My Brain on Real Estate

12 06 2010

It’s not even noon yet and my synapses are already misfiring on all cylinders.  The steady stream of data coming in feels like a bunch of square pegs trying to shove themselves into a dart board full of small, round, empty holes.  My right and left hemispheres might as well be ships passing in the night of day because my deepest gut instincts are in direct disconnect with the spin of information  orbiting a world that’s already wobbling woozily around on its own axis in full tilt boogie.

There’s an image of Adam Smith’s invisible hand of the marketplace, looming large on a video screen inside my head.  It keeps cracking eggs open into a sizzling frying pan while the voice-over in my inner ear keeps saying …”This is your brain on real estate…Any questions?”

Well…yeah. I’ve got some questions.  A  lot of questions.  That’s probably all I do have at the moment. Thank you very much.

Like…what happens when the bottom of the market is going up and the top of the market is coming down at the same time?  What do we call that? And how do we explain that to our clients? Do more and more people and places just get stuffed into a never-ending zone of price and property compression somewhere north of low and south of high?

How dense can it get in that space before the gravity of the situation gives – in one direction or the other?  Can the stirrings at the bottom of the market push the top back up? Or will the weight of all those pie’s hovering in the sky eventually get so heavy, they’ll force a carefully crafted façade of positive perception to fall to earth?

Is there a second dip coming to top off the cone of silence surrounding the shadow inventory of bank-owned properties getting held off the market? Not to mention the shadowier  inventory of  loan modifications not getting done, notices of default not getting foreclosed on, delinquent payments not getting issued notices of default and the next cycle of 5/1 Arm’s getting set (and reset) to appear right around the corner?

Why has the Mortgage Application Index (google it) fallen so abruptly at the same time interest  rates have dropped so remarkably low?  Money at 4.5%?!!  Weren’t they just warning us that rates were going to go up when the Fed Mortgage Purchase Program ended?

Shouldn’t the ranks of eager purchasers lining up to get their pre-approval letters be growing by leaps and bounds?  Aren’t more buyers out there chomping at the bit as summer inventory begins to expand right in middle of their very own buyer’s market?

And while we are asking the questions…even though it is probably true that the market is seasonal and the sellin’ is easiest in the summer when the catfish are jumpin’ and the cotton is high…isn’t it also true that more homes (as in a larger percentage of properties that are actually listed) don’t sell in the summer too? So which is it? Do more homes sell in the summer? Or do more homes not sell in the summer? Or both?

Is this just all about the end of the tax credit for first time buyers that expired on April 30th?   Would first time buyers  really have waited until the second or third week in April to get their loan applications in? Wouldn’t most of them have started their processes sooner?  Did we just move the time horizon up on purchases that would have otherwise happened later?  Like a cash for clunker homes program?  Was this just another version of all of us collectively kicking the can down the road to see if something else might happen in the meantime to pull our asses out of the fire?

Will the real, real estate market ever stand on it’s own again without huge transfusions coming from the Feds?  Or without interest rates being propped artificially down?  Will the private sector be able to make its own rain again? Without a house of cards built on liars loans and credit default swaps.?  Can it pick up the loose reins of laissez -faire even if it feels  very laissez-unfair in the short term?

Is there some secret escape route on the horizon the helps us get out of the Pavlovian Paradigm where we can’t help robbing Peter to pay Paul with yet one more hail Mary pass that leaves the answers blowing in the wind for future generations to figure out?

Time will tell. But not any time soon.  In the meantime, I’ve signed up to have my brain frozen at the cryogenics lab. Wake me up when we get there.

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The Shadow Knows…

15 05 2010

Shhh. Sh-sh-shhhh. Oops. Sorry. Shhhhh. No, I’m not shushing you. Honest. This is an Advertorial. We’re here to talk about real estate – not keep it on the QT.

My recurring speech impediment has flared up again. Maybe it’s a mild form of Tourettes. Part of my brain is trying to stop another part of my brain from blurting out bad words that aren’t supposed to be heard in public. My inner Gallant is trying to shut up my inner Goofus before he acts out in front of polite company.

Shh-Sh.-Shhh. See, every time I attempt to get a word in edgewise on myself, I begin stuttering. The last time this happened was in 2005 when my lips started twitching every time I tried to talk real estate. A series of b-b-bu-bu-bubs issued forth involuntarily whenever I opened my mouth. It was like some invisible finger of fate was flicking itself across my lower lip. I sounded like I was b-b-busy making goofy b-b-baby noises while there was a really serious rogue elephant stampeding the marketplace.

What finally came stammering up out of my subconscious in a cathartic moment of release was the one word that no one wanted to hear at the time – bubble. By then, it was too late. And the rest is real estate history. History we are still trying to muck our way through in the present tenseness.

But now, I’ve got this sh-sh-sh thing going on. Thankfully all that therapy I had in the past is helping me get to the bottom of my speech pathology quicker this time. So everybody be quiet for real now, ok? Listen up. Shhhh.

I’ve got two important words to say to you. Actually it’s four words, but bear with me. Ready? Sh-sh-sh-shadow inventory. Sh-sh-sh-short sales. Whatever else I say and whatever else anyone tells you and whatever else you believe, these are two of the most important things you can pay attention to right now.

No one is talking about either of these things in a way that does them justice. Sure the words get tossed around. Casual catch-phrases floating through the open house ether. But truly meaningful conversation and analysis in the context of the big picture is conspicuously absent. The silence surrounding both is deafening. All I know, is that the growing size of the shadow inventory and the growing number of short sales are both exerting a huge gravitational pull on the marketplace, in ways we can’t quite grasp or comprehend yet.

Shadow inventory is the name for that the hidden underground vault full of foreclosed properties the banks are hoarding. For reasons we can only guess at, they aren’t ready to recycle their REOs back through the marketplace. They’ve been dribbling a few out here and there but the vast majority haven’t seen the light of day since they fell off the court house steps into the abyss. In fact, apocryphal stories from local REO Agents suggest that the tiny flow of post-foreclosure listings has grown even more constricted these last few months. The drip of damned-up inventory has stalled below a snails pace. Why? Inquiring minds want to know.

At the same time the number of REOs coming on is decreasing, the number of short sales is increasing exponentially. Short sale has to be the dumbest term anyone ever invented for anything having to do with real estate (other than the word “real” itself.) Short sales aren’t short. And to date, not a lot of what we sorta, kinda, wanna think of as short sales as in actual “sales” – have really turned out to be sales at all.

The whole concept of the short sale is fuzzy at best. A clustered FUBAR at worst. A Seller is nominally the Seller, but in the end, after hiring an Agent and marketing the property and negotiating an offer, it is the bank(s) that decides whether a property sells or not. Once a possible sale disappears into the bowels of short sale negotiation anything can happen – including nothing. How do things get decided? How long is it going to take? Who knows? Everything is open- ended. A hope and a prayer with Jiminy Cricket as escrow officer.

Short sales are really just a shadowier kind of inventory than the other kind of shadow inventory. Add them to the huge supply of homes already residing in the limbo of bank land. Sitting on the sidelines. Twiddling their thumbs. Collecting cobwebs. Waiting to be released and unleashed upon the market someday when something or someone decides it’s the right time to let ‘em rip right through the tender balance between supply and demand.

As conventional wisdom says Sh-t Happens. As these unconventional times also suggest… a lot of ShSh is going to happen too.

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ARE WE BUYING INTO A BUYER’S MARKET?

19 04 2010

Where were we?  Oh yeah. We were talking about the phenomenon of multiple offers during the heyday of market madness. A million years ago.  Pre-apocalypse. Way back in 2004-2005.

It was a Seller’s Market.  Every time you ventured across the threshold of a new listing you had a pre-programmed list of questions already rattling around in your head:  How many offers do you have? When are you accepting offers till? Are you going to issue multiple counter offers? What (besides the highest price that can be squeezed out of us wanna-be’s) is the Seller  looking for? Incredibly short contingencies?  A specific escrow officer? An absurdly long rent-back period?  A non-refundable deposit in the form of my first-born child?

The underlying truth about all these questions  was this – there was simply no question about who was in charge . Sellers said jump. Buyers rolled over and responded with a resounding refrain of: “How high?”   They didn’t like it.  But it was easy to justify. Put up with all this bullying of the buyer business and sooner or later you get to be a seller too.  Then you’ll be in the driver’s seat of the bus everyone else is chasing. Payback time gets paid forward.

So here we are on the other side of the inside-out Real Estate Universe. It’s a Buyer’s Market – or so everyone is telling us.  And in a Buyer’s Market, all the opposite things are supposed to be true.  It’s not how many offers do you have? It’s have you had any offers at all?  Even a low-ball one, way back when you first went on the market, four months ago and now feel stupid for not taking it? It’s how motivated are you? It’s how much stress is there, getting swept under that freshly vacuumed rug or stuffed behind that neatly staged couch or hidden in the recesses of that way-too organized closet?  It’s when are you going to lower the price again dummy? And it’s are you ready for all the extra grinding I’m going to do even after you end up accepting my insulting offer over all your own worst gut-wrenching objections?

And yes, in an ubiquitous Buyer’s Market, it is some of the above, some of the time. But to the growing surprise of many, it isn’t all of the above all of the time.

In fact we are seeing things that we aren’t supposed to be seeing in a Buyer’s Market.  A series of odd apparitions. A surprising number of multiple offer situations cropping up all over the landscape. Not on every house. Not in every neighborhood. Not across the monopoly board in every single price range. But they are there in numbers far greater than one would have expected, given the hope and the hype that Buyers in a Buyer’s Market can’t help but buy into.

Strangeness in a Strange Land.  Multiple offers don’t belong here. Buyers aren’t supposed to be competing with other Buyers. Not now. Buyers are supposed to be sitting back. Taking it easy. Biding their time.  Waiting patiently for it all to get sublimely worse. They shouldn’t be in a hurry to get anywhere. They should be drinking lemonade.  Lounging in the lay-z-boy.  Indulging in a some righteous channel surfing along with a bit of slow and disinterested MLS surfing. While all those anxious Sellers grow more and more desperate by the day and the hour and the minute. Buyers just aren’t supposed to be duking it  out with other Buyers for the privilege of purchasing a property in a Buyer’s Market!

So what gives? Why is this happening? Who or what is rewriting the rules of how this is supposed to work?  Why isn’t this the golden age of the real, first-time Buyer, like it was in 1994 when over half of the sales involved Buyers who had never owned a home before. Those fortunate Buyers who watched in awe as a wonderful window of opportunity opened up for them that they thought had been closed forever by the peak of the market in the late 1980′s.

Why isn’t this a better market for move-up Buyers? It should be. When prices are going down, there should be better demand for lower priced homes, while higher priced homes, larger and better, get disproportionately softer and more attractive in price.  Move-up Buyers should be gaining on the changing market right now, specially when interest rates have remained so artificially low.

And yet. And yet. These aren’t the Buyers that are being welcomed with open arms into this Buyer’s Market. At least not enough of them.  Next week, let’s examine some of the shadowy substance lurking behind the scenes.   Is this what happens when banks have too much control over both sides of the marketplace?  A stranglehold on both supply and demand?

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The Clan of the Cave Bear

30 12 2009

All is quiet on the Western Front. Or in the eye of the storm. Or in the clan of all those cave bears, lulling themselves into self-imposed states of hibernation for the winter.

Like lemmings of lore, Sellers often feel a biological imperative to hang it up when the holidays hit the fan. The approach of Thanksgiving triggers an implacable urge to jump off the market. Migrate away from any serious effort that might result in the sale of a home.

All the cultural bunting we deck our brains with, this time of year, offers plenty of excuse to sound the retreat. Too many parties. Too few shopping days. Too much family. And the all-too-easy assumption that buyers are too engaged with everything else to think about buying a home for the holidays.

Meanwhile, stage right, lots of wanna-be Sellers are also lying in wait. They are making mental lists of all the reasons why they shouldn’t list their homes for Christmas. And why they should hold off until that mythical “better” time in the future called Spring – for lack of a “better” idea of exactly when “better” is really going to be.

The supply of homes on the market grows smaller. Locally, it is approaching 800 – down 30% from last year. The inventory of desirable places to buy is waning like the rays of the sun in the days leading up to the Winter Solstice – the point in time when planet earth reaches its greatest degree of tilt.

Here’s my thought: If we are truly about to hit full-tilt boogie in this crazy pinball game we’ve been bouncing, spinning and wobbling around in for the last year, then, as soon as we get done with the longest night of our lives, let’s just push the reset button!

Go ahead. Take a moment. Do some soul searching into the darker realms of your unconscious and the hidden nooks and crannies of your conscious mind as well. Now quick. What do you really want ?

If the answer is: I really want to change my life and move on, then the rest is simple. Forget Christmas. Forget New Years. Beginning Tuesday, the hourglass of the days of our lives starts getting fuller. Not emptier. Adjust your attitude along with your latitude. Throw away everything you think you know about real estate. Do a complete core dump-ectomy on all that baggage you’ve been lugging around on automatic pilot. Time to clean house and sell house.

Let’s rethink this whole winter/spring gestalt thing-y we’ve grown so chummy with. It is an indulgence, we can’t afford anymore. Just another mind-game that obscures realty.

Yeah, I know the traditional party line: Tons of buyers sprouting up like flowers in the spring. And houses don’t show well during the cold, rainy months, when days are gray and dreary.

But let’s shine some of that soon-to-be-waxing light on a different perspective. There are already tons of buyers ready and waiting to buy. What are they waiting for? For you to put your house on the market! If you wait for them, they are going to continue waiting for you. Someone has to get the ball rolling. It’s literally and figuratively your move.

Assuming supply and demand still has something to do with real estate ….what kind of market would you rather have your home listed in? A market where there is good demand versus really low supply? Or a market where there is better demand but also a huge new influx of supply?

My contention is this: What is most important at any time of the year, in any kind of market, is the actual, real relationship between the total number of homes for sale and the total number of buyers out there.

Do more homes sell in the summer according to statistics? You bet. But, here’s a little secret… Summer is also the same time of the year when there are more homes that don’t sell. Why? Because there are way more homes on the market and never enough demand to buy them all.

Do less homes sell in the first quarter of the year, when it is cold and rainy and homes don’t necessarily show in perfect, pristine fashion? Yep. But guess what. There are also fewer homes that don’t sell too. Why? Because there are less homes on the market!

A greater percentage of the total number of homes listed in January, February and March will sell than the percentage of homes that will sell in the summer time, whether the catfish are jumpin’ and the livin’ seems easy or not. Shouldn’t yours be one of them? Spring is often the time for April Fool’s. The smarter money is going to get carpe diem-ing sooner rather than later this year.


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