Monthly Archives: September 2009

First-Time Buyers’ Market? Not!

FirstTimeBuyersMarketNotAt first blush, we ought to be easing around the bend, coming into the sweet, warm embrace of a Great Renaissance for First-time Buyers, right ? Any day now. The check is in the mail. Right?

First-time Buyers. That large, left over, endangered species list of haven’t-bought-yets that got totally priced out of anything resembling a home of their own during the long-running, 7 year super-market sweep of real estate from 1998-2005.

You know. All those people who didn’t just go crazy and jump into the abyss with 100% subprime loans, trying to leverage themselves beyond the wildest stretches of their own imaginations and their own yin yangs. Ready to risk all on a throw of the fuzzy dice with a lot of weird, fuzzy math attached.

All those teachers and civil servants. The one’s that, on a good day, when we aren’t all bemoaning the sad fates of our own sorry behinds, we cry elephant tears for. We play tiny violins for. And we pay endless lip service to and for – under the guise that in a just and rational world, people ought to be able to own a home in the same community they work in.

Home. A little corner of paradise found. A tiny sliver of the American Dream. A piece of the rock to polish with TLC . Not a lot to ask for. Specially for those brave and resolute souls who resisted the temptation to make that irresistible pact with the Devil four or five years ago before plunging headlong into the apocalypse with a tin-plated liar’s loan. The Devil is busy collecting his debts now. Without much sympathy. There’s a huge after-market price tag that comes when bubbles burst and tsunamis follow.

But Remember 1994? We were coming out of a recession then, too. (It’s the economy stupid.) We had a tight credit market. (Why does this idiot loan guy need a copy of my old divorce decree?) We were recovering from a real estate-fueled Savings and Loan Debacle (You mean financial institutions can be dishonest in a free-market system?)

Prices dropped. Interest rates dropped. And suddenly…Voila! The doors of perception and the windows of opportunity swung open – wide and inclusive for a bunch of really deserving people. More than half of the rebounding sales in 1994 in Santa Cruz County were generated by First-time Buyers. It was great. Real estate virgins were making hay. People who thought they were priced out of the market forever by the sonic boom of the late 80’s, were back in business.

So here we are in 2009. The Median Price is down from $780,000-ish to $510,000-ish. Average Price down from $900,000-ish to $550,000-ish. Interest rates are floating in an incredible range between the high 4’s and low 5’s. There’s a First-time Buyer Tax Credit. Tons of foreclosures. Lots of Sellers in trouble.

Isn’t this the perfect storm of events for First-time Buyers? Just like 1994? Isn’t there a wonderful upside to the downside for all those excited debutantes putting on their prom clothes?

Mortgage pundits and recovery addicts and real estate agents are beating the drum of a buyer’s marketplace. First-time Buyers are getting pumped up, psyched up, stimulated by talk of stimulus…but where is this market? Did it come and go? Was it ever here? Is it on hold? Is this another fake-out by the spinmeisters? Is this more myth than realty? Are we all addressed up with nowhere to go?

Where are all those low, low-priced homes? Why does every low-priced home smell like dogs or cats or people living like animals? What happened to the light fixtures? Who put the holes in the walls? Was there a motorcyle repair shop on the living room carpet? Is the promised land always on a busy street corner or the bad side of town? Why are so many septic systems failing? Is that black mold growing on the wall or just a bad case of terminal mildew? Why are there multiple offers on everything near the bottom? Why aren’t more REO’s taking FHA loans? Why are short sales so long? Why is the loan process so hard? Is there a secret “A” list of foreclosures out there? What if I don’ want to pay cash for these clunkers?

That’s not a blush of excitement you see on my cheek. That’s a blush of embarrassment and frustration that somehow we aren’t finding ways, as a collective industry, to create more real opportunity for First-time Buyers. That’s what would be a perfect storm and a perfect, poetic resolution to the sickening saga real estate has endured.

What’s wrong with this picture? Let’s spend the next couple of weeks trying to figure it out. Stay tuned.

CRASH TEST DUMMIES IN THE DEFAULT WORLD!

CrashTestDumies
CrashTestDumies
CrashtestDummyI wasn’t going to talk about banks and foreclosures and all the other “stuff” getting stuffed into our increasingly strange world of consensual realty, this week.  Honest. I was going to put the breaks on my own broken record. I was going to get out my smiley-face lapel pin and quit howling at the moon as we swim against the current of current events.
But a Realtor friend of mine just returned from Burning Man. Two weeks ago, he was jetting around the Playa in his solar-powered art-car enjoying a world unburdened by debt. Now he’s laboring through the hangover of reverse culture-shock. And as he reminded me with a wry smile of irony…this place around us, outside of a certain oasis in Nevada that materializes like the annual alignment of a planetary mirage…is known as The Default World.
When he left the desert, everything in that parallel dimension was cleaned up, packed up,  and piled up into a huge, cleansing bonfire. He returned to a universe that is still Crashing and Burning in slo mo, frame by frame, like one of those crash dummy videos chronicling the close-up carnage as the economy keeps plowing headfirst into the wall and calling it good.
So here’s what keeps running through my dumb head in slo mo…
If we roll back the clock to 2005 – the market had bandwidth. The energy was free flowing. From first time buyers to first class flyers. From $500,000 to $5 million. Everything was selling at both ends. And in the middle. There was plenty of room to move.
Now, we have a marketplace where the bandwidth is getting narrower. The majority of active buyers here, are looking below $500k. Yes, some things sell above that. And yes, you can quote the median price numbers back to me. But truthfully, the more I juxtapose aggregate real estate statistics with my own direct experience – the more I am convinced that those numbers lie. Or simply tell an incredibly small truth in The Default World.
$499k is the new, favorite stopping place for listings on their way down.  It is getting more crowded all the time. Those are the houses that sorta mighta sold for $675,000  not long ago. Somehow they missed their window of opportunity and they’ve been plunging on the giant slip and slide ever since. The scariest part is that some of those $499k homes haven’t sold.  Buyers aren’t lining up around the block to write offers on them. Why not? At $399,000? No problem. We’ve got 10 offers on most of those places that are, arguably, hardly live-able.
Right now, the market above $499k is a giant trash compactor. Prices are slowly moving down through the layers of accumulated recycling. Everything between $5 million and $500k is getting painstakingly, incrementally, inexorably smushed together. Most of the market is getting slower and denser. There’s an astounding difference between what you can buy for $500k and what you get for $600k.  Or $700k  and $800k.  Visualize a car going through  the crusher and coming out looking like a metal cube 2′ by 2′ square. That’s what the market above $500,000 feels like.  Gravity sucking everything into a wormhole where normal space collapses. At some point in time, if the market gets heavy enough, won’t it crash through the glass ceiling below it? Won’t the bottom fall out of the bottom?
Banks are in control of the marketplace. REO’s are bank-owned properties. Homes that were possessed and repossessed so quickly, Linda Blair’s head is still spinning.  Short sales are just homes on their way to being bank-owned,  after would-be buyers and sellers commit ritual sepulchu to spare themselves the aggravation of being ignored any longer.  Some significant portion of the “organic” sellers out there must be driven by distress. Presumably they’ll stop making their mortgage payments and join the queue, somewhere along the way.
There is a giant shadow inventory of foreclosed homes being held in bank vaults. Homes that have been foreclosed on, but haven’t hit the market yet. There is a shadow, shadow inventory of notices of default that haven’t been foreclosed on yet. There is a shadow, shadow, shadow inventory of homes that are behind on their payments but haven’t received there NOD’s yet. And there is a shadow, shadow, shadow, shadow inventory of homes where Sellers are just coming to terms with what a jobless recovery might mean for them.
What happens when all of that inventory hits the market at some point in time?  Banks  can’t keep dribbling out little bits of their supply forever can they?  Where will it all end? Only the Shadow knows for sure.  Welcome to topsy-turvey landscape of The Default World.  Who’s fault is it anyway?

CrashTestDumiesI wasn’t going to talk about banks and foreclosures and all the other “stuff” getting stuffed into our increasingly strange world of consensual realty, this week.  Honest. I was going to put the breaks on my own broken record. I was going to get out my smiley-face lapel pin and quit howling at the moon as we swim against the current of current events.

But a Realtor friend of mine just returned from Burning Man. Two weeks ago, he was jetting around the Playa in his solar-powered art-car enjoying a world unburdened by debt. Now he’s laboring through the hangover of reverse culture-shock. And as he reminded me with a wry smile of irony…this place around us, outside of a certain oasis in Nevada that materializes like the annual alignment of a planetary mirage…is known as The Default World.

When he left the desert, everything in that parallel dimension was cleaned up, packed up,  and piled up into a huge, cleansing bonfire. He returned to a universe that is still Crashing and Burning in slo mo, frame by frame, like one of those crash dummy videos chronicling the close-up carnage as the economy keeps plowing headfirst into the wall and calling it good.

So here’s what keeps running through my dumb head in slo mo…

If we roll back the clock to 2005 – the market had bandwidth. The energy was free flowing. From first time buyers to first class flyers. From $500,000 to $5 million. Everything was selling at both ends. And in the middle. There was plenty of room to move.

Now, we have a marketplace where the bandwidth is getting narrower. The majority of active buyers here, are looking below $500k. Yes, some things sell above that. And yes, you can quote the median price numbers back to me. But truthfully, the more I juxtapose aggregate real estate statistics with my own direct experience – the more I am convinced that those numbers lie. Or simply tell an incredibly small truth in The Default World.

$499k is the new, favorite stopping place for listings on their way down.  It is getting more crowded all the time. Those are the houses that sorta mighta sold for $675,000  not long ago. Somehow they missed their window of opportunity and they’ve been plunging on the giant slip and slide ever since. The scariest part is that some of those $499k homes haven’t sold.  Buyers aren’t lining up around the block to write offers on them. Why not? At $399,000? No problem. We’ve got 10 offers on most of those places that are, arguably, hardly live-able.

Right now, the market above $499k is a giant trash compactor. Prices are slowly moving down through the layers of accumulated recycling. Everything between $5 million and $500k is getting painstakingly, incrementally, inexorably smushed together. Most of the market is getting slower and denser. There’s an astounding difference between what you can buy for $500k and what you get for $600k.  Or $700k  and $800k.  Visualize a car going through  the crusher and coming out looking like a metal cube 2′ by 2′ square. That’s what the market above $500,000 feels like.  Gravity sucking everything into a wormhole where normal space collapses. At some point in time, if the market gets heavy enough, won’t it crash through the glass ceiling below it? Won’t the bottom fall out of the bottom?

Banks are in control of the marketplace. REO’s are bank-owned properties. Homes that were possessed and repossessed so quickly, Linda Blair’s head is still spinning.  Short sales are just homes on their way to being bank-owned,  after would-be buyers and sellers commit ritual sepulchu to spare themselves the aggravation of being ignored any longer.  Some significant portion of the “organic” sellers out there must be driven by distress. Presumably they’ll stop making their mortgage payments and join the queue, somewhere along the way.

There is a giant shadow inventory of foreclosed homes being held in bank vaults. Homes that have been foreclosed on, but haven’t hit the market yet. There is a shadow, shadow inventory of notices of default that haven’t been foreclosed on yet. There is a shadow, shadow, shadow inventory of homes that are behind on their payments but haven’t received there NOD’s yet. And there is a shadow, shadow, shadow, shadow inventory of homes where Sellers are just coming to terms with what a jobless recovery might mean for them.

What happens when all of that inventory hits the market at some point in time?  Banks  can’t keep dribbling out little bits of their supply forever can they?  Where will it all end? Only the Shadow knows for sure.  Welcome to topsy-turvey landscape of The Default World.  Who’s fault is it anyway?

A BAD CASE OF REEFER MADNESS!

There’s the long and the short of it…..but perhaps in real estate it’s more germane to talk about the big and the small of it.

Many of the things that cause frustration, consternation, perturbation  in real estate often arise from people not being able to distinguish between what’s big and what’s small, when they are in the heat of the moment. What’s worth the time, effort, money and brainspace? And what’s not?

What’s that animal part of your nature saying while it insists that you: get even, teach the world a lesson, draw an imaginary line in the sand, preserve some  semblance of pride by not succumbing to anything that is galling no matter how much of your own nose you have to cut off to save face?

And  what’s that cool, more detached, smart part of your brain saying that is able to: let it go, not sink to anyone’s level, recognize the value of living yet another day without lugging a ton of extra baggage around and isn’t so arrogant to think that it can force someone to learn a life lesson that they are not open to.

Cardinal rule in all negotiations? Make sure you win on the big stuff. If you have to lose.. lose on the small stuff. If you gotta give the buyer a home warranty for 350 buckaroos and throw in a couple of 1.6 gallon toilets to meet the County’s water conservation requirements to help leverage another $10,000 on the purchase price – go with the flow.  Ten thousand bucks will buy a lot of Totos and TP. It will flush away all kinds of bad feelings that might either wash over you for a few moments or completely inundate you if you let them.

For quite a while,  we  didn’t have a lot of normal negotiation in a marketplace dominated by multiple offers, overbids, fewer days on market and a general sense of entitlement on the part of the Sellers.  Many negotiations circa 1999 through 2005 pretty much went  like this: Sellers said: “Jump!”  Buyers asked:  “How High?”  Negotiation concluded. Bite your tongue. Sign here and press hard.

Its not that there wasn’t any negotiating going on in those years. Its that the bulk of the negotiations were between Buyers vying for the same house and worrying about what other Buyers were willing or capable of doing. Buyers against Buyers rather than the usual one Buyer and one Seller going at it in a tete a tete, mano y mano chess game.

When the  national economy goes down, invariably, the collective incidence of serious crimes – murder, assault, armed robbery – goes up.   Coincidence? I think not. Whenever the real estate market slips into a transition period and stops running at an exorbitantly accelerated pace, it messes with the collective heads of people out there in real estate  land,  It tweaks their ability to maintain perspective between big and small. It acts like some kind of mind-altering drug  that’s been surreptitiously slipped into the tap water. Suddenly instances of people behaving badly about little things increase with alarming frequency. Coincidence? Definitely not!

Almost 15 years ago, I was involved in a sale between two principals who got their knickers in a twist about an old refrigerator – a lovely harvest gold model.  Much to both Agents’ exasperation the refrigerator became the raison d’etre for the whole transaction. It kept popping up in the negotiations. It resurfaced during inspection contingencies. The buyer was determined to get it.  And the Seller wasn’t going to part with something he had absolutely no use for. End of story.

Well not quite end of story…..The Seller prevailed – sort of. The fridge was personal property. Arrangements were made for the Salvation Army to pick it up.  While moving the appliance, they managed to scratch the hardwood floors throughout the house. The Seller had to spend thousands refinishing the floors at the same time the Salvation Army decided the refrigerator wasn’t worth it and left it sitting at the curb for someone else to haul away.

Worst case of reefer madness I ever saw. But that’s what happens when you stop distinguishing between big and small and can’t see the floors for the freeze.

Little Pink Houses

At first blush,  we ought to be easing around the bend,  coming into the sweet, warm embrace of a Great Renaissance for First-time Buyers, right ? Any day now. The check is in the mail.  Right?
First-time Buyers. That large, left over, endangered species list of haven’t-bought-yets that got totally priced out of anything resembling a home of their own during the long-running, 7 year super-market sweep of real estate from 1998-2005.
You know. All those people who didn’t just go crazy and jump into the abyss with 100% subprime loans, trying to leverage themselves beyond the wildest stretches of  their own imaginations and their own yin yangs.  Ready to risk all on a throw of the fuzzy dice with a lot of weird, fuzzy math attached.
All those teachers and  civil servants. The one’s that, on a good day, when we aren’t all bemoaning the sad fates of our own sorry behinds, we cry elephant tears for. We play tiny violins for. And we pay endless lip service to and for  – under the guise that in a just and rational world,  people ought to be able to own a home in the same community they work in.
Home. A little corner of paradise found.  A tiny sliver of  the American Dream. A piece of the rock to polish with TLC . Not a lot to ask for. Specially for those brave and resolute souls who resisted the temptation to make that irresistible pact with the Devil four or five years ago before plunging headlong into the apocalypse with a tin-plated liar’s loan.  The Devil is busy collecting his debts now.  Without much sympathy.  There’s a huge after-market price tag that comes when bubbles burst and tsunamis follow.
But Remember 1994?   We were coming out of a recession then, too. (It’s the economy stupid.) We had a tight credit market. (Why does this idiot loan guy need a copy of my old divorce decree?) We were recovering from a real estate-fueled Savings and Loan Debacle (You mean financial institutions can be dishonest in a free-market system?)
Prices dropped. Interest rates dropped. And suddenly…Voila!  The doors of perception and the windows of opportunity swung open – wide and inclusive for a bunch of really deserving people. More than half of the rebounding sales in 1994 in Santa Cruz County were  generated by First-time Buyers.  It was great. Real estate virgins were making hay. People who thought they were priced out of the market forever by the sonic boom of the late 80’s, were back in business.
So here we are in 2009.  The Median Price is down from $780,000-ish to $510,000-ish. Average Price down from $900,000-ish to $550,000-ish. Interest rates are floating in an incredible range between the high 4’s and low 5’s.  There’s a First-time Buyer Tax Credit.   Tons of foreclosures.  Lots of Sellers in trouble.
Isn’t this the perfect storm of events for First-time Buyers? Just like 1994? Isn’t there a wonderful upside to the downside for all those excited debutantes putting on their prom clothes?
Mortgage pundits and recovery addicts and real estate agents are beating the drum of a buyer’s marketplace. First-time Buyers are getting pumped up, psyched up, stimulated by talk of stimulus…but where is this market?  Did it come and go? Was it ever here? Is it on hold? Is this another fake-out by the spinmeisters? Is this more myth than realty? Are we all addressed up with nowhere to go?
Where are all those low, low-priced homes? Why does every low-priced home smell like dogs or cats or people living like animals? What happened to the light fixtures? Who put the holes in the walls? Was there a motorcyle repair shop on the living room carpet? Is the promised land always on a busy street corner or the bad side of town? Why are so many septic systems failing? Is that black mold growing on the wall or just a bad case of terminal mildew?  Why are there multiple offers on everything near the bottom? Why aren’t more REO’s taking FHA loans? Why are short sales so long? Why is the loan process so hard?  Is there a secret “A” list of foreclosures out there?  What if I don’ want to pay cash for these clunkers?
That’s not a blush of excitement you see on my cheek. That’s a blush of embarrassment and frustration that somehow we aren’t finding ways, as a collective industry, to create more real opportunity for First-time Buyers. That’s what would be a perfect storm and a perfect, poetic resolution to the sickening saga real estate has endured.
What’s wrong with this picture? Let’s spend the next couple of weeks trying to figure it out. Stay tuned.
Little Pink Houses

Little Pink Houses

At first blush,  we ought to be easing around the bend,  coming into the sweet, warm embrace of a Great Renaissance for First-time Buyers, right ? Any day now. The check is in the mail.  Right?

First-time Buyers. That large, left over, endangered species list of haven’t-bought-yets that got totally priced out of anything resembling a home of their own during the long-running, 7 year super-market sweep of real estate from 1998-2005.

You know. All those people who didn’t just go crazy and jump into the abyss with 100% subprime loans, trying to leverage themselves beyond the wildest stretches of  their own imaginations and their own yin yangs.  Ready to risk all on a throw of the fuzzy dice with a lot of weird, fuzzy math attached.

All those teachers and  civil servants. The one’s that, on a good day, when we aren’t all bemoaning the sad fates of our own sorry behinds, we cry elephant tears for. We play tiny violins for. And we pay endless lip service to and for  – under the guise that in a just and rational world,  people ought to be able to own a home in the same community they work in.

Home. A little corner of paradise found.  A tiny sliver of  the American Dream. A piece of the rock to polish with TLC . Not a lot to ask for. Specially for those brave and resolute souls who resisted the temptation to make that irresistible pact with the Devil four or five years ago before plunging headlong into the apocalypse with a tin-plated liar’s loan.  The Devil is busy collecting his debts now.  Without much sympathy.  There’s a huge after-market price tag that comes when bubbles burst and tsunamis follow.

But Remember 1994?   We were coming out of a recession then, too. (It’s the economy stupid.) We had a tight credit market. (Why does this idiot loan guy need a copy of my old divorce decree?) We were recovering from a real estate-fueled Savings and Loan Debacle (You mean financial institutions can be dishonest in a free-market system?)

Prices dropped. Interest rates dropped. And suddenly…Voila!  The doors of perception and the windows of opportunity swung open – wide and inclusive for a bunch of really deserving people. More than half of the rebounding sales in 1994 in Santa Cruz County were  generated by First-time Buyers.  It was great. Real estate virgins were making hay. People who thought they were priced out of the market forever by the sonic boom of the late 80’s, were back in business.

So here we are in 2009.  The Median Price is down from $780,000-ish to $510,000-ish. Average Price down from $900,000-ish to $550,000-ish. Interest rates are floating in an incredible range between the high 4’s and low 5’s.  There’s a First-time Buyer Tax Credit.   Tons of foreclosures.  Lots of Sellers in trouble.

Isn’t this the perfect storm of events for First-time Buyers? Just like 1994? Isn’t there a wonderful upside to the downside for all those excited debutantes putting on their prom clothes?

Mortgage pundits and recovery addicts and real estate agents are beating the drum of a buyer’s marketplace. First-time Buyers are getting pumped up, psyched up, stimulated by talk of stimulus…but where is this market?  Did it come and go? Was it ever here? Is it on hold? Is this another fake-out by the spinmeisters? Is this more myth than realty? Are we all addressed up with nowhere to go?

Where are all those low, low-priced homes? Why does every low-priced home smell like dogs or cats or people living like animals? What happened to the light fixtures? Who put the holes in the walls? Was there a motorcyle repair shop on the living room carpet? Is the promised land always on a busy street corner or the bad side of town? Why are so many septic systems failing? Is that black mold growing on the wall or just a bad case of terminal mildew?  Why are there multiple offers on everything near the bottom? Why aren’t more REO’s taking FHA loans? Why are short sales so long? Why is the loan process so hard?  Is there a secret “A” list of foreclosures out there?  What if I don’ want to pay cash for these clunkers?

That’s not a blush of excitement you see on my cheek. That’s a blush of embarrassment and frustration that somehow we aren’t finding ways, as a collective industry, to create more real opportunity for First-time Buyers. That’s what would be a perfect storm and a perfect, poetic resolution to the sickening saga real estate has endured.

What’s wrong with this picture? Let’s spend the next couple of weeks trying to figure it out. Stay tuned.