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Tuesday, Dec. 16, 2008 | For a portion of this year, a drop in the number of homes for sale and an increase in buyers closing deals had some forecasters predicting the housing market was turning a corner.
Demand looked to be picking up, as large boosts in home purchase totals came in September and October compared to the same months a year earlier. Meanwhile, the mid-year supply of homes for sale was lower this year than the soaring totals the market reached in the previous couple of summers. Many sellers who weren’t willing to drop prices to sell their homes in current conditions appeared to pull their homes off the market.
Although the number of homes for sale has declined fairly steadily since this spring, the apparent trend of booming sales hit an end in November, as home sales dropped by nearly 26 percent from October, according to numbers MDA DataQuick released this week.
It’s not unusual for the number of homes for sale, and buying activity, to drop in November and December. Many home sellers typically pull their properties off the market for the holidays and buyers take a holiday break from the house hunt. But this year, analysts said, the drumbeat of severe economic conditions is especially dampening house-buying spirit, making the October-to-November drop the worst for those two months on record.
Inventory, a count of the number of homes for sale, is often set against buyer activity to determine how a housing market is faring.
Three years after the peak of the housing market in terms of prices, the market slump has many analysts and homeowners and real estate pros searching for glimmers of news that means these conditions are ending. But the inventory hasn’t fallen far enough to warrant much excitement about a declining supply, at least not at the same time that buyer demand wanes.
The big question remains how much of a shadow inventory there remains in the market, as banks repossess homes and lag in listing them for sale. Since July, banks have repossessed more than 10,200 homes in San Diego County, according to RealtyTrac.
Not all of those have hit the market yet. A search of the MLS reveals about 2,000 active listings that are either marked bank-owned or contain the words “bank-owned” in the remarks, and about 2,000 in the category of pending sales, said Ray Ewing, Sandicor president. Some researchers are looking for ways to figure out how many homes are sitting unsold and unlisted while banks figure out how to refurbish them or list them for sale.
Those numbers don’t include short sales, when buyers list their homes for less than they owe on the mortgage. At least 800 listings on the MLS are noted short sales, Ewing said.
Of the homes that are selling, foreclosures comprise a greater and greater share each month. In November, 52.1 percent of the homes sold had been foreclosed at some point in the past year. That was up from the 48.6 percent in October and up significantly from 22.2 percent in November 2007, according to DataQuick.
Inventory has fallen somewhat from boom years. Currently, about 15,000 homes are listed on the local Multiple Listings Service, according to Sandicor Inc. That’s less than the year-end numbers last year.
This year muted some of the seasonal trends that had characterized the market in 2006 and 2007. But in the middle of 2006, total resale homes on the market reached nearly 23,000 in 2006 and nearly 21,000 last year.
This year, the count peaked this spring at about 21,000 and has declined more or less steadily since, Ewing said.
“I would say we’re probably not seeing the seasonal drop right now,” Ewing said, noting that distressed sellers and banks holding properties don’t have the same holiday senses that a less-motivated home seller might.
A drop of even a few thousand homes on the market brings with it optimism for some.
“Anytime you’ve got a decrease in supply it’s going to stabilize things a little bit; people have fewer choices,” said Robert Martinez, director of research at MarketPointe Realty Advisors. “If they’re really looking to buy, this is defining their parameters and narrowing their choices. You sit on that fence too long, you’re going to fall on the wrong side.”
But, in any economic question, it’s not as simple as seeing one side without the other.
“Don’t forget — this is the supply, but we also need to look at the demand,” said real estate professor Xudong An from San Diego State University.
In November, that demand looked weaker than it had for a few months. About 2,400 resale detached and resale condo homes sold in the county, according to DataQuick. Though still up significantly from November 2007, last month ended a few months of large gains month to month in sales totals.
“[The current inventory] is still a lot of houses, particularly given the fact that sales are starting to trend down, which I completely expect,” said Peter Dennehy, vice president of Sullivan Group Real Estate Advisors. “You’d have to be a pretty hardy person to have bought in October or November.”
The market for new houses also had a tough time recently. Only about 500 new homes sold in July, August and September in San Diego County. In the second quarter of 2005, the best boom-time quarter, more than 4,600 new homes sold in the region.
To put inventory numbers in context, analysts take the number of homes for sale and divide it by the number of sales in a month, determining the market’s “months of supply.” In boom years, inventory was very low, with a few thousand homes on the market at a time, and sales were high.
Nationwide, a rule of thumb for a slow real estate year is when the market has 12 months of supply. Ewing said that rule is typically closer to four or five months here.
“It used to be anything over 90 days was kind of odd,” he said.
Currently, the resale market has about seven months of supply.
The months’ supply is longer for new construction. In a recent MarketPointe study for the quarter ending in September, the number of new homes available for purchase divided by average sales over the last year reveals that the detached new market has 28 months of supply. Attached condos and townhomes would take 37 months to sell based on the past year’s sales rate.
Dennehy, of the Sullivan Group, saw little hope the buying drop-off was an anomaly in November. He reiterated his sense that homebuyers who started looking in October, closed in November, had to be pretty hardy to buy amid massive economic strife.
“You’d have to be able to sleep well at night,” Dennehy said. “You’d have to be — your job is safe, your income is safe, you have a clean financial sheet, you’re able to qualify for what financing is available. Who knows how many people out there who are buying?”