Monthly Archives: November 2013

The Shadow-ier Shadow Inventory

shadowShapesContinuing our head scratching session from last week…(go to tombrezsny.wordpress.com to pick up the thread) 
 
We were musing, albeit a little plaintively, about theconspicuous lack of listings on the market.  Real estates’   trending topic and dominant issue du jour.  The Big I.  As in INVENTORY.  Or the lack thereof. 
 
There isn’t anyone trying to buy a home in SC County right now, under a million bucks, who isn’t painfully aware of the challenge that ultra-low inventory represents. 
 
There’s not a single local Agent trying to help someone buy a home that’s not frustrated by the increasingly narrow bandwidth of choice –  tightly compressed between the vastly unappealing, conspicuously flawed, woefully overpriced and the eminently desirable, competitively priced, multiple-offer worthy.  
 
It’s famine or frenzy time.  Either Agents are showing properties to their clients, with some degree of trepidation, because they aren’t really worth showing.  Or…they are scrambling like chickens with their heads cut off to help them compete with five other offers on some rate little needle-in-a-haystack exception that finally showed up on the market.
 
Can’t we just get a big handful of listings coming on,  that are pretty good homes with reasonable amenities in decent locations –  that don’t fly off the market in a week with a barrage of offers?  They don’t have to be perfect. Just above average.
 
Can’t we trade in some of the dogs – those built on 50 degree slopes next to the freeway with significant structural issues or failed septic systems – for just a few more of the modestly appealing kind? 
 
Inquiring Buyers want to know.
 
What a weird turnaround we’ve experienced in recent years.  Back in 2010,  30-40% of the inventory and sales fell into the distress category. Short sales and Bank REOs. 
 
On top of that, there was an underlying belief that a huge unseen cache of additional foreclosures,  known as the “Shadow Inventory”  was sitting out there. Held in the secret toxic asset vaults of  evil banks.   A giant supply of homes waiting to be released into the market and flood it with fresh meat.
 
These days, distress sales have dwindled to a tiny fraction of the inventory. Conversely,  all-cash purchases have risen precipitously and now constitute 30-40% of the non-distress sales.  We don’t hear anyone whispering about the Shadow Inventory anymore.  If it ever existed, it has disappeared through some nefarious unseen slight of hand. 
 
 
These days there’s a new shadow-ier Shadow Inventory that has risen to take the place of the old one.  It’s the inventory of nascent buyers out there… milling around on the sidelines.   Not by choice but by the sheer lack of places to purchase.  Stressed buyers rather than distressed properties.
 
The queue in the Shadow-ier Inventory is getting longer.  Off the top of my head, I can count at least six different sets of my own clients who are looking diligently. And have been for some time.  Six sets of major life transitions on hold for the time being.
 
They are ready, willing and able to buy. Just about every single Agent in SC County has their own clientele of qualified buyers that fits the same description. 
 
Have a 3 bedroom, 2 bath, 1700 sq ft home on a decent street, that’s not a total fixer, has a few upgrades and amenities,  priced between $600-$800k? Bring it on Sellers. 
 
You’ll be swamped at your first open house. You don’t have to wait.  All those apocryphal notions and suburban myths about Thanksgiving and Christmas always being bad times to sell are silly. 
 
List it and they will come.  Now. 
 
 
To be continued.
 

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Head Scratching About the Market

head-scratchingLet’s just plunge in, shall we?  Last week’s column ended with a rather plaintive question directed at no one in particular. Just a head-scratcher tossed out in the general direction of the Universe-at-Large:  “What’s wrong with this picture?”
 
We were talking about a growing conundrum. One of those riddles wrapped in a mystery, tucked inside an enigma. The enigma that is the real estate market right now. A market increasingly defined by its sheer lack of available inventory – a.k.a – options, choices, supply. 
 
Inventory. The thing most regular people simply refer to as “homes to buy”.
 
Make the rounds through the open houses this weekend. Become a fly on the wall. Eavesdrop on random conversations coming from different rooms. You’ll hear a lot of similar refrains. A litany of recognizable leitmotifs echoing through the various halls.
 
Things like: “When are more places coming on? There’s nothing to look at. Nothing worth buying. Too dated. Too small. Too much work. Good ones are gone too quickly. Too much competition.  Prices bid up too high. We’ve been looking too long.  Interest rates are going up too far.”
 
Sounds all too “too” familiar to us Agents.  Just to offer a frame of reference grounded in actual data rather than buyer chatter  – let’s repeat a few stats from last week.
 
The inventory of homes in SC County this October was the lowest for any October stretching back 17 years!  For the last 32 months in a row, the number of active listings each month has decreased from the same month the previous year.
 
In other words  – this shrinking inventory thing isn’t new.  It’s been ongoing for two and a half years.  Where it stops? Nobody knows. 
 
Basic supply and demand suggests that as buying increases, the supply of homes shrinks.  People pay more. As prices rise more Sellers put their homes on the market. The supply of homes rises to meet demand until some kind of equilibrium is achieved or tipping point reached.
 
We know supply is shrinking. We know prices have gone up. The median has risen this year from $485,000 to $647,000. The overwhelming impression is it’s a Sellers market.  Which begs the question.
 
Why aren’t more Sellers Selling in a Seller’s Market?  If more Sellers don’t sell, more Buyers won’t buy. If more Buyers don’t buy, prices won’t go up and convince more Sellers to Sell.  Things get stuck!! A logjam ensues. The market doesn’t function.
 
Here are a few reasons more Sellers aren’t Selling.
 
       Sellers aren’t just Sellers. They are Buyers too.  They need a roof over their heads when they sell.
 
There’s not enough new construction locally to create significant new supply.
 
       The same low inventory that makes prices go up for Sellers makes it harder for them to buy. Their choices are limited.
 
       As prices go up for Sellers, the prices of the things they want to buy go up to.
 
       Today’s prices haven’t risen to their previous highs. Many Sellers still don’t have enough equity to go anywhere. Many are still underwater or just treading the surface.
 
       Loan regulations have changed. No or easy qual loan options have disappeared. Many Sellers can’t qualify to move without selling first.
 
       It’s very difficult to Sell and Buy at the same time in a market with such low inventory.
 
        The inventory of rental options is even worse than the number of homes for sale. And tougher to navigate.  It’s difficult to sell a house, rent one, then buy another afterwards.
 
 
Anyone recognize themselves in any of the above?  Let’s continue this next week.

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Choking off the Supply

strangle-17370158Today’s topic: The three most important words in the lexicon of New Normal Real Estate: Inventory, Inventory, Inventory. Actually, let’s toss another Inventory on and make it the four most important words.
 
Used to be Location, Location, Location.  Then for awhile, when the crazy game of market musical chairs came to such an abrupt end in 2007 – Timing, Timing, Timing was a better choice. (It didn’t matter how good your location was – you still got slammed if you timed it wrong.)
 
But there’s nothing dictating the good, bad and ugly disposition of our current marketplace more than the sheer lack of healthy inventory available on the mean streets of real estate. Homes ready, willing and able to be purchased.
 
A few quick local stats – thanks to our friends at Real Options Realty (go to ror.com):
 
As of the first week in October, there were 663 listings, down 7% from 822 listings one year ago. …The fewest listings for the month of October in at least 17 years. Additionally (only) 471 are active listings. 166 of the 471 active listings, or 35%, are priced over $1Million. There are just 305 active listings in the county priced under $1Million. This is the 32nd consecutive month where the number of listings is lower than the comparable month one year earlier.
 
Wow!  Does anyone think a ton of new Sellers are going to be putting their homes on the market for Thanksgiving and Christmas? To welcome all those eager buyers tromping through the middle of their holiday dinners?  Not likely.
 
Where’s all this heading as we peer into the crystal ball of 2014?
 
Are more earnest buyers out there diligently looking for modest homes on modest streets, somewhere north of $600k and south of $800k,  going to be able to find a home to call their own?
 
How many Sellers are thinking about putting their homes on the market next spring?  Is that number more or less than the number of would-be buyers who have given themselves a time out, hoping that next spring will bring more equitable conditions to buy in?
 
Will the logjam break?  Send a flood of glorious inventory washing through the marketplace? Or will the choices get even scarcer?  Will prices keep ratcheting up with each new comp? Will rising interest rates play the spoiler role? 
 
And while we are asking questions, how the hell did we go from a market where 30 – 40% of the homes for sale were distress properties (REOs and Short Sales) to a market with almost no distress properties and upwards of 30-40% of purchases being all-cash in some areas?   
 
What happened to that huge shadow inventory that was going to get dumped on the market and drop prices even lower? Did we blink our eyes and miss it? Are we sure our good friends at Chase don’t still have some toxic bank vault of old Washington Mutual homes they are holding in massive reserve?
 
It’s been an astounding turnaround.  And it’s not really clear where so many of those buyers are getting their cash from.
 
Contrary to popular opinion, it’s not all “rich investors”.  In fact almost no “rich investors” are buying $800,000 homes in places like the lower West Side or Seabright.
 
Are regular people making some semblance of a moderate living secretly being replaced by an influx of high-income, stealthy 1% Tesla telecommuters who come in the middle of the night and surreptitiously take their places, like an insidious reprise of the invasion of the body snatchers?
 
And then finally, if the inventory is so low and prices are rising, why aren’t more sellers selling in a sellers market?  What’s wrong with this picture?
 
We’ll talk more next week.

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Relatively Speaking

RRRMeetingEvery few months, I get a call from one of my out-of-town relatives who’s got a house problem, market question or sales snafu.  Somehow they’ve found time to squeeze ten minutes out of their busy schedule to call at 10pm and tap the font of realestate knowledge they imagine bubbling up from my brain.
 
Near as I can tell, they figure pearls of wisdom shoot out of the top of my skull with the regularity of Old Faithful. Showering anyone within earshot with insight. Yes sir, 24/7/365, I’m ready, willing and able to bestow sage advice on all thirsty pilgrims who make the long journey through the fiber optic lines.
 
But I assure you, I’m no modern day Oracle of Delphi. Or even the dial-up equivalent of Dionne Warwick’s Psychic Hotline . I don’t live or work in Iowa or Connecticut and my crystal ball doesn’t tell me much about those places.
 
I do know I’m not living in Kansas but I don’t really have a clue about the state of the market in Austin or Boise. Even if my relatives do figure: “It’s all just real estate isn’t it?”
 
It’s family right? Dutifully, I try to fluff my font each day along with my aura, so no one swimming in or around my gene pool will be disappointed.
 
Here’s the problem…every time one of my relatives calls, they inevitably seek advice in lieu of actually soliciting the advice of a reputable Realtor in their own backyard. Their slightly fractured logic goes something like this:
 
“Maybe I can save a money by not paying Realtor fees. I don’t know what I’m doing but I can call Cousin, Brother, Nephew, Uncle, Son-In-Law Tom and get a ten minute primer on all things real estate.”
 
A cliff-notes version of Real Estate for Dummies: “It really shouldn’t take long to grasp what all those Realtors do to make that easy money. It’s a little legalese and the rest just falls into place. Doesn’t it?”
 
Sometimes I wonder who the dummy really is. Am I wearing a big sign on my back at family reunions that says “Expert Realtor – call when you don’t want to use a Realtor but need a Realtor?”
 
Other professionals probably recognize the symptoms. Somehow free advice you give out at a party is better than the logic you dispense at theoffice. If you aren’t in your office, it’s not like you are really working is it?
 
We are all capable of getting five minute renditions of the facts prior to making instant diagnosis’ or recommendations that cover all the variables and possible outcomes of complex situations – aren’t we?
 
The real kicker comes when one of my relatives calls to get two hours worth of ten minute advice and then in the end, they ignore it all because, almost without exception, I recommend they get a Realtor to represent them and pay what it costs.
 
They call. I talk. They shoot themselves in the foot. And they don’t hesitate to call again. Go figure.
 
Honestly, I have no problem with people saving money. I do have a problem when it ends up costing them far more than it saves just so they can feel the strange drug-like euphoria that comes when they think they’ve gotten a bargain.
 
So I’m hereby putting out a call to all my family members and I’m encouraging all you other Realtors to do the same at your own dysfunctional family functions. I’m advising them to give up their flea market, yard sale, Craig’s List, I’ll-drive-across-town-to-save-a-buck mentality – when it comes to something as important as a home they are buying or selling.
 
If they want to buy or sell an old couch – they should go for it and indulge themselves with a passion. If they have to set firm boundaries for themselves they should draw the line at anything that costs more than a hundred thousand dollars and call it tough love.

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The Sky Isn’t Falling But The Market is Slowing

Chicken+Little+Sky+FallingA public announcement from your full-service real estate column:  Remember to turn your clocks back or you’ll be out of sync with tomorrow’s open houses. Might miss something really good.
 
There are probably more than a few Buyers out there who’d like to turn their clocks back a year or two.  To a time when home prices and mortgage rates were lower.
 
Remember when we finally hit bottom and a great big window of opportunity for aspiring Buyers suddenly began to emerge from the doom and gloom?
 
In January of 2012 the Median Home Price in Santa Cruz County was  $425,000 and mortgage rates had dipped to 3.9%.  A couple of months ago (September 2013) our Median Price was $640,000 and prevailing rates were at 4.49%.  Wow. What happened?
 
Despite a significant surge in prices, Sellers are still more prone to remember the Median Price from September of 2005 & 2006 .  A whopping $750,000. Lots of them would love to turn the clock back to re-experience those bubble years. Some still think they can.  Check a few of the list prices we’ve seen recently.
 
The past is the past.  The market isn’t about to plunge into the dark ages of the great recession OR   ride the Way Back Machine to the epic boom that preceded it. 
 
We don’t get to go further back than 1 hour.  This whole clock thing isn’t a reprieve from fate.  It’s simply a device to bring a little more daylight into our lives as we move towards 2014.
 
In preparation let’s shed some light on where real estate is at right now.
 
Without question and in no uncertain terms… the market has slowed. 
 
Relax. I’m not Chicken Little. The sky isn’t falling and the market hasn’t disappeared.  And it’s not going to.
 
But we do have to resign ourselves to the fact that we can’t continue coasting on the same wave of heightened frenzy that market perception has been living off of since February/March/April. 
 
Some of you remember how crazy it was. Ten offers first day. Over full price. All cash/no contingency/quick-close.  It did feel like 2005 reincarnated.  For a while at least.
 
The competition for homes was so strong  I wrote a 7 week series on how Buyers could increase their chances in one of those multiple offer situations that felt more like a steel cage wrestling match.
 
Not any more.  Two or three offers maybe – with a little luck and good Seller karma.  More days on market. Numbers of pending sales and actual sales down.  Fewer calls. Fewer e mails. Fewer web hits.  Fewer Buyers coming through open houses.
 
Six months ago most new homes came on the MLS with standard language announcing that all multiple offers would be reviewed on a pre-set date.  Multiple offers were a given.
 
The listing was entered on a Tuesday.  Brokers open Thursday. Saturday and Sunday open houses.  And then whammo! Have offers ready by Tuesday at 5pm. Be prepared to stand in line to present them.
 
These days, Sellers who assume in advance that they’ll certainly have multiple offers by a certain date are pretty much risking certain embarrassment for shooting themselves in the foot.  Those same offers aren’t out there hanging like ripe fruit. The bucks aren’t flowing so freely.  Buyers aren’t jumping in with such wild abandon.
 
Get used to it .We are have moved into a different phase. The market has come a long way. But it hasn’t come all the way.  And that might not be all bad for either Buyers or Sellers.
 
 Next Week:  The three most important words in the new real estate vocabulary:  Inventory, Inventory, Inventory.

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