June 2007

Vulture: 1. Bird of Prey found in Africa, Eurasia, and the Americas. It has dark plumage and broad wings and feeds on carrion. 2. Predator - somebody who waits or looks eagerly for opportunities to take advantage of somebody else, especially somebody weak or helpless.

In either definition it appears they are starting to circle. They, being a certain segment of the current buyer population who are seeking the Holy Grail, defined in this case as a property, any property, that can be had for 10-20% or more below current market value. This after the market value for many of these properties has already fallen 5-15% over the past two years.

A recent conversation with one of my “investor” clients who I have been spending too much time with over the past year went something like this:

Client: “Find me a property that’s 10-20% below market!”
Me: “Again?”

Been there, done that! Several times, already. They didn’t bite on any of the five or ten they could have had. Whatever I find for them is not good enough. It’s not enough to maim the seller. They want to pour salt in the wounds and hear them scream before the burial.

This same client also asked me to evaluate all of the 120+ homes that recently went to a well-publicized auction here in San Diego and pick five for them to see. No problem! I have a little free time on my hands this afternoon. In case I wasn’t already eagerly on board, they reminded me that I stood to make 1% by representing?them at the auction. Hopefully, I might be able to squeeze in a little trip to the BMW dealer on my way.

You may remember this auction as it was well documented in the San Diego Union. The most memorable comments from attendee’s of the auction were along the lines of, “I got caught up in all the hype and I think I paid too much!” or “There were one or two good deals, but for the most part the homes sold for too much”. I suggested that what they were asking of me was a bit overwhelming, and warned them that it’s really a place for the pros who do it for a living. Bottom line: They attended the auction alone, they didn’t bite (again), and I didn’t waste more of my time evaluating 120 properties that I knew they wouldn’t buy.

The message? It’s tough to find the bottom; the bottom of the market, that is. But that’s what some are trying for. No, they are not just trying for the bottom, but below the bottom of the market. And we aren’t talking about pure investors here - These are folks looking for a property for personal enjoyment.

Actually, my clients are nice people, but they have succumbed to a trait that is ordinarily not in their nature - greed. The Vultures are out in force now, but few will succeed. I have seen it. Their common sense is too blurred by the frenzy of the possibility of a kill, so much so that they miss many great meals, seeking the five-course Holy Grail.

Speaking of… You may remember the Black Night in the classic movie Monty Python & the Holy Grail. That’s the dude who gets his arm cut off by Arthur, then another, then both legs. What remains of his torso is sitting on the ground. Arthur (read “Buyer”) says something along the lines of, “You can’t hurt me. You’ve no arms or legs.”, whereupon the Black Knight, now only a torso with a head says, “It’s just a flesh wound. I’ll bite you to death!” That’s the seller, hanging tough.

They try to beat up the seller. Lots of brain damage to the?buyer and the agent(s) and, usually, nothing to show for it. Firing blanks is not a career I want to be in nor does it do any favors for my clients, unless they just want to spend an extraordinary amount of time with me. Kris can attest to the fact that one might be considered “lacking capacity” for wanting that.

Don’t get me wrong. Kris and I have had great success on behalf of our buyer clients over the past two years. We love a great deal and work hard to get it. But at some point, reality has to kick in if you want a chance for success. Fortunately, most buyers recognize a decent deal when they see one, hence the tens of thousands of successful transactions in San Diego over the past two years. No, it’s not a perfect market as is obvious by the short sales and foreclosures we now see, but they are a relatively small number when compared with the total and in my opinion will be filtered through the system in the next 12-16 months.

Vultures have a place in this world and in this market, but a small, very small one. Try being a predator and you might find yourself searching for, but never finding, the Holy Grail. It could be a long time without a satisfying meal.

The conversation that occurs most frequently in my daily travels goes something like this:

“How’s the real estate market?”
“Great!”
“Really?” (Raised eyebrow) 

Yes, really. People have become conditioned to expect my answer to be something entirely different, conditioned by the media, and conditioned by the neighbors. The real estate market in Scripps Ranch has in fact changed, as it has on a national level. Different, however, does not necessarily mean good or bad, it just means “not the same”.

Memories fade with time. Here are some numbers for detached home listings and sales in Scripps Ranch, courtesy of the Sandicor MLS:

April 29, 2004:
Active listings = 10, Average market time = 18 days
Sold homes (previous 30 days) = 15, Average market time = 23 days

May 10, 2004:
Active listings = 28, Average market time = 13 days
Sold homes (previous 30 days) = 27, Average market time = 15 days

Today:
Active listings = 95, Average market time = 50 days
Sold homes (previous 30 days) = 28, Average market time = 45 days

To a buyer in 2004, the market was anything but “great”, yet we tend to reflect back on these times with longing. I have spoken with too many people this year who admit that they, regrettably, employed the shotgun approach to purchasing their home. The house was anything but perfect, they say, and they paid too much, they say, but it was a house, and they “won”. These were the good ol’ days when the sign installer had to wear a Flak Jacket and protective head gear to avoid permanent injury when the inevitable stampede of hungry buyers arrived. I suspect some buyers resorted to following the sign truck around hoping to head him off at the door with their over-full price offer at the first sign of brake lights.

To a seller, these were the good ol’ days - Except, once the dust settled, the crowd cleared and the multiple-offer “high” wore off, most sellers became buyers, which wasn’t so much fun as it was pay back. Assuming that the majority of sellers are also buyers (a valid assumption), all things are relative, and I suggest that our current market is relatively more sane. Buy high/sell high or buy low/sell low, take longer to sell/have longer to contemplate and negotiate a purchase, half-full or half-empty; it’s really a matter of perspective.

Today, we have just short of 100 active listings in 92131, this out of approximately 8,000 real, permitted, inhabited single-family detached homes. Statistically speaking, few will argue that this represents a glut of housing inventory. Market times are holding steady at fewer than two months on average. Unless your history book only goes back five years, this can certainly not be construed as an inordinately long time.

I hear it almost daily, and I even have to check myself on occassion lest I lose perspective. “My home has been on the market for 12 days, and I have no offers. What’s wrong?”, or, “My listing was shown 8 times over the weekend, and we received no offers. What’s wrong?”

“What’s wrong” may be price, it may be condition or location, or it just may be that our expectations of instant gratification are unrealistic in a “normal” market. Our buyer pool has diminished, this much is certain. Over-leveraging, unaffordability and move-up needs having been satisfied during the crazy days are all contributing factors. Yet, I remember the wacky good ol’ days of the mid-nineties when I couldn’t give my own house away. In 1994, if you had two showings a week and sale within the initial six-month listing term, you were rocking the house. Sell it then for more than you paid in the late ’80’s, and you were assured bragging rights and the undying envy of all at the neighborhood block parties for the next decade.

Unfortunately, we see many people who are victims of timing. To those who purchased within the past two years and must move now, the real estate market doesn’t seem so swell. To those who purchased during our last down-market and have enjoyed the successes of timing, it could go either way. If the increased equity is now sitting in the driveway in the form of new luxury cars or has otherwise and for whatever reason been cashed out, the market seems pretty crummy. To others who let it ride, life is good, if at least on paper. For the most part, the wealth generated for many was an unexpected gift, yet one which too many have come to expect - over and over again.

So, yesterday is gone, and today is here. What is normal today? If your home attracts a half-dozen to a dozen showings a week, you are having a good week. If your home sells in one to two months, you are in good company on the bell curve. And, by the way, while we continue to be reminded minute by minute, by the media and by the neighbors, that our market has been undergoing a correction, prices are still at or near all-time highs in our region. Prices have retreated (by approximately 6 to 10%, depending on the statistics used), yet home values approximately doubled in Scripps Ranch over the four to five year period prior.

The Scripps Ranch real estate market is just great, thank you, and just different.

Advertising that awes!

A public service for those planning on spending the weekend looking for that charming place to call home:

If this agent photo (straight from our MLS to you) doesn’t inspire, maybe another angle will speak to you:

Now you’re talking! I can’t share the interior photos, because there aren’t any. The agent probably couldn’t get a good angle or the right lighting from his car while passing at 30 miles per hour.

If these photos don’t move you, this ad might:

Locals know “Old Scripps” refers to a particular area of our community but , to an ad-scanner, the emphasis on “OLD” may leave the wrong impression. (Remember, old in San Diego does not conjure images of historic and classic architectural detailng. The ’70’s weren’t our proudest design-and-build years).

Finally, name calling will get you nowhere.

Communicating effectively can be a powerful tool. We should do it more often.