Monthly Archives: December 2012

The Sweet and Sour Spot?

Blog03Just a quick thank you to the pros at Michael’s on Main Restaurant for letting me take a wok on the wild side and a stroll down memory lane this past week. Indulging me with a guest-chef gig in their ongoing series of Tuesday food and wine events. After reprising a few of my old chops, I think I’ve got it out of my system now. Time to put the cleaver down and get back to food for thought…

 

Where did we leave off? Oh yeah. Talking about the “sweet spot” of the market. The erogenous zone of price where buying activity is really stirring. Where mounting excitement and the heady thrust of demand is firing on all cylinders.

 

When I returned to real estate from my culinary sojourn there were ten anxious voice mails waiting for me. Seven from different people – talking about almost the same exact thing. Coincidence? I think not.

 

See if any of this sounds familiar: “We’ve been holding off buying. Now we’re ready to get serious and take the plunge.”

 

Or: “We’re looking for a 3/2 in a great neighborhood between $550 -$650k.”

 

Or: “We definitely need 3 bedrooms or 2 with an office. Walking distance to a few restaurants.”

 

Or: “We could spend up to $750k but we really want to keep payments low. We’d like to stay closer to $650”

 

Or: “We’re first time buyers but we think now is the time. We can stretch as high as $500k with interest rates so low.”

 

Or: “We’re getting a gift from the folks. One of the condos in our complex finally sold. We can get out of this place whole and finally afford a real house with a real yard.”

 

Or: “We’ve been looking for something in the $600 – $650 range for a year now and there just isn’t anything available.”

 

Or: “Every time something decent comes on, it’s gone in a couple of days with multiple offers!”

 

Or: “We’re first time buyers. All we are competing with are rich investors. Every time we find something below $500k – someone throws a cash offer in.”

 

Or: “When are more places going to come on? How long do we have to wait??”

 

I’m guessing that for seven out of ten buyers reading this, some of the above resonates strongly with your own situation.

 

You figure: Market’s past bottom. Prices going up. Interest rates won’t stay low. Rents will get higher. Economy is more hopeful. Life goes on despite the distress of the downturn. A home is a great thing. You’re ready to get back in the game. Not in a crazy way. In a smart way. Buying below your means rather than way above.

 

Odds are: You’re looking for something in the “Sweet Spot” – $500 to $650ish. Three bedrooms – if possible. Two baths. Safe neighborhood. Yard. Not a fixer. Pride of ownership. Potential for appreciation down the road.

 

Simple right? Reasonable thoughts and desires. But what happens when everyone wants the same thing? And there’s not enough to go around? The Sweet Spot starts to develop a Sweet and Sour taste. A buyers market doesn’t always feel like a buyers market.

 

Will the $650k’s start pushing up towards $750? Will $850 places come down closer to where demand is? Will more high end homes drop below the magic million mark in search of buyers?

 

By the way, the other three calls on the machine were from Sellers wondering whether they should wait till spring to put their homes on the market. What should we tell them?

 

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Better Across the Board?

blog02How does the average person really know when “things” are better? The economy. The real estate market. Life in general. Where’s the tipping point? How much evidence has to be gleaned from the world around us, before our internal compass shifts and we cross over from the dark side to brighter days ahead?

Do we simply think things are better in our heads? Is that enough? Or do we just feel like the cumulative balance of life is better – for no one specific reason we can name. Just sort of a collection of little things?

There are all kinds of economic indicators that offer glimpses into the hidden processes going on in our collective hearts and minds. Indexes that try to measure the subtle, changing orientations of our belief systems that in turn regulate our participation in the world’s consensual reality.

Old standbys like Consumer Price Index, Gross National Product, Durable Goods, Trade Deficit, Housing Starts. Not to mention a slew of slightly more esoteric gauges like: Unclaimed Corpse Indicator, Men’s Underwear Index, Baby Diaper Rash Indicator, Mosquito Bite Indicator and the Latvian Hooker Index.

Since Santa Cruz has more “I Like Dogs and I Vote” bumper stickers per capita than anywhere else in the world, it’s comforting to know there’s even a Dog Index based on the theory that when things get better more people get dogs.

(Just in case you dog-likers are wondering, India had the fastest growing canine population in the world between 2007-2012 at the same time the number of man’s best friends in Switzerland dropped a whopping 10%.)

Me? I confess I’m a skeptic. A contrarian’s contrarian prepared to tilt at any paradigm propped up in the way. I can never quite justify the results of the Consumer Confidence Index with those of the Misery Index to my own satisfaction. I know that the Case Schiller Index says real estate prices were up nationwide 3% in September but am I better off now than I was four years ago? Yes and no. Four weeks ago? No and yes. Biorhythms are tricky things to pin down with algorithms.

But I do have my own personal Real Estate Index I’ve developed over the years. It’s a bit informal and I haven’t gotten around writing the computer program yet. I call it The Car Wash/Grocery Store/Cocktail Party Chat Index. A seat of the pants meets gut instinct ball park yard stick.

Here’s how it works. As I make the rounds each week I keep track of how many people approach me and volunteer something like: “The market’s up, right Tom?”

It’s not really a question. It’s an invitation. It’s code that says folks want to engage and talk about real estate. And to do that they must be feeling better about little things they are hearing and seeing about real estate. And the balance of the bigger picture must be shifting a little further towards the light at the end of the tunnel.

More people wanting to talk about real estate is a great sign. Talking is one of real estate’s most positive leading indicators. It always precedes doing something that’s real – like buying or selling a home.

There were a number of years there where subjects like real estate and those great rates and that latest refi and what the house down the street sold for and how many offers that listing got and should I remodel or buy another home never came up. They weren’t part of the conversation.

But without question, the Chat Index numbers are way up. Right along with the Random Phone -E mail-Search Engine Inquiry Index. The market is stirring.

Does that mean that the whole market is better? Straight across the Monopoly Board? Well…not quite. I think it’s safe to say that demand for the Baltics and Connecticut Avenues and St Charles Places of the marketplace is running high. The biggest question is: How do we get a little more action going on those Indiana Avenues and Marvin Gardens not to mention North Carolinas and Park Places?

Next week we’ll talk about the “sweet spot” in the current marketplace and what needs to happen to ratchet it up a few more notches into the higher rent districts.

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Armchair Quarterbacking the Real Estate Market

Blog01Stay where you are. Don’t get up. Ride the mellow wave of that Turkey-induced, tryptophan high for a couple more days. In the meantime…relax and raise the footrest on the ol’ Barcalounger. Let’s look at the big picture – as real estate rounds into the homestretch of 2012.

Reclining is much better than declining. And real estate has earned a few days off for good behavior while racking up some very positive stats the past few months.

Spoiler Alert: Anyone looking for proof that the market is speeding back towards the heyday of 2005-07 is setting themselves up for disappointment. Take things for what they are – better. Let go of that other dream.

Median Price: We’ve been consistently in the $500,000 range most of this year – after hovering closer to $450,000 last year. The median peaked out well above $750,000 between 2005-2007.

Average Price: Running in the high $500,000s to low $600s recently. Compared to the low to mid $500s last year. Still a far cry from the lofty $800 to mid $900s range Santa Cruz County averaged at the peak.

Number Sold: Sales in 2012 are up over last year – close to 25% more. Not shabby. We may reach 1800 + single family sales this year – not far off from the combined average annual sales between 2005-07.

Surprise Stats: The average and median price of condos has risen dramatically in the last few months – close to $410,000 in both categories in October. Both up more than $100,000 from October of 2011. Go condos.

Corresponding Data: The percentage of short sales and REOs was down significantly in the condo/townhome sector which has absorbed more than it’s share of distress since the downturn. Continued improvement in the condo market will be a sign of better things to come – first time buyers, more organic listings, upward price pressure in at least the lower price ranges of the market. Go condos.

Translation – Organic Sales: Regular people selling regular houses under relatively normal conditions. Not bank-controlled short sales or REOs because banks aren’t people too. Getting back to a more normal market dynamic in the future is predicated on having more organic listings. The catch? We still have huge vaults of unsold distress properties casting their long shadow.

Rental Market Irony: Bubble bursts. Prices go down. People lose their homes. Fewer people can qualify to buy. There are suddenly lots more renters competing for fewer rentals. Demand exceeds supply. Rents rise significantly.

Buyers’ Irony: The perfect buyers market? Historically low interest rates. Prices down 30- 40% from the peak. Distress sales on every block. The catch? Nothing to buy. Short sales take too long. REOs are almost always awful. Lack of choices means competing offers on the few good listings that do come on. And – it’s still not easy to get through the loan qualifying process to access those great rates.

Sellers’ Irony: If you have a decent home listed in the sweet spot – $550,000 – $750,000 – chances are you’ll see multiple offers in the first week. Eager buyers who may drive the price up and cooperate on inspection issues. What’s wrong with this picture? That same sweet zone would have been 40% higher in 2005-07.

Dead Zone: Check it out. How many listings are there on the market between $800,000 and $1,000,000? Very few. How many are selling? Fewer. Call it the market’s designated no man’s land.

Elephant in the Marketplace: Lack of Inventory. There are only 400 listings available in the County. The fewest I’ve ever seen. Until mo’ better homes come on the market – the number of sales and the prices can’t/won’t increase dramatically beyond current levels. But prices have to rise to convince more Sellers to list.

Question: If you were a Seller – wouldn’t you want to be on the market when there was the least amount of competition? Supply and demand? Remember? Perhaps it’s time to make that New Year’s Resolution.

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