According to my calculations, city average index is now up slightly year-over-year:





The official July Case-Shiller read came in at 150.99, in agreement with my expectations. The forecast is 154.5 for August, 158.0 for September, ~160 for October. At this point I don't expect any official reads indicating month-to-month declines before the end of the year (since the October number comes out around Christmas).

I have to caution against identifying this dynamics as genuine recovery, there's quite a bit of nonmarket stuff going on (the first-time-buyer tax credit, "shadow inventory", some degree of mortgage interest rate manipulation by the Fed), but the market appears to be robust and this uptrend has gone far beyond any seasonal fluctuations.

On shadow inventory

As promised, a word or two about shadow inventory. It didn't turn out particularly illuminating, but here goes.

First of all, I'm not a serious corporation like RealtyTrac or ForeclosureRadar, and I don't have access to their (paid-for) databases. I tried to put together some numbers using free public sources. To do that, I pulled the index of the San Diego grantor-grantee database (http://www.sdarcc.com) and looked for some patterns.

The grantor-grantee database is a place where many important real estate transactions and events are recorded. Some well known types of events are notices of default (NOD) and notices of trustee sale (NOT or NTS). The database also contains records of trustee sales, transfers (deeds), and some of the less known events. The complete database is, unfortunately, unavailable online, but its index is. The index contains document numbers, dates and names. So, for example, I might find out that a Mr. John Smith (a made-up name) received a Notice of Default on 7/30/2008 and a Trustees Deed on 11/15/2008. Of course, I can't be sure that the two refer to the same property, but it's a reasonable assumption.

These are my preliminary results.



Areas marked as "Foreclosure" and "Short sale" refer to NODs that were followed by an ownership transfer (i.e. the former owner is no longer in possession of the property). This simple approach does not allow me to track the property any further - if the bank chooses to "sit" on the property after foreclosing, there's no way for me to tell that. Anecdotal information suggests that it does not happen often.

Next two: "Reconveyance" and "Rescission". Reconveyance is recorded when the bank releases interest in the property (because the loan was paid off or refinanced). It appears that very few people have been able to refinance their way out of default. Rescission means that the bank "rescinds" a previously recorded document for any reason - for example, because the loan was modified. A NOD followed by a rescission probably indicates that the borrower is now okay.

That leaves us with the last two categories: "NTS" and "No action". This is where our shadow inventory would live. Some borrowers are in this category because they got a loan modification, but the bank never bothered to rescind the NOD or the NTS. Others are there because they are trying to complete a short sale. Those that don't conform to either of these situations, probably represent the true shadow inventory.

There's typically a 3-4 month delay between a NOD and a NTS. It means that May '09 and later defaults are not "shadow inventory" yet, they are still in the pipeline. The total number of "uncured" non-duplicate defaults between 7/1/2008 and 4/30/2009 is 10,335. That's the upper bound on the size of shadow inventory in San Diego county. The actual number is most likely lower.

My next step is to head to the nearest county clerk's office and run some names. I heard that it's possible to access the grantor-grantee database directly for free from a public computer in any county clerk's office. That should clear things up. I want to estimate how many people in "NTS" and "No action" categories are current on their property taxes. For people who defaulted substantially earlier than 4/10 (when the most recent installment of the property tax was due), property tax status should be a good test of distress.

August '09

With kids back to school, it looks like the summer rally finally ran out of steam.



MLS inventory is still tight, but there are fewer buyers around, so prices will probably move sideways or decline somewhat in the upcoming months.

July Case-Shiller forecast is revised down to ~155 from 158 (last official read was 147.31). At this point, I can't give any firm predictions as to the August value, except to say that it'll most likely be in 156-159 range.

July '09

City average: 39.1% off the peak, 57.9% above Dec 1999
Top tier: 20.1% off the peak, 80.1% above Dec 1999
Middle tier: 39.9% off the peak, 55.3% above Dec 1999
Bottom tier: 50.9% off the peak, 42.5% above Dec 1999





The market is really heating up. The overall city index is up 5% in one month, which is the highest rate of change in the recent history, even exceeding records set during the spring of 2004.

There's one caveat, though - this exponential-looking growth is partly caused by a change in sales structure: the ratio of top tier sales to middle tier sales seems to be up about 20% compared with the previous month. Middle tier by itself is up "only" 3%. It may be an artifact in my data, since some sales may not yet be reported yet, maybe top tier sales are reported faster. I'll update charts and numbers when late-reporters become available.

Also, it's already August and the frenzy may subside in a month or two.

Here's my forecast of the official Case-Shiller index for the next three months:



I've rescaled the "SDHPI" curve to match up exactly with last month's official reading.

Final point is less certain since I need August sales to calculate it precisely - but it should be roughly in that area.

What moves the top tier?

Just an interesting observation:

June '09

City average: 42.1% off the peak, 50.1% above Dec 1999
Top tier: 21.2% off the peak, 77.3% above Dec 1999
Middle tier: 41.6% off the peak, 50.9% above Dec 1999
Bottom tier: 51.8% off the peak, 40.0% above Dec 1999

City average is up for the third month in a row, so far up 5.7% from March trough.

May '09

May index is up slightly in all tiers and most sub-areas.

City average: 42.7% off the peak, 48.1% above Dec 1999
Top tier: 21.3% off the peak, 77.3% above Dec 1999
Middle tier: 42.7% off the peak, 47.8% above Dec 1999
Bottom tier: 51.4% off the peak, 41.1% above Dec 1999

Short term, upward movement should continue for at least a couple of months, due to tight MLS inventory and active homebuying among families with school-age children - unless mortgage rates spike past 7% or something else equally bad happens. Things will get more interesting in September-October. There's talk of considerable "shadow inventory" due to foreclosure moratoria & such, I'll try to address this issue in a later post.

Regarding the official Case-Shiller index with 3-month averaging, next month's numbers for San Diego should be flat or slightly down, but May C-S will definitely be up (due to be released July 28, if I'm not mistaken) and so far it looks like June C-S (due end of August) will be up as well.