Tag Archives: low inventory

The Big Squeeze

picContinuing our discussion of the Static Quo of the Status Quo.  The No/Low Inventory of  homes on the market.   A move-up market bogged down. A move-down market with nowhere to go. An entry-level market with shrinking opportunities.  What’s left?  A side-ways market?  Not really much incentive to sell a house just to be able to move into another one just like it.  Home transactions flow out of life transitions and contrary to the old adage, the more things change in your life, the more you don’t want your home to stay the same.

In the old days, there was a natural progression in the prevailing wisdom about how home ownership should work.  First you had to get into the market.  Beg. Borrow. Scrimp. Save.  Anything to buy that first home.

Then you settled in. Built sweat equity. Waited for appreciation.  And voila! Three to five years later, you had a stepping stone to the next bigger, better place. Then, you settled back in again. Repeated same.

Somewhere between the 3rd and 5th move-up –  you were arrived at the end all/be all of perfect homes.  Until of course you realized that life really wasn’t going to end there.  And the biggest lesson life teaches over a lifetime is, you never really arrive.  There’s always one more change ahead.   But then… I digress…

Here’s the list we started last week –  factors that in one way or another or in conjunction with each other that are helping to squeeze the current listing inventory. (Remember low inventory tends to become a self-fulfilling prophecy. Sellers become Buyers after they sell, so if no one is selling then not as many are buying either.  Low inventory is a cause and an effect.)

– Prop 13 Deterrence                                                – Limits on Capital Gain Exemptions

– Step-ups in Tax Basis                                           – Sustained Low Interest Rates

What else can we add to the mix of contributing factors?  Certainly each of the following plays a role in holding down the growth of inventory at this unique juncture in history.

– Fundamental Changes in Mortgage Lending

– Unprecedented Numbers of Cash Offers

– Inherent Undesirability of Contingent Offers

– Corresponding Low Rental Market Inventory

– Increasing Numbers of Foreign Investors

– Differences between New Tech & Old Tech Trends

– Shrinking Middle Class/Concentration of Wealth with 1%

– Higher Employment w/o Corresponding Wage Increases

– Lack of Suitable Housing Density

– Slow Growth Planning Policies/Land-Use Politics

– Huge Surge in Aging Baby-Boomer Demographic

– Changing Millennial Attitudes about Home

– New Paradigm of Risk-Aversion since the Meltdown of 2008

Need we go on?  Not right now since we are out of room anyway.  Next week – we’ll start talking about how some/all of the above can align in different ways to create a series of perfect storms for individuals.

The Whys of Low Inventory

UnknownWe hear it all the time.  Buyers want to Buy but they are frustrated. Stuck. Mired in a market that doesn’t seem to be on the same page as their desire to buy.  And Sellers want to Sell but they can’t quite pull the trigger and put their houses on because they can’t figure out exactly where they are going or how they are going to get there.

The knot in the Mobius loop of supply gets tighter and tighter when Sellers insist on having a roof over their heads after they sell  (unless they have gone on to their final resting place).   In order to get it, they have to become Buyers in a market where there isn’t much worth buying.

We could offer up the suggestion that more Sellers could rent after they Sell.  But that’s pretty much of a non-starter for folks who’ve owned their own homes for awhile.  And if there’s anything more disappointing than the number of homes to buy out there – it’s the number of places available to rent.

So we arrive at the Static Quo of our current Status Quo.  Where the Quid No Quo of Low Inventory begetting Low Inventory doesn’t offer up many easy solutions.

Let’s dig in and continue the discussion.  If you want to catch up on previous columns leading up to this one, go to tombrezsny@wordpress.com  (the print is a bigger there too!)

Right now there are plenty of people talking about Low Inventory. But very few are talking about “The Why” of low inventory.  What’s causing it?  Perhaps it’s time to start outing a few of the factors contributing to the mix. Rounding up a list of likely suspects.

Here’s an initial list of some of the lesser characters involved in aiding and abetting low inventory. We’ll call them “accessories to the time”.   The hotline is open for any additional tips you’d like to call in.

Prop 13: The cap on annual property tax increases acts as a deterrent to selling in a market where prices are rising.

Capital Gains Exemption of $250K/$500K  for Singles/Couples:   Many longtime residents are over this cap and the tax consequences have ironically become a disincentive for some to sell homes

Rule Governing Step-ups in Tax Basis:  Act as encouragement for many married sellers to stay in their homes  until  one or the other to passes away before a move makes practical financial sense.

Sustained Low Interest Rates: Act as encouragement for homeowners and investors to hold on to the real estate they’ve already purchased at incredibly low rates

The list will get longer next week.  Then we’ll spend more time examining it in greater detail.  It’s a complicated mix of interrelated factors and underlying causes but I won’t leave you hanging.

A Crimp in the Flow

Unknown-3We’re ten days into 2015 already! Time’s-a-wastin’ so we better get to work. There’s a real estate market out there waiting to be distilled.  Here’s a quick recap to make sure we are all on the same page:

First: There’s no more significant factor shaping today’s real estate market than the sheer lack of available inventory. A fact that has brought increasing frustration to buyers. Placed huge crimps in the regular flow of transactions. And overwhelmed many people’s ability to find practical ways to move up or down in their lives. Anything else we might choose to talk about would pale in comparison to the effects of our ongoing supply issue.

Second: Cyclical ups and downs in the marketplace aren’t unusual or unexpected.  World, national and regional economies are always swinging back and forth at the same time the real estate market is busy either leading the way or following suit – waxing and waning between Buyers’ and Sellers’ interests, fluctuating waves of supply and demand and the subsequent rise and fall of prices.

Third: The precarious depth our inventory has now fallen to combined with the prolonged duration of its decline is a powerful statement that current conditions aren’t just another iteration of cyclical business as usual.  Something fundamental has shifted. Signaling a sea change well-beyond the scope previously imagined.

Fourth:  Low levels of inventory are a permanent fixture of the new market normal – a truth that will continue to unfold over the course of the coming year.  There’s no simple solution to the inventory problem, waiting around the corner, ready to nudge the supply cycle onto its next phase.

Fifth:  There’s no question that many of the big changes real estate is experiencing stem from deeper, residual impacts still reverberating from the Great Recession. The world was turned upside down in 2008. While it would be comforting to assume we could just resume where we left off before the rude interlude of the last seven years, there are some aspects of how things work that have changed forever.

Sixth:  Something else happened on the way to the great recession and its patchwork recovery. The perfect storm came along.  While the economy was crashing and burning, the country was also coming to the tipping point of a huge demographic shift that’s been in the works for a long time. Aging baby-boomers began reaching retirement age at the same time millennials began launching journeys into adulthood. These significant life transitions are changing the essential fabric of our culture. Redefining notions about quality of life and how people want to live it.  We haven’t quite figured out how to make our new choices, find comfortable places and build strong new foundations on all the left-over shaky ground we’ve got – where so many of the old rules no longer apply.

It’s coming… but it’s going to take courage, hard choices and a lot of work.  More next week.

The Listing Drought

Unknown-1It’s tempting to look at how low the number of active listings has fallen at the moment and chalk it up to being a normal part of the seasonal ebb and flow of the real estate market.

It’s an easy excuse since historically, there are almost always fewer listings at this time of year than in the spring and summer. No one likes putting their place on the market during the holidays if they can help it.  And surely there must be plenty of Sellers out there getting ready to put new listings on the market in the coming months.

Except of course, we pretty much said the same thing last year.  And the two years before that.  And somehow all those great new listings we assumed would be coming, haven’t quite materialized to the degree we hoped they would.  As most prospective Buyers will attest, there have been a paltry few but not nearly enough.

Since we emerged from the depths of the distress market in 2011, when short sales and REOs artificially swelled the supply and comprised almost 30-40% of  total closed transactions,  the sheer lack of available inventory has become the single most dominant factor driving our marketplace.  Significant lack of supply has become a year round condition rather than a seasonal fluctuation.

In 2010-11, everyone was worried about the Shadow Inventory. That was the euphemism given to a huge secret stash of foreclosed homes that people figured all those big nasty banks must be purposely holding off the market.  They were fearful that if all that pent-up supply was somehow released into the marketplace, prices would plunge even lower than the 40% drop they had already experienced.

But ironically instead of torrents of Shadow Inventory flooding the market, we somehow have found ourselves going through an unprecedented  3 year drought marked by relatively few new listings.  One that has pushed prices up dramatically while it has also been shaking up some of the long held beliefs about the market we always thought we could rely on.

Take a moment to consider that this is the fewest number of homes that Santa Cruz has had for sale in November/December in more than 18years.  Add to that the fact that for 44 of the last 45 months, the number of listings has been lower than it was in the same month the previous year. And from my perspective, there is little on the horizon to suggest that real estate in 2015 is likely to be much different than it has been these past few years.

So it begs the question:  Is there something larger afoot in all of this? A fundamental shift in real estate and how we view the nature of homeownership?  To be continued…

Is it Break Time?

breakThis is for all the would-be Buyers waiting in the wings. Those taking a temporary break from the rigors of the real estate market after experiencing months of frustration and fatigue.

The one’s who are girding their loins and girding their loans in preparation for next year’s battle.  Hoping to rest and recuperate now, so they can be ready for the flood of new listings they are hoping will arrive.

There are plenty of left-over Buyers out there who gave it their all in 2014. They deserve an A for effort, even if they weren’t quite able to make it over the hump to the promised land.  Well-qualified folks who just couldn’t seem to out-smart a difficult market and find their way home.

It’s hard to live a normal life and look for a house at the same time. That’s particularly true in a market that demands such an exhausting state of readiness and preparation at the same time it only parcels a few meager new listings at a time to choose from.

Buyers who have been slogging around in the trenches in search of inventory for the last six months or longer, know what that “always-on” feeling is like.  The barrage of search engine e mails that begins to look like spam rather than real opportunity.

Hours spent parsing Sunday open house ads trying to figure out whether “charming” really means “fixer” or whether “cute” really means “tiny.”  And whether they should drop everything, jump in the car and head out to the open house to see for themselves.

The rush of an unexpected for sale sign popping up in the perfect neighborhood. The promising sneak peak of a new listing on Thursday’s Brokers Tour.  The call from a sister-in-law that heard a rumor about a friend of a friend thinking about putting their house on the market.  God forbid you should take a vacation and miss that once in a lifetime opportunity that could happen at any moment.

On again off again.  Hurry up and wait.  All addressed up with nowhere to go.  Weeks and months of looking hard but finding nothing.  Until suddenly, a house appears out of the blue. It’s perfect…except for the fact that five other Buyers with competing offers seem to have had the same revelation.

So many questions for all those would-be Buyers lining up in the queue for next year. What are they waiting for exactly?  Is 2015 really going to be any different? Is that flood of new listings really on it’s way?

To be continued…

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.


Circling Birds: Part Deux

GirlBirdsThis goes out to all you circling birds. You don’t mind if I call you circling birds do you? Ok. It might help if I told you what circling birds are…You can decide for yourself if the flight pattern fits.

Whenever I sit down with Sellers thinking about putting their home on the market, the conversation inevitably turns to a kind of “active imagining” of who the buyer for their place might be.

Everyone wonders. What does the profile look like? That mysterious Buyer X who is going to emerge from the shadows of the great undefined “marketplace” – made up of a constantly shifting mix of people. All different ages, demographics, life circumstances, future goals, agendas, motivations, desires, needs.

Sometime, somehow, someone is going to decide on this one right place, out of all the other possible places lined up like addresses on the lottery board. A buyer that’s going to pull it together. Summon up courage, and resources. Proactively take the steps necessary to make it home.

My answer to most Sellers is that the person most likely to step up sooner rather than later isn’t someone who just started looking or is just getting around to thinking about looking for a home.

Rather, it’s most likely going to be one of those circling birds out there. And by that I mean one of those anxiously active, very frustrated buyers who has already been flying around for months – without arriving at their destination.

Yep. Circling birds have been at it for a while. Applying themselves. Doing their homework. Making the rounds. Trying to define what they want as they go.

Circling birds are tracking the market. They are hooked up to an intravenous fiber optic line that’s feeding them search engine e mails and a steady dose of new listings and price reductions hourly, daily and weekly.

They are remarkably knowledgeable about what has sold. What’s gone into escrow. What prices used to be. They know their own little market niche better than most Agents because that’s all they are looking at. They see the tree. Not the forest.

Circling birds have tromped through those atrocious bank-owned properties that give us all the creeps. And other tired old places that could only be classified as “the dregs” of the market. Some have already made offers awhile back on a short sale or two. Exhausted their patience while waiting for a response. A few have lost out in multiple offer bids for a really great place. Felt bitter pangs of disappointment. Dragged their hearts up and gone back into the trenches to look.

Each of these experiences and every house hones their focus and desire. Brings them closer to home. Narrows the parameters surrounding their future landing pad. They’ve looked high and low. At everything on the radar. Good, bad and ugly. They’ve grown more sure of what they want – through the process of elimination.

And that’s the whole thing Sellers. Circling birds are ready to go. And the inventory is exhausted. There’s nothing else to look at except that next best thing that comes on the market – your place!

When your house goes on, all those ready, willing and able buyers are going to sit up and take notice. They are going to bug their Agents to show it to them. They’ll be doing virtual drive-bys on google earth on their lunch hour. They’ll be doing drive-bys coming home from work. If it looks right and priced right, they’ll swoop in on the first day or for that first open house.

Make sense? So…what’s the big take away? The $64,000 answer to the $64,000 question? Ponder this: What happens when you put your house up for sale in this kind of market and nothing happens? Birds descend but they don’t stick around to roost? You accumulate enough weeks on market without an offer that you begin to feel like road kill that even the buzzards won’t touch?

What was that old Real Estate Mantra again? At the right price everything sells. At the right price all objections disappear. Hmmm. Might be that extra $64,000 you tried to add on to your $640,000 list price…. Just sayin’ Sellers…