Market Trends

Mismanagement, corruption, greed, irresponsibility, stupidity and ignorance. Pick one, or pick them all. It tends to make us feel better when we have someone to blame. It’s even fun to point fingers when you see suffering, as long as you aren’t the victim, because I suppose this reminds us that we were better and smarter.

“Bailout?” you might be thinking. “Hah! Why would I want to spend my tax dollars bailing out Wall Street millionaires, large banking institutions run be rich executives, or even all of those foolish home buyers who lied on their stated income loan applications or bit off more than they could chew? I was better and smarter. I saved and invested responsibly. I didn’t refinance my home to take lavish vacations or buy other homes I couldn’t afford. This isn’t my problem.”

Except it is.

When I was a child, my brother and I would fight. Mostly, he would fight, and being seven years older, I would get punished. Boys will be boys. He’s just a kid. He doesn’t know any better.

I’m feeling a little like that today, as I am sure many of you are. Whether you misbehaved or you were the model citizen, we are all in trouble. Whether you have (had) your child’s college tuition invested in stock accounts or you need to make your weekly run on the grocery store, whether you need to sell your home or you were hoping to buy your first home with the 10% down payment you have been struggling to save and which is no longer enough, this has not been a very good week. And next week may not
be much better.

It may not be your fault, but the economic crisis has definitely become your problem, and your neighbor’s and mine. How we got here is not our biggest fish to fry this morning, and doing nothing will change nothing. There will be a time to stand on principle, but now is not the time. We can go back to blaming people tomorrow.

photo credit: jonasj

I don’t chime in here much anymore, mainly due to being somewhat intimidated by my more literary partner. But the time has come for a little tidbit (rant) from me. Today I heard several talking heads on major news networks chiming in about the the financial crisis our nation is facing. We all know that the basis of the entire problem is the devaluation of real estate, which has dominoed through the entire financial system worldwide. But what amazes me is the disinformation they are spewing. As Congress tries desperately to digest the deficiencies of the three page (yes, three pages will take care of this problem) proposal from the Treasury Dept./Fed, Exhibit “A” is the catch phrase of the day on cable networks - “How do you deal with or value paper that is worthless?” For the uninitiated, were talking mortgage loan debt who those, supposedly in the know, refer to as “Paper.” Excuse me?

This is where irresponsibility breeds chaos. The “Paper” we are referring to is NOT WORTHLESS! Can you, the so-called experts, get this one basic thing right? Or would you prefer to set off more global panic in the financial markets? What are we really talking about here?

The basic concept is that the U.S Government is stepping in because the lenders (banks, mortgage companies, exotic overseas investors, etc.) did not have enough reserves to cover a downside market. As they allowed the borrowers to over-leverage, the lenders over-leveraged themselves, too. Why not do that? The market is always going up? Then these same idiots that effectively created the market for this “paper” panicked. (”Oh crap, did we really buy/finance a gazillion loans where there was no down payment and no income verification?”) We can all bitch about the abuses of the past and we can lament the downward spiral in home values, but I can tell you confidently that the paper is not worthless.

Take a typical culprit in San Diego, for example.  Someone bought a $500,000 home at the peak of 2005-2006. Even if they put $0 down (meaning for those not thinking quickly here, a $500,000 mortgage, or “paper”), that home today is, say, worth 20%, 30% or even 40% less (you pick the number). For our example, let’s use the BIGGEST decline in value of 40%. So today, the home is worth $300,000. That is far from worthless. The plan is for the U.S. to buy this “paper” and hold it until it may be sold to an investor for an amount equal to or greater than its value today. The U.S. government is not an investor, constantly worried about returns on their investment. Maybe they should be, but they have staying power. They can just sit back and wait. If the value goes down further, so what? Some day it will come back, and that’s when they will sell the paper and get their (our) investment back. We (the citizens) may even get a profit, eventually.

I pity the poor politicians who have to sort this mess out now (although their lack of proper oversight made this an accident waiting to happen), but it makes me crazy when the so-called pundits in the media call the “paper” worthless because it’s disingenuous to say so, and they should know that. If someone truly thinks that home that was purchased for $500,000 and is now worth $300,000 is really worthless, please sell it to me for $100,000. I will buy all the homes you can sell to me, and I will be happily retired in less than a year… if I can just get a loan.

Now I am reminded why I don’t write anymore.

“I have time.” “We are patient.” “We will just wait a few months or a year until prices go up.”

You might regret saying that… unless you really don’t want to be going anywhere any time soon. Sure, you can always adjust price later, but it is hard playing catch-up these days. (Note: Detached inventory in Scripps Ranch stands at 96 homes as of this writing.)

And, if your home is on the bigger side, beware of median statistics.

Information courtesty of the Sandicor Multiple Listing Service and for detached homes sold in the 92131 Zip Code. Information deemed reliable but not guaranteed, and so on and so forth.

You may have noticed how we haven’t really talked about the melt-down of our financial systems here. It has been the Big News, particularly this week as we saw Lehman Brothers exit stage left and Merrill Lynch find a foster home at Bank of America, and as we continued to hear the reports that banking giants Washington Mutual and Wachovia are operating with detonation devices strapped to their chests. Most recently, attention has shifted to news that insurance powerhouse AIG is doing the dog paddle in a fierce undertow.

We haven’t really talked about it for a couple of reasons. First, what is currently taking place is quite complex. I am a real estate agent and, having opted to forego the elective classes on micro- and macro-economics during my college years in favor of physical anthropology and sailing, I readily admit I am not qualified to provide an in-depth analysis of the global or even national banking systems. I know what I don’t know, and what I know comes from the same places every other “outsider” gets their information — the media. Second, a full month ago I spoke with a favorite mortgage broker who promised me an insanely inspired guest article. The problem here is that he is a maniac, a perfectionist, a loan officer who embraces and studies economics with the same enthusiasm I show my Altos Charts. And with the scenery changing by the minute, I am told he is about eight redrafts into the assignment, which means I am no closer to my guest post.

Thankfully, Jeff Corbett has unknowingly come to my rescue. Better known as the X Broker, Jeff wrote this succinct piece on what the Wall Street goings-on of the past week really mean to the real estate market. Even I understood it, so I encourage you to give it a read.

If you live in San Diego, you might want to skip over the last part, where the X-Man says, “Unless you live in California, Las Vegas, South Florida, or the Rust Belt…which either experienced high levels of mortgage fraud(or) illogical appreciation…  your local housing market is no worse off than it was before Wall Street’s most recent ‘Black Monday’.”

Unless.

(After enjoying a long six hours of a disappeared-into-the-void blog, our server is back up, and I am once again a happy girl. So, now, we resume our regular programming.)

Given the choice of watching the Charger’s game this weekend or sitting in a dark room wringing my hands about the impending collapse of our financial markets, I instead chose to direct my attention to the matter of cookies — not the computer kind, but the kind you ship to your daughter’s college dorm room. (Alas, I think I overlooked the baking soda.) And whenever a real estate agent attempts to grasp the brass ring of leisure, something has to give. So it’s time to play some blogging catch-up.

I have let myself get backed up on email questions from our readers. The Ask the Brokers button here has always been a crowd favorite, and this week was no exception. Here are the latest three questions I received (and as a point of clarification, these are all verbatim, presumably from those little spam-bot demons who like to visit me on a regular basis):

Q. Ma284zda asks, “c752t?” Or, maybe it was just a comment. I’m not entirely sure.

A. Yes, it is true. No agent in San Diego County was able to show a home most of yesterday, much less get into their own listings. You can blame it on Ike.

Due to Hurricane Ike and a strong Canadian cold front coming into the Ohio Valley, there are wide spread power outages affecting SentriLock. They have limited phone services and their ISP service provider is offline. Normal web site access is blocked…

Sentrilock is the lockbox key provider for our MLS, and what this means is that our access keys which need to be updated daily were rendered useless. For listing agents, this meant that showing information could not be downloaded, so our Monday morning feedback reports were scuttled as well.

Q. Ma909zda (and I believe he may be related, at least by marriage, to the Ma284zda) wrote, “c33t.”

A. I couldn’t agree more. In fact, based on their 2008 Survey of Home Buyers, the California Association of Realtors (CARs) wrote:

Due to the high inventory of homes on the market, and uncertainty about the direction of home prices, buyers are more cautious and are moving at a slower pace during the home buying process than in previous years.

In San Diego, particularly in the North County communities we serve, it is worth noting however that inventory is not all that high. In Scripps Ranch, we continue to hover around the 100 mark for active single-family detached listings. This number is moderate by historical standards, and any agent who is actively searching on behalf of a buyer client will readily admit that there is not an abundance of good (well priced, staged and located) homes for sale. True, buyer jitters are a huge factor in our market, serving to drive market times up and even prices down, but we shouldn’t forget the huge roll that the current financial crisis is playing in stalling our market. Loans are difficult to come by, even for the most credit-worthy applicants, and no loan means no home purchase. Sometimes, we know early in the process that financing is going to be an issue; too often, however, we are only learning this mid-escrow as underwriting policies change.

Q. Google offered, “http://search.live.com.”

A. Google (if that really is his name) raises a very timely issue. Just why is it that so many buyers agents, agents faced with a more challenging real estate environment, continue to relegate their traditional property showing duties to the listing agents? More importantly, why do their clients allow them to do this?

In the same 2008 report, CAR says, “The Internet… continues to play a vital role in this process and has solidified the relationship between REALTORS® and home buyers.”

I’m not seeing that, at least not this week. Just yesterday, we received two calls from buyers asking us to show one of our listings, each of whom admitted to having an agent. “Why don’t you have your agent show you the home?” we asked. In one case, the buyer said her agent is out of town. I must confess that in this case, we ultimately conceded. It turns out her agent was in fact in Europe, but I have to wonder how he is going to write the offer if she does decide that this is her dream home. According to the agent (who ultimately phoned us from Europe to cop a plea), he has assistants, but they are just too busy with other work. If she wants to write an offer, however, he assured us that they would get “un-busy” really quickly.

The second call came from a buyer who told us that he has an arrangement with his agent. He does all of the legwork and, once he finds the right home, the agent will write the offer. “I don’t want to bother him while I am just looking,” he said. Cool. Bother me, then. I certainly don’t want to be the one inconveniencing the man who will be taking half of the sales commission. Besides, what else do I have to do? It’s not like I am baking cookies or anything. At least, I won’t be at 4:00 today.

photo credit: faeparsons

Hat tip to John Wake at the Arizona Real Estate Notebook for calling to our attention the news that Scripps Ranch wins third place in the days on market beauty contest. According to Business Week (via Altos Research):

The third-fastest-selling Zip is the Scripps Ranch neighborhood of San Diego, a wealthy inland market where listings were typically 70 days old, a span that would have been unthinkable during the real estate boom.

Read the fine print, and this market time applies to active listings, not the homes which have sold. Read more fine print, and you will be reminded that this data like any is subject to interpretation. In August, for instance, eighteen detached home sales occurred in Scripps Ranch, yet Altos shows us absorbing between 32 and 40 a month. In other words, don’t take the 70 days to the bank. We have a lot of churning going on, and it is not only due to the failed escrows but to expirations and cancellations relisted with a new and improved “zero days” market time.

Don’t get me wrong. I am not prepared to hand over our little tiara just yet; I simply think that this story is incomplete at best.

Thinking I could spend a little time in our crack MLS system and get to the bottom of things, I started about doing a history check on the 99 current detached active listings. Somewhere around number 12, I realized that the property histories are flawed. One home, for instance, shows a 53 day market time and no prior listing activity. An address check, however, revealed what I knew to be the case — This home has been listing, expiring and relisting since September, 2007. With an inventory hovering around 100, it doesn’t take many of those to blow the rosy stats out of the water.

Business Week quotes a Scripps Ranch “neighborhood specialist” as saying, “Homeowners in the affluent neighborhood don’t feel as much pressure to sell as homeowners in poorer, foreclosure-heavy neighborhoods because they have the means to ride out the downturn.” Well, guess what? Over 15% of the current active detached listings in our MLS ‘fess up to being “subject to lender approval.” We know the actual number is greater. For condominiums, this number sits squarely at 50%. Hmm…

I am all for good news, and I am a big fan of the stats. I am even the first to admit that there are some very good opportunities for buyers, and homes priced and promoted properly continue to sell relatively quickly. But, Scripps Ranch is not immune to the current larger market dynamics, and spinning the news because it sounds better is just irresponsible. Or sloppy. Or both.