While visiting the Coldwell Banker office this week, I noticed the back room sales board was nearly full for the month of February. One of the sales associates passing by said it was their best February in years.
That tracks with the 200 home sales reported through the MLS for last month. The county’s recorded February sales were 30 percent ahead of January and a whopping 45 percent better than February 2011. In fact, last month was the most active February since 2005. The increase in year-over-year sales activity has been consistent for the last 15 months. This confirms homebuyers have rediscovered El Dorado County.
Sales activity may look like 2005 but we have a ways to go before we see anything like the typical $450,000 median sales prices that our county experienced seven years ago. February’s $235,000 median sales price, the price point where half of all sales were more and half less, was off slightly from January but was up a notch from February 2011. Each month during 2011 sale prices came in lower than the corresponding month in 2010. That’s changed for 2012, so far. Prices are inching up, albeit at 2001 levels.
New well-priced listings are selling quickly near the listed price. Twenty-seven percent of all sales last month were for homes that had been listed for sale less than 30 days and received offers within 1.4 percent of the listed price. Homes listed longer than 30 days sold for 97.5 percent of their listed price.
The number of available homes for sale continues to decline. At this time last year there were about 1,000 homes for sale. Currently, we have about 925. That’s a decrease of 6 percent. If, however, we deduct the 232 active short sale listings already under contract but waiting on the lender’s approval, the net number of available homes drops to less than 700. More importantly is the ratio of available homes to monthly home sales. Based upon the monthly sales and net available inventory the index is 3.2 months. Historically, five to six months is considered a balanced market. Less than five months and sellers have the advantage, more than six and buyers have the advantage. During 2005 and 2006 the month-to-sales ratio was below four months. In 2008 we were above 10.
Inventory is declining for more reasons than an uptick in sales. Many financially stable but underwater homeowners have made the decision to stick it out in their existing homes. Then there are many homeowners with equity who simply refuse to participate in a market dominated by REOs and short sales. And finally, many lenders have instituted loss mitigation programs as an alternative to foreclosure or short sales.
The percentage of financially distressed listings is in decline. Of the net number 700 homes for sale, short sales now account for 17 percent of all listings while REOs account for 16 percent. Last year the combination of REOs and short sales were more than 40 percent of all listings while 33 percent today. I expect the number of short sales and REOs to climb as we move into spring and summer. Lenders have streamlined their procedures on shorts and are opening the valve on the foreclosure pipeline.
While the percentage of REO and short sale listings are in decline, their percentage of total sales is pretty consistent with last year. Last month six of every 10 sales were shorts or RE0s attracting offers that were typically at or above the listed price. Property values will not experience any significant increases until foreclosures and short sales are much less a percentage of our market. Based upon the current number of notices of default and the number of shadow inventory in the pipeline, it could well be into 2013 before we see an end to distressed listings.
The Obama administration has recently proposed a solution for handling the expected onslaught of future foreclosures coming out of the pipeline. They would all be sold in bulk to Wall Street investment syndicates in $50 million investment pools. The investors would agree to convert them to rentals, hold them for a period of time and then to be resold at a later date.
This is a quick and easy solution for eliminating the expected increase of REOs. Take a few hundred homes, sell them at a 50 percent discount to Wall Street speculators, who rent them until values increase and then profit by selling them in the future. The irony is we are once again giving preferential treatment to Wall Street — the same people who got us into this housing mess in the first place. LeFrancis Arnold, president of the California of Realtors, had this to say about the idea:
“It’s a terrible idea for most California homeowners, landlords and property managers and even worst for taxpayers. Unlike Detroit or Las Vegas, where entire neighborhoods of foreclosed homes sit empty month after month, bank owned homes in most California communities are closing within 60 days and often above listed price.”
Hundreds of homes in Southern California are already packaged and scheduled for auction to Wall Street investment pools later this spring. Will transferring foreclosures from Fannie, Freddie and HUD to Wall Street lift property values or are we just kicking the can down the road? What will be the effect on the rental market? Perhaps now that the market is beginning to show positive signs of recovery the government should quit tinkering with it. Besides, Wall Street doesn’t deserve another gift at taxpayer expense.
Ken Calhoon is a real estate broker in El Dorado County. He can be reached through his website kencalhoon.com.