The San Diego Home Blog

photo credit: spaceodissey

I believe I have set a record. It has been a full seven days since I have posted here, and somewhere around day four of my sabbatical I stopped worrying about it. Circumstances were simply beyond my control, and a blog post last week simply wasn’t in the cards.

My father had an uncanny knack for ignoring the things he couldn’t do anything about. I think it’s a guy thing, and I hated him for this. I, on the other hand, am an obsesser. I tend to take a trip to crazy town every time I sense I am not driving the bus.

Me, worry?

The truth is, I’m a worrier by nature. I worry when I am too busy, and I worry when business is slow. And when things seem to be chugging along according to the divine plan, I worry that I don’t have anything to worry about. Now, in fact, I am worrying that I just ended a sentence with a preposition.

I am seeing a lot of people like me in this market. This morning’s requisite Chicken Little article in the San Diego Union Tribune is one fine example. “Housing prices sink,” trumpets the headline. Sure, sales for July were up 10.5% in San Diego County from last year, but where’s the fun in that? Prices are down, so fortunately we still have something to worry about.

Nearly 41% of the sales, they report, involved foreclosure sales. This is bad. Or is it good?  We know that the mortgage mess has left us with a legacy of distress sales, and these distress sales will be with us for awhile. The fact that the foreclosed homes are selling in great numbers should be welcomed; our market won’t reverse course until we complete the cleansing process, and this is going to take some time and additional price decline. We can worry about this, or we can acknowledge it and move on.

The F-word

“Foreclosure” has become the new f-bomb. New foreclosure listings are still outpacing foreclosure sales, says the article, and we are reminded that this should be cause for concern. I will argue that it is what it is, and focusing on the nature of the sale is a lot of wasted fretting at this point. We will work through the distress sales in time; we will work through them because they are a symptom of an epidemic, an epidemic of irresponsible lending practices, which has been isolated and quarantined.

This is mainly because getting a home loan today is as simple as threading a needle wearing a ski mask. The lending pendulum has swung too far in the other direction, and obtaining financing leaves today’s buyer feeling a little like Michael Phelps but without the endorsements. There are plenty of people who want to buy in today’s market, at today’s prices, but for whom the door has been closed due to tighter underwriting standards. This is bad, and it is good. It is a matter of perspective.

If we weren’t so busy using the f-word, we would be acknowledging that traditional listings are also outpacing traditional sales. Our market is equal opportunity. Market times in the I-15 corridor are generally running 60 to 80 days, depending on the community. This is bad if you are a seller and only remember 2003. On the other hand, if you had the pleasure of listing a home for sale in the mid-’90s, life is not too shabby. And the same goes for prices.

Time to unwind and rewind

Perhaps agents, sellers, buyers, the whole lot, should maybe stop worrying so much. We can fight our circumstances and obsess about our little paradigm shift, or we can deal. If we take a step back, this market is not fundamentally different from any other. There are people who want to buy homes for the lowest possible price, people who want to sell homes for the highest possible price, and agents who want to make a living assisting them in the transaction.

What is different is that our circumstances are forcing us all to push the rewind button on our thinking. Being a real estate agent, for all but the exceptional few, has not historically involved out-earning a Hollywood A-lister. The past half-decade, a time during which anyone who could find their way to the testing center and successfully fill in the bubbles on a Scantron was guaranteed a six-figure income, was an anomaly. Homes have not historically been our singular investment vehicles. To our parents and grandparents, their homes represented security and shelter, not a mega-lotto ticket. The fact that many saw their “investments” double in three years was an exception, not the rule. And home buyers have traditionally had to work and save toward this end and demonstrate that they could ultimately afford the American Dream, rather than having the dream handed out as freely as potsticker samples at Costco.

I couldn’t blog last week because this week I am one daughter short. In a few short days, I saw my own paradigm shift in a very big way. We pushed a personal rewind button of sorts. Operation Dorm Delivery was a success, but while we have spent the past 18 years preparing for this day, nothing can entirely prepare you for the reality. Life, like the real estate market, is cyclical. Now I have less laundry, less arguing (”Clean your room, and release that headlock on your sister!), and a smaller grocery bill. And I have more time to blog.

It’s good, and it’s bad.

photo credit: TheTruthAboutMortgage.com

I vented about the joys of the short sale last week on Inman News. Yesterday, the San Diego Union Tribune published the story of an East County resident who lived the nightmare, not as an agent, but as a person simply trying to save his home. Sadly, he failed, and his story is so incredible, you can’t make this stuff up.

For those who are rusty on the concept of short sales, we talked about it here. From the CliffsNotes, short sales are sales in which the settlement charges (costs of sale including the pay-off of outstanding loans) will exceed the sale price of the home. Unfortunately, we aren’t seeing a light at the end of our short tunnel; these situations are going to be with us for awhile.

A year ago, we saw agents tending to avoid short sales like that gallon of expired milk. First, the whole idea of negotiating with a faceless lender was daunting; for so many of us who were doing other things during the last down market, the idea of navigating these waters was mysterious, the disclosures ominous, and the shear level of difficulty involved in meeting the paperwork requirements enormous.

Second, an agent takes on a potential short sale listing at great risk. There is no guarantee a lender will ultimately accept a short pay-off and, even if the odds are favorable, the entire exercise often becomes a game of Beat the Clock. As agents, we make the daily calls to the lender begging for action, calls during which we may speak to a half-dozen or more different people looking at different computer screens, each of whom will tell us we will be hearing something in “a week to ten days.” Each new day, we rinse and repeat, but we ultimately have no control over the pace at which they will consider and act on our client’s request. So, often, the weeks become months, the buyer loses interest, and we find ourselves in a position of having to start the process again. And sometimes, it is just too late.

Finally, while most of us have resigned ourselves to short sale listings, both because they are becoming so commonplace that they can’t be avoided and because we feel a social obligation to assist all sellers, even when it is not convenient, comfortable, or even lucrative, agents representing buyers today are running for the hills in greater numbers at the first sign of bank involvement. They are doing this for all of the reasons previously mentioned, and they are doing this because short sales do not pay handsomely. The listing contract can call for a 6% or a 16% commission, but if the bank’s approval after months of time and effort stipulates that I will make $1.95, that is what I will make. We have yet to see a short sale transaction of our own that didn’t involve an arbitrary, eleventh hour pay cut to the agents.

In Phoenix, it seems that even the listing agents are thinking twice about taking on short sale listings. Phoenix is a different market, however. While Jay Thompson cites a 90 to 95% failure rate for attempted short sales in his market, Steve and I are currently (and fortunately) batting a thousand.  But it hasn’t come without a lot of brain damage along the way.

Short sales are, at least for the foreseeable future, going to be a sad reality of our market. If you find yourself in the position of needing to sell short, recognize that the process is complex and potentially lengthy. There may be tax and credit consequences, so it is advisable to chat with a CPA or attorney at the first sign of trouble. Your second call should be to an agent who has some experience with these transactions and is prepared to stand by you throughout the process.

I got a little suspicous when I first posted this Altos chart showing the Market Action Index (less than 30 suggests a buyer’s market, duh) and weekly absorption (homes opening escrow) for Scripps Ranch. Specifically, this data shows Scripps Ranch detached homes going into escrow at a clip of approximately 8 to 10 per week, yet I know that we aren’t closing 40 homes a month.

My own experience tells me why we are seeing a discrepancy; more homes are failing to close once under contract or, as we more commonly say, falling out of escrow.

This morning I took a quick peek into the statistics, courtesy of the Sandicor Multiple Listing Service. I looked at both homes which successfully recorded in July and homes currently in escrow to see how many of these had experienced previous failed attempts.

On the one hand, I expected the data to be worse (more “fallout”). On the other hand, if you have found yourself in that smaller slice of the pie, it’s pretty bad. And, from purely the agent’s perspective, you can imagine how much we love doing everything twice. Again based on my experience, this is partially due to buyer cold feet in an uncertain market but mostly due to the difficulty in obtaining financing in a market where the rules of underwriting are changing as often as a new mother of twins. In recent times, up until about a year ago, failed sales were quite the unexpectedly anomaly. Today, it is important to remember that your home is not truly sold until the Fat Lady gets her County tax stamp.

It’s often called the elevator interview, but this one took place at the top of the escalator. Tomato, tomawto.

While at the Inman Real Estate Connect conference last week, I had the pleasure of meeting real estate agent Ian Watt. Not only is he first in the hearts of Vancouver residents, but we share a web site platform, so it was a thrill to talk to him about his business. Ian is carving out a fun niche with his video blog. His posts, shot using a Flip video camera, are typically accomplished while driving; he simply sits the camera on the dash and goes.

I love technology, of course, and am always on the look out for new applications lest I am rendered irrelevant by noon on Thursday, and while I have said here repeatedly that I know I must incorporate video to a larger extent in our marketing, Steve correctly pointed out that Ian’s driving method of production is not for me. I have visions of twelve car pile-ups and a lot of hand gestures coming my way from passing motorists suggesting I am “Number One,” if you know what I mean. Somehow, though, Ian pulls it off.

I borrowed this from Ian’s site. It is short and somewhat painful (painful in that Ian refused to provide pre-filming hair and make-up), but the man wanted to know about those wacky American value range pricing strategies, so what was I to do?

Thanks, Ian, and maybe this will inspire me to use one of the two Flip cameras on my desk collecting dust.

I’ll get back to the picture in a minute, but first I think Sunday evening is as good a time as any to make your eyes glaze over. My buds at Altos Research have rolled out a new offering which they have dubbed AltosXplorer.

I have been a subscriber for awhile to Altos’ listing market trend charts which serve as useful visual snapshots of listing trends down to the Zip code level. With Xplorer, subscribers now have more historical data at their fingertips and, for the blogger or web geek (or, even, novice), they are so “clickably” easy to import.

For my maiden voyage, I chose Carmel Valley (92130) and Scripps Ranch (92131). I often refer to these as sister communities since their demographics and housing stocks are so similar. The big difference, of course, is proximity to the Big Blue Wet Thing.

Note: All statistics are for homes currently offered for sale and represent 90-day rolling averages. Since data is collected weekly, certain statistics (such as “listings absorbed”) will reflect activity over a seven day period. As a refresher, the Market Action Index reflects listing versus sale activity, and an index of more than thirty is a “seller’s market” while less is favorable to the buyer.

 Finally, I ran a chart of new listing activity (again, calculated on a weekly basis) for the two communties just to show how comparison charts are a snap with AltosXplorer.

So, wasn’t that fun?

I will mess around more with my new empowerment next week. First, I have to kick it into full commando packing mode. Tomorrow I fly to San Francisco for the bi-annual Inman Real Estate Connect conference. This is turning into a repeat performance of last year’s. Last July I wrote:

So, this morning, I am off to the Inman technology conference in San Francisco. I am off in theory, at least. I haven’t exactly packed. Packing Plan A always involves meticulously planning out wardrobes, including appropriate accessories, neatly laying out the items the night before, and then, the morning of the flight, casually arranging the military-folded articles in the suitcase. I’m going with Plan B. Within the next hour, I will be shooting every item of clothing I own out of a cannon into an undersized carry-on and hoping for the best. Pity the poor, random power cord. If it simply looks like it might fit into one end of a camera, video recorder, voice recorder, iPod, or laptop, it’s coming along for the ride. I will have enough electronics and peripherals to inspire the Port Commission to beef up staffing at the security check point, and I can all but guarantee that at least half that make the journey with me were designed to power the VCR I sold at a garage sale in 1993.

Yep, that’s me. Both the washing machine and the dryer are on Turbo setting. They are largely filled with items of clothing I have not worn since Madonna’s “Like a Virgin” tour, yet suddenly I feel the need to take these up north. I was closer to being packed and ready for this trip in 1984 than I am tonight. Every client I have every known or imagined has suddenly come out of hiding wanting to list or buy or appeal their property taxes, and every agent in San Diego County (agents presumably not trying to pair shoes and slacks, much less power cords with parent devices) has decided that today is the day their clients will make an offer on one of our seller’s homes.

This is all great, make no mistake, and very manageable (see Power Cord discussion above), yet I am living in a cauldren of multi-tasking mania. One daughter thinks she is going off to college in three weeks, and this involves not only wardrobe mobilization and dorm accessorizing foresight, but the uncanny ability to set up her college checking account at a bank least likely to fail by Thanksgiving break. Another just got her driver’s license, and I am feeling the social responsibility to post her departure times in the event that others in Scripps Ranch might be considering an outing that would coincide.

So, in times of multi-tasking, overload crisis I do what any sane adult would do. I decide that today is the day to add Facebook friends. You see, I am on a panel at Inman entitled “Get Social or Die.” I woke up with three Facebook friends, and I am proud to say that, between two offers, one listing appointment and numerous phone calls,  I now have eight. Granted, their median age is fifteen, but it’s a start. OK, I’m dead.

So, Inman may have missed on this one, but at least they had the foresight to include me in another panel, “Creating Content that Hooks Readers.” Don’t worry; they aren’t allowing me to actually speak on this topic; I am only a moderator.

As for the thumbnail photo, that is a shot my Price Is Right-winning daughter snapped on the plane on our way to New Orleans. And, it captures the essence of how I travel. I will arrive in San Francisco fully briefed on the comings and goings of the Hollywood A-list, but with one shoe, a black blazer and brown skirt, and three earrings (among which, a pair can not be found), and absolutely no preconceived notion of what I am going to speak about or how, exactly, I might moderate anything other than my incoming text messages.

On the lighter side of things, I am able to leave you with a clearer picture of where our San Diego real estate market stands. And, I will be accepting new Facebook friends throughout the week — eight going on ten. There is no stopping me now!

photo credit: neuruppin

I promised Commenter Stephanie a new post responding to questions she had on dual agency. To Stephanie: The post is in the hopper, and I promise to finish it up this week. I kept getting stuck; I couldn’t quite squeeze my Big Thinking hat over my head. That’s because I need to see James.

Today is the big day. I have the much anticipated appointment with a man who, every sixty days or so, I find myself placing my complete faith and trust in, a man I barely know. It is James’ job to periodically restore the spaghetti bowl on my head to its former glory. This is risky business, the color and cut process. It is risky because too many years of the beautification ritual have resulted in a natural hair color that is anyone’s guess. One might make the mistake of letting my roots dictate the color palate, but my roots are a fickle thing as I get older. They’re blond, they’re brown, no wait! Next week, I won’t be surprised if my hair starts growing in green.

More importantly, my sort-of regular appointment with James is a turkey shoot at best. He is extremely inconsistent. I often make the mistake of assuming he can just follow the lines, since we set a bench mark six weeks ago. “Just a trim,” I say, yet the girl who walked in a little shaggy is shuttled to the exit doors three hours later looking like she had spent the morning standing too close to a weed whacker. Then on other days, the clouds part, the angels sing, and the result is that I leave looking kind of good “for my age.”

I should know better. Any woman out there knows that setting an appointment with a good hair stylist is a lot like booking Bono for a goodwill tour. They both are in huge demand. Not so James. “I need to schedule some time with James,” I announce. “How soon can you get here? Now? In an hour? Tomorrow? Would you like to come today and on Tuesday? He’s available!” This is not a good sign.

The Real Estate Market in Inconsistent

Much like a date with James, you never really know what is going to happen on any given day. One minute, our buyers or sellers are in multiple counter offer situations and the next we see a listing, by all accounts properly priced, languishing for months. One day, buyers are out in force, and all seems right with the world while the next finds us sitting an open house you can shoot a cannon through without hitting a live body.

We continue to get calls and e-mails from people wanting to buy a foreclosure — or a short sale. We ask what type of home they are looking for. “A foreclosure — or a short sale,” they say. We rephrase the question. Bedrooms? Location? Price? “A foreclosure — or a short sale.”  Translated, they want a deal.

Who doesn’t? The San Diego Union, quoting Brian Yui, CEO of HouseRebate.com, reported this morning that “17 percent of home sales countywide that closed in the 30 days ending June 26 were ’overbid,’ meaning that they sold for more than the original asking price” and that most overbidding is happening on bank-owned listings under $500,000. Now, I can’t confirm this number, but I can tell you from our own experiences that I don’t doubt it for a minute.

The flip side is that we get as many calls from people insisting that they do not want to look at short sales or bank-owned homes, because they are not in the mood for the time commitment and uncertainty that is part and parcel of the deal-seeking distress sale magnet. I can’t argue with them.

We are seeing banks consistently price their homes below market, presumably below the Broker Price Opinions (BPOs), in order to both move the properties quickly and at a higher price than they would have had they priced them at “value.” It is a strategy that is working, working for the banks by not necessarily for the deal-seeking buyer.

A loan originator recently gave us this sound bite, “You can get a great deal on a crummy house, an average deal on an average house, and a crummy deal on a great house.” I find this true with one caveat; you can get a good, not a great deal, on a crummy house. I have spoken ad naseum about the two markets we have running in tandem. The vast majority of buyers today either want falling-down ugly, the house you can’t bark loudly enough at, or they want the picture of perfection. In either case, the extreme is going to cost you, because today you are competing with many others chasing the very same thing — the outlyers.

Demand will always drive price, and when the demand is mostly in the price camp (those determined to buy at a price that will impress the friends and family), be prepared to compete for (and lose a few) of these holy grails. If there is a smoking deal out there, hundreds like you are going to be attracted to it, and suddenly the smoking deal becomes a only a good deal — for one lucky winner. In the meantime, there are perhaps a dozen more people who will leave empty handed.

The Law of Scarcity

The Law of Scarcity is about percerption. Perceived value increases as availability diminishes. One can argue that this value is artificial.

Like a date with Jose Ebert (you guys won’t get it, but the women will), the conventional wisdom is that the short-sale or foreclosure home is a trophy. They have read the hype, and they want the bragging rights; they want one of those in large part because so, too, does everyone else. Perhaps I should be more worried that James is a little too available, much like today’s buyers tend to worry that absent a competitive situation, they are buying into something that is of inferior value. But, I am here to tell you that I once had a Jose Ebert do. It took far too long, and the results were hideous, no better than Haircuts-Backward-R-Us. Or James on a bad day.

So now, if I want a haircut in my lifetime, I book James. I generally get a good results at a good price without a lot of brain damage. In fact, I can get several haircuts during the time others are waiting on a single, trendy opportunity. If you really want a home, and not just a trophy, avoiding distress sales might be the way to go. You will find that there really are many good deals out there on some very good homes.

Even in Scripps Ranch where, relatively speaking, we have been somewhat resilient to the foreclosure and short sale mess, we are starting to be fed a bigger slice of the distress sale pie.

I get asked the question almost daily. How much impact do distress sales have on the market? We are talking, of course, about sales where the bank is controlling the outcome — either because they are in the position of approving a short sale or because they are now the owner outright. The answer is “a lot.” Now that we are seeing a measurable slice of our activity falling into the “subject to lender approval” category, these offerings are putting very real pricing pressure on the traditional sale offerings. And, once they sell, make no mistake; they become a very real “comp.”

Here is how the date breaks down. These numbers were pulled from the Sandicor MLS this morning and is for the 92131 Zip code. Keep in mind that the percentage of distressed properties shown are understated at best, since I relied on the listing agent having checked the box indicating affirmatively that the home is subject to lender approval. As we have discussed before, not every agent accurately reflects that a home is bank-controlled, and not every short-sale starts out that way.