L.A. Times: Optimism is rising on housing market

Optimism is something we don't like to give up easily. Annette Haddad's December 1 article reports that some analysts believe the worst is over for the homebuilders.

Homebuilder stocks have been rallying since bottoming in July. Analysts at Fred Alger and Company say they are "sceptical of the warnings of pundits", and the small herd believing the worst is over contains former Fed chairman Alan Greenspan and current chairman Ben Bernanke.

But even though sales are still in a slump and there is three times as much inventory as a year ago, analysts cite the downshifting to low to moderate price increases "without calamitous results" as positive, with markets remaining "orderly". So slowing price gains are viewed as positive. Also cited as positive is "improved affordability." In addition, the recent drop in longer-term interest rates are the reason why a "precipitous drop" is less likely.

I am not making this up. I don't know whether to laugh or cry after reading a report like this. If price gains are slowing down but still gaining, how is housing more affordable? How is California's affordability improved if, according to one analyst's survey, California house prices increased by over 10% in Q3? Oh, is it because the California Association of Realtors recently jiggled their home affordability index so more people would qualify to buy homes? When I read an article like this that so clearly illustrates the cognitive dissonance in the heads of these analysts, I get the feeling I just heard fingernails on a blackboard.

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It's probably too early to really make good analytical use of my Redondo Beach database, but at the moment it contains 500 inventory records. According to the tallies at Zip Realty the inventory for Redondo Beach is currently at 395. My database contains roughly 20% more records. Why the difference? Because when listings expire, my records don't disappear. They live on. How will those records come to some kind of resolution?

Some owners genuinely change their minds about selling their houses. A friend of mine who bought a Long Beach house as a fixer-upper to flip did just that, when she couldn't sell her remodeled home in the spring. She decided to keep the house and live in it, and it worked out well for her family. I have no simple way of discovering these outcomes (the thought of driving around and knocking on doors did briefly occur to me), so I can't resolve those inventory records. Hopefully, those cases are rare, and they've probably gotten rarer as speculators have exited the market.

Some sellers decide to rent their places out. There's been evidence of that in the big condo complex two doors from me. Unfortunately I cannot really resolve those either, they just remain in my inventory database as permanently unsold. I don't know how to estimate how many owners decide to do that either.

Some sellers keep relisting their properties. Those will be tallied at Zip Realty. Some properties temporarily disappear from the MLS when their listings expire, before they get relisted. What else can happen? Some sellers may go into foreclosure, or declare bankruptcy, or whatever. It's all the same, if their property still ends up in the queue needing to be sold. A very few records are errors, e.g., duplicate listings. And of course one thing that can happen is that a property actually gets sold. In that case, the listing goes into limbo between the time of sale and before the sale shows up in public records that I can access - when I can finally obtain a sale record, then I can resolve the inventory record.

Out of 500 inventory records, I have only been able to find 30 matching sales records so far, admittedly from a not quite "complete" table of 4,500 Redondo Beach sales going back a few years (I still need to add sale records from the extreme southern end of south Redondo). So each of the remaining 470 inventory records is in one of the states described above. Of the extra 105 records, some 20% of all my inventory records, are we to believe that those owners permanently changed their minds about selling, or rented their places out because they couldn't sell? Or are we going to see those unresolved properties reappear in the 2007 listings? And that's not even considering what will happen to all the "official" inventory of 395 records in the MLS.