Sales Volume Limp as Local Inventories Rise

The precarious balance of supply and demand in our local housing market is sustained at low sales volumes by low inventories. Is the new inventory coming to market upsetting that balance?

Irvine Home Address … 29 CHARITY St Irvine, CA 92612

Resale Home Price …… $1,449,000


The walls start breathing

My minds unweaving

Maybe it’s best you leave me alone.

A weight is lifted

On this evening

I give the final blow.

When darkness turns to light,

It ends tonight,

It ends tonight.

The All-American Rejects — It Ends Tonight

The array of government market supports are tentatively scheduled to be removed from the market. Unfortunately, the tax credit for houseowners is not helping sales, and many are worried about what will happen to the housing market when tax credits expire? People have good reason to worry because the housing market is still dependent upon government support to maintaining our inflated current prices.

realtors blather on about pent up demand, but in reality, there is very little demand because (1) many people were pulled forward during the bubble and (2) many who were not pulled forward during the bubble are either unemployed or underemployed and thereby not contributing to demand. The end result is low sales volumes that will persist until either prices are much lower or the economy recovers and those not foreclosed upon or bankrupted during the bubble start buying houses.

Pending Sales of Existing Houses Decline

March 4 (Bloomberg) — Fewer Americans than expected signed contracts to purchase previously owned homes in January, indicating the extension of a tax credit is doing little to lure buyers.

The index of purchase agreements, or pending home sales, dropped 7.6 percent after a revised 0.8 percent increase in December, the National Association of Realtors announced in Washington. Other reports today showed factory orders increased and first-time jobless claims declined.

The drop in contract signings adds to evidence the housing market at the center of the worst recession since the 1930s is struggling to rebound after reports last week showed unexpected declines in purchases of new and existing homes. The market may get another blow this month when the Federal Reserve ends planned purchases of mortgage-backed securities.

“When you take away all the support from the housing market, the underlying demand for housing is a lot weaker than we thought,” said Mark Vitner, a senior economist at Wells Fargo Securities LLC in Charlotte, North Carolina. “We clearly pushed some demand forward, and there wasn’t that much demand to pull forward anyway. The housing recovery is going to be very, very slow.”

Mr. Vitner's analysis is right on; what little demand was left over has either been pulled forward during the bubble or it has since been pulled forward with the glut of government supports. Any decline in sales during the first half of the year fails to match the historic pattern and causes concern among the rational.

February Sales

“The abnormally severe and prolonged winter weather, which affected large regions of the U.S., hampered shopping activity in February,” Lawrence Yun, the group’s chief economist, said in a statement. “We will see weak near-term sales followed by a likely surge of existing-home sales in April, May and June.”

The Realtors’ report showed declines in January pending sales in all four regions, led by a 13 percent slump in the West. Contract signings fell 8.9 percent in the Midwest, 8.7 percent in the Northeast and 2.1 percent in the South.

Pending home sales are considered a leading indicator because they track contract signings. The Realtors’ existing- home sales report tallies closings, which typically occur a month or two later. The pending sales data go back to January 2001, and the group began publishing the index in March 2005.

Reports last week showed the housing market may be faltering. Sales of previously owned homes unexpectedly dropped 7.2 percent in January after a record decline a month earlier, according to Realtors group’s report Feb. 26. New-home sales slumped to an all-time low, the Commerce Department said Feb. 24.

Does Lawrence Yun have any credibility with anyone? Is there even one person who believes him? Isn't he a stuffed shirt?

Credit Extended

President Barack Obama and Congress extended the first-time buyer credit in early November to cover deals signed by April 30 and closed by June 30, and expanded it to include some current homeowners.

Among other concerns for the housing outlook, the Fed said it plans to end a program later this month to purchase mortgage- backed securities, which helped contain borrowing costs.

The rate on a 30-year fixed mortgage dropped to 4.71 percent in early December, the lowest level since Freddie Mac started keeping weekly records in 1972. The rate has hovered around 5 percent since then.

Is anyone surprised that Ben Bernanke refinanced his ARM to a fixed-rate mortgage late last year? Interest rates for fixed-rate mortgages are at bottom, and anyone who has not refinanced into fixed-rate financing should do so now.

Southern California Sales Volume and Price

Dr. Housing Bubble recently wrote a post on The Housing Metrics of Southern California – Seasonal Home Sales, Inflation Adjusted Home Prices, Tens of Thousands Living Rent Free, and the Japanese Experience. The chart below comes from that post:

From the good Doctor:

This is a fascinating look at the market. Even during the boom we clearly see the seasonal pattern in sales. Each fall and winter sales drop as more people take inventory off the market. Spring and summer overall are bigger sale months because of school schedules, family commitments, and just a general acceptance that this is when more inventory enters the market. But you’ll notice in 2006 that the trend radically shifted. The crash hit and sales plummeted. An interesting phenomenon occurred where the median sale price didn’t peak until the middle of 2007 well into the monthly sale crash. So it would appear that sales would actually lead future prices.

Irvine Inventory

At the Irvine Housing Blog, we have been tracking inventory since January 2007. The chart of inventory is shown below.

If you think back to what was happening in our market, the inventory graph reveals much about the strength of our market.

In 2006, the market topped, sales volumes declined, and inventory increased.

Beginning 2007, inventories were already elevated and the market contained a dwindling qualified buyer pool and tightening credit standards; consequently, when a normal amount of spring listings hit the market, sales volumes were low, and inventories ballooned.

By 2008, many late buyers were underwater, and discretionary buyer viewed the price drop as a temporary apparition; therefore, many sellers did not bother listing their properties, and many that were listed had WTF asking prices nobody could afford. The result was a continued decline in sales volume and lower prices.

By 2009, the crisis prompted the government into providing an array of market subsidies designed to improve affordability and prevent further price declines. The same problems that existed in 2008 persisted into 2009 and became worse due to rising unemployment, strategic default, and a number of other problems.

Now in 2010, we are seeing inventory rise again, but we are still well below historic norms. Current pricing is sustained by restricted inventory and low sales volumes. If either inventory or sales volumes increase, it will adversely impact prices. Some of our recent inventory is discretionary sellers asking WTF prices that will never transact, but a significant amount of this new inventory is appearing as trustee sale flips that previously has been withheld from the market. Will the lending cartel be able to sustain prices, or with the incentive to cheat and sell while prices are still high force more inventory on the market and push prices lower?

At its current trajectory, inventory should break the 30 month trend of declining inventory very soon. In both 2008 and 2009, the seasonal inventory increase was abruptly reversed, and prices were able to remain firm. Will that happen again?

Irvine Home Address … 29 CHARITY St Irvine, CA 92612

Resale Home Price … $1,449,000

Home Purchase Price … $888,000

Home Purchase Date …. 3/25/2003

Net Gain (Loss) ………. $474,060

Percent Change ………. 63.2%

Annual Appreciation … 7.1%

Cost of Ownership


$1,449,000 ………. Asking Price

$289,800 ………. 20% Down Conventional

5.01% …………… Mortgage Interest Rate

$1,159,200 ………. 30-Year Mortgage

$300,371 ………. Income Requirement

$6,230 ………. Monthly Mortgage Payment

$1256 ………. Property Tax

$0 ………. Special Taxes and Levies (Mello Roos)

$121 ………. Homeowners Insurance

$230 ………. Homeowners Association Fees


$7,836 ………. Monthly Cash Outlays

-$1521 ………. Tax Savings (% of Interest and Property Tax)

-$1390 ………. Equity Hidden in Payment

$565 ………. Lost Income to Down Payment (net of taxes)

$181 ………. Maintenance and Replacement Reserves


$5,672 ………. Monthly Cost of Ownership

Cash Acquisition Demands


$14,490 ………. Furnishing and Move In @1%

$14,490 ………. Closing Costs @1%

$11,592 ………… Interest Points @1% of Loan

$289,800 ………. Down Payment


$330,372 ………. Total Cash Costs

$86,900 ………… Emergency Cash Reserves


$417,272 ………. Total Savings Needed

Property Details for 29 CHARITY St Irvine, CA 92612


4 Beds

2 full 1 part baths Baths

2,910 sq ft Home size

($498 / sq ft)

6,223 sq ft Lot Size

Year Built 1995

108 Days on Market

MLS Number S596674

Single Family, Residential Property Type

Turtle Rock Community

Tract Cw


Beautiful Plan 1: Professionally maintained gardens, decorator paint, brand new granite countertops, refinished hardwood floors and brand new never lived on designer carpet throughout. This home is truly move in ready. The yard is lined with Fuji apple tree's that bear great apples every year, Orange, tangerine and lemon tree's are also part of the back yard. If you are looking for a multiple purpose home to entertain, easy everyday living and easy to keep clean this is the one! This home is located in the best part of Concordia, best of the Irvine School system, always on the top 10 safest city list. Gated community with hill lined street and nice views. Centrally located to schools, shopping, freeways, toll Roads and minutes to the beach. Another bonus is that the association dues are low and there is no mello-roo's tax. This is a great place to raise a family and you are guaranteed University High which is a top high school. THIS IS THE ONE!!

This is chasing the market down:

  • Property History for 29 CHARITY St

    Date Event Price
    Mar 05, 2010 Price Changed $1,449,000
    Feb 10, 2010 Price Changed $1,475,000
    Jan 26, 2010 Price Changed $1,498,000
    Jan 18, 2010 Price Changed $1,515,900
    Jan 13, 2010 Price Changed $1,534,900
    Jan 11, 2010 Price Changed $1,542,900
    Jan 05, 2010 Price Changed $1,547,900
    Jan 01, 2010 Price Changed $1,548,900
    Nov 27, 2009 Price Changed $1,549,900
    Nov 19, 2009 Listed $1,575,000
    Mar 25, 2003 Sold (Public Records) $888,000
    May 23, 1995 Sold (Public Records) $524,500

  • At this rate, the house should reach its current resale value by 2020. Does any rational person believe this property has gone up in value about 80% since 2003?

    39 thoughts on “Sales Volume Limp as Local Inventories Rise

    1. E

      I have heard that 8’s are lucky numbers in Asian cultures.

      Being that the purchase price was 888,000 I’ve got to ask…

      Did the tactic work? Is the current owner Asian?

      Not trying to be a smartass….just curious if the rumors are true.

      1. es

        Yes- it does work. The otherwise most rational, logical people in the world go to jelly when they see triple 8’s. Remember when the MGM grand ran into trouble because Asians wouldn’t walk into the mouth of a lion? They’re a very superstitious culture which is very incongruous with their reverence for education and facts. My parents listed their house on the Cupertino/ San Jose border back in 2005 for $888,000 on a Saturday and it went pending w/o release on Monday for $920. There was a line down the street at the first and only open house. I’m sure someone will call me racist or worse but that’s just what I’ve seen.

        1. Alfred Nonymous

          When I got my new motorcycle registered, I was assigned the plate “Z888Z” (automatic, assigned by the system, not a customized plate – just standard issue). When my Chinese friend saw it, he nearly $h*t a brick.

          1. tonye

            I once had a minivan with a plate that had the number “666”.

            My cell phone has the number “666”.

            I’m sort of evil… or as Danny Aykroid said in the skit with John Belushi:

            “Don’t worry… it’s 999”.

      2. mike23w

        could’ve been the seller was asian, and setting a sale price of $888k would bring good fortune.

    2. cara

      Thanks for keeping up with the inventory and plotting it here. The current seasonal increase in inventory hasn’t even brought the inventory up the levels of the start of 2009. So I would say the current increase cannot be enough to bring prices down. If/when it exceeds the inventory seen in the last peak of seasonal inventory gain then we’d be talking.

      I think the “normal” seasonal pattern in both inventories and sales will return this year. Unless available inventory exceeds that, I don’t think it will provide downward pressure on prices.

    3. lowrydr310

      “Fewer Americans than expected signed contracts to purchase previously owned homes in January, indicating the extension of a tax credit is doing little to lure buyers.

      The index of purchase agreements, or pending home sales, dropped 7.6 percent after a revised 0.8 percent increase in December, the National Association of Realtors announced in Washington.”

      Who said the housing market is bad and getting worse? The Mortgage Bankers Association just reported that mortgage applications rose, despite higher rates.

      I think my head is going to explode with all the conflicting reports.

      Bottom line: Trust NO ONE except unbiased bloggers 🙂

    4. Geotpf

      Nice house, but it’s probably only worth 10-20% more than the 2003 price (IE, about two thirds of the asking price). It does have that “garage with an attached house” type of thing going in the front.

      1. Marc

        From my perspective this house was overpriced even at 888k…20%-30% above the 1995 price would be more appropriate (or ~$220 to $240/ sqft). I would love to have one of these owners or their agents explain their reasoning for these inflated prices on this blog. Do they really think they can sell for $1.5M? Let’s say someone is looking for a $700k house – this one wouldn’t even show up on the search because of the ridiculous price point…

        1. tlc8386

          couldn’t agree more extreme overpriced I expected at least a spa, pool ect. ect.

          I would give this home 888,000 selling price—LOL

      1. IrvineRenter

        I wonder what it means to be “easy to keep clean?”

        Isn’t getting a maid the cleaning solution in Irvine?

        When I used to work building golf courses, we designed the restrooms on the golf course so they could be cleaned with a pressure hose; everything is tile or concrete within 4′ of the floor, and the floor itself is pitched to a wall opening that drains to the outside. That is easy to clean.

        1. HydroCabron

          “…and the floor itself is pitched to a wall opening that drains to the outside.”

          Much like the design of today’s kitchen. The fridge, oven, and glass-panel door are skewed toward the black hole of the pantry, and the flooring clearly slopes upward toward that singularity. The maid need only hose all the dirt toward that event horizon – whatever is turned into Hawking radiation will drain back toward the photographer.

          So, yes: easy to clean.

          I like art as much as the next guy, but I wouldn’t want my daughter playing in this de Chirico kitchen.

    5. Walter

      “The Mortgage Bankers Association just reported that mortgage applications rose, despite higher rates”

      Remember this includes refis.

    6. Soylent Green Is People

      Wonder where the current owners went. Did not think this was vacant. Nice builder original stuff in the house. Charming.

      At a price with a “4” in it, they aren’t going to sell very quickly.

      1.4 – no view. For that price you could live in Laguna with same great schools, plus a beach view.

      My .02c

      Soylent Green Is People

    7. .

      “Does any rational person believe this property has gone up in value about 80% since 2003?”

      I think the 2003 sales price seems like it was below market for the time. I thought that newer Turtle Rock Homes were selling for around $1,000,000 or more back then. I could be wrong though. I’m not saying this house is worth 1.5 million, but I could see it selling for 1.2.

      I’m curious about the Fuji apple tree. Can you really grow apples around here? I would love an apple tree.

      and someone needs to give the Realtor an apostrophe lesson.

      1. Soylent Green Is People

        Apples grow very well around here.

        Not many people know that OC farmers used to produce bananas (limited), pineapples (quite a bit) and other semi tropical fruit. You’ll have a tough time with cherries unless you live near the foothills where it will briefly get cold enough for them to thrive. We have a peach tree that produces a terrific fruit also.

        My .02c

        Soylent Green Is People.

    8. wheresthebeef

      I love how the house is located on Charity St. You will need all the charity help you can get if you buy this house at the listed price.

      Almost 1.5M for a 15 year old 2900 sq ft house located in Irvine. For that price, you can buy in CDM, Laguna, Newport, Huntington Harbour, etc. But I guess it’s Irvine and it’s special.

      Back to the topic regarding numbers and superstition. Since I am a big Iron Maiden fan, I would list my house at 666K. I wonder if that would turn people off?

      1. lowrydr310

        Ah, another fellow Iron Maiden fan!

        Unfortunately some archaeological discovery in 2005 implies the number isn’t “666”, but rather “616“:

        In 2005, however, a fragment of papyrus 115 was revealed, containing the earliest known version of that part of the Book of Revelation discussing the Number of the Beast. It gave the number as 616, suggesting that this may have been the original.

        Too bad for the people in Grand Rapids, Michigan.

        1. wheresthebeef

          Good to hear from a fellow Maiden fan. UP THE IRONS!

          That’s interesting regarding 616…I need to do some research there.

          It would be great listing a house at 666K. At the open house, the realtor could dress like Eddie and Iron Maiden favorites could be blaring in the background. You gotta have some fun with the whole housing bubble madness!

      2. .

        Where’s the Beef, I think you are missing the point. A lot of people don’t [i]want[/i] to live in Newport Beach or Huntington Harbor or Laguna especially if they are not white.

        1. wheresthebeef

          You made my point…Irvine really IS different. As long as the people buying there think the premium is worth, more power to them. They should build a great wall around the city to keep us undesirables out.

          1. .

            Interestingly enough I doubt non-whites were even able to buy in the exclusive areas of Orange and Los Angeles Counties back in the day. There definitely was a “great-wall” that separated the whities from everyone else.

    9. Gemina13

      $1,449,000 for a 2900 sq. ft. tract home?

      Why do the owners need the additional $600K? Is that how much the folding bar stools in the kitchen cost?

    10. $950k - not a penny more

      I think this house is worth $900k to $950k in today’s market. The sellers are hoping for a self-fullfilling prophecy so because they think it’s worth $1.44 mil, then someone else may think the same thing and pay them that much. I wonder if it would even appraise for that much but I doubt it.

      1. Planet Reality

        This house sold for $525k in 1995. This house is probably fair market value at $1.2M in today’s environment. In a few years you could be right, maybe $900k, but maybe not.

        1. Major Schadenfreud

          “This house is probably fair market value at $1.2M in today’s environment.”

          There currently isn’t a “fair market” in today’s environment.

          Give me a market where the private sector does the financing (as it should!) and requires 20% downpayments with not-to-exceed DTI ratio of 28% and then we will see a relatively fair market value for this house.

          1. Planet Reality

            You probably also want a “fair market” for college tuition and health care cost. To quote Mr. Gump: Market is as market does sir.

            1. Major Schadenfreude

              Correct, I do want “fair market” values for college tuition and health care. Fair markets ensure only prices which people can actually afford.

              Anybody who would want otherwise is STUPID indeed!

            2. Planet Reality

              You need to look at what IS, not what you want. Reality has nothing to do with desire. The government can manipulate longer than you or your 5th generation can live.

              Right now it’s all about what the tax payer can afford. It has been that way for a while, if you are willing to step back and look at hundreds of years of history.

            3. Major Schadenfreude

              Really, it is not what I want, but what the bond market will allow. Eventually fundamentals reassert themselves.

              That’s what hundreds of years of history show.

    11. tenmagnet

      Well, at least the Trustee Sale flippers remain active
      77 Canal just listed at $549,900 ($480/ft.)
      Third party paid $430K for it on 2/17/10.

    12. newbie2008

      The insides of the TR/Concordia houses are much nicer than the outside. But 1.2 million is much overpriced without the funny money. Okay if it 3.5% down and you walk after 2 years of free rent, but the FHA isn’t likely going to do the 3.5% walk away loan or are they?

      Fair market is when the market is fair. College tuition, health care and housing are not fair market products. The pricings are heavy influence by govt. interventions, consumer not paying directly or many not at all (health insurance, 5% not paying on the most expensive portion of health care, 5% using 80% of the money for health care, 5%-10% going to health insurance companies for fees, govt subsidy, financial aid and GSE’s covering the non-paying loans.

      BTW: The Concordia houses are like $320,000 to houses in the mid-west college town (with a house hold income of $80,000 to $140,000, i.e., about 2 to 3 times medium household income in the area). The mid-west lots run as low as $40,000, but much larger. Any prices for a similar house in TX, AZ, etc.?

      1. Geotpf

        And in Hemet it would be $175-200k.

        When you buy a house in a place like Irvine, 90% or so of the amount you are paying for is for the land as opposed to the house.

    13. SeattleDave

      Was I seeing things — or was that granite in the laundry room? No wonder it’s going for $1.45 mil!

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