Climb, Climb

You might call it a moment of increasing consumer choice.

Or you might call it a time of increasing price pressure as supply climbs and climbs.

Whatever you call it, SFR inventory at the end of April – 107 SFRs west of Sepulveda – was the highest MBC has recorded in a year-plus of public market tracking.

Yes, yes, we said the same thing when we hit 97 at the end of March. So sue us for starting to sound the same.

Partly to blame: 31 new listings in the month of April, down very slightly from 34 in March, and steady with the February rate. (For a yearlong view, see the graph in this story.)

Also, this caveat – the 107 figure includes one listing technically "on hold" – 757 30th, new construction that seems still to be very much for sale, and one new listing at 918 10th in the Hill Section that has a sign, a website with cheesy music and an ad in the Beach Reporter, but wasn't yet on the MLS as of April 30. We considered both to be for sale.

We saw 14 sales (new escrows) in April, and several cancellations.

Let's not miss this striking year-over-year comparison – in April 2007, we counted 66 SFRs west of Sepulveda on public offer. This year, 107.

That's +43, fully 65% higher than at this time last year.

Inventory, Absorption & Balance

MBC began publishing inventory tracking data for our territory (SFRs west of Sepulveda) in March 2007. To hear the pros tell it, we began at a time when inventory was already fairly low, and there’s been little bounce up since.

For instance, MBC noted just last week that inventory in our area was at 68 at the onset of Spring (late March), and 77 (+9 or +13%) at the end of Summer (August 31).

Three sources indicate that inventory is down about one-third now from a year ago:

• Kaye Thomas points to a story she posted on her blog 11 months ago citing inventory at 215 active SFR listings as of Oct. 1, 2006, in all of MB (including East MB). She now counts 118, which would be a 45% drop in listings.

• A commenter on MBC posted Trendgrafix data saying that last year “at this time” (no specific date) there were 174 active SFRs in all of MB; while there are 118 on the MLS now. That's a 32% drop.

• MBC also has some archived data snapshots via ZipRealty to compare Sept. 2006 with the present, and those show a 33% decline in listings in all of MB. (Our rough tracking then wasn't limited to the regions west of Sepulveda.)

We're going to conclude, then, that the number of listings really is down by at least 1/3rd since last year.

What does that mean? Is lower inventory a bullish or bearish sign?

Certainly, one obvious way for a bear market to break out is for supply to greatly exceed demand.

There are lots of RE markets in California and the Southwestern U.S. that are obviously in trouble, using the bloated-inventory standard. A remarkable website, “Bubble Markets Inventory Tracking,” features data going back to January 2005 for many markets. Click on the links below for the details, but MBC offers highlights:

Phoenix, AZ (metro/region)
9/05 – 18,799
9/06 – 54,629 (+190%)
9/07 – 63,639 (+17%)

Riverside County, CA
9/05 – 12,793
9/06 – 26,597 (+108%)
9/07 – 31,804 (+20%)

Las Vegas/Clark County, NV
9/05 – 14,289
9/06 – 24,300 (+70%)
9/07 – 30,881 (+27%)

Sacramento, CA (metro/region)
9/05 – 10,177
9/06 – 16,668 (+64%)
9/07 – 17,835 (+7%)

San Diego County, CA
9/05 – 16,081
9/06 – 22,710 (+41%)
9/07 – 23,358 (+3%)

In MB, we're going the other direction.

Another way to gauge the relative balance of our market is to look at whether new inventory is being absorbed by demand. Using MBC's inventory data, we can say that over the 5-month period of Spring and Summer, we’ve seen 124 new listings come out, 94 sales (new escrows) and 23 cancellations.

That means new supply outstripped demand by 30 homes. However, the 23 cancellations leaves us at only +7 for the period. We've already remarked that, based on these numbers, supply is not obviously out of balance with demand. The absorption rate in those other markets above is terrible.

MBC still smells something bearish in the air, particularly after the mortgage mess hit in August. It's certainly possible that declining supply indicates fewer "discretionary" sales – particularly move-ups within MB. Anecdotally, move-ups were once common, but not so much now.

We've noted before that if the wave of ARM resets (and recasts) is going to hit our market like it has other markets, we're more likely to be seeing that in 2+ years in the form of forced sales. Longer rate locks and I/O periods for higher-quality borrowers in MB would be the simplest explanation for why even over-stretched borrowers could put off the pain.

Of the 118 actives today in all of MB, 29 are in the stalled Tree Section $2m+ market, where we have long droughts between sales. In the last few weeks, we've seen few sales under $2m. If inventory is going to balloon against faltering demand, it could start now, but we're just as likely to see fewer folks deciding to sell.