Is a clear sky blue?

Sitting down this morning getting my Fox News fix, I noticed a release by the NAR that has me re-thinking a position I have taken...

Here is the link to the NAR news release. To summarize, the position the NAR takes is that housing will start to pick up in 2008. Existing home sales will rebound, although new homes will lag for another year.

Well, I've been saying this for a few months (go back and look at my Gwinnett Market Reports if you don't believe me). And so, when the NAR says the same think, I need to re-assess my position.

Why, you ask?

Because the NAR started calling the bottom of the market and the rebound before the decline was in full swing. And that really ticks me off. I don't have a problem with putting a good spin on things. We all do it, and sometimes we just need to in order to remind people about the other side of the coin. Whether it is a Buyer's Market or a Seller's Market, it is a crappy market for half of the people in a transaction...

But, it's one thing to put your best foot forward, and quite another to say that everything is always perfect. I run numbers for my market... and I make predictions based on those numbers. When I am wrong, I acknowledge it, and when the news just sucks, I say it. I don't try to speak out of both sides of my mouth just to make sure that I'm covered.

Right now, if the NAR announced that skies were blue, I'd run outside to check.

Keep in mind that I am not only a member of my association in order to have access to the MLS (we don't have to be), but rather, I am currently active in the association (until tomorrow's meeting, I am the chairman of the RPAC committee). No, I'm not being deposed... my tenure is coming to a scheduled end.

So, what do we do about it?

Of the 33.548 real estate agents on A/R... as of a moment ago... I'd bet that the vast majority are members of the NAR. I know that the majority are ticked at the NAR over one thing or another. But, I would bet there are about 50 that are actually active in their local association. I bet half don't even know who is President of their local association, much less the state association.

So, get involved. Make your voice heard [I have NO idea this post was going this way].

And, when the NAR issues these reports, grab some salt, and run your own numbers.

Market Update for Gwinnett County, October/November 2007

As I announced back in the middle of November, there is going to be a format change beginning this month. I will be including Absorbtion Rates in the market reports now. This will give a clearer picture of the direction of the market, as well as help bring a bit of focus to the rest of the numbers. I’m also going to be stressing the listed/solds percentage to help give a better picture of the market conditions.

I also have corrected number for both September and October. The preliminary numbers are in for November, but they don’t look right yet, so while I will mention them, I would like to remind you that they aren’t solid numbers.

Let’s start with some of the classic information that I have been including on these reports.

The New listings data shows that new listings for both October and November were up about 2% vs. last year, while September was down about 5%. I’d really like to see the listings vs. last year drop to the negative numbers, because there is simply too much inventory for the level of buyer activity I see. However, because the final numbers aren’t in for November, I expect to see a rise in listings… exactly the opposite of what I want to see.

Solds for September were down 43%!!! Those numbers are holding up to the corrections. I hope that it isn’t right, but I have to assume now that it is close. However, the October number rebounded significantly. Closings were down 18% vs. last year. That is the best showing (vs. the same month the previous year) since April. To moderate, though, October 2006 was a particularly crappy month. November is down by 65%, but I know that those numbers will change in the coming weeks, so we will be revisiting that. With the exception of the August to September number*, it is easy to see the correlation between pendings and solds from month to month. If the pattern holds, I expect to see the closed transactions down around 20% for November when all is said and done.

While the preliminary numbers came in for November, both October and September average prices were changed. Those numbers are (with change from last year): September, $229,428 (-0.8%) October, $226,820 (+1.5%) November, $238,548 (+2.3%). I expect to see the November average drop to be more inline with the other numbers… but I can’t begin to guess where it will fall.

Now, let’s talk about the new numbers.

The uglier number is the percentage of solds vs. new listings. Let me start by saying that I have been tracking this number since January, 2005. The highest percentage since then was 85% in December of 2005. For the last few months, that number has been hanging around the mid 30% range. This means that one house sells for every three that come on the market. August through November show the percentage of solds vs. new listings to be 37%, 32%, 32%, and 19%. The November number is ugly, but I think I will need to revise that to be inline with the other numbers when I see something that is more final.

The Absorption Rate is how long, given the current market conditions, it would take to sell the current market inventory… assuming that there were no more listings added. This number is used by all types of businesses to gauge market activity vs. inventory levels. I’m not going to go into the formulas, because I don’t want to tell me competitors everything… I calculate the numbers for the 12 month average, six month average and three month average. Comparing the numbers gives an indication of the market heating or cooling. A balanced market usually has about a six month supply. Because these numbers are based upon November information, I expect all of them to drop slightly, with the most visible drop to be the three month average.

The 12 month average is 11.3 months of supply. The six month average slows to a 12.2 month supply of homes, while the three month average shows a 17.3 month supply. Of course, the three month average is the most volatile, and I expect to see it dropping to around 14 months after the rest of the numbers are in. That still isn’t good, but it is a bit better.

What that tells me is that the market is still cooling a bit, but it is close to flattening. It isn’t plummeting. I don’t have as much depth with these numbers as I do with the other numbers I’ve collected. My MLS doesn’t offer the historical statistics that I need for this calculation like they do for the other calculations.

I am still looking to see the market turn around in the spring. Of course, we won’t know it has turned until it has started back up. The best deals will be had before the turn. After the turn, investors and other buyers will have already started to bid up properties.

*The August to September pending to closed sale anomaly was a direct result of the Sub-prime Mortgage Meltdown. Many buyers found themselves unable to close after being approved for loans. After that time, the numbers went back to a more normal percentage of pending sales that followed through to closing.

Thanks, and look forward to my next report during the first week of January. Happy Holidays.

House values UP!?!

What? Is this guy crazy? Take a look...

S&P Index Reveals Price Changes in 20 Markets
Prices of single-family homes in the third quarter fell 4.5 percent nationwide compared with a year ago.

It was the largest drop since the Standard & Poor’s/Case-Shiller National Home Price Index was begun in 1988.

“We are fast approaching the rate of price decline seen at the end of the 1990-1991 recession,” Joshua Shapiro, chief United States economist at MFR, wrote in a research note. “The odds strongly favor blowing past this mark in coming months.”

Robert J. Shiller, chief economist at MacroMarkets and the founder of the index, says: “Most of the metro areas continue to show declining or decelerating returns on both an annual and monthly basis. All 20 metro areas were in decline in September over August. Even the five metro areas that still have positive annual growth rates – Atlanta, Charlotte, Dallas, Portland, and Seattle – show continued deceleration in returns."

Here is the one-year change in the 20 metro areas included in the index:

• Atlanta: 0.4 percent
• Boston: -3.2 percent
• Charlotte: 4.7 percent
• Chicago: -2.5 percent
• Cleveland: -4.0 percent
• Dallas: 0.2 percent
• Denver: -0.9 percent
• Detroit: -9.6 percent
• Las Vegas: -9 percent
• Los Angeles: -7 percent
• Miami: -10 percent
• Minneapolis: -4.5 percent
• New York: -3.6 percent
• Phoenix: -8.8 percent
• Portland: 2.2 percent
• San Diego: -9.6 percent
• San Francisco: -4.6 percent
• Seattle: 4.7 percent
• Tampa: -11.1 percent
• Washington: -6.6 percent

Source: Standard & Poor’s (11/27/07)

Ok, the numbers aren't stellar. But, Please note that Atlanta is up 0.4% annually. I have been showing Gwinnett County to be even better than that. Obviously, real estate isn't crashing here, but as mentioned in the article, appreciation is slowing. I don't think it is going to slow much more on a year over year basis, but we always see a slowdown this time of the year.

It's still nice to know that we came in fifth of the twenty largest metro areas. It just goes to show that even in a weak market there are pockets of strength. Please feel free to contact me with any questions. Also, look for my Gwinnett County Market report early next week.

Free Milk... Get your Free Milk!!!

I had an interesting conversation. it was interesting for many and varied reasons.

• There were three people gathered in place that were familiar with my blog... and I was only one of them.
• Only one of them was familiar with Active Rain... me again.
• One of them was an honest to goodness consumer.
  
• Nobody got punched... the Realtysaurus only pushed me a couple of times... ok, she didn't, but she wanted to.
• The path of the conversation was VERY interesting.

So, let me elaborate.

Consumer: "You look familiar to me."

Lane: "I'm a REALTOR(R)."

C: "I think I've read your blog."

Lane: "Cool... I DO have a reader!!"

blah, blah, blah...

C: "So, how soon do you think real estate will turn around in Gwinnett County?"

L: "Tough to say, but I think that the momentum is turning now. Remember, we won't know it is turning until it has turned, since we can only look in a rear view mirror to see."

Realtysaurus: "I couldn't help but overhear you talking about real estate. I'm a REALTOR(R) here in Gwinnett County."

L:

C:

R: "You look familiar."

C: "I said the same thing. It's because I've read his blog."

R: "That's right... the garage guy."

C: "So, when do you think the market will turn in Gwinnett County?"

R: "Oh, Sugar, it never slowed here. We are great."

C: "Are those the talking points you got from the NAR?"

L:

C: "I've seen the numbers on Lane's blog. There is no mistaking that there has been a slowdown. Is your research showing something different? Do you have a blog?"

R: "I don't believe in that blogging. It's giving away the milk for free. Why should someone call me if I give away all of the secrets on the internet?"

C: "Everything that you could possibly say is already out there. But, people might call because they see you really know th e market."

L: "Personally, I don't think I'm giving any real expertise away. If I see a TV show that talks about building a house, that doesn't mean I automatically have the skills."

R: "This isn't as tough as building a house."

C: "Really!?! It's easy work?"

L: "No. It just seems easy for us in the industry because we do it all of the time. Just like the contractors that build houses, it is second nature. But, the skills we employ, and the knowledge we have is far from second nature to those that aren't in the business every day."

C: "That makes sense. So, Realtysaurus, why is it you don't have a blog?"

R: "Why buy the cow if the milk is free? I don't think I should give away my knowledge to everyone on the internet thing... And it seems to techy for me. I have a website, though. it has all sorts of local information."

Now, let me point out a few things. The consumer was not someone that is in my target market. I would be glad to sell her a house, and her husband loves the idea of a 4 car garage, but they are not really car-centric. But, she stumbled across my blog while looking for something else. She found what she needed on my site, as well as some other info that interested her. She and her husband are not currently looking to buy a house, but in a couple of years they may downsize.

The conversation went on for a few minutes. The Realtysaurus excused herself... but not until mentioning things from my blog that lead me to believe that she read more than a few passing posts. She wasn't happy that I have given away so much "milk"... But, the fact remains that there is nothing we say that isn't being said by scores of outlets. If we don't supply the information, others will. And, it isn't the info that makes us valuable, it is the ability to act on it, interpret it, and maximize its potential. None of that comes from a webpage.

Woohoo. I have a couple of readers... ok, probably one less as of now.

Housing Starts down slightly, but Multi-Family are up...

So, what does that mean? First, let me toss out the original story.

Daily Real Estate News | November 21, 2007

Home Starts Up, Mostly Due to Multi-Family
U.S. home builders broke ground on more apartment buildings in October, driving housing starts up 3 percent to an unexpected seasonally adjusted rate of 1.229 million, the Commerce Department reported Tuesday.

But builders trimmed permits for future building projects by 6.6 percent. They also cut back 7.3 percent on single-family homes to a seasonally adjusted annual rate of 884,000, the lowest level of single-family home building since the last recession in October of 1991.

The levels varied regionally. Home starts in the Northeast rose 8.5 percent overall, and starts of single-family homes rose 29.5 percent. Single-family starts in the Midwest were up 15.1 percent with the overall increase at 21.1 percent.

In the South, overall starts dropped 4.6 percent and single-family starts fell 19.5 percent. Starts in the West rose 5.8 percent overall but single-family home starts dropped 8.1 percent.

Source: Thomas Financial, Dennis Moore (11/20/07)

Here is the link to the story from the NAR.

Of course, I want to focus on the numbers for the South. Starts are down by 4.6%, but SFR (Single Family Residential) Starts are down by 19.5%. That tells me that MFR (Multi-Family Residential) is well up. Why would that be? Well, MFR is another way of saying rental property. So, if builders are getting more orders for rental properties, the buyers are confident that they will be able to fill those units. It also means that buyers are confident that they will be able to pay off those units with the tenants moving in to them.

I have previously mentioned that it was looking like rents were expected to increase faster than previously expected. The "Sub-Prime Mortgage Meltdown" would be the main reason. People that were on the edge of affording a home before the SPMM are out of the market now. That increases demand on rentals... until the supply catches up, the price will rise.

So, let me sum this up into a nice, neat package.

• If you are a credit-worthy buyer, this might be a good time for you to exploit that. The market has a LOT of inventory, and deals are to be found.
  
• If you aren't buying, look for rent to go up.
  
• If you don't know if you are able to get credit, talk to a reputable mortgage broker. They can tell you if you are able to qualify for something, and what the terms will be.
• Rates are still incredibly low.
  

I am a long way from saying that everyone needs to rush back in to the real estate market. If your credit is shaky, I would recommend you sit on the sidelines a while longer while fixing your credit and building up some cash. I would also still counsel you to talk with a mortgage broker. A good mortgage broker can tell you the real ways to increase your credit scores.

If you need any referrals to a good mortgage broker, feel free to contact me through my website.

So, he's hit the "But that's the way I want it to be" stage...

Many of you might know that I have a three (and a half) year old son. He has graced a variety of my posts, and is one of the primary inspirations for me being in real estate... but I digress... Often.

So, while it isn't the first time, I wanted to relay a little story involving the "Boy Wonder."

Upon my return from the NAR Convention, my wife promptly left town... to do a little scrap-booking with her mother. She left Mini-Me in my care for the weekend. During one of our dinners, he became impatient. It went something like this...

"Daddy, is dinner ready yet?"

"No buddy, I just started it... give me a few minutes."

"But, Daddy, I'm hungry nooowwwww."

"Well, a few minutes ago when I asked if you were getting hungry, you said that you weren't."

"Is it ready yet?"

"No."

"Yes it is!"

"No, it isn't... no matter how much you want to change it... it won't be ready until it is ready."

Seems simple enough, right?

So, Lane... why are you writing this on a real estate blog?

Simple. He isn't the only one that is prone to statements like that. I've been seeing a lot more of them in the last few months. Sometimes it is from those that lobby on our behalf. Other times it is from those inside the industry.

"Real estate sales are off by 15%"

"That isn't bad."

"The trends aren't pointing to a recovery yet. It could happen, but we can't know."

"Yes they are! Everything is hunky-dory. We are already seeing the recovery."

"No, it isn't... no matter how much you want to change it... it won't be ready until it is ready."

Let me make this clear. I believe that real estate will see a large scale recovery in the next year or so... but it might not. Then again, it could be sooner. Where I have the problem is when we are faced with a difficult market, some in the NAR, and many agents simply say that everything is great. One might almost think that they feel if they say it enough, it will be so. But, just as with the media talking of values "tumbling" when they drop a few percent, saying that there is "nothing to see here" when there clearly is... doesn't help make us look honest and transparent.

There are incredible opportunities. But, as investors know, there have to be risks. Those that get in BEFORE the recovery is piling away at full steam will get the best returns... and, as in the last cycle change, the last ones to the party just get to clean up and don't get to play in the fun.

New pricing model

I'm still out here at the National Association of REALTORS(R) Convention in Las Vegas. So far, it has been a pretty cool experience. Sorry I don't have any pictures, I actually have carried my digital camera with me everywhere... but I haven't even seen the strip.

So, what interesting stuff is here for consumers? Just about nothing. But, as a REALTOR(R) there have been quite a few interesting revelations. One thing I can say for sure is that I have found a new pricing model that has amazing potential. CMAs (Comparative Market Analysis) look to be a thing of the past for me. I attended a seminar yesterday on "Right Price Analysis", or Absorption Rate Pricing models.

I don't think it could sound any drier... Oddly, the session was the most entertaining one I've been to. The material was extremely interesting, and the presentation was excellent.

"So, what are you going to do about it, Lane?"

Look for a new method for me to deliver my market reports. I will be using absorption rates in my market reports. Basically, this will cover how much inventory is on the market in different segments, and what percentage of listings are actually selling. It will be a much more accurate picture of the market, and can be scaled up or down. I will literally be able to give a reasonably accurate picture of the market activity in a subdivision, as well as its direction.

I isn't the most exciting thing to hear about, but I hope that the results will be more helpful to people getting in to the market as buyers and/or sellers. If you want to be ahead of the curve, call me or send me an email, and we can do a RPA for your home that you are looking to sell. (please keep in mind that if you are currently listed with another agent, I cannot talk to you about your property, or I could lose my license).

I have a few more classes today, and I hope to run across some more exciting information.

Market Update for Gwinnett County, September 2007

Below are the numbers for September 07. Before getting into the numbers, I would just like to mention again that I will now be working to post numbers right at the beginning of each month for the month that ended 30-35 day prior. I would love to be able to post up the October numbers at the beginning of November, but what I am seeing is changes are happening through-out the following month.

At this time I will be updating the September report.

September prices are pointing down for the first time since February when compared to the same month a year ago. September looks to be down 3% from September 06 (For comparison, Feb 07 was down 0.2% from Feb 06). I have been saying that I think we need to see a drop in prices to spur buyers into action. I still feel we need to see this price drop for a couple of months before buyers start to get excited. Let’s see what October, November and December hold. Currently we are up 2.6% vs. last year as a twelve month average. Last month, we were up 2.9% for the same period. This might also be partly a function of some of the new home sales on the higher end of the market. I would really like to see this flatten a little, as I think it would spur a little more buying.

Time on the market is also still trending up vs. last year. We are up to 90 days in September. That is 3 weeks (21 days) more than this time last year. Last month was 88 days on market, but that was also 18 days more than August 2006. May sales were the lowest this year at 76 days on the market. In fact, May was the lowest since last October (2006) when the DoM was 72 days. May and June of 2006 were in the mid sixties.

The one "bright spot" that I see is a 6% reduction in new listings compared to last year. Of course, to offset that, there is a 61% decrease in closed sales and a 34% decrease in pending sales (homes under contract). I really need to see another month to sort that out.

I think we are in the midst of two serious phenomena. First is the Sub-prime Mortgage Meltdown. I’ve been talking about it for a few months, but I think that in September, we saw the full effects for the first time. Buyers that were marginal even six months ago are out of the market now. Buyers that are solid are still solid. If anything, those buyers are in a stronger position. Since there are fewer buyers, they have increased strength with sellers. Furthermore, I’m starting to see lenders trying to court those strong buyers. Face it, mortgage lenders make money by loaning money. They can only stop writing for so long before they need to look at making money again. Obviously the marginal buyers aren’t popular with the secondary market, so getting “A paper” mortgages back into the stream will become more of an imperative… and so I still expect to see rates slide a little for the best buyers. I am also seeing creative options creeping back in to the market. If Washington can keep its grubby fingers out of the market, and not try to “fix” it, we should be seeing a balance and recovery in that segment next spring. The second issue we are facing is the seasonal slowdown we see each fall. I will step out on a limb and say that there is an amplification this year because of the overall market health… or lack thereof.

I think it is getting to be time to say that smart investors need to get back in the market. Buy & Hold strategies will be heavily rewarded in the long run. Prices are good, rates are kicking for those with good credit. There might be a slight easing of prices in the coming months, but I wouldn’t count on it, and we won’t know that we’ve hit bottom until we are off of it.

Finally, remember that we can only get an accurate look in the rear-view mirror. We will only KNOW there has been a change in the market when we see it has already changed. We’ll know that change has taken place when we see all of the best deals are already gone. Currently, I can’t get an accurate picture of overall market activity for at least 30 days after the end of the month. That means that the market could be well into a turn before the numbers will bear it out. And, while I don’t know that we should expect increasing values terribly soon, I don’t think prices will drop much either.

When the market turns, I believe it will turn with force. I am basing this on the fact that we are seeing rising rents and a lot of hold-out buyers. That means that when we hit the tipping point, there will be a ready source of buyers. They won’t trickle in as much as rush back in to the market. The bigger question is when we have a market turn, once the pent-up demand is released, how long will the strength last. I think that the market will be more balanced after the initial surge.

Market Update for Gwinnett County, August 2007 (updated 10-17-07)

I need to change the format on these numbers just a bit. I have been trying to put out the market report around the 15^th of the month for the previous month (10/15 for Sept., for example). However, the numbers have been changing so dramatically that I am seeing changes for the previous month (seeing changes to August when I do the 10/15 report) and the changes are dramatic. So, in response, I need to back up the reports just a little. I will try to get future reports out in the first week of the month, but they will be lagging a little over 30 days. This means that around the first week of November I will post a September report.

At this time I will be updating the August report.

August prices are pointing up, but preliminary numbers for September are pointing the other way. I think we need to see a drop in prices to spur buyers into action. I don’t expect that to be much, but a modest decrease of maybe 2%. Currently we are up 4% vs. last year. June was up 5%, and July up 2%. This might also be partly a function of some of the new home sales on the higher end of the market. I would really like to see this flatten a little, as I think it would spur a little more buying.

Time on the market is also trending up vs. last year. We are up to 88 days. That is almost 3 weeks (18 days) more than this time last year. Last month was 80 days on market, but that was also 10 days more than July 2006. May sales were the lowest this year at 76 days on the market. In fact, May was the lowest since last October (2006) when the DoM was 72 days.

By now, I think anyone in the housing market has heard of the Sub-prime Mortgage Meltdown. It is still a big player on the market. Buyers that were marginal even six months ago are out of the market now. Buyers that are solid are still solid. If anything, those buyers are in a stronger position. Since there are fewer buyers, they have increased strength with sellers. Furthermore, I’m starting to see lenders trying to court those strong buyers. Face it, mortgage lenders make money by loaning money. They can only stop writing for so long before they need to look at making money again. Obviously the marginal buyers aren’t popular with the secondary market, so getting “A paper” mortgages back into the stream will become more of an imperative… and so I expect to see rates slide a little for the best buyers.

The current mortgage climate is tough. For buyers with weak credit history, the market is almost closed. Alt A loans (stated income, no documentation) will be away from the market for the foreseeable future, except for the rarest of good credit buyers. And expect that 0% down and even 3% down loans will be reserved for those with better credit.

I think it is getting to be time to say that smart investors need to get back in the market. Buy & Hold strategies will be heavily rewarded in the long run. Prices are good, rates are kicking for those with good credit. There might be a slight easing of prices in the coming months, but I wouldn’t count on it, and we won’t know that we’ve hit bottom until we are off of it.

Finally, remember that we can only get an accurate look in the rear-view mirror. We will only KNOW there has been a change in the market when we see it has already changed. We’ll know that change has taken place when we see all of the best deals are already gone. Currently, I can’t get an accurate picture of overall market activity for at least 30 days after the end of the month. That means that the market could be well into a turn before the numbers will bear it out. And, while I don’t know that we should expect increasing values terribly soon, I don’t think prices will drop much either.

The sky is falling... and the bubble is coming...

Sorry to disappoint.

I picked up a story today about a "Bubble Blogger" in San Fransisco. I actually enjoyed the article. Here is the link. I have read a few of these bubble blogs in the last couple of years. Some are quite educated, and others are just rants. I actually haven't read this particular blog, although I will be putting it on my reading list. I just wanted to talk about the news story...

First, was it a slow news day in San Fransisco? Was there nothing else negative happening in real estate for the paper? The reason I say this is two-fold. Not only is there some sort of perverse desire on the parts of some in the media to constantly have a negative real estate story in the news, but this one isn't even that strong.

Next, if one makes a plausible, but vague prediction, and then attaches no time frame to it, it will probably come true. I can predict that the stock market will hit 20,000 as well as say that it will suffer a 10% correction. In the next several years, both of those will come true. That isn't some amazing feat of prognostication.

Finally, I see that Mr. Killelea was looking to buy a house in Berkeley in 1999. I'm curious (and maybe one of you agents local to that market can tell me) what the prices were then, and what they are now. Had he bought the over-priced home eight years ago, what would his position be now? What was the median price in 1999, and what is it now?

In conclusion, I just want to point out that it is easy to make a vague prediction with no timeline and eventually have it come close to true. Making a specific prediction about the market, that includes a reasonable timeline is a LOT more difficult. But, let me say here that another housing bubble is coming. I won't say when or where, but it's coming...

Oh yeah... Comments? Ratings?

What are we doing here? Looking at the housing landscape...

This morning, the NAR kindly sent me this little update through the Real Estate Insights eNewsletter. It explains, quite well, the steps that we will need to move through before the market stabilizes, both locally and nationally. And then, this afternoon, in my REALTOR(R) Magazine Daily Online, I got this story.

Both have something underlying that I think is very important. Congress needs to stay out of the mortgage meltdown issue. While there might be a need for revision of the jumbo loan limits for some high priced markets, anything beyond that will have unintended consequences that would be bad for the housing market. (BTW, unintended consequences seems to be my comment theme of the day) In the second story, there is a mention of Barney Frank calling for more regulation of the mortgage market. He feels it would increase confidence... and it may. But, it would also increase compliance costs, and slow funding. And, as we know from the myriad of regulations that abound for everything the government want to protect, those that mean to be unethical will still be unethical. Those that are hell-bent on buying something they can't afford, will... and they'll still default. But, there will be those on the margin that won't be able to buy their dream home because there is another point of interest, since the regulation means more costs for the lender.

And, as well highlighted in the first linked article, the correction is underway. Before Congress could even think of acting, the market started to fix itself. Is it going to hurt people? Absolutely. Will it hurt people that were responsible in selecting appropriately priced homes and financing products? Not so much. Mostly, the people that will be hurt are those that used products that they didn't understand to buy houses they really couldn't afford. Some did it in ignorance, but many just didn't care or didn't think through the logical conclusion of their actions.

Am I mean to say so? Maybe. But, that doesn't mean I'm wrong.

The good news is that the needed steps are happening (without Congress critters, thank you very much) and the housing market is correcting. Deals are staring smart buyers right in the face, and those deals are selling. As we look in the rear-view mirror of market reports, we can see that the worst is over in many places... and other places still may have some correcting to do.

I like to hang it out on my market reports. For Gwinnett County, I'm calling the bottom of this cycle to be in the next six months. Of course, I might not really see it for a month or two after it passes. And, if something wild happens, all bets are off.

Market Update for Gwinnett County, August 2007

It time for me to make my prognostications for the coming market, while recapping that which has happened. Please keep in mind that even on the 18^th of September, the numbers for August WILL change. I will come back and correct them before posting the October results. I originally posted the June number on July 10^th, and they had changed pretty significantly by August 6^th when I reviewed and corrected them.

The numbers for August, even this late in the month don’t look like they can be complete. If the numbers hold up, the market took a dramatic down-turn in August. I think that as we approach the end of the month, the numbers will correct (I have seen this for a while now).

Prices are pointing up, but I don’t think that will continue. I think we need to see a drop in prices to spur buyers into action. I don’t expect that to be much, but a modest decrease of maybe 2%. Currently we are up 5% vs. last year. June was up 5%, and July up 2%. This might also be partly a function of some of the new home sales on the higher end of the market. I would really like to see this flatten a little, as I think it would spur a little more buying.

Time on the market is also trending up vs. last year. We are up to 95 days. That is almost 4 weeks (25 days) more than this time last year. Last month was 80 days on market, but that was also 10 days more than July 2006. May sales were the lowest this year at 76 days on the market. In fact, May was the lowest since last October (2006) when the DoM was 72 days.

By now, I think anyone in the housing market has heard of the Sub-prime Mortgage Meltdown. It is still a big player on the market. Buyers that were marginal even six months ago are out of the market now. Buyers that are solid are still solid. If anything, those buyers are in a stronger position. Since there are fewer buyers, they have increased strength with sellers. Furthermore, I’m starting to see lenders trying to court those strong buyers. Face it, mortgage lenders make money by loaning money. They can only stop writing for so long before they need to look at making money again. Obviously the marginal buyers aren’t popular with the secondary market, so getting “A paper” mortgages back into the stream will become more of an imperative… and so I expect to see rates slide a little for the best buyers.

The current mortgage climate is tough. For buyers with weak credit history, the market is almost closed. Alt A loans (stated income, no documentation) will be away from the market for the foreseeable future, except for the rarest of good credit buyers. And expect that 0% down and even 3% down loans will be reserved for those with better credit.

I think it is getting to be time to say that smart investors need to get back in the market. Buy & Hold strategies will be heavily rewarded in the long run. Prices are good, rates are kicking for those with good credit. There might be a slight easing of prices in the coming months, but I wouldn’t count on it, and we won’t know that we’ve hit bottom until we are off of it.

Finally, remember that we can only get an accurate look in the rear-view mirror. We will only KNOW there has been a change in the market when we see it has already changed. We’ll know that change has taken place when we see all of the best deals are already gone.

Are we our own worst enemy?

I think in many cases the answer is yes... we are.

I recently signed up with a site called Hungry Agents. It was recommended to me by another agent. But, as I looked over the way they do business, something occurred to me. Their business model commoditizes real estate agents. They also don't seem to be aware of the difference between real estate agents and REALTORS (R), but that is another post (one day).

For those that aren't familiar, the basic premise of the business is that sellers sign up for the service. They put out the selling of their home to bid by real estate agents. There is a form online that real estate agents fill out stating what percentage we are willing to take the listing for, as well as the percentage that we suggest be passed along to buyer's agents. There is a minimum level of service required for the percentage we quote.

All of that is fine and good. The problem is this...

All that the seller sees is the percentages that the agent quotes. They don't see the agent, their prior performance, what else they might do (the minimum standards are pretty slim by my standards) or anything else. The listing is reduced to only being about the percentage.

My firm offers an "unbundled" service option for $3100 plus buyer's agent commission (we always recommend 3%, but the sellers have the option of making it higher or lower). With the exception of a CMA, the unbundled program offers the minimum basic services required by Hungry Agents. But, for a traditional listing, we offer a lot more services. I would bet that just about ANY full service agent offers way more service than is required by Hungry Agents. But, the problem is that sellers using a service like this see EVERY AGENT as offering the same level and type of service, and EVERY AGENT as being an interchangeable cog that functions the same. We are a commodity. Our service is nothing more than the service of our least capable competitor. Like gasoline.

As I said in Do you have a Unique Selling Proposition, if we don't differentiate, we are a commodity no different than gasoline or concrete. And, for commodities, the only way to set one provider apart from another is price. That is it. The worst thing we can do is turn our service into a commodity.

Final note... I don't really mean to pick on Hungry Agents. I am sure that they are not alone. In fact, there are a lot of companies that are also commoditizing our service. They don't separate themselves from the crowd, and so all they do is cut price. The only reason I highlights HA is that they were the unfortunate souls that sparked the thought.

Answers to questions I can't answer

I've been asked a question about a particular area that I just couldn't answer. Ok, I could answer, but at the peril of losing my license. You know the questions.

Here is another tool in the arsenal I give to clients to find out before moving what the pitfalls and pluses are regarding specific areas.

City-Data.com

I've found that it is better than a lot of other forums. Of course there are people on there that are alarmists or apologists, just like any other member driven media, but if your clients are able to look past the extremists, they should be able to see some good information.

As a real estate agent, there are things that I can't do. One of the stickiest is called steering. Basically, this means that a client is only shown property in a certain area, or not shown property in a certain area because I think it would be more comfortable for the client. The reason that it can be sticky is, as a real estate agent, we are often asked by our buyers to only "show houses in _(insert racial/religious/cultural/ethnic/other group identity here)_ type of area" or "don't show me houses in ..." blah, blah, blah. You get the idea. If I comply with that request, based on the language of the request, I can lose my license. Can you find an agent that will do as you've asked, based on that or a similar conversation? Absolutely. But, it won't be me.

If a client asks me to show them homes in a particular subdivision or neighborhood, I CAN do that. But, the toughest question is "Can you find me a home in a family friendly subdivision?" It's tough because it is a technical violation of the ethics rules of the Georgia Real Estate Commission for me to used familial status as a determining factor in selecting homes to show. However, the way I would handle it is to ask questions... legal questions. The first one is"

What do you consider family friendly?

Based on that, we can find the right house. We can talk about schools, recreational opportunities, traffic flow, and other factors.

Luckily, there is no danger in telling me you want car friendly neighborhood. Neither car people, nor non-car people are protected groups... yet.

July 2007 Market Report for Gwinnett County

Gwinnett County sales comparison for residential real estate. 7/07

It time for me to make my prognostications for the coming market, while recapping that which has happened. Please keep in mind that even on the 14^th of August, the numbers for July WILL probably change. I will come back and correct them before posting the September results. I originally posted the June number on July 10^th, and they had changed pretty significantly by August 6^th when I reviewed and corrected them.

I see a solidification of some of the trends that I pointed out last month. Listings are up vs. last year by 13%, same as last month. This is actually trending down slightly when trended over a three month average. However, I still think we are going to see an increase in troubled properties in the next few months, and continuing for the next 9-12 months. Sold listings and pending listings are still dropping as a percentage of new listings and vs. last year. The trendlines are also pointing solidly down. Not good news…

Prices are pointing up, but I don’t think that will continue. I think we need to see a drop in prices to spur buyers into action. I don’t expect that to be much, but a modest decrease of maybe 2%. Currently we are up 5% vs. last year. June was up 4%. This might also be partly a function of some of the new home sales on the higher end of the market.

Time on the market is also trending up vs. last year. We are up to 82 days. That is almost 2 weeks more than this time last year. Last month was 79 days on market, but that was also 15 days more than June 2006. May sales were the lowest this year at 76 days on the market.

Those outside influences are still at work, and there aren’t a lot of changes from last month… but there is one that is huge. Last month I mentioned an increase in foreclosures as a result of poor financing decisions by buyers over the last couple of years. But, that has almost become a side story. It is still quite true that there is a veritable flood of foreclosures that could be looming on the horizon. However, I think the biggest influence on the market is the current mortgage climate. Feel free to look at last month’s report to see everything I said about foreclosures.

The current mortgage climate is tough. For buyers with weak credit history, the market is almost closed. Alt A loans (stated income, no documentation) will be away from the market for the foreseeable future, except for the rarest of good credit buyers. And expect that 0% down and even 3% down loans will be reserved for those with better credit.

Overall, this is decreasing the pool of buyers in the market. But, the quality of serious buyers will be improved. This is going to tighten the buyer’s market even more for at least the next few months. As we move toward fall and winter, when fewer homes are traditionally on the market, there might be some easing for sellers, but not much. We’ll have to wait to see how this credit crunch shapes up over the next few months to see how it will affect sales next spring. For more on this, take a look at my posts on the housing bubble, and interest rate predictions. I stand by my opinions regarding flip opportunities from last month. I have also gone a little deeper into flipping here and a bit of an investing primer here.

Finally, remember that we can only get an accurate look in the rear-view mirror. We will only KNOW there has been a change in the market when we see it has already changed. We’ll know that change has taken place when we see all of the best deals are already gone.

I called this one a month ago...

I just got today's REALTOR Magazine Online Daily Update. This was one of the stories that was featured. It is about how foreclosures are up. They make up 10% of the listings in CA, as opposed to 1.7% last year. But, at the same time, distressed properties aren't listed at much of a discount compared to other properties.

A month ago, I posted this update for part of my area. If you struggle through to the end, you'll see this passage:

Foreclosures will start to get more attractive if the lenders start to get realistic about the prices. I see many of these homes priced well above comparable homes plus needed renovation (even with free labor). Until the prices on these properties drop down low enough to allow rehabilitation, these properties won’t sell in any significant number. There are some that are selling, but not to experienced investors or “flippers”. A good example is a home selling at $175k in a subdivision that should net $185k - $200k. The property needed around $20k in renovations to bring it up to area standards, not including most labor. A possible $5k profit is not sufficient for an investor to consider the property. That limits its market to investor/occupants. As the number of foreclosed properties increases, these limited buyers will dry up.

Did I call this one?

When the REOs start dropping, they may start moving. Right now, the banks still think they can get the money out of them that they are into them for, despite the fact that they are over-priced and under-quality. I think when we see a bunch of the REOs start to get attractive, we'll see more balanced listings/solds ratios.

DeKalb County Limited Building Moratorium

I just received this from Jenna Graber, the DeKalb Association of REALTORS PR person. It was forwarded from the Greater Atlanta Home Builders Association. Quoted as follows:

On Tuesday, July 24, the DeKalb County Board of Commissioners adopted a 30-day moratorium on the issuance of certificates of appropriateness, land disturbance and building permits respectively for non-conforming multiple lots of record held in common ownership. The moratorium only impacts these properties and does not prevent a landowner from rezoning land. The county will seek to amend this process so newly created lots are not smaller than those currently allowed in the existing zoning ordinance. This measure was taken to address inf ill development in older communities where larger non-conforming lots were being subdivided to create multiple homes. According to Commissioner Jeff Radar, the County does not plan on extending the moratorium beyond 30-days. For a copy of the ordinance, please contact Leroy Sutton at 678-775-1473 or via email at lsutton@atlantahomebuilders.com or Chris Burke at cburke@atlantahomebuilders.com.

Chris Burke,
VP, Government Affairs

For those of you that weren't aware, there has been a lot of chatter and activity in DeKalb County about "infill." Infill is the increasing the number of homes in an area, either by building on previously unused areas in established subdivisions, or by breaking up a larger lot into smaller lots and increasing density. Of course, there are two sides to the coin. Those in favor of infill (especially builders and some residents with larger lots) cite that there is a shortage of housing closer in to town. They also point out the increased value of surrounding properties as newer (and often, bigger) homes come into the area. On the other side of the issue, many homeowners argue that services and infrastructure are already stretched in many areas. Increased load on water, sewer and roads devalue their property.

I can understand and appreciate both sides of the issue, and think it DOES merit closer inspection on an area by area basis. Some of the corridors that have had increased infill are well able to handle at least the traffic loads (I'm not going into the sewer to see how that is coming along). Other areas can't deal with the traffic they have, and increasing it would be VERY damaging. Further, some can't support more or bigger roads.

HEY MEDIA... Are you listening? ALL Real Estate is LOCAL!!!

How many times do we have to hear that the housing market is doing one thing... and that must mean that the whole market is doing the same thing?

When the price of a barrel of oil goes up, it is a singular commodity moving. While there are different grades of oil (sweet light crude, heavy crude, rough crude, etc.) they are interconnected. If one moves, they all move because their value is interconnected.

When prices move up or down in GA, there is little correlation to prices in Maine. They aren't interconnected. There may be a few instances when they can be driven by the same forces (the Sub-Prime Meltdown.. SPM, is an example). If there is MASS unemployment nationwide, that would affect multiple markets, but even unemployment is largely regional. Even the SPM has an uneven effect. It will affect markets that have had more "heat" more than stable markets. In fact, we are seeing that it is mostly those markets that are leading the foreclosures... although Atlanta didn't have the big price run-ups, it snuck in there too.

The point is that if there is a shortage of $250k homes in Atlanta, an over supply in Charlotte can't be used to offset it. If there are too many $1m homes in Lansing, MI they can't be shipped to Ann Arbor to ease the problem. Even when the job market causes some local imbalance in the supply and demand for homes, that doesn't mean Birmingham can ship their unemployed to Marietta (GA or CA).

It would simply be responsible when mentioning that real estate is moving up or down to say that some sectors are doing the opposite. Many of the same business programs that go in depth with stock reports, and go out of the way to mention that "there is a flight from tech to blue chips" or that "transports are taking a beating while oil is going through the roof" fail to mention that some areas and some price ranges are healthier or unhealthier than others.

Remember, real estate being off 3% on a national average is VERY DIFFERENT than gasoline being off 3% on a national average. The gasoline might vary a little from market to market, but up is up, and down is down. In real estate, that same 3% average might encompass one market being up 10% and another being down 18%.

Just remember that when dealing with real estate, as the FTC required many years ago, "Your Mileage May Vary." YMMV.

The "Dirty Little Secret" that FSBO companies won't tell you!

I keep seeing and hearing about "dirty little secrets" that real estate agents won't tell their clients. Most of them turn out to be pretty stupid points. However, today while going through my morning routine (dead-heading, so my brain needed something to do) I thought of the dirty little secret that FSBO companies don't tell their customers. We all know what it is, but many of us just might have never thought of it this way.

They don't care if you sell your house using their service.

That's it. It doesn't affect their business plan if you sell or don't sell your house through them. They only care if you list your house through them. Their business model is only dependent on you paying $499 (or whatever amount) upfront, and then going on your merry little way. They need as many people as possible to pay the $499 and go on their merry little way as possible.

Sure, they need somebody to actually find a buyer through their service occasionally, but as long as they have enough sales for a few testimonials, they'll be OK. And, they don't care if you sell in 6 days, 6 weeks or 6 months. In fact, some of the companies would prefer that you not sell right away, as they'd love to get another $499 out of you to list again.

Let's compare that to a traditional full-service, commission based real estate agent. No sale = no money. That's right, I don't get paid if you don't sell your house. Let me say it again, I don't get paid if you don't sell your house. I talk with you about pricing, we prepare a marketing plan, and we market your house. After we find a buyer, we help you negotiate the sale, and then we make sure that the buyer follows through. We also make sure that you (the seller) don't run afoul of any rules, or mistakenly breach the contract as we move from contract to closing. We are there to protect you, and help you. We are there to make sure that everything runs smoothly.

Where is the FSBO marketing company? They cashed your check, and they are hoping that you don't call, because it takes time away from getting $499 from someone else.

Please don't forget to rate this post. Thanks.

What is going to happen with Interest Rates?

OK, the water is chest deep now. I started wading in here, and I just don't know when to stop.

So, what do I see happening with interest rates? Overall, I see them going down. But, I think they'll go up first. Was that vague enough that I can claim victory no matter what?

First, the case for rate rising. In the short term, I see rates going up a bit. Not a lot, but somewhat. We won't even get close to the credit card looking rates that Jimmy Carter left the mortgage market with, but rather people will think that 7%, or maybe even 8% was a deal. With the meltdown of the sub-prime market, and the looming foreclosure crisis, the expenses that lenders have are going to go up. In order to recapture those expenses, I see the rates going up a between 1.5 and 2 points. But then, the rest of the market is going to catch up.

Now, the case for rates falling. After that short term bump, rates will need to drop. Oddly, the SPM (Sub-Prime Meltdown) will be responsible for that as well. The result of this SPM will be that fewer people will qualify for mortgages. The ones that will qualify will be more stable. Therefore, there is less risk. However, and more importantly, since the pool of mortgage buyers will be smaller, there will be increased competition to get them. Face it, money is the ultimate commodity, so the best way to compete is to make it cheaper. Expect to see savings interest rates suffer as well. Supply and demand will require that mortgage rates go down. If there is more money available, and a smaller market for that money, the price has to go down. So {brace yourself for a bold prediction}, I think that by 2009 or 2010, unless there has been a fundamental change in the market, we'll be looking at mortgage rates back in the 5.5% range.

As always, I look forward to your ratings and comments. I'd love to know what you think.