January Data Bad News for Flippers, Condo Owners

Normally, I focus my posts around pricing trends with the commentary centered around buyer behavior. Today, I wanted to shift gears and speculate about how sellers might be behaving in the coming months based on the DataQuick January numbers as reported by the media.

If we look at pricing performance between Jan 07 and Jan 06 prices look relatively flat on average. The Median All price is exactly flat at 0.0% and SFDU eked out a gain of .7%. Condos didn’t fare well, dropping about 3% which was bad news for condo sellers, but new homes zoomed up 14.9% after dropping precipitously last month which may have been heartening to the builders. On the whole, one could rightly come to the opinion that prices as reported last month were flat.

I think many potential home sellers picked up their newspapers last week, saw the zero-appreciation headlines and felt while it wasn’t any good news for homes; there also wasn’t any bad news either. But this news wasn’t good news at all for three groups: flippers, investors and condo owners.

Zero percent appreciation on real estate makes virtually ALL investment alternatives more attractive and has the potential to significantly affect both the supply and demand side of the housing inventory equation. On the demand side, I see demand from flippers and investors completely drying up to the exclusion of an optimistic few—it’s just too easy to make money in the stock market or even in a money market these days. On the supply side, I see more and more flippers and investors liquidating their real estate holdings and reinvesting in other asset classes increasing the number of non-owner-occupied dwellings on the market markedly.

For condo owners, whether investor or occupying-owner the year-on-year news is even worse. Condos are actually depreciating according to these data not only making them unattractive not only as investments, but also increasingly less desirable housing options as well. Some preliminary data also seem to indicate that condos may be entering defaults at higher rates than SFDUs which could increase supply even further, potentially causing what I'll call a condo crisis.

It’s my position that this decrease in demand and increase in supply will increase inventory levels in the coming weeks and months further increasing downward price pressure. Furthermore, I would expect these declines to be relatively wide-spread given the high proportion of ZIPs with 50% or more metrics down.

This is good news for we bears, not that we needed another reason to celebrate.

In my next post, rather than comparing the January 2007 numbers to January 2006, we’ll compare them to the 2006 median. I know it sounds boring as hell, but when you see that this one little change causes every metric to shift to red, I think you’ll find it more than interesting.