REO inventory is being depleted without replenishment, more buyers and investors are coming into the market, and escrows are now taking longer due in part to appraisal changes, underwriting overload, and in general a slower process with bank owned properties.

I’ve been tracking 38 cities in the East Bay for over four years now. This is the lowest inventory I’ve seen, the highest pending/over active ratio, and month’s supply is near the levels of mid 2005.

We’re now into our fourth month showing this trend. It’s really become a seller’s market in many areas.

I’ve attached my spreadsheet for your review and also included a summary I wrote two months ago on the dramatic changes taking place in our market place.

We’ve anticipated that this “window” may be just that with all the indications of more foreclosures coming onto the market. However, that hasn’t taken place yet. In the meantime we have buyers scrambling for fewer properties.

[click to view full size pdf]

We’re hearing June/July for more foreclosures to come onto the market. Let’s see how June pans out.

The California Association of Realtors’ housing forecast now calls for a 28.4% drop in the median price of a California house.

That compares to a projected drop of just 6% originally expected when the association first unveiled its 2009 forecast in October.

via Realtors see ballooning Calif. house-price drops - Lansner on Real Estate - OCRegister.com.

Internally, we’ve been discussing the shadow inventory among the bank owned, or REO, properties for a quite some time now, but somehow overlooked the segment of homeowners that Rascoff describes; that being homeowners who would sell, but aren’t in order to avoid competing against the flood of distressed properties that have been dominating the market.

Definitely something worth watching.



1. We’ve already addressed the influence that government and bank programs delaying the foreclosure process have had on new REO inventory coming onto the market. 2/3 of the sales since the beginning of the year have been REOs. Only 18% of Actives are now REOs. It’s obvious that this inventory is being depleted without replenishment.
2. So what surprise has happened in the last 30 days? I’ve been tracking 38 cities in the East Bay over the past 4 years. I primarily look at two indicators, Months Supply and Pending Over Active ratios.
   1. Pending Over Active ratio relates to buyers and sellers. Basic Econ 101, Supply and demand. Actives (represents sellers), or properties that are still available, versus Pending (represents buyers), or properties leaving the market. That relationship often indicates whether we’re in a “sellers or buyers” market. A ratio of 1 (an equal number of Actives and Pending) is considered a normal market or in a state of equilibrium. Anything under (high inventory, few buyers), prices are flat or dropping. Anything above (low inventory, many buyers) is considered a seller’s market.
   2. The low point for the East Bay was October 2007, at .13 for the areas I track. A year ago we were at .39. We’re now at .98, near normal. The last time I saw a number this high was August, 2005.
   3. What’s really remarkable is the increase from .64 to .98 in just one month! I’ve never seen a jump even close to this in just one month.
   4. What is months supply? Basically, months supply is the ratio of inventory to sales.  And what it tells us is how many months the stock of homes for sale would last, if sales continued at their current rate.
   5. A year ago we had a 9 months supply in this area. We’re now at 3 months. 6 months is considered normal or equilibrium.
   6. There are more multiple offers in areas. Offers are beginning to come in, on average, above asking in select areas.
   7. Markets are still very localized. Cities along Highway 4, were the ones that were hit first by REO inventories, showing the largest price reductions, and seem to be the first ones to be recovering. Antioch’s numbers even suggest a seller’s market.
   8. More affluent markets followed behind and are now appearing to have increased inventory pressure, kind of a second wave.
   9. One factor that may be skewing the numbers is that there are longer escrows now due to REOs and increased government loans.
3. So, what does this all mean?
   1. With depleting inventory a lot more buyers have jumped into the market over the past 30 days. Investors are seeing opportunities, buyers are finding homes more affordable, interest rates are low.
   2. Is this market stabilizing? Maybe. Is this temporary with more REOs about to come onto the market? This will depend on what actions the government and lending institutions take in the coming months with foreclosures.

… & in case you’re wondering, Calculated Risk was busy fact checking his real estate assertions.

The “Blog” of “Unnecessary” Quotation Marks: “not” a ponzi scheme

from:Calculated Risk: Citi: Net Credit Losses Rising Rapidly