The Complete Book Of Running and Today’s Real Estate Market

Posted on October 13, 2012 by Tim Freund

I was a kid when the jogging craze exploded.  The year was 1977 and a new book entitled The Complete Book Of Running was taking America by storm.  It advocated running as a way to stay healthy and that active people lived longer.  It’s author Jim Fixx became an overnight celebrity and jogging became a part of our nation’s fabric.  Unfortunately 7 years later Jim Fixx was dead of a massive heart attack to due closed arteries.  It seems too much of a good thing can be bad for your health.  Such is the case of today’s real estate market.

For 5 years our real estate market has been dogged by too many distressed properties, an overly restrictive lending environment and just too many homes for a population over extended and financially stressed.  The result was record declines in property values the likes of which no one had ever seen.  The decline in value made the cost to build greater than the market value of the homes to be sold and so builders essentially shut down.  This confluence became the Great Recession and lead to the single largest loss of personal wealth in our nation’s history.  Most would say, and correctly so, that the boom years of easy money was too much of a good thing, and that’s what lead us down the rabbit hole we’ve been stuck in for 5 years.  However, we are now in the throes of another, “too much of a good thing,” and that is the ever declining inventory of available homes for sale.

Today’s housing rebound is kind of like a car being fueled by rocket fuel rather than gasoline and traveling at the speed of sound on our freeways is nothing short of disastrous.  Consider my local market here along the Ventura/Los Angeles County line where I specialize.  In looking back to the peak of the housing market sales, say around 2004, I have sales statistics that show in October of 2004 our area closed some 284 homes.  At that time there were a  little over 800 homes available for sale.  The equates to about 2.8 months of inventory.  In other words, if not no more home came on the market, at that sales rate it would take 2.8 months to sell all the available homes.  The national Association of Realtors and most economists estimate that 6 months inventory is a balanced market.  I however, have long espoused a slightly different number for California.  My theory is this: For California to maintain the high prices it does relative to the rest of the nation, we must be in a perpetual state of short supply or else why would property in Malibu sell for $1000 square foot while a comparable home in Dallas sells for $100?  Thus my balanced market number for California is a 3 month supply.  Extrapolating that concept to October of 2004, a 2.8 month’s supply is a slightly leaning seller’s market.  Keep in mind that this was a market that was experiencing a 1-2% monthly appreciation.  Again, too much of a good thing leads to trouble.

Fast forward to today.  My local market has about 370 homes for sale while we are selling about 200 homes a month (about a 1.8 month’s supply).  Yes, if you go back to the crazy time of 2004 and look at that number, you are correct, it was 800 available for sale.  In other words, we currently have less than half the homes to sell as we did in the Boom-boom-boom years.  Bear in mind that the fall inventory is the precursor to the spring selling season and the rise in inventory during the fall months is essential to meet the demand during the selling season.  Yet here we are, and from everything I read it’s roughly similar in most parts of the country, with inventory half of where we should be for this time of year.  Typically in Southern California spring inventory drops by half from fall.  In the slow years it dropped about 30% and at the peak it dropped by a staggering 75%.  But our fall inventory is half of where we should be.  So what is going to happen if our supply of available inventory does not increase and substantially increase as we move towards the spring?  Well best case is that sales slow and we only see a drop of 30% which would put us at around the same inventory levels of 2003 and 2004.  Yet those years saw a drop of 75% and 50% respectively from fall to spring.  Thus a conservative number I’ll use is 50%, which is about average, and that puts us at somewhere around 185 homes to sell in the spring.  I don’t have to tell you, though I will, that if that is the case, we are going to see appreciation like it has never been seen before.  Unfortunately like Jim Fixx and running, too much of a good thing is not a good thing at all.  And this, I fear is a recipe for disaster and one no one is prepared for.  If there is a silver lining in all this, it’s that construction activity should eventually rise to meet the shortage of inventory by building more homes.  I have been saying for months that this is going to be the engine that truly kick starts our economy, even though I am at odds with Wall Street who maintains the opposite, that this will be a construction-less recovery.  So put on your track suit and grab a pair of those new fangled running shoes and hit the road, ’cause you better start training now in anticipation of the sprint we are heading into this spring.  By the way, if you are thinking of selling, please call me.  I need some listings and soon.

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Houston, We Have A Problem

Posted on September 10, 2012 by Tim Freund

What happens when there are no homes to sell?  Seriously, have you ever stopped to consider what would happen if there were literally no homes to sell and no homes to buy? It seems ludicrous to even think about such a phenomenon, yet with every week our inventory is getting smaller and smaller and smaller.  In the Conejo Valley where I live and sell, our inventory last week hit an almost nonexistent 434 total units.  Today, just one week to the day later, our inventory is at 413, a 5% drop in one week.  In fact our inventory is half of what it was this time last year and a third of what it was two and a half years ago.

Saturday I was showing a sweet couple relocating from Kansas City.  They work for a company headquartered here.  We looked at 12 homes (that’s all there was not backing a busy road, freeway or other some-such location issue) in 5 cities within and around this, the Conejo Valley.  Their criteria was pretty broad; 4 beds, 2 baths, almost any size, any age, fixing would be OK, priced from $450-625,000.  I showed them up to $650,000.  Each home we visited was crummier than the next.  There was one beautiful home just outside of the Conejo Valley in neighboring Moorpark that came up on Thursday; an elegant 2600 SF one story listed at $600,000.  We looked even though it would add an additional 20 minutes to the husband’s already 20-25 minute commute.  When we arrived Saturday morning it already had 2 offers, both full price and one was all cash.  Later we saw a home in Agoura Hills, part of the Conejo Valley, not yet on the market that is listed with one of the agents in my office, so were lucky and able to get in early.  It was at the “just beyond the upper limit” of my client’s price range.  It was a decent home, good location but needed $10,000’s worth of repair and updating.  It was virtually the same home as the day the owner bought it in 1982.  At the asking price, there just wouldn’t be any money to fix up the darn place.

And are you ready for this?  We actually had to stand in line in the blazing sun, that’s right in line, with 5 other Realtors and their clients, to get into a newly listed short sale property in Thousand Oaks, priced at $600,000.  It was 2000 square feet, really clean and with some nice upgrades and even had a pool.  It was in one of the top elementary school boundaries; on a slightly busy corner but also on a cul de sac.  Suffice to say it was a nice home; not earth shattering but very nice.  However, it’s a flippin’ short sale!  In other words, we would have to jump into a bidding war for a chance at something that may or may not ever come to fruition. And even if it does, my clients will be here in 30 days and can’t wait 4 months with a baby and a 2 year old for a short sale to close.

Thus we began looking for a $3,000+ a month rental.  We found one built in 1959 with a great yard, some freeway noise but no air conditioning… yikes!  But they would consider a 6 month lease.  We found another that had had a water leak so the bamboo floors were buckling… just lovely.  We found a third that smelled like dog pee.  There was a real beauty at $3,300 a month… my listing, but the landlord wants a year minimum.

As my clients looked to me to provide guidance and an opinion on buying vs. renting, all I could say was that more homes traditionally come on the market as we get into the fall.  However I said, every indication was that because the market is so tight and that there is so little inventory, prices were likely to spike.  Would the spike be sustainable, who knows?  A year lease could spell disaster for someone flirting with the edge of affordability.  They flew back this morning without a home to move to.

So that leads me to today’s question, “what happens if there are no homes to sell?”  The answer is prices are going to sky rocket.  So naturally sellers are going to rush in and list today to take advantage of the rise in prices, right?  Well maybe, but maybe they choose to wait for even higher prices, further crimping an already desperate dearth of homes for sale.  So there you have it.  At the current absorption rate of -5% a week, in less than 20 weeks we will be out of homes.  I don’t know what the Realtors in your neighborhood think, but this one is starting to worry.

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If It Walks, Looks and Quacks Like a Duck, It’s A Duck

Posted on August 29, 2012 by Tim Freund

I have said in the past that I wish I were Diana Olick from CNBC.  She made herself a nice little career reporting on housing’s demise.  So it should be very interesting watching how she handles the role going forward.  On Tuesday the venerable reporter wrote that the data was unclear, “There is still too much noise in the numbers, however, to draw any firm conclusions yet.”  Really?, because the way I see it, the market has rebounded and things are on the way up.  Consider what David Blitzer, spokesman of S & P’s Case-Shiller Home Price Indices had to say, “We seem to be witnessing exactly what we needed for a sustained recovery; monthly increases coupled with improving annual rates of change. The market may have finally turned around.”  Further still, foreclosure activity is down.  Distressed properties, as a percentage of the market, are, for most markets, in a free fall and available inventory in general is scant.  Lawrence Yun, economist for the National Association of Realtors said Wednesday, “All regions saw monthly increases in home-buying activity except for the West, which is now experiencing an acute inventory shortage.”  Acute shortage; geez that’s sounds like a market in rebounding to me.  Moreover, the pending sales data reported today also showed enormous strength in housing.  NAR’s Pending Home Sales Index (PSHI), which is a barometer of future closed sales activity, was up as much as 20% in some regions.  Yun went on to say, “We now have 15 consecutive months of year-over-year gains in contract activity”.  One wonders exactly what might cause Diana Olick to actually say what everyone else already knows, that we are in the midst of a staggering recovery in housing.  In fact, not only is housing on the mend, it is going to lead us out of our economic lethargy.  Why?  Home building.   According to Yun: “Expected gains in housing starts of 25 to 30 percent this year, and nearly 50 percent in 2013, are insufficient to meet the growing housing demand.”  Housing starts equal construction which equals jobs with a capital “J”.  It may not come in time to save the President’s job, but one can’t help but admit the policies that have come out of the White House and the Fed have kept rates at historic lows, and forced banks to deal with their own ineptitude, sufficient to get us into a full blown recovery.  Heck if the Fed hadn’t bailed out AIG and bought long term bonds and the President bailed out the Automobile Industry, we would likely be in a full blown depression, rather than on the precipice of a sustained recovery.  Yes there is little doubt that we are poised to really bust out and housing is going to lead the way.  You uh, hearing that Diana?

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So Much Good News… What’s a Guy To Do?

Posted on August 23, 2012 by Tim Freund

For the first time in as long as I can remember, reading the business news is like a real estate love fest.  Heck, it’s like being at my own Democratic or Republican National Convention: We’re great, the housing market is improving and anyone who disagrees is an idiot and clearly not paying attention.  So cast your vote for me because I called a bottom to the housing market over a year ago and had you listened and bought you would already have made money.   Sounds convention-ish doesn’t it?

What makes me say all this?  Shoot, a day can’t go by without someone saying that housing is the bright spot of the economy.  Consider this week for example.  Nationally both prices and sales it was reported are up.  In fact sales were up 2.3% month over month and a whopping 10.4% year over year.  Only in our area, in the West, we’re sales down month over month but that is a reflection of low inventory, insufficient to satisfy buyer’s demand.  Even more dramatic was that despite flat month over sales numbers,  prices median prices were up 24.5%!  Of course median means half the sales were above and half below, so it’s not a direct correlation to a home’s price but rather an indication that more expensive homes are selling and that pulls the median price up.  Still, it’s very impressive because of what it suggests, namely that there are fewer distressed properties selling at below market prices.  It also hints that there is an increasing move up market, something that has been missing over the past several years.  It also suggests financing of more expensive homes may be getting a little easier too.  So no matter how you slice it, real estate is doing what it does – leading us out of recession.

But resale is only part of the picture.  The other part is construction.  Specifically new home construction.  A few days ago I wrote that the rise in permit applications was foretelling a construction related recovery for our national economy.  Today’s new home sales numbers reported not only a month over month increase but a staggering 23% year over year increase.  23%!  Yes indeed, the good news just keeps on coming.

“The floor recognizes the distinguished speaker from California…” Ahhh, I love my own convention…  Sales are up, prices are up, rates are low, builders are building to address the need for housing and everything as I can tell is looking up.  Now if we can just stop with the stupidity of ‘you can’t get pregnant if you’re really raped,’ are you a citizen and the importance of the P90X workout, and get down to dealing with important issues like the fiscal cliff we’re about to fall off of, which according to the nonpartisan CBO, will throw us into recession if allowed to happen.  Yes, at my convention we’ll ride the wave of the ever improving housing market, because that’s one thing we can all agree on, an improving housing market is good news indeed.

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The Housing Recovery: Thank You Fed and Thank You…Banks?

Posted on August 17, 2012 by Tim Freund

Summer 2012 will be remembered in real estate circles as the summer of no inventory and the return of the building industry.  Yesterday it was reported that housing starts declined by 1.1%; a number that might give pause to many thinking the worst was over for the beleaguered housing industry.  Yet Wall Street rallied.  Why?  Building permits.  Nearly 900,000 building permits were pulled by developers nationwide.  The significance is that building permits portend future building activity.  As we know, there is no greater engine for the economy than building.  It’s not just timber, bricks and  concrete, it’s everything that goes into a home: drywall, cabinets, door handles, hinges, roof tile, copper, furnaces, water heaters… it’s the workers needed to make pipes, air conditioners and windows.  It’s the suppliers of raw materials that go into glass, ceramic tile, plastics, trees for lumber and baseboards.    And those people manufacturing or installing or transporting those products are responsible for scores of jobs; and those building related jobs mean spending and that in turn means more jobs and which leads to more shopping and more jobs.  Jobs, jobs, jobs.  Yes, the summer of 2012 will be the start of the return of the building industry, and not a moment too soon for all of us in this, the great American economy.

Who do we have to thank for this?  To start with, Ben Bernanke and the Federal Reserve, for keeping rates at historical lows and helping to fuel buyer demand.  But how about the banking industry?  I know, heavy sigh; it’s almost the economic equivalent of crediting Hitler for the creation of Israel, totally absurd.  Yet the shadow inventory we’ve been hearing so much about for so many years never materialized.  Why?  Because the banking industry recognized that flooding the market with distressed properties was not in their best interest, which has helped the market to stabilize and create a shortage in housing.  To the chagrin of those buyers who didn’t use their home’s equity as a cash machine, or didn’t bite off more than they could chew and thus felt entitled to a slew of cheap houses, the banks did not cooperate.  They have not release the flood gates of distressed properties.  The upshot of this is that our inventory has become scant which is putting pressure on prices and that in turn has led builders to fill the void by building more homes, or at least planning to.  Further, it has fueled construction for rental units to meet the ever increasing demand resulting from the rise of those distressed former home owners in need of housing.  The obvious fact that so many doomsayers of housing in America missed, was that our population has not gone down over the past 6 years but rather has increased and with it, the need for more housing.  Granted, while the type of housing required may have changed in many areas from single family to that of multi-family, it has none the less been neglected and we are now poised to reap the benefits in the form of increased housing production and the return of the home building industry.  So it is, the housing industry and the building industry in particular may actually have survived the cataclysmic disaster we’ve called the financial crisis.  As appalling as it may be to those harmed by the banking industry’s handling of their personal situation, the contribution of these financial institutions cannot be lightly dismissed.  This reminds me of the quote by the timeless Mark Twain upon reading his own obituary in the New York Journal some 100+ years ago: “The reporting of my death are greatly exaggerated.”  So too has the demise of housing in America been greatly exaggerated.

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Is It A Good Time To Buy?

Posted on August 2, 2012 by Tim Freund

I’ve been getting asked this question a lot lately.  With the market apparently on the mend and prices even rising in most markets, the change has led many would be buyers to the inevitable question, “Should I buy now?”  After waiting and saving while the prices seemed to do nothing but drop, buyers wake up today to find multiple offers and a scarcity of available properties.  Where once buying seemed like catching a falling knife, now buyer’s worry that buying now is a bit of a sucker’s bet; tight inventory and low rates lure unsuspecting buyers to buy, only to have a flood of foreclosures of some other event cause prices to deteriorate further.  What’s a buyer to do?

To answer the question, let me get out my crystal ball…

As I gaze into the future, I see clouds, but wait! It’s coming clearer… yes I see it now… you should definitely…

OK, I don’t have a crystal ball and I can’t predict the future, but I can say that interest rates are crazy low and that makes borrowing money is essentially free.  Free?  Yes, free and in fact better than free because the Government is going to pay you to borrow for a home.  Consider inflation.  The Federal Government’s stated target rate for inflation is 2% annually.  Interest rates are approximately 3.75% so the cost of money is 1.75% right? (the difference between inflation and the rate you are borrowing)  Wrong.  Core inflation is 2% but core inflation excludes what economists like to call “volatile food and energy.”  Last time I went to the market, I didn’t get to exclude rising food costs from my budget and food is more expensive now than ever, don’t you agree?  And every time I fill up my tank it costs me $4 a gallon or more so I can’t exclude energy either.  No, real inflation is probably running around 4%.  That .25% spread between the interest rate and real inflation is money in your pocket.

“But Tim, what if rates rise just a bit, then your argument is out the window isn’t it?”  No.  Here’s why: the home mortgage interest deduction.  Because property taxes and mortgage interest are tax deductible, when you pay your taxes you will reduce your income by the amount you pay for those two things.  Since that expense comes off the top of your taxable income, which is taxed at the highest rate you’ll pay, you will reduce your tax obligation by that amount times whatever tax bracket you are in.  So for example, if you are paying $15,000 in interest and property taxes and you would normally pay 28% on that money if you didn’t pay the $15K towards interest and taxes.  Therefore, you would pay an additional $4,200 in taxes ($15,000 x .28).  So not only are you borrowing at or around the inflation rate, you are also saving by reducing your taxable income.

“That sound good Tim, but out of curiosity are there any other benefits?”  Sure!  By virtue of now having a substantial tax write off, you are going to stop using the 1040 Easy form when you pay your taxes, which limits you to taking the standard deduction.  This means you will use the standard 1040 form and you will have many other deduction possibilities to further reduce your tax burden.  For example, all your charitable donations, both cash, like to The American Heart Association and non cash like clothes to the Salvation Army, are potentially deductible.  The same is also true for the miles you drove for the Girl Scouts or delivering food to the needy… this is where a good accountant can help you tax plan, but it’s all made possible by having a large enough write off to begin with, and the home mortgage interest deduction is the ticket into better tax planning.

“But what if prices do drop more?”  Look, anything is possible, but even in a worst case scenario and prices were to drop further, owning will have fixed your housing expense so you can budget accordingly.  Rents on the other hand, will continue to rise.  Who really thinks that rents are the same today as they were 10 years ago or they will be 10 years from now?  So you want a prediction? here’s a prediction for you: your 30 year fixed rate mortgage being just that, fixed, and that will allow you to know exactly how much you will be paying 10 years from now for housing because it will be the same as you would pay in your first month of homeownership.  There is security in that, wouldn’t you agree?.  And this is all just talk about money.  There’s the whole other discussion about planting roots, a man’s home is his castle and finding a good school for my kids, etc., etc.

There’s really no way anyone of us can predict the future and prices could drop, but you would be hard pressed to make a compelling argument that with the low prices and low interest rates of today, even if prices are rising, it’s never been a better time to buy than now.

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Something To Talk About

Posted on July 29, 2012 by Tim Freund

It’s been  a month since my last post.  If I were working as a reporter, I would have been fired by now.  So why the long silence?  Simply put, I didn’t have anything I wanted to say.  This market is so confusing that I was reluctant to say anything.  So what changed?  Frankly, not much, but the trend seems to be gaining enough traction for me to discuss it.  The trend?  Low inventory and rising prices.  I have been waiting for some sign that this market was going to move one way or the other.  That move seems to be toward a tighter market or seller’s market, rather than a looser or buyer’s market.  The LA Times reported statistics today from the National Association of Realtors, online broker Redfin, valuation website Zillow and foreclosure tracker Core Logic, that inventory has been declining in every market especially the hardest hit like Phoenix and Miami.  In fact the article says that price appreciation, that’s right, appreciation, has hit as high as 14% in some areas this year.  Good luck with those appraisals… Locally I have seen properties along the Los Angeles/Ventura County Line are up about 3-5%.  In fact taking buyers out today is a bit like searching for a needle in a haystack.  Sure there are some multiple offers, but at least in multiple offers, a buyer is finding a property that they at least like enough to write on.  The problem I’m finding is that we’re not even seeing that.  Some of my clients are just waiting by the computer for a new listing to come out within their criteria… they’re waiting and waiting and waiting.  Rates are great and they want in, but there is nothing to buy.  Inventory, both locally and nationally, is down more than 50% from a year ago, while sales are up 15%.  Moreover the inventory that’s out there isn’t really the great stuff, more the middle of the road, mediocre and uninteresting sort.  Harsh yes, but honestly, that’s how it looks to me.  Where are the great properties?  The killer homes?  The equivalent of the “sweet ride” if it were a car?  Nowhere to be seen, that’s where.  Why?  I suppose one could argue many would be sellers are under water thus can’t sell.  Others might say, it’s because seller’s with equity don’t have enough equity to move so they are staying put.  Still others might say, there isn’t anywhere for a seller to move to so they have no motivation.  All are likely true.  It’s not that I’m saying that there are no nice properties out there, but I can say that there are no really nice properties out there or certainly none at the market price; there are always over priced homes in any market.  Even the investors and flippers are having a hard time buying at foreclosure auctions or getting distressed properties cheaply enough to fix and flip.  And like the third week of a sweltering summer in New York City, there appears no end in sight.

Change is always hard.  The market we are currently in is, like much of the market we are just coming out of, unique to our collective history.  We have never come out of a 30% decline in market value before and so we have no experience in knowing what to expect, how to prepare for it or how to deal with it.  All we can do is muddle through until something happens to give us a sense of direction and in this case, to motivate sellers to sell.  Whether that be need or desire, something has to give.  As prices increase, hopefully it will be the latter, but by all indications it’s going to be slow in coming.  Even then we’ll have to hope we can get the banks and appraisers on board.

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Case-Shiller And The 7 Year Road Map

Posted on June 26, 2012 by Tim Freund

In my previous life, when I was a professional musician playing in the rock and roll band Legal Reins, we felt confident we were good, but it was always nice to hear it from people from the recording industry because they were the supposed experts.  Nothing wrong with a little positive reinforcement;  it didn’t necessarily change our reality, but it was nice to hear.  That’s kind of how I view today’s Case-Shiller report which splashed the headlines, “Home Values Up”; it’s nice to hear but it doesn’t change our reality.  That reality is that the housing market and prices have been climbing for several months; inventory is at 2003-04 levels and demand is far outpacing supply, especially in the low to mid prices ranges.  That’s reality, whether Case-Shiller admits it or not.   After all, Shiller is a backwards looking index basing numbers on closed sales which indicates contracts entered as many as 90 days ago.  In fact I would say it’s safe to say, we should expect the prices to continue to rise in Shiller’s report, while the number of sales declines.  This will be due, not to a lack of demand but to the shortage of supply, restricting sales activity.  By the way this explains why the National Association of Home Builder’s reported yesterday that sales were up the highest level in years and the number of permits applied for skyrocketed.  Home builders create inventory.

There was something I found compelling in Case-Shiller’s report: their graph of Home Price % Change year over year for their 20 City Metropolitan Statistical Area (MSA) which dates back two bubbles ago to 1988.  Their graph demonstrates a trend line that is now repeating almost identically to the 1988-1995 timeline.  I think it’s noteworthy that  from 1988-1995 the Price % Change trend line was as high as 12% above the zero line in 1988, dipped to below -7% in 1991 (a 19% swing), rose over the zero line in 1992, dipped again through 1993 and finally went over the zero line to stay in early 1995.  That up-down-up-down-up pattern is exactly what the trend line looks like today, only the swing was far greater in this last bubble.  According to Shiller we were at +20% price activity year over year in 2005 dipped to -20% in 2009 (a 40% swing), up to +4% in 2010 (tax credits), down again to -4% in 2011 and now trending upward towards the zero line in 2012; up-down-up-down-up, an identical pattern.  In fact not only is the pattern the same but so is the time line that the pattern takes place:  2005-12 is the same number of years as 1988-1995, 7.

So what’s that mean?  Well if past performance is any indication of future activity, it means the housing market is set for another historic rise.  In fact from 1995- 2002, before the boom of the artificial bubble due to loose lending standards, Case-Shiller shows that home prices rose 15% in that 7 year stretch (about 2% per year).  That’s some pretty big gains in what we might consider “normal” times.  Thus it looks like the next 7 years are going to be great for home buyers, great for home sellers and great times for our economy, and to this I say, “Bring it on!”

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The New Role Of The Old Open House

Posted on June 15, 2012 by Tim Freund

Back in the day of the MLS book, before the modern era of internet Listing Services, the open house was the only way a person could actually get into a home or sometimes even know a home was for sale.  Homes were actually sold to people driving by when the old, “Honey stop the car…” was spoken.  For years open houses were also a great tool for a Realtor to pick up new clients.  It would go something like this: Mr. and Mrs. Seller agree to have an open house.  The agent puts out the yard signs and passersby and neighbors, stop in to look.  The agent gets names of these folks and some of them turn into new clients.  Maybe a neighbor wants to sell, or maybe a buyer needs an agent to help them.  Either scenario however, seldom yields an offer for the seller.  As a result more and more sellers chose to forgo the disruption of their Sunday, instead of allowing their Realtor to hold an open house.  The thinking being, “Serious buyers have their own agent already; only looky-loo’s will show up at the open house .”

Then a few years ago things started to change.  Suddenly the need for an open house as a tool to sell the house was heightened because of what I affectionately refer to as “Free Agents.”  These are the 30-40+ year olds who are tech savvy and able to access most of the information about available inventory from sites on the internet.  Realtor.com, Zillow, Trulia and online broker Redfin, being the sites of choice for most of these new potential buyers.   Realtors would publish the open house date online and the “Free Agents” would show up.  They didn’t want an agent and didn’t feel the need for one.  After all, they could get all the information they needed online and the open house filled in the missing part about getting into the home.  They didn’t need a Realtor; a Realtor would just try to sell them something anyway.  Thus, the open house became more of a selling tool than it had for many years.

Fast forward to this wild housing market we have today.  I visited an open house on a new listing this past weekend.  You would have thought they were giving away the secrets of the universe or something because there were so many people in attendance.  And not just “Free Agents” but real estate agents with their clients.  Why?  It was a new listing.  The strategy being, put the new listing on the market on a Thursday or Friday and hold the open house on Saturday and Sunday so that come Sunday night the agent and the seller can navigate through the 10 or 15 offers to select one.  It’s not usually necessary to counter offer because in many cases, because the strongest offer is so strong you can just accept it.  It will be over asking.  It will allow the seller’s agent to select the services of his or her choosing.  It pretty much will give everything to the seller because in this market every buyer is raising their hands saying, “pick me, pick me,” like kids on a playground.  However, for the agent holding the open house, there are so many people through, it’s almost impossible to get names and leads from that open house today.  Lead generation and working with “Free Agents” has become and near impossibility.  To quote an agent I met on Saturday, “This is crazy.”

And so it is, with this market today.  Homes for sale are so scarce that a listing and the open house are the new, old way of doing business… and those “Free Agents?”  They better have a Realtor who knows the ropes because they will be left outside looking in if they think they can do it on their own.

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All’s Quiet On The Western Front

Posted on June 8, 2012 by Tim Freund

All’s quiet all right; quiet on the Western Front, Eastern Front and everywhere in between.  It’s so quiet in fact that most Realtors are quietly freaking out.  Typically at this time of year real estate activity slows a little do to Father’s Day and graduation.  But we are coming out of a spring season that has seen an unprecedented drop in inventory coupled with an increase in sales – yes they are related – and that combination has created an environment that almost defies explanation.  How is it most Realtors are asking, that suddenly everyone wants to buy (low rates maybe, perhaps an improving economy?), yet no one wants to sell?  As I blogged sometime back, this bodes well for builders who have the ability to create inventory, but that doesn’t help Realtors in areas where there is no new construction, like the Conejo Valley.

So what’s going on?  In looking at the numbers along the Los Angeles and Ventura County border, what stands out is that the inventory is even tighter than the raw numbers suggest.  Our local market inventory is 60% lower than 3 years ago and effectively lower still because 45% of that inventory is made up of homes priced over $1M.  Heck 10% of our inventory is in the exclusive community of Lake Sherwood!  However, only 7% of all homes under contract are priced over $1M.  In other words 93% of sales are under $1M but that inventory is only 55% of the listed homes for sale.  Thus our already negligible inventory is effectively halved because only the bottom half is selling.   Simply put, we have virtually no homes to sell, and those that we do, sell quickly, many with multiple offers.  In the case of the upper end, however, the homes are sitting.  The high end is still suffering a financing crisis where jumbo loans take 60 days to close and the rates are substantially higher than those available to conforming and high balance conforming borrowers and are much more difficult to qualify for.

What’s this mean?  Trouble for Realtors for one thing.  The dearth of homes to sell means we Realtors are scrambling.  My phone has never been so quiet.  It went from a booming spring to a quiet one seemingly overnight.  Buyers are frantic, trying to take advantage of low rates, but can’t find homes to buy.  I have been speculating that sellers were not selling for several reasons; lack of equity to make the move up; lack of inventory to move to and lack of equity to sell at all, being that the many sellers remain under water.  Yet none of this explains the silence of the phones.  For years now I have been meeting homeowners only to have them conclude they didn’t want to sell.  But at least they were calling.  I have had just one call for a listing in 2 months.  My lenders report their purchase pipeline is declining and we see that pending sales are declining month over month along with the inventory.  Clearly something has to give.

So what’s next?  Darn good question.  I have to assume at some point the phones will light up as we get into summer and sellers realize they have an opportunity to sell for a little more than in years past.  At present I estimate prices are up about 3% over the past few months here in the Conejo and by every measure some gradual appreciation should continue.  Appraisals however are constricting appreciation and remain a problem.  Appraisers look backwards to comparable sales data, but with prices rising, adjustments have to be made to account for a seemingly similar home selling for a little more than the one down the street.  It’s called a rising market, as contrasted with the discounted approach the lenders have been using for the past several years, called a “declining market.”  But change comes slowly and those adjustments are being frowned upon by the lenders and in some cases tossed out upon review.  I just had a deal fall apart over a 3% selling sales price increase over the comps because the appraiser didn’t make any rising market adjustment.  Therefore, the lender won’t lend on the shortage and the buyer was unwilling to come up with the additional money to bridge the difference and the seller unwilling to come down… Result?  deal dead.  As for the trend, it’s like Dylan sang, “The times they are a’changin’,” and ooo-baby are they ever.

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