In Housing (as in all things) the free market works
Posted on April 6, 2008
Filed Under Happy Valley, Statistics, Buying Real Estate, Real Estate | 12 Comments
George Will is always good, this morning particularly so because it’s particularly pertinent, and should give a little more definition as to where I stand on government intervention. It’s worth reading in its entirety, but key:
The market, which bewilders and annoys liberals by correcting excesses without the supervision of liberals, is doing that as housing prices fall far enough to stimulate demand. Witness this recent Financial Times headline:
“Property sales pick up as prices plummet.”
The story began: “Sales of previously owned homes in the U.S. rose for the first time in seven months in February, while sale prices fell by their most in at least 40 years.” By golly, the Gershwins were right: The age of miracles hasn’t passed.
We can look to Happy Valley, our favorite comparative, as a mini example: As noted before, YoY median dropped 21% in February, 5% in March. So while homes going under contract in the greater Portland area - where median has remained in the black - dropped in March by 30%, in Happy Valley YoY was exactly the same.
That’s not to say one month signifies a trend, nor does it in any way indicate it’s going to take a 21% drop in PDX for sales to tick up (it won’t).
It does say the market works.
The Lighter Side of Serious: What’s wrong with this picture?
Posted on April 5, 2008
Filed Under Portland, Diversion, Selling Real Estate, Buying Real Estate, Real Estate, Marketing, General | 1 Comment
All pulled from the MLS today:
Offered at $385,000: One Fire Hydrant!
Window coverings negotiable!
Wonderful use of color!
Yes! The world really is flat!
===
[If anyone would like to preview any of these properties, please let me know…]
March PDX Real Estate Numbers; First Look
Posted on April 3, 2008
Filed Under Portland, bubbles, Statistics, Selling Real Estate, Buying Real Estate, Real Estate | 5 Comments
As I said in an earlier comment: Not pretty, not dire, about where it’s been since last August.
This is for all residential property categories in the greater Portland area, the same area covered in data released by RMLS in a couple weeks. Note these numbers will change somewhat; books are still being updated.
MEDIAN PRICE
[As always, click for a two page PDF]
Up YoY about 1.5%, likely the lede in the Ryan Frank piece published in a couple weeks, the story line that we’re still in the black.
But the only good news I see in it is that bubbleheads, absent the desired price tank, will have to spend another month agonizing with a “Well, next month for sure!” In fact it means that first time buyers are struggling to enter the market, and investors for the most part are still watching from the sidelines. But trumpeted as good news, it will have the undesired effect of keeping sellers who should be dropping price from doing so.
The corollary, of course, is that the bestnews this market could use is a 5% drop in median, which will probably be accompanied by a slight uptick in pending sales. But, like the Case/Shiller drop of a couple weeks ago, it will make for front page above the fold hysteria.
PENDING (Under Contract) UNITS
I’ve used pending sales - as opposed to actual solds - because it’s more contemporaneous in two ways: ‘Sold’ reflects the market as it existed 30 to 60 days prior; and numbers for ‘Sold’ properties will continue to be posted for another week.
Down YoY about 30%. ‘Solds’ will end up down about 35%.
INVENTORY - For Sale - and ABSORPTION
Just a two-year iteration of what seems like a declining trend. People who don’t have to sell, aren’t. (FS includes all properties for sale at least one day in the given time period.)
Another picture of essentially the same dynamic.
MONTHS’ SUPPLY of INVENTORY
Based on pending sales, 7.6 months. RMLS - based on closed sales - will come in around 8.5 months.
As always, this: The buying and selling of real estate comes down to the individual home on the individual block in the individual neighborhood in the individual district in the individual town in the individual MSA.
AREIL.
In praise of Terradatum
Posted on April 2, 2008
Filed Under Excellence, Portland, Statistics, Real Estate, General | 4 Comments
A good company is defined by three things, each of which reinforces the others: the quality of the product or service provided; the quality of people it employs; and how well and quickly it follows through on fixing problems. Standard seems to be that the rep or support person - or even president - tells you what you want to hear, then hangs up the phone or goes back to his own office, finishes his chicken salad sandwich and forgets the conversation ever happened.
Terradatum is an excellent company. They have a product that manipulates esoteric data into understandable and valuable segments - especially now with the six month search algorithm - have a support rep who took a concern seriously, and, with the help of tech, turned it around and fixed it within 48 hours. [Thank you, Rita!]
Here’s the chart as it should have looked a few days ago, with one week added:
Note, again, that, while not quite as dramatic, the last three reporting periods are down. As I said in an earlier comment, March shows new listings down slightly, expirations up considerably; so even though pending sales are down again nearly 30%, aggregate inventory is actually sliding somewhat, unusual in the spring.
I’ll post March numbers tomorrow.
Again: Thank you, Terradatum.
UPDATE: I really should have added this: Informed skepticism - the genesis of my own doubt - is always appreciated.
More on Portland Housing Supply …
Posted on March 28, 2008
Filed Under Portland, Statistics, Buying Real Estate, Real Estate, General | 12 Comments
Terradatum has just added a new search algorithm that gives a condensed and more up to date view of a given market: Six months, broken into weekly and twelve week increments. It came out yesterday so I haven’t had time to go over it in depth, but one chart stands out. This chart (click for PDF) verifies that inventory is beginning to shrink:
This shows the total properties for sale for even one day in any given week; the following week adds new listings and subtracts expired listings and listings gone under contract…
UPDATE: Finally getting an hour to look closely at the numbers, I’m going to side (for the time being) with the skeptics, and apologies for posting before I was convinced. Nothing is more important than accuracy, and while the trends comport - inventory reached its peak last September, residual inventory has been dropping since; new listings are down YoY in March and expireds are up - the numbers don’t make sense: There are currently 15,200+ active listings. I’ve had a call into Terradatum since Friday; will follow up when I hear back.
UPDATED UPDATE: Whatever Terradatum did in their upgrade, in cross referencing RMLS numbers it’s thrown most of the data points off by up to 30%. The month end stats - which were posted yesterday - are off as badly as the six month stats. I’ve talked to customer support and sent documentation, but typically CS is a filter for the techs, who tend to think automatically that we just don’t understand what we’re seeing.
I hope they correct it; it’s been a terrific tool.
UG’s Primer, Part 1: UGB, restricted growth, and the effect of supply on real estate prices
Posted on March 27, 2008
Filed Under Mortgage, bubbles, Portland, Statistics, Real Estate, Builders, General | 9 Comments
My last year at Nordstrom was 1979. I was the divisional men’s shoe merchandiser for the six Oregon stores, and the national economy was that of Jimmy Carter: High inflation (12%), high interest rates (prime 12.25%); malaise. Not in spite of that, but because of that we had a record year: 27% increase in sales, 37% increase in gross profit, an obscene 48% gross margin. It wasn’t difficult: it required buying more of what the customers wanted, less of what they didn’t. Then add these dynamics:
- Availability of capital: With people making fewer high end purchases - cars or homes - there was more disposable income for $50 shoes.
- Market inertia: The psychology of buying. With inflation on the front page every day, and with the prices of shoes going up accordingly, it became a frenzy: buy now or pay more later.
- The pulling effect of pricing and supply: While we held to a strict maximum markup and were hyper-competitive on price, if an initial 100 pair run bought @ $10 sold twenty pair, and when we went to reorder the wholesale price had risen to $11, all inventory was repriced accordingly. That’s how, counter intuitively, the supply can go up and the price rise simultaneously. New inventory pulls up the price of all inventory.
===
Dealing with the latter first:
The housing supply has three sources: Resales, new construction and foreclosures (REOs).
- Resales: The time it takes a seller to decide to list and to get a home on the market can be anywhere from two to six weeks. Any time in that period - and anytime after the marketing starts prior to a sales agreement - the seller can decide to pull the listing, for whatever reason. After a surge in listings last year - sellers hoping to sell before the market dropped - and a YoY bump in January and February this year, listings are down in March (4000 MTD compared to 5400 LY). Only those with no other option are staying on the market.
- New construction: Builders don’t share the same luxuries. The pipeline is at least a year, often longer depending on the necessary site prep. And once on the market, it stays on the market until sold (rentals in Bend the exception). Note building costs determine the price, not market comps; but once they hit the market that price pulls up the price of resales. As long as there’s available capital and frenzied (I’d better buy now!!) demand, untempered new construction can drive prices through the roof, as it did in Las Vegas (over 50% one quarter) and Phoenix (40%).
- Foreclosures: Bank owned properties have the exact opposite effect of new construction. Banks have no emotional attachment, and just want to unload…quickly. Prices come down and - as in California - if REOs are a significant percentage of new supply, will pull the rest of the market down as well.
What that has meant - and means - to Portland
Because of restrictions on growth, Portland has not had the flood of new construction - condos excepted - seen in other parts of the country. Price spikes, then, were kept comparatively low. We can look to our own micro-market - Happy Valley - as an example: Building was so uncontrollably rampant that we needed to add a new zip code in mid 2006; at one point prices jumped over 35%; now 42% of the active listings are new construction, and there’s an 11.1 month supply. Prices plummeted 21% (YoY) in February.
Compare that to N, NE and SE Portland, where building was limited: increases peaked at 15.9%, 22% of active listings are new; deduct condos and it’s 11%. There’s a 5.8 month supply, and prices increased 1% YoY in February.
In part because of the restriction of supply, Portland didn’t have the same pressure to fund peaks with novelty loans. At one point of the frenzy over 60% of new mortgages in California were interest only ARMs, devastating in a depreciating market. California has over 57,000 distressed properties; Oregon somewhat over 1400. We will see adjustment, just not to the degree; I think in the 5% to 10% range.
All said, let me repeat: Median price, in and of itself, is a poor predictor of a market’s health. It gauges mix, so when the subprime crisis hit and the lower end was priced out of the market, the higher end sold and median stayed artificially high. Now that foreclosures are hitting and selling (and bringing back investors), the decreases are artificially low. [I’d love to see a 10% correction and an uptick in sales.] Case/Shiller, though better, has its own limitations: because it calculates homes that have sold twice, it eliminates new construction completely.
Next, availability of capital and market inertia…
Match Day: May we have the envelope, please?
Posted on March 20, 2008
Filed Under Diversion, General | Leave a Comment
Would YOU buy an appendectomy from this woman?
===
The process starts at the beginning of the fourth year for med school students everywhere. Disciplines are chosen - Anesthesiologist? Pediatrics? Surgery? - and applications for residency made to those programs around the country that fit the criteria. There are acceptances and rejections, the acceptances then lined up for interviews. Students fly all over the country Nov - Jan meeting the physicians and residents involved, each evaluating the other. At the end of the interview process, students make a priority list of those programs in which they’d like to participate, in order of preference; progams make a priority list of those students they’d like on staff.
Then they put it in a computer for a Match, matches to be announced this year on, well, March 20.
So. Kelly picked general surgery. She found out two days ago that, yes, she’s matched. There are nine programs on her list.
As I type this, she and every other fourth year med student in the United States is gathering in a room, each with his or her own class, and being handed an envelope. At exactly 9:00 - noon EDT - those envelopes are opened and everyone will find out where they’ll be spending the next four to eight years of their lives.
And we think there’s pressure in real estate…
UPDATE: LSU Med Center, New Orleans. Kelly’s thrilled, her dad’s thrilled, LSU’s thrilled. When I talked to her a little after nine there was absolute pandemonium in the background, so a warning: Every fourth year medical student in the US had today off.
[Damn, I love my kids…]
Bubble Bloggers, Naysayer and Animal Rights Nuts
Posted on March 19, 2008
Filed Under bubbles, Relationships, Portland, blogging, Real Estate | 60 Comments
A comment on this post, from the perfectly named Naysayer:
I love how you real estate people and the homedebtors try to blackmail the rest of us with your ominous threats about how the return to sane housing prices will be bad for all of us. Bullpucky.
Let it crash. Let it crash HARD. The dotcom bubble burst didn’t hurt everyone and this one won’t either. Well, no one except stupid people who bought overpriced dwellings and the real estate industry that reaped the benefits. A return to sane pricing is the very least of our problems. More pressing is the damage done by the lending practices of the financial industry. Propping up prices won’t alleviate that one bit.
You people have only yourselves to blame. Save the warnings. We’re past that.
Charming.
But, again, Naysayer, thanks for accepting the invitation. I have a point I want to make and want to make only once, but I didn’t want to make it on Ron’s site; he’s much, much nicer than I am. This fits. Perfectly.
I’ve been through this before. In the early nineties I was involved in - and even moderated for about thirty six hours - an animal rights newsgroup. I had a friend who was in medical research, and my wife was involved with the AKC and the breeding of dogs; both were targets of these nuts, and the Animal Liberation Front - originality is not the strong point of sociopaths - was busy burning mink farms and research labs in order to prove a point.
Profiles emerged almost immediately:
- The AR devotees - note this is the rat is a pig is a dog is a boy club - were for nothing; they defined themselves by what they were against. They didn’t love animals, they hated humanity. Still do, for all I know.
- As you might expect, intellect wasn’t a dominant trait, but even those who should have known better - one even had a law degree and a PHD in philosophy - lacked any measure of discernment; logical flow simply wasn’t part of their arsenal. That was, well, logical: When you begin with a conclusion, as they had, and try to work backward for proof, logic gets in the way. They were forced to resort to non sequiturs, begged questions and, most popular, ad hominem to make a point, and almost all thought they were infinitely more clever than they actually were.
- Most, of course, cowered behind anonymity. It was there that it first came to my attention that those not willing to put their name to an idea likely didn’t have an idea worth hearing.
- Perhaps most importantly: in their zeal for a world of utopian parity, they confused lifting themselves up with bringing others down. As long as they could damage their perceived nemeses, it didn’t matter if it scorched the animals they were pretending to champion or, ultimately, even themselves. Destroy, destroy, destroy, destroy.
Are you getting the point, Naysayer? Even your handle fits the profile. The biggest difference between you and me is I want people to succeed; I value excellence and the rewards that come attached to it. You are invested in failure: you want more foreclosures, you want the economy to tank, you want more people to suffer, so you can accommodate your poorly sourced narcissism.
I want the very best for my clients, and work to get them the very best information possible so they can make informed decisions. That’s why I tell them to stay away from the crap that NAR puts out, but even more emphatically tell them to stay away from the crap put out by bubble blogs. Both have agendas, but you have the added disadvantage of not knowing what you’re talking about. You know nothing about the business of real estate, nothing about the decision dynamics that go into buying and selling, nothing about market forces. [‘Propping up prices’? What the hell does that mean?] You don’t want people to have good information, you want people to only have your information; your whole paradigm is wrapped up in the decidedly fatuous “If people buy now, they’re stupid”.
I’ve spent the better part of the last two months trying to find ways for a couple not to put their home on the market, including working with their lender and getting them into HUD counseling. I have nothing but contempt for anyone who’s delighted by their angst. [Let it crash. Let it crash HARD.]
We’re in a tough market, a fact I’ve never tried to hide. While it’s not going to crash nearly as hard as you hope, we’re going to be in it for at least another six months, possibly much longer.
But it is what it is. I’m going to do everything I can to help those who need my services to see their way through it.
What, exactly, are you going to do?
Bubblers and Ripples
Posted on March 10, 2008
Filed Under Portland, Selling Real Estate, Buying Real Estate, Real Estate, General | 3 Comments
USA Today has a story today re a connection between the decline in housing and the decline in electronics sales. As most things that show correlation without showing causation, it’s interesting but not much more. It does, however, dovetail nicely with a post I’ve considered writing to those numbered and universally nameless souls who’ve been predicting a Portland downturn for awhile now, and are gleeful that they’re finally right: Beware of that for which you wish; this affects everyone.
The following are estimates, but informed ones. It’s based on February, 2007 residential sales as compared to February, 2008, for just the Portland Metro Area. In Feb 2008 there was a decline of 706 units and $212 million. From those numbers:
In brokerage fees alone (@5%) you can deduct $10.6 million from the economy. Note that amount goes to brokerages, from which agents are paid, as well as the normal costs of doing business: support staff, equipment, leases, etc. Someone, somewhere, lost out on the sale of a new laser printer; and some facilitator and receptionist, somewhere, lost their jobs.
If last week’s numbers are correct, and owners average 48% equity in their homes, that means about $101.8 million won’t go to, mostly, new homes. Since that’s already figured in to the sales decline, more important is the amount taken out of the sale that doesn’t go to the down payment, perhaps to a plasma TV or home upgrades. Let’s say the average is 5% (I suspect it’s considerably more): that’s another $5.1 million.
Mortgage brokers - those that are left - for the most part don’t have the high commission products, so let’s assume 1% on average. If 75% is the average LTV, that comes to another $1.6 million.
Title and escrow companies: about $2.1 million.
Inspectors: $.3 million. Appraisers: $.4 million.
Note I haven’t calculated movers or contractors hired to complete inspection items. Even so, that’s $20.1 million that was in the Portland economy in February a year ago, but wasn’t there in 2008. One month.
That will buy a lot of cell phones…
Paul Potts: Horatio Alger in the Twenty-First Century
Posted on March 8, 2008
Filed Under Diversion, Excellence, General | 5 Comments
I’m a sucker for excellence, so that’s the theme of this Saturday morning diversion.
I caught the tail end of an interview on FOX news with an opera singer who’d apparently won the Britain’s Got Talent competition, the precursor to American Idol. I love opera, couldn’t imagine its appearance on AI, and the interview was of the “Aw, shucks, I can’t believe this is happening to me” genre, except it was genuine humility, not the Hollywood fabricated kind.
So I did some YouTubing. I found Paul Potts is his name, and found a video of his initial audition. It’s been viewed over 22 million times, so this isn’t exactly the first time it’s been posted. There is, however, a reason it’s been viewed 22 million times. Enjoy.
He ended up winning the competition, signed a multi-million dollar recording contract - his first CD has sold over 3 million copies - is on a tour of 13 countries and is now going to have a movie produced of his life.
I’ll leave it to each to decide how this relates to real estate…
« go back — keep looking »
