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 national prices.  You don’t need to go back into the legends of the state because this was a time in the 1960s and early 1970s.  At this point, housing in California started to disconnect from economic fundamentals.  Many people forget that California had a housing bubble in the late 1980s only to bust in the 1990s.  This mini crash was merely a prelude to the epic implosion of the California housing market that we are now contending with.  Many areas are now finding some sort of stability.  Sales have increased, we have heard this over and over, yet the aggregate data shows that sales are increasing in lower priced areas like the Central Valley and Inland Empire.

We already know that prices have crashed.  Yet the myth being pushed onto the public is the notion that some areas have already hit their bottom.  Today I want to look at a county that is still massively overpriced and has a glut of shadow inventory.  That county is San Francisco.  To understand shadow inventory we first need to define it.  Shadow inventory is data that isn’t making its way for whatever reason to the public MLS.  This includes bank owned homes (REOs), homes scheduled for auction, and notice of defaults.  Much of the early “good news” of 2009 revolves around a big jump in home sales and a supposed stabilization in prices.  Yet as we have discussed, much of this was spurred by lower end home sales.  Let us look at San Francisco County:

I pulled data from a few sources for the above.  The first three columns are pulled from the MLS data.  If we look at this, you might think that short sales and foreclosures are only a tiny portion of the market.  To the public, this is how it appears.  Yet if we pull in other data sources like REOs, auction sales, and notice of defaults we will find that San Francisco County actually has more shadow inventory than the entire MLS data viewable by the public. This pattern holds for virtually every county of California given that we are on pace to having 476,000 notice of defaults in 2009.

Now why is the above important?  The above is important because it tells us two different stories.  In October 553 homes sold in San Francisco.  With current MLS data, that means we have some 2.5 months of inventory.  This is a very low number.  Yet if we include shadow inventory that number jumps up to 5.5 months.  That is a big difference.

The median price for San Francisco County is:

San Francisco:    $690,824

This number is off the charts.  If we break up the area and look at specific zip codes we find even more revealing data:

Source:  DataQuick

Let us examine the two above zip codes more closely since they had the most sales:

94112

Shadow Inventory:         301

MLS:      69

94105

Shadow Inventory:         43

MLS:      57

And here is where you see the real story.  As we pull up data on 94112 you will see that the shadow inventory is nearly 5 times the actual MLS data.  This is the zip code with the second most home sales.  94105 has a shadow inventory that is nearly the same amount as the MLS data.  Do you think this will have an impact on future prices?  I would venture to say yes.

And as we are now seeing trickles of the HAMP data very little is being produced.  California has the most HAMP mods but we know very few are becoming permanent.  So banks are left with either working with market prices or holding onto an ever growing flood of homes.  Keep in mind we aren’t even including homes that banks fail to put a notice of default.  There are cases of people in California with no payment for 6, 7, or even 8 months and still no notice of default is filed.  Clearly something is going to need to happen to fix this and those betting on 2010 as a good year for California housing fail to examine the data fully.

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