represents the highest inventory since February 2010

Local RE sales are low suck, and there's nothing to indicate that, absent more $$ Homebuyer Tax Credits or mortgage interest rates at 3%--or cash raining from the clouds--sales are going to pick up any time soon.  

Read the narrative at Nest RealtyShield Your Eyes 

Related:
- The Short Answer to This Question is "No."  The Longer Answer is "Not in the Charlottesville MSA, nor in the rest of the United States." 

-"The New Normal" - A Multi-Part Series Examining Local and Nat'l RE Issues

- The Third Quarter Market Report
- The Second Quarter Market Report
- The First Quarter Market Report


Here's what the National Double Dip in Housing looks like, via Zillow:


The following charts are via/copyright Nest Realty Group.  Click for larger image.  Go to NRG for even larger version.  

City of Charlottesville Home Sales


Albemarle County Home Sales


Charlottesville MSA Home Sales

"For Sale Sign" image copyright CNN Money.

22 comments:

craigger said...

But there is "cash raining from the skies"!

http://www.federalreserve.gov/Bernanke_post_op_ed_20101104.pdf

As written in a comment that was not posted earlier. The nominal dollar is now worth 27% less than it was a month ago (granted once the money multiplier comes back).

http://research.stlouisfed.org/fred2/series/BASE

The above chart is BEFORE the latest 27% 600B money money falling out of the sky debasement tax that was issued by Ben B in DC.

Anonymous said...

craiggger, always look forward to your comments. but could you please translate into simple english? what does that mean for me as a homebuyer?

reality said...

There's nothing for most of America.

http://www.businessinsider.com/feds-qe2-misadventure-costs-us-households-46-trillion-2010-11

Montpellier said...

Um, Craigger...were you missing the snark tags?

There is no cash raining from the sky, and there is no inflation in housing. There is some inflation in commodities, though that's not completely clear just yet.

On the original post: yow...it's getting ugly! Time for some real price reductions!

craigger said...

Nothing snarky about my comment above. I am less bearish on house prices in Cville than I was two years ago.

All of my pasted mumbo jumbo above translates as follows for house prices: it means they aren't going to drop as much as they would have if no money was printed, ie "dropped from the sky".

During massive debt fueled financial recessions and depressions, there have been equally massive drops in the amount of money in circulation ( because the velocity of money decreases and capital reserves increase because everyone is afraid to lend or borrow money). In 1893 (the first "war on the wealthy", prices fell by 47%. In the 1929 depression, general prices fell by more than 30%.

The same thing would have happened in today's recession, and in fact DID happen, except the federal reserve started printing massive amounts of money (the increase in the monetary base which I showed in my earlier post). Something that could not have previously been done in '93 or '29, because currency was backed by gold and silver. And In fact before massive money printing began at the end of 2008, commodity prices fell more than 50%, public company revenue was down 15% plus, And housing markets that exploded first (had the most foreclosures the earliest) had dramatic price drops. Cali lost more than 44% of home value before 2009. And I believe Cali would have lost another 30% of value (30c total worth on your original dollar) had the federal reserve not started massively printing money (raising the MB from 900B in 2008 to 2.0B in 2009). The effect of this massive expansion of money, was to reduce and in many cases eliminate further declines in nominal prices.

Because The Cville market only started "crashing" in 2009 because our foreclosures were slow to start (luck of the draw on our mortgage maturities), which was AFTER massive money printing, we never saw the massive nominal price declines that hit other markets earlier

As I've said before, I think we have a 18 month window of 10-15% nominal price declines, but not much more after that. There are not a lot (on a relative basis to bombed out markets) of forced sellers in this market, especially above 350k home values.

I am looking to buy a house, so I'm "rooting" for more pain, but I'm just trying to be rational, not schadenfreude emotional. Being rational is how you will do well over a long period of time when it comes to money.

I would love to hear countervailing opinions as I hang out with Austrian econ lovers too much.

Anonymous said...

Craigger,
Money needs to "fall out of the sky" because most people simply don't have $50-$150k to put down on a $400-799k house (mcmansion) in Crozet or Keswick and/or they won't qualify for best rates. And it's obvious that the first timers needed the $8k for closing or down payments on the low end of the market.
Even with 10-15% price drops, who do you think are going to buy all these houses? And all the ones that are going to come on the market in the Spring?
How is this NOT a basic econ 101 question of supply and demand? Tiny amount of demand here.
What is going to change this?

craigger said...

I don't doubt that there are less buyers at those prices than there were in 2006. But the econ 101 argument needs to consider how many sellers there will be as well. As prices decrease, the amount of sellers decline.

If you can fix your debt, and carry your mortgage, you do not need to sell. Jumbo's are now available for 70bps above conforming or around 5.17%, almost 2pts below what they were during the panic. Everyone that could have refi'd already has, the rest who can't will do one of three things, keep paying their floating rate mortgage, enter a short sale or foreclose.

From the number of distressed transactions that we have had, the MAJORITY of people that live in jumbo mortgage houses have probably already refined and do not NEED to sell, but are sad that they can't sell their in house in the next year or five for more than they paid. But sadly, they can afford to sit and wait for a higher nominal price future.

The only sellers that HAVE to sell at low prices are banks and short sale candidates. For the former, there have been virtually no foreclosures (on a % of housing stock basis) in the +520k home price market in Albemarle and Cville. The Kluge estates make great blog posts but are not typical. I know because I check foreclosure notices every damn day. When it comes to short sales, Jim Duncan and the Bubble boys and girls know a lot more than I do, because I don't have a sense of the number of short sales in the Jumbo range.

I do have some anecdotal evidence as I know several people who have received massive discounts when buying in the 1mm+ range of housing (1.9 ask bought for 1.2mm, and 3.5mm ask bought for 2.5mm). But these transactions are not a representative sample and were both the result of divorces, not short sales (rich people are still rich, the same as it ever was).

I'm about to go short sale hunting in Jan and I'll let you know how it turns out. But my current feeling is a bit of Realtor Newspeak - if you can lock up a reasonable deal on house you like with a 5% 30yr mortgage, your not going to care what happens in the intervening 7 years when the 30yr goes back to 15%, because everyone's nominal income is going to be up 50% by that time (7% inflation compounded for only 6 years) but you will still be paying the same flat nominal mortgage nut every month, and whether you pay a little more now with a low mortgage or a little less 5 year from now with a higher rate mortgage, you end up in the same place.

Now, if the govt takes away tax deductions for interest, I'll be a stupid monkey.

John Doe said...

Va Housing Development Authority has an update on regional trends and conditions for this market. Will put on blog later, for now you can see it at RealCentralVa, where Jim has kindly posted.

Also, will add some comments here later.

BTW, as Craigger knows, the mortgage interest deduction, which is only taken by about 33% of homeowners (ie, those in upper income bracket) *is* on the table for cuts...

http://www.realcentralva.com/2010/11/11/barry-merchants-presentation-on-virginia-real-estate-market-from-this-morning/

AliG said...

Craigger,

I think you are making a fundamental mistake regarding your expectation of inflation in the forseeable future. QE2 is an asset swap (interest bearing instrument - Treasuries for non-interest bearing asset - dollars)and is not necessarily inflationary. Sure, there is a surge in speculation that is driving up the cost of gold/silver/food, commodities, and a sense of "debasement" of the dollar. However, these are forcing price increases into areas such as food, energy and industrial commodities. There is no inflation , however, in wages or assets such as homes/cars.

Why? Because QE2 cannot increase consumer demand for loans. The crux of this crisis is the fact that consumers are deleveraging - so debt, no matter how cheap is not in demand. (sure, refinancing at lower rates helps to reduce the burden of payments, but it is not doing enough to stimulate consumption.)So with higher commodity prices(input costs) driven by speculation and debasement of the reserve currency all you get is margin compression, since companies cannot pass on the costs to an already struggling consumer. Margin compression is a killer for companies, which results in lack of hiring and downward pressure on wages. So, in conclusion, IMHO, since QE2 is not in fact the same as throwing money from a helicopter, inflation will occur but not for wages or for housing.

craigger said...

Sorry AliG, fundamental mistake is not on my end. Inflation is anywhere and everywhere a monetary phenom.

http://en.wikipedia.org/wiki/Milton_Friedman

Loan demand is only one part of the money supply equation. Over short time periods (1-3 years) with a modest increase in m1, you can still get disinflation or even deflation with slower velocity or a lower money multiplier, but those last two always even out after a while barring big regulatory changes in the reserve ratio. Eventually, V and 1/r return to average and then you get inflation. Its already happening:

http://www.marketwatch.com/story/commodity-prices-weigh-on-dean-foods-sara-lee-2010-11-09

"• Increasing employee salaries, which rose approximately 20% in the second quarter of 2010 from average salary levels in April 2010 and increased again by approximately 30% at the start of the fourth quarter of 2010 from average salary levels in October 2010. "
http://finance.yahoo.com/news/Nam-Tai-Electronics-Inc-Q3-prnews-275958605.html?x=0&.v=1


http://www.bloomberg.com/news/2010-09-30/wal-mart-s-prices-highest-in-almost-two-years-analyst-says.html



Also, margin compression is not an issue for now.

http://www.businessinsider.com/soaring-corporate-profit-margins-indicate-major-problems-in-the-future-2010-6

In terms of my fundamental bias against future inflation, its not good to short the inflationary dreams of a man with a printing press.

http://online.wsj.com/article/SB10001424052748704706904575556283044368588.html?mod=WSJ_hpp_LEFTWhatsNewsCollection

Also, to your last two points on wages and housing inflation. I'm not saying housing prices aren't going down, I'm saying they are not going to go down nearly as much as they would have if Ben B hadn't printed so much money. I would agree that that median wages won't be under tremendous pressure for a while, but I do believe the rich will keep getting richer and the average wage will increase.

AliG said...

OK, Craigger,

I am going to try and absorb your response and check out your links - then I'll get back to you...

John Doe said...

Craigger,
your prediction on impact of inflation seems optimistic and textbook for the housing market, both local and national. Maybe it's what "should" happen, but most likely will not. We're not in that world any more. There is no "wealth" creation for 80+% of the population at this point.

To invoke your trope, if we were going to use Realtor speak, we'd suggest cutting to sell asap in what is a slow but at least known market.

Let's be realistic: many Realtors don't know what a "liquidity trap" is, nor a money multiplier, nor Quantitative Easing. Nor do homesellers. Agents can't offer advice based on the current economy: and many will defend themselves by saying that that's NOT what they're not hired to do.

But it's not just the hard data on the economy, the projections for the future, and distressed sales that are price changers: What drives price cutting is current sales figures.

And sales figures here, according to the VHDA, are dire, and will remain so for the next several years.

http://realcville.blogspot.com/2010/11/virginia-housing-development-authority.html

You see the domino effect when you watch the local listings carefully. When one kind of house gets a cut, others in the category follow. Often reductions are unannounced.

Too, there's a weak link in your "holding out" argument: just because somebody has a mortgage on a $500k-$1M house doesn't mean they're "wealthy"--it means they're in debt. And it doesn't mean they're not living paycheck-to-paycheck. AliG is correct in asserting that "daily" commodities will eat into everybody's pocket. It's already begun: cotton, wheat, coffee, sugar.

When you go house hunting in January, you may not find a short sale: you may very well be sitting across the closing table from an underwater seller who is handing over the $100k they didn't use as a downpayment at time of purchase.

How much more will prices drop? Asking Prices have been dropping faster in the Third Quarter than ever before. As we said before, 10-15% could be "best case" scenario, especially in certain categories.

IOHO, anybody buying today does need the very long term view, and also needs to calculate loss into their purchase.

AliG said...

Craigger, I, like you, am in the market for a house and have been since 2007. As yet I have been unable to find a house that I love for what I believe is a fair price. I believe home prices will fall substantially further in this area and am fortunately in a position where I can patiently await for that perfect house at the right price. I would like to emphasize that I do not wish to "profit" off of someone else's misery, I just do not want to pay the inflated prices that currently still exist locally.

I am not an economist and have no background in economics other than a recent interest stimulated by my alarm at what seems to be a critically sick financial structure in the US. So my comments regarding your comments should be seen from that perspective (i.e. that I fully admit to a lay man's understanding of economics/finance) and welcome your critical response.

That being said, I take issue with your defense of the position that home prices are more stable, and may even rise as a consequence of QE2.

Inflation of prices rarely occurs homogenously. While it is a monetary event, that money needs to be in the hand of consumers and not the banks/hedgefunds, for it to have imapct. You claim that,

"after a while barring big regulatory changes in the reserve ratio. Eventually, V and 1/r return to average and then you get inflation"

Your term "eventually" is key here - because I feel that the "eventually" will be a lot longer then 2-3 years. That is because, there are a lot forces slowing down monetary velocity.

Those forces are the same forces that have caused this whole financial meltdown to begin with - an overleveraged consumer with a 10 year history of stagnant or decreasing wages. Add to that declining home values (a "negative wealth effect") and the impact of QE2 which is causing speculation and therefore "inflation" of commodities resulting in higher prices of basic necessities, and it is no wonder that consumers are not spending (unless of course they have decided to spend their mortgage on discretionary items and accept eventual foreclosure). Corporate profits are only increasing due to higher productivity (i.e. firings, work harder if you don't want to get fired, and cutting back on costs) but gross revenues are often declining, and bottom line, VIRTUALLY NOBODY IS HIRING. This causes downward pressure on wages. If wages are less, real across the board inflation cannot occur and that is what this comes down to.

There is a cycle of fundamentals leading to lower wages despite the vast amount of money being pumped into the banks, commodities and stockmarket. For actual inflation to occur, the government would have to start spending and this is unlikely to occur given the recent elections. The Fed cannot spend, it can just lower interest rates and swap assets with banks.

(continues on next post)

AliG said...

continuing on...

You provided this link to back your argument for the current presence of inflation

http://www.marketwatch.com/story/commodity-prices-weigh-on-dean-foods-sara-lee-2010-11-09

This actually bolsters MY argument for margin compression.

This link regarding higher prices at Walmart

http://www.bloomberg.com/news/2010-09-30/wal-mart-s-prices-highest-in-almost-two-years-analyst-says.html

demonstrates the fact that consumers are being squeezed by inflation of basic necessities - a force that will put further downward pressure on home prices since wages are not increasing.

You present this link to argue that wages ARE increasing 20-30%

http://finance.yahoo.com/news/Nam-Tai-Electronics-Inc-Q3-prnews-275958605.html?x=0&.v=1

well I should be working for them (Nam Tai Electronics) or for that matter Google which gave its employees a 10% raise. But the truth is that wage increases are by far the exception! We have close to 10% unemployment and 15-25% underemployment - wages are not going anywhere until those numbers improve significantly.

All real estate is local, so let's look at the local employement/wage environment. Two of the biggest employers, UVA and MJH have had wage freezes. In addition, for a large portion of the staff that receive bonuses, those have been cut or eliminated, which pretty much amounts to a wage cut - no sign of inflation there! True unemployment is not as bad here as it is nationally, however, it is at record levels for the local market, and especially relevant when you consider the employment rate compared to what it was when prices were peaking.

You warn that

"its not good to short the inflationary dreams of a man with a printing press"

I think that without a government that is willing to dole that money out to the consumer by means of spending (not likely to occur now) Benny boy is just pushing on a string, creating bubbles that will pop eventually, and accomplishing his true goal of further bailing out the banks. Because truthfully, the ones who are assurdly benefitting from QE2 are the banks and corporate CEOs. Same old game, different strategy. Bottom line, home prices are dropping and will continue to drop until either supply = demand or the economy turns around and all that extra printed money moves from the banks' vaults to the consumers pockets. Neither are likely to occur any time soon!

Here are some links that I think are worthy of review with relation to this discussion:

http://pragcap.com/disinflation-higher-risk-deflation-inflation

http://pragcap.com/ben-bernanke-explains-fed-qe

http://market-ticker.org/akcs-www?singlepost=2231558

craigger said...

AliG,

We will have to agree to disagree on wage inflation. Just as you said, I think we can both be right but also wrong depending on what time horizon we are talking about. I would say that a majority of the employed people in the U.S. have pricing power, either from a systemic standpoint (CPI adjusted one way ratchets for retires or fed workers, FERC regulated pipelines, Utility Rates, etc) or from a high degree of skill (David Tepper, Buffet, LeBron James, best brain surgeon, etc). The 70's and early 80's had systemic unemployment but over the same timeframe, prices and wages more than doubled.

The only point I would truly contend with is your understanding of QE2 - mainly tied to the point "The Fed cannot spend, it can just lower interest rates and swap assets with banks." The Fed can indeed spend. Although it can not print money and then buy guns or ammunition to put in the basement of the Eccles building. It can print money, and buy the debt of a government that uses the proceeds to buys guns and ammunition to store in a basement at NGIC. The part that is hard for the public to envision in this "swap" of debt and money is that what the Fed is using to swap on its side of the trade can be created out of thin air.

My next point digresses tremendously from this blog, but in addition to money printing being a form of "spend" it is also a form of tax in that everyone's purchasing power is now reduced by the money that has been printed.

Anonymous said...

The dying jumbo mortgage market. Reflected here where Jumbos are $437 and above.

http://www.cnbc.com/id/40094168

AliG said...

Anon 2:05pm

Thank you for the link to the Olick article. I was amused to read in the comment section the following back and forth (I will leave it to you to decide who I side with):


adchristie | Nov 9, 2010 05:57 PM ET

Diana, you're doing a great job. Your analyses are very thoughtful and thorough. I was a real estate broker and appraiser for many years, and of course never saw anything like this. I'm pessimistic in the short run, but fairly optimistic for the long run - because with the inflation that's bound to come, real estate will be a solid asset that will hold its value against the dollar. "Under all is the land." Have you checked the price trends in farm land? I think they've already bottomed.
I try to check for your blogs every day.


Frank_McKenna | Nov 10, 2010 09:06 AM ET

adchristie
I will respectfully disagree with your thoughts on inflation and housing prices (farm land is seperate issue). You have to have Wage Inflation to get the push in housing prices you are looking for. That kind of inflation is hard to get with 9.6% unemployment and we have had an entire decade where we had no job creation (1st time in this country's history data only goes back to 1940's). Housing will be a drag for the next 5-7 years.


adchristie | Nov 11, 2010 09:36 PM ET

Frank_McKenna
We may not be so far apart. I too am pessimistic in the short run. To me, a short run in real estate is 3 -5 yrs.
Gov. intervention could make things worse - they're already talking about taking away the mtg. interest deduction.
But if present trends continue, most tangible, useful assets or raw materials could very well double (or much more)- because of the rapid decline of the dollar (inflation)that seems inevitable.
In that case, even real estate will eventually be priced much higher in terms of dollars - which is why I'm optimistic that in the long run (over 5 yrs) those who are under water today will come out OK if they can hang on.

C'ville Bubble Blog said...

Quantitative Easing II explained...the last refuge of failed economies and banana republics

http://realcville.blogspot.com/2010/11/quantitative-easing-explained.html

AliG said...

more on QE and the question of inflation...

http://www.businessinsider.com/huge-list-of-investors-and-economists-pen-open-letter-to-ben-bernanke-slamming-qe-2010-11

ALiG said...

and more here ....

http://market-ticker.org/akcs-www?post=172258

"Input price ramps cannot be passed through to the final consumer - he doesn't have the money to pay with, and there is no wage pricing power available to the worker to force wages higher. This is where the "inflationist" view is wrong - you can try to shove price increases through but you will fail, and the result will instead be margin and ultimately business collapse."

Anonymous said...

Karl Denninger, the market ticker guy, should be pasted to Obama's right ear. Charles Hugh Smith, too.

John Doe said...

And from Mish / Mike Shedlock: "Curtain of Idiocy"

http://globaleconomicanalysis.blogspot.com/2010/11/open-letter-to-bernanke-from-23.html