Daily Real Estate Rant
1/9 All of the brokerage community remain even more frustrated with the antics of the source lenders. Mortgage brokers are working as hard as they can in this Alice In Wonderland lending circus. Check on out my January 8th and 9th invectives on bankers at my blog, aboutjimscott.com.
8/13 I am back writing here from the two month hiatus. A series of events, some good and some bad, have sidetracked me a bit. I am hoping we are nearing the bottom of this mess! All signs seem to suggest the national economy is starting to stabilize. Jobs and housing growth will not come until much later, but at least there is some progress.
6/12 Continued frustration on all sides! Not a good idea to be representing buyers in the lower priced range and sellers in the upper-priced regions. This is an ugly brew these days and probably will remain so until the zombie banks lighten up on credit for jumbo loans. The fear factor is ruling the roost in bank-world, I am surprised these guys drive cars to work, it seems far less risky to walk.
6/3 Good article today in the San Diego Union about a recent study that tracks residential markets in various cities. They have an economic model that says what the 'normal' price should be based on various factors such as land availability, community incomes and such. They conclude that San Diego is now "undervalued" by a substantial factor.
5/28 Low-priced listings continue to move well in this market. Anything under $400,000 is moving swiftly on the market. Most of it is because the Feds are forcing banks to make loans. I call the lenders the anti-banks although I met someone who referred to them as zombie banks, a phrase taken the Japanese experience.
5/27 Lost out again on another bank sale. Priced at $699,000, my client ignored my advice to write at $800,000. No doubt the sale will be over that amount, but we will see when it records.
5/26 Activity in short-sales and bank sales remains robust. Only it is a real tough market to be a buyer. Most of these agents who have a lot of bank-owned inventory are hard to reach. In fact, they will not even return calls in many cases, even if you have submitted an offer. I have been on both sides and this unprofessional behavior will be dealt with later. I am keeping a list for when the worm turns!
5/25 The Mission Hills' market above one million has just come alive. After going seven months without one sale over a mil, four have happened in the past two weeks. I am not sure yet what to make of this, but certainly it is not bad news. These kinds of buyers have portfolios and perhaps the recent rebound in the stock market has given some people the confidence to move ahead and scoop up the many bargains available at the high end of the market/
5/21 Appraisal problems ahead....maybe. In true banker fashion, the new rules governing appraisals now have the potential to derail the budding stablization. After May 1, the appraisal world had a seismic shift in regulations. Stay tuned as there will be wholesale changes coming again from the Fed.
5/18 This is how bad it is. So I have good buyers for a short sale around $900,000. They have great jobs and great FICOs but that is not enough for the scared cats running our banks. So how are we going to get out of this tailspin without some reasonable behavior from the banks?
5/15 Working one of my agent's bank accounts this week gives me a great first-hand look into the war zone of foreclosures. His area is around National City and Chula Vista and the prices reflect the general incomes of those areas. The demand is amazing and it shows just how ingrained in our culture is the idea of owning your own home. Grim economy or not, there are plenty of people buying these bargains. Why those in the upper stratas have not followed suit is beyond me.
5/13 Plenty of lookers but no takers.... This is the story of the marketplace over $750,000. I am puzzled as to why the most affluent buyers are the ones not stepping up and scooping up bargains.
5/8 Today will be an interesting test of this market as I am bringing out a home priced over one million and this has been the death zone of real estate in Mission Hills. Lower-priced homes will sell and often with several offers. Since December 10th, not one house in the North Mission Hills area has gone to contract that was priced over one million.
5/7 I have not put in notes lately because I have really been busy! This is good news and perhaps the bottom is here at last. Of course, 'the bottom' is going to be like a relative who is on your sleeper couch; you know he is going to leave it is just of matter of when.
5/1 Home loans remain cheap but hard to get. I am not sure just when they will lighten up and realize that the mistakes of the past are in the past. Everyone knows they were far to lenient before but way toss out the baby with the bathwater? Plenty of good borrowers are out there but frozen out because of some obscure and insignificant mistake in the past. Being tough on borrowers will not undo the great financial debacle of 2008. The horse is out of the barn and you cannot get it back! Note to lenders: try some place in the middle!
4/30 So the Fed leaves rates unchanged for the time being. Is this a tacit admission that this economy is still going nowhere? The problem is that job stabilization and creation, the measure of the economy among the populace, always lags behind during a recovery. In other words, adding new employees is the last thing any company will do as their business improves. It makes perfect sense. First a compnay must survive. Second, it needs to restructure for the recovery economy. Last, when new business starts to pop up, then workers and products will be added.
I think this President has the political will and backing to keep to the course he has set in regards to the huge amounts of federal aid flowing into the economy. The effects of that federal largess have not be felt yet in hiring, but it will, just be patient. Evenutally those of us in the housing business will get some relief.
4/25 Placed two offers last week on properties with no equity. I also got offers on properties that if accepted would result in no equity left for the seller. This routine is not business as usual. Banks are making new difficult to obtain so now most transactions present problems from both sides. On one side the lenders gum up the sale process in the way they administer the ugly end game of deciding how much money they will lose. The new buyer has to jump through far more hoops than before and it takes far longer to get loan approval and funding.
All of this means more agony for less money for the agents involved. Payback for the past few years...
4/22 Our house rental business remains a bit on the slow side. This is generally not the case as during recessions people tend to buy entry level homes and rental houses suffer a bit. It may be more a matter of getting too greedy on the rent. I know on my house rentals I did not raise rents this year.
4/21 A friend of mine asked me last week about the health of the downtown condo market. He was considering making a purchase. He inquired today again via email and here is my response: " My rationale was that future replacement costs, which always drive present day resale values, will be much higher than the first wave of building(which is now winding down). No new office towers were constructed during the boom because condo demand drove land prices too high. Next wave there will be new office developers competing with condo developers, and that along with more limited land supplies, means much higher new condo prices. That would mean that little new development will take place over the next five to seven years. The question, will downtown living make it in suburban San Diego, is long answered. Prices today have the recession priced into the condos. The timing is simply good and there is no question about the long term viability of the product. Jim"
4/18 I just got an email from Alan Nevin, a local real estate guru, on the future supply of residential land. Alan noted that there are only 600 finished lots in the County and no one was processing any more at this time. He was forecasting a serious shortage downstream as the lead time for developers is quoted in years, not months. While 600 may seem like a serious number of new homes, it is not considering the size of this market and the population growth.
4/15 Today I am always happy that I have property. I know there is always tax about the removing or reducing the tax benefits of the home-owning class. Every year someone floats the idea and every year it dies like a deflated balloon. To be sure, the benefits have been shaved for the well-off in that there are not deductions for loan amounts over 1 million. I can certainly understand the logic, as 2 of every 5 Americans subsidize the house payments of the other 3. But I do not see this happening for at least a decade or so, and if it did, the phase-in would be long enough as to not cause any market disruptions.
4/13 So what is with buyers at the upper end of the market? There are plenty of sales and frenzied buyers feasting on the remains of the foreclosure crisis. Once you move up past $500,000 the game seems to change. If you have product you remain reluctant to take the kind of financial hit required to sell. Buyers, on the other hand, do not appear to want to do anything that does not have blood involved.
4/10 Inventories climb and there is little action out there. Bad news and gloom is not all that bad. Stock brokers like to speak of 'capitulation day', that is when most everyone just gives up and throws away their stock. The day is really a period and I suspect that day has come and gone in the financial markets. I am now seeing some foreclosures starting to popup in the foreclosure-proof sub-market. Perhaps that has to happen before the ordinary course of the recession starts to move into a recovery phase. Some I am not as blue about it all. I started a series on my blog on the psychology of this recession at aboutjimscott.
4/9 Wells Fargo reports great first quarter earnings today and that bodes well for housing. These results should help out with investor confidence, a key component in keeping banks alive and in getting retail lending going. Money needs to flow to more borderline borrowers, for homes and durable goods, in order to stabilize jobs.
4/7 Good article today in the Union-Tribune about a subtle shift in the credit markets. I am referring to the flow of credit to businesses and entrepreneurs, the twin engines of job growth. A change in this credit market means stabilization of the job market. There is a direct line between this event and a recovery in the housing market. Not that prices are going to move up sharply; quite to the contrary. Prices will merely bump along this trough for at least the coming year. Buyers will have opportunities but they should keep an eye on 10-year treasuries. Mortgage rates may be this favorable for only another year. More on this later.
4/3 Went to the Realtor expo at the Town and Country Hotel to test the mood of my colleagues. The hall was full of vendors eagerly displaying new gizmos guaranteed to help make a buck in this market. I saw nothing really new and perhaps it was a bit more low-key this year. I saw no new products I had to have; it is always reassuring to see vendors pedalling loud flags, signs, magnets, note pads and other give-aways and marketing panaceas. I used the occasion to complain to Sandicor, the organization that provides MLS data to agents, about the technical faults I see in our service, I hope some good comes of that. Still, people were upbeat and did not have the appearance of a group of losers.
4/2 More good news today as the Street continues to recover some lost ground. Not that things are that peachy, but any glimmers of good are welcome in these difficult times. As the inventory of high-end houses continues to bloat I wonder if a point will be reached when the whole neighborhood is on the market. The lower priced homes are firming and I see little price erosion at that level. Getting others better off to open their wallets will be a function of the stock market and other things.
4/1 Finally some good news in the Union today. There was an article today on the front page about new life in the lower end of the market. The story's headline noted that housing was "on the mend". First good story about real estate in San Diego that I have read in some time. The article featured investors and first-time home buyers getting in on the plethora of inexpensive homes being sold by lenders. Real estate remains a confidence game and there needs to be a sense that the economy is going to get better in order to get the market stabilized. For 2009, stabilization should be viewed as a blessing. Appreciation is a ways down the road, perhaps not until mid-2010. Money, however, will be more expensive then.
3/27 There is a great article in today's New York Times about the city of Portland and the recession. Entitled, "A Downturn Wraps a City in Hesitance", this is one of the best written pieces on the recession. It speaks of peole's expectations about their individual and collective economic futures. Their subsequent behaviors, not spending and investing, not only prolongs the downturn but makes it worse. One particular point in the article that I really have observed thus far is that those in need of loans cannot get them; those who do not need loans can get them. Reminded me of Catch-22 and the elusive Major Major Major Major.
The most disturbing conclusion has been spoken about before by the financial press. Just as occurred in Japan following their 'lost decade', cutting interest rates to zero may have little or no effect on people's behavior. America's new-found austerity, while good on some levels, is going to bankrupt all of us. Only by restoring the traditional pattern of borrowing, spending and investing can this economy start adding, rather than shedding, jobs.
3/26 I just finished the Market Report for this month. I take a few shots at the President's critics, both from the left and right, and offer my thoughts on some of the newest bailout plans. I think housing should eventually benefit even though today nearly all of the action seems to be bank-related.
3/24 You have to like the new Treasury plan that was introduced yesterday by the Secretary of the Treasury. The Administration's newest idea of buying the bank's toxic assets with a private-public partnership is pure genius. Two poor alternatives to the problem are now off of the table. First it is now clear, that even with partial government ownership, that banks will not be nationalized. Second, there will not be a repeat of the RTC debacle of the early 90s. To refresh your memory, all of the failed loans held by seized banks were disposed of by the federal Resolution Trust Corporation. The RTC bungled the job by dumping all of their foreclosed properties on the market essentially at one time. A smarter and less costly approach would have been to manage the real estate and slowly dispose of their many properties over time. By dumping the product as they did, they managed to depress real estate market prices to the point that they inadvertantly created more failed loans and subsequently more failed banks.
By using the intellectual power of the private real estate financial sector to dispose of the real estate and/or non-performing mortgages the value to the taxpayer will be maximized. Not new agency is created and the skill-set is in place and trained. The capital is available and the government's easy financing terms make this project very appealling to the private sector. More importantly, we should avoid the market choas that followed in the trail of the RTC's misguided tactics.
3/22 It looks like help is on the way for the jumbo loan market. The Bank of America, along with the failed lender formerly known as Countrywide, have announced they are going to re-open the jumbo loan market. Loans above the conforming loan threshold have been priced, since the financial meltdown started last fall, in such a manner that no one in their right mind would ponder such a loan. When conforming rates were around 5%, it still cost seven to eight percent for the larger loans. This particular market segmen is really in the doldrums and the high cost of money is probably one of the main culprits. Since there are far fewer foreclosures as well in that sector, it is now wonder the median price of homes in San Diego has featured such a steep decline. That particular number, which the headline writers love, does not paint the entire picture of the market.
3/19 So what does the trillion dollars mean for the housing market? Some of this is predictable but a lot of it is not. Rates, already at near historic lows, dropped today after the latest Fed gambit of announcing it will print a trillion dollars and purchase all sorts of Uncle Sam's old debt and buy Freddie and Fannies securitized bonds. Rates will continue to fall over the next thirty days as lenders ponder what to do with all of that cash. I had a good idea that I spoke of on my blog today, but it is not too serious as it involves Donald Duck and his rich uncle.
The short answer for real estate prospects is good. Banks will need to find a home for all of their new cash and will by necessity have to put a portion into housing loans, either directly by making mortgages or indirectly by purchasing mortgage securities. 30-year treasuries are in the mid-twos and I never thought I would see that rate. This rate, more than any other, affects long-term mortgage rates. Conforming loans at 4.25% is certainly not out of the question.
3/18 I love the headline in today's San Diego Union, "Housing Slump Not Even Close to Ending". Why not "Housing Slump Continues" or even "Housing Slump Not Close to Ending". The UT's headline guys need to give us a break as perhaps things are not all that bleak.
I think there is minimal improvement out there as the lows are being tested and established. Prices are below replacement costs and that should represent a solid price foundation. The real key is to do analysis at the bottom of the market. The median price, upon which the data for today's article is based on, is very misleading in this two-tiered marketplace. The County median price is down 30 to 40 percent over the past year owing to the fact that most sales are at the bottom end of the market and a majority of sales are still distressed--short sales or foreclosures.
In some market segments, say the over $800,000 market in Mission Hills, there is no market price as there have been no sales for the past ninety days. This stalement between the 35 or so sellers and the small army of buyers in now dragging into it's fourth month. They need to give us a break as well!
3/17 January's real estate numbers in San Diego look a little promising-if you squint when you look at them. I agree the inventory numbers of homes available for sale is lower than last year and that the all-mportant ratio of total sales to foreclosures is improving. However, there are more nuggets of information underneath the raw numbers. First, there is no way to calculate the hidden inventory of homes. This would include discouraged sellers who cancelled listings as well as those about to lose homes that are in negotiations with their lenders. Second, Federal fiscal policy for 2009, beyond the current stimulus packages, will largely determine how soon stability comes to the housing sector.
Which brings to the real point-when do prices resume an upward move? Any hope of this happening is what will really stem the tide of foreclosures. If there is hope, people will find a way to hang on to their property. Someone who is 50% upside down, that is their home is worth about half of their debt, is probably better off walking away unless they can see some light at the end of this dark tunnel.
Pasr recessions can give only a clue and are perhaps useless as tools to help us today. I suspect the sheer scope and size of this problem precludes the use of past data. Just as the Feds are moving in the dark, we too are probably in the same space.
3/15 "Signs point to upswing in real estate sales" sayeth the industry puff-piece in this Sunday's Union Tribune real estate classified section. I always enjoy reading this dreck every Sunday as one after another industry flaks trot out a series of worn-out bromides somehow stiched together to make an article about our real estate market. I often wonder if I am really practicing real estate in some other county or some other time and that I am possible halucinating each Sunday, thinking I am living and working in San Diego.
This goes to the point I made yesterday concerning the lack of trust in all people reporting on all sorts of markets. It is very difficult to get straight information if it involves something bad. We all know the market is in the dumper and there is little way to truthfully spin reality into something palatable. Of course, that does not stop the onslaught of information, both in print, on the internet and on television, that is at best self-serving and at worst a serious distortion of reality.
Personally, I prefer to operate there and am more than willing to speak to the truth of our current circumstance. I know there are hopeful signs, hey, look at the market last week! But I also see the carnage close up.
I guess this touches a sore spot with me in that I heard the spin for years on the Vietnam War and then had to actually experience the reality. I learned in just two weeks that it was a bootless erand and in no form could we ever prevail. We owe to each other, as citizens and neighbors, to speak truth and face our times with courage.
3/14 So what does the recent contretempsbetween Jim Cramer and Jon Stewart have to do with real estate? Just about everything. Mr. Cramer's major problem, as pointed out by Mr. Stewart, was that he was giving advice on stocks about which he knew very little. I was shocked by how naive he was; his willingness to accept as gospel the pablum shoveled out by corporate honchos boggles the mind. His lame rationale for accepting, and then repeating on air, these blatant mis-truths is truly amazing.
Real estate sellers, no matter what you may think of them, have a much more difficult task to engage in too much puffery and deception. Clients have far more knowledge about local real estate and structures to be easily hoodwinked. The combination of this knowledge along with law and custom, make real estate a much safer environment for your money.
This is not to argue that it is more profitable; rather I am arguing the playing field between the sharks and customers is very level. This sturctural balance is why I have always made more money in real estate than stocks.
3/13 Real estate remains a confidence game. Yesterday morning on the Today Show there was a long segmenton the real estate market. Their in-house real estate guru, Barbara Corcoran, opinied that now is the time to strike and buy cash-flowing price appreciating apartments. She argued that this was the absolute best time to start picking up these properties at bargain basement prices.
The problem is that real estate is local and in San Diego, it remains difficult to obtain such a property and not bleed cash each month. My own apartment-owning experiences, which started in 1974, span four recessions and the good parts in between. In 1974 I bought 8 units at Wilson Street and Adams Avenue for $110,000. (that is not the price per door but for the whole building!). Today that building, since knocked down for a firehouse, would easily command $110,000 or more per door.
Obtaining units in San Diego was far easier during the recession of 1991-1995 that today. With extremely low interest rates and reasonable full buildings, it remains difficult to purchase buildings with reasonable down payments that make economic sense. And this is before we factor in the difficulties in obtaining financing. Still, this was a good omen. Perhaps we are moving closer to stabilizing the price free-fall.
3/12 A search of downtown smaller condominiums becomes an interesting look at the marketplace. I was looking for condominiums downtown that were priced below $325,000 and had at least 800 square feet of space. There were 17 available and none were offered by sellers that had any equity. 16 were short sales either approved or in the process of and only one was actually bank-owned. There are many things to be learned from this data. First, the pace of actually foreclosing and seizing a property must be slowing down. The various bank bailouts offered by the Obama Administration have been laden with conditions. The most onerous of which, according to many banks, sharply restricts the ability of banks to quickly foreclose on a property. I would offer than the fact that sixteen of the seventeen homes available in this limited sample are short sales would indicate that the banks are at least working with the current owners and trying to avoid foreclosure.
I know this is pure self-interest in that foreclosing is the more costly of the two bad outcomes. But the banks are surely looking over their shoulder at the Feds and wanting to appear to working dilligently with troubled sellers. This is classic banker behavior; had they done this three years ago when the crisis was beginning to unfold the damages today would be far less. By refusing to negotiate and help out homeowners, they created the avalanche of distress and made a bad situation worse.
3/11 Finally, some good news. Citibank annouces a profit for the first two months of this year and the market responds. There are several interesting parts to this. First, this crisis is all about banks and credit and this is the first sign of any life in that troubled sector. Second, this shows all markets are hungry for any positive news and that there is a mountain of cash sitting on the sidelines. Which brings me to real estate. One has to wonder if the credit debacle, driven by people failing to make their mortgage payments, was the cause or symptom of the disease. Answering that questions will speak volumes about when and how the current 50%-off sale in residential real estate comes to an end.
3/10 Plenty of traffic yesterday but not too much to show for it as buyers continue their reluctant ways. I know I will be going back to the sellers this week looking for some more price cuts. It seems people, at least at the upper end of the market, are loathe to purchase because of the twin demons of unemployment and deflation. The prospect of either sends a real chill through the marketplace and I suspect until confidence returns we will remain in this uncomfortable spot. I think many buyers need to ask another question; how much lower can this market go? Certainly on the low end below $400,000, I think not much further if at all. There are two reasons for a floor under the current pricing structure. First, replacement costs and second the rent utility value. The former is obvious but the latter is the relationship between rents and home prices. San Diego, during the price run-up, had homes selling for about 30 to 40 times the annual gross rent value of the particular house. The sustainable average is about 15 times. This is an interesting economic tool that is often ingnored but can speak volumes about the market cycle.
I for one have ignored this measurement but I plan on speaking to that factor in the space later after I do some research.
3/9 Buyers were out in numbers yesterday. It is interesting to see all of this ambivalent behavior, wanting to buy but unwilling to pull the trigger. Fear rules the roost as layoffs keep coming amongst the professional classes. I keep a close finger on the pulse of the legal world. Like cardboard box sales, the comings and goings of attorneys are worth watching. Lately the news has been bleak as first and second year associates are being let go or cut back. There just isn't the work available. The real business of law beyond the more public areana of tort law, is business law. If businesses are not busy acquiring, selling, merging or hiring lawyers are not getting any work.
The upper side of housing depends on these guys moving up the housing food chain. This market has been hit from two sides; the disappearance of the move-up buyer and the loss of high-paying jobs.
3/8 Stock brokers often look for 'capitulation day' as a sign that the bear is about to be routed.This is the point in the bear market where people just give up and sell everything. Real estate is no different, there is a point in every cycle when sellers peer into the abyss and see only and unending price spiral the wrong direction. A good friend of mine, a financial planner and reformed lawyer, recently wrote that even in declining markets, there are still buyers. It is a good point to remember. Someone still attributes value to assets that have seriously declined in price. At the risk of sounding too much like Dr. Pangloss, there is truth to that thought.
I will be the first to admit I was close last week to really going to cash in my financial positions. But I didn't, thinking capitulation day is close at hand. I hope I'm right. More thoughts on this subject on my blog, a good place to leave a comment or two.
3/7 Another less than stellar week in the real estate business has passed by. Here is a good story about this market. I had a deal fall out of escrow this week. Not that this event is unusual anymore, but because the buyer forfeited an enormous deposit. Since the deal was pretty good for all sides, this turn of events reflects the complete lack of confidence in the economy. Real estate is purely a leap of faith in the future as it is really cheaper to rent. The near disappearance of non-distressed sales is indictitive of this.
But consider this: 88 new housing starts for the month of January. San Diego County needs to produce at least 10 to 12 thousand units (by units I mean a combination of apartments and houses) a year. This means future shortages no matter how bad things are today. Something to ponder.
