California Housing Inventory – 3.8 Months of Inventory if we only look at Public Data. The Financial Math behind California Home Prices and Artificially Low Inventory. Distress Inventory Still Dominating Market.

For a state like California getting an accurate figure on total inventory is always a challenge just because of the size of the state.  Throw in the large amount of inventory that is held off view from the public and it is hard to get an accurate figure of what is out there.  As of today, if we only go by public data available the state currently has 3.8 months of inventory.  Anything below 6 months is considered healthy but this is hard to believe given the state has an unemployment rate upwards of 12 percent and if we look at underemployment we arrive at a figure above 21 percent.  Plus, the state is mired with lingering toxic mortgages like option ARMs that are now reaching default rates that are higher than subprime loans.  Anyone assuming that California has a low amount of inventory because housing is healthy is missing the bigger picture.  The inventory is low for other reasons.

First, let us look at the snapshot provided by the California Association of Realtors:

From this data, we see that current unsold inventory is at 3.8 months.  But how is this figure computed?  First, let us run the MLS numbers for all major metro areas in the state:

The above is only a snapshot of all areas but we will find some 157,000 homes listed on the MLS inventory.  Next, we can go to the monthly home sale figure and get an estimate of monthly inventory:

December 2009 California Home Sales: 41,837

At this point it is easy to get the final figure of unsold inventory:

157,979 / 41,837 = 3.77 months of inventory

Now at first glance, this number is highly deceptive because it would otherwise show a healthy market.  Simply looking at the 3.8 figure makes you assume that the market is moving at a relatively great pace.  It is not.  Foreclosures are dominating markets.  Take a look at San Diego for example:

If we look above, we find that 3,152 homes are listed on the MLS for San Diego that are non-distress properties.  But let us factor in bank owned foreclosures, homes scheduled for auction and default notices:

And there you find why the actual overall figures are so misleading.  If we include the MLS non-distress plus the other distress data we find that 9,662 homes are on the market.  This now includes foreclosure sales but also the growing trend of short sales.  The distress inventory is 200 percent larger than the non-distress inventory.  In other words, the market is dominated by people unable to pay their mortgage or many who are deciding to strategically default.  It is rather apparent why the market is in such deep trouble.  Much of the recent home sale volume has come at the lower end but also from investors.

Now let us go back to those 41,837 California sales for December.  Of those sales, 41 percent or 17,153 homes were foreclosure resales.  In other words only 24,685 homes sold that were non-distressed.  This kind of data is not normal:

To put the above in perspective, in all of 2006 California recorded approximately 11,400 foreclosures.  So last month alone, those 17,153 foreclosure re-sales surpassed the entire calendar year of 2006! Does that really sound like a healthy market?  And in 2009 the state saw 400,000 homes that received a notice of default.  A large number of these homes haven’t even made their way to the MLS.  So the pipeline is full of distress inventory.  In other words, the headline inventory number is highly deceptive so buyer beware.

If you enjoyed this post click here to subscribe to a complete ad free feed.

Popularity: 28% [?]

Related posts:

1. How Much California Inventory? 3.9 Months from Public Data. A drop from 6 Months at the Start of the year and down from 16 Months Reached in Early 2008. Yet Distress Properties are still a Big Part of the Market. According to recent data from the California Association of Realtors,...
2. California Inventory Jumps from 3.8 Months to 5.8 Months in January – Total California Housing Inventory 154,000 Homes. How Many Homes are in Mortgage Limbo and Don’t Show up in These Stats? If we take Distress Data About 793,000 Homes. Rarely do we ever see an actual total inventory report...
3. San Francisco Shadow Inventory Larger than Regular MLS Data: How the Real Housing Inventory is Hidden from the Public. Once upon a time in California, housing prices aligned with...
4. California Housing Inventory Mystery: 206,000 Homes on MLS but is the Real Inventory 412,000 or closer to 618,000? It is probably one of the least desirable tasks to...
5. A Case Study of Distress California Housing: Sacramento County. The Sacramento Association of Realtors provides excellent data on real...

Related posts brought to you by Yet Another Related Posts Plugin.