Tag Archives: real estate bubble

Market Catching It’s Breath?

Unknown-1I was driving over to Palo Alto this week. Headed up 280, weaving between all the Tesla’s, when I noticed a Prius behind me in the rearview.  It zipped past going 80mph sporting an inconspicuous little bumper sticker that read:  “ Please God, just one more bubble.”

I had to laugh because it gave perfect expression to so much of the big dreaming that’s going on in Silicon Valley these days.  That unconscious sea of inner voices out there, each whispering: “ If I’m in the right place at the right time and all the cosmic tumblers line up, maybe I can hit the jackpot, get mine and get out before the next bubble bursts.”

No surprise that we’ve heard a lot of those voices resonating loudly and clearly in the real estate market this past year.  Musing with the multiple offers.  Bouncing off the bid ups.  Rising in pitch along with list prices.

After surviving the long, tough years of the housing bust it’s good to know that the market’s back on track and there’s still plenty of irrational exuberance left to go around.

Which, in a roundabout way, brings us to where we left off last week. I had just uttered the phrase:   “How, when and why the market has stalled.” While everyone else recoiled in horror that I could even suggest such a thing.

The fact that so many people freaked-out, shows just how far the real estate market has really come. It’s only been a few short years since home values were wallowing in the lows of the late, great recession.  When we all felt displaced and oddly resigned.

I’m making the argument that the market’s recent “stall” is actually a very healthy sign.  We are right where we should be along the road to recovery.

And just to be clear – prices haven’t nose-dived, plunged or even tanked. They are just flat for the moment. Steady and holding their own.

In February 2013, the median price for single family homes in SC County was $449,000.  Then something crazy happened.  In a two-month flash, the median rose $200,000! By April 2013, it was $641,000.  Déjà Vu all over again. It felt like we had all been transported back to 2005!

Researching the history of sales in Santa Cruz County, I can’t find any other interval of time shorter than two years, where the median price made such a staggering leap.

And since April of 2013? What has the median price done?  Despite a few minor fluctuations, it has pretty much stayed the same.

I know that seems contrary to most of what we’ve heard and read about the market over the last year.  But in some ways perceptions are just catching up to what already happened.

A few months ago, March came roaring in like a lion.  It looked like we might be poised for another quantum leap.  But the urge couldn’t quite sustain itself long enough to become a surge.

I think the market just decided to take a well-earned rest.  Catch its breath after it took off and gave us enough escape velocity to get back into the black.

There’s a far more subtle organic process at work now.  A bigger picture slowly emerging out of millions of individual decisions that different buyers and sellers are making in their lives.

We’ll watch it come into better focus in the next year or two but the message is this: The real estate market went as far as it could go by leveraging lots of quantitative easing and very little inventory.  Now it’s time to build some real inventory, jobs and equilibrium for the long haul.  And that’s good for everyone.

Synapse Crackle Pop

Synapse! Crackle! Pop!   Rice Krispies!!   Or Rice “Bubbles” as they are known in Australia.  The cereal, serial and surreal breakfast of champions.  There’s been no lack of neurons firing this week here at real estate of mind central – with the election and all.  Tough to decide what to pick out of my own brain.  I’ll just give you a few quick cliffs notes rather than the full fiscal cliff version.

Does this sound familiar? From CNN Money: “Buyers were snapping up homes faster than developers could build them. Investors grabbing two, three, four each, hoping to cash in on skyrocketing prices.”

“But then the music ended. Prices started to slide. Developers were stuck with empty buildings. Homeowners saw their wealth begin to slip away.“

Buying frenzy?  A dangerous game of musical chairs?  United States – 2007?

Dystopian ghost-tracts littering the landscapes of Florida,  Las Vegas and the Central Valley?

Nope. Been there. Done that.

Now, I’m not going to beat the drum too loudly here folks, being the cautious real estate soul that I am,  but it finally does seems like housing markets around the U.S. are rounding the corner.  Passed the bottom. Beginning to head slowly-but-not-so-surely back up that I recommend wishful Sellers start looking for 2006 Median Price Points anytime soon. (Think 5 years down the line – maybe – the pendulum has a long way to swing. )

But how about China – circa 2012?  What goes around comes around? Karma?  Deja Vu all over again as Yogi Berra would say?

Perhaps this could qualify as a weird remake of The China Syndrome.  Jack Lemmon, Jane Fonda and Michael Douglas hook-up with Tim Geithner, Hank Paulsen, the gang at Lehman Brothers and the 25 member ruling politburo of the Chinese Central Committee?

Goes something like this:  The world’s run-away economy overheats. The global financial meltdown reaches critical mass.  It all begins to burn a hole through the middle class  – inexorably heading down, deeper and deeper towards China – where all those cheap exports to the US are starting to dry up.

Faced with a rapidly cooling economy the Chinese government does what so many others have done before – they drink the Kool-aid.

Lending restrictions are loosened.  Billions are encouraged to borrow trillions. Real estate and housing are pushed to the forefront.  Creating jobs. Increasing demand for steel, coal and construction equipment.  Keeping the economy moving ahead at an overheated, unsustainable pace.

A massive house of cards built on ballooning debt, financial speculation, officially sanctioned greed and the prevailing belief that “real estate never goes down.”   Sow the wind and reap the whirlwind.    It always comes full circle.

The solution?  Tighten credit. Crack down on speculators. Enact more regulation to limit the opportunities for the middle class to jump on the gravy train.  Cut off the flow of free money, in the form of debt, that’s being handed out like Halloween Candy. Then charge the Catch 22 off – back to the people.

Now that things are getting better here – perhaps the U.S. can start exporting boatloads of short sale negotiators, foreclosure experts, customer service reps, collection agencies and loan modification processors to China.  We won’t be needing them much longer.  We can do our part to help China bailout out of its own underwater real estate market while we help equalize the trade balance at the same time.

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The Conundrumming Circle

Welcome to the weekly conundrum-ing circle I call Real Estate of Mind. A small corner parcel lodged deep in the leaky brainpan of the collective psyche.  A place where everyone who is anyone is invited to wander in. Grab a spot on the spectrum of disbelief. Add their own crazy real estate conundrum to the growing mix of discord sounding out around us.

Ah, the cognitive dissonance of it all.  The crush of so many simultaneously conflicting ideas and experiences we are being asked to squeeze into our synapses without any foreseeable sense of resolution residing on the horizon.

Hoping against hope that the myriad contradictions won’t reach critical mass.   and explode our heads in another Big Bang. A giant aftershock following the Bursting Bubble that kicked this whole new parallel universe into existence in the first place.

But here we are.

We’ve got a real estate market where there are more people walking away from “home” than there are coming towards it.  More folks standing upside-down. Fewer sitting right side up.  A “subprime” phenomena climbing into the realm of higher demographics. Gain in equity getting flip-flopped into the dumping of debt.

The end of the recession getting pulled back to the summer of 2009 even as the bottom of the real estate market gets pushed forwards to 2012.  A double-dip in home prices  weaving its way into the notion of a real estate-less, job-less economy trying desperately to check itself into recovery.

Less low is the new high.  Less slow is the new fast. Cheaper is the new expensive.  Lose-lose is the new choice. Denial is the new crack. Perception unmakes the new reality. And kicking the can forward is the new dragging our
feet. There is no new normal. And the laws of physics from the “old” normal don’t apply.

And now that real estate is down, the piling on has started.  The former celebrity of Real Estate now the object of shame. Cover stories about the end of homeownership as we know it.  All the justifications about why renting is better than owning. The future of Fannie Mae and Freddic Mac in doubt. The great incentive of the Mortgage Interest Deduction up for debate.

And revisionist history says that it was our lofty dream of universal homeownership that went awry.  It was our very best intentions that morphed out of control and got co-opted by the money-changers right under the noses of all those sleeping regulators.

And we’ve got lots of sellers who feel like they are giving their homes away. And lots of buyers who aren’t seconding that emotion. They just aren’t buying in.

At the same time, we have lots of people who literally can’t give their homes away.  No matter how hard they try. No one answers the phone. There’s no way to reach the ghost running the machine. No one can actually figure out who owns the paper underlying all those homes that aren’t worth the amounts written on it.

And there’s a theory that consumer spending has increased because people who have stopped making their mortgage payments suddenly have thousands of dollars more a month to buy things with. And they’d rather have something to show for it than nothing.

And there’s no short in short sale. Not much closure in foreclosure.  And a whole lot of fault in those notices of default as the fickle finger of blame gets pointed willy-nilly in every direction.   The final consensus of the Financial Crisis Inquiry Commission Is that it is everyone’s fault and no ones fault at the same time. We all drank the kool-ade.

So every Saturday, the conundrum-ing circle gathers in search of a few consistent patterns in the arrhythmic pulse of the marketplace. Beating the layers of information beneath the surface to thresh out some hint of meaning.  Trying to apply some semblance of rhyme and reason to an out of sync phenomenon that doesn’t want to yield up any of its own top secret algorithms.

As someone once said –  the difference between truth and fiction is that fiction needs to make sense.    Real estate?  Don’t hold your breath.  It doesn’t look like it’s going to start making sense any time soon.  My suggestion?  Better make up a good story for yourself.  Hunker down and stick to it.   “This” is going to take a lot longer than we thought.

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The Shadow Knows…

Shhh. Sh-sh-shhhh. Oops. Sorry. Shhhhh. No, I’m not shushing you. Honest. This is an Advertorial. We’re here to talk about real estate – not keep it on the QT.

My recurring speech impediment has flared up again. Maybe it’s a mild form of Tourettes. Part of my brain is trying to stop another part of my brain from blurting out bad words that aren’t supposed to be heard in public. My inner Gallant is trying to shut up my inner Goofus before he acts out in front of polite company.

Shh-Sh.-Shhh. See, every time I attempt to get a word in edgewise on myself, I begin stuttering. The last time this happened was in 2005 when my lips started twitching every time I tried to talk real estate. A series of b-b-bu-bu-bubs issued forth involuntarily whenever I opened my mouth. It was like some invisible finger of fate was flicking itself across my lower lip. I sounded like I was b-b-busy making goofy b-b-baby noises while there was a really serious rogue elephant stampeding the marketplace.

What finally came stammering up out of my subconscious in a cathartic moment of release was the one word that no one wanted to hear at the time – bubble. By then, it was too late. And the rest is real estate history. History we are still trying to muck our way through in the present tenseness.

But now, I’ve got this sh-sh-sh thing going on. Thankfully all that therapy I had in the past is helping me get to the bottom of my speech pathology quicker this time. So everybody be quiet for real now, ok? Listen up. Shhhh.

I’ve got two important words to say to you. Actually it’s four words, but bear with me. Ready? Sh-sh-sh-shadow inventory. Sh-sh-sh-short sales. Whatever else I say and whatever else anyone tells you and whatever else you believe, these are two of the most important things you can pay attention to right now.

No one is talking about either of these things in a way that does them justice. Sure the words get tossed around. Casual catch-phrases floating through the open house ether. But truly meaningful conversation and analysis in the context of the big picture is conspicuously absent. The silence surrounding both is deafening. All I know, is that the growing size of the shadow inventory and the growing number of short sales are both exerting a huge gravitational pull on the marketplace, in ways we can’t quite grasp or comprehend yet.

Shadow inventory is the name for that the hidden underground vault full of foreclosed properties the banks are hoarding. For reasons we can only guess at, they aren’t ready to recycle their REOs back through the marketplace. They’ve been dribbling a few out here and there but the vast majority haven’t seen the light of day since they fell off the court house steps into the abyss. In fact, apocryphal stories from local REO Agents suggest that the tiny flow of post-foreclosure listings has grown even more constricted these last few months. The drip of damned-up inventory has stalled below a snails pace. Why? Inquiring minds want to know.

At the same time the number of REOs coming on is decreasing, the number of short sales is increasing exponentially. Short sale has to be the dumbest term anyone ever invented for anything having to do with real estate (other than the word “real” itself.) Short sales aren’t short. And to date, not a lot of what we sorta, kinda, wanna think of as short sales as in actual “sales” – have really turned out to be sales at all.

The whole concept of the short sale is fuzzy at best. A clustered FUBAR at worst. A Seller is nominally the Seller, but in the end, after hiring an Agent and marketing the property and negotiating an offer, it is the bank(s) that decides whether a property sells or not. Once a possible sale disappears into the bowels of short sale negotiation anything can happen – including nothing. How do things get decided? How long is it going to take? Who knows? Everything is open- ended. A hope and a prayer with Jiminy Cricket as escrow officer.

Short sales are really just a shadowier kind of inventory than the other kind of shadow inventory. Add them to the huge supply of homes already residing in the limbo of bank land. Sitting on the sidelines. Twiddling their thumbs. Collecting cobwebs. Waiting to be released and unleashed upon the market someday when something or someone decides it’s the right time to let ’em rip right through the tender balance between supply and demand.

As conventional wisdom says Sh-t Happens. As these unconventional times also suggest… a lot of ShSh is going to happen too.

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The Trouble with Bubbles…

I was taking a long, slow walk down memory lane the other day, rooting around in some old Real Estate of Mind columns, when I re-read this one from May of 2005. Hindsight can be a sobering, 20-20 experience… I thought I’d share a little bit of it…

I’m much b-b-b-better, thanks. My rehabilitation has come a long way. I can actually utter the word b-b-bub-bub-bubble now with only a bit of a stutter and without feeling completely overwhelmed by guilt and remorse for bringing up such a taboo real estate subject in public.

Bub-bub-bub-bubble. It has a rhythmic ring to it doesn’t it? An inherent onomatopoeia – specially when I take my finger and flick the front of my lower lip up and down while mumbling my real estate of mind missive.

Since I began blowing up the bubble question last week, there’s already been a front page story in the Chronicle sounding the alarm about the huge number of interest-only loans being issued in the Bay Area – 60% of the total this year- at a time when our housing mania seems to be seriously  surging over the top.

Such bastions of wisdom as Fortune 500 and Money Magazine have devoted considerable space in their May editions to examining the speculative nature of further real estate investment. Warren Buffet, the Oracle of Omaha, has stepped up to the podium and waded into the vast smorgasbord of opinion feeding our heads on the subject.  Many of you out there have also been kind enough to email me your favorite mystifying quotes from Alan Greenspan and a bevy of other well-known economists posing their own particular slants on the bubble question.

Greenspan is wandering around the economic landscape like a drunken sailor alternately denying a bubble exists:  “housing conditions are scarcely tinder for a speculative conflagration,”  acknowledging concerns about “froth in the housing market,” and ominously using those obfuscating double negatives:  “We don’t perceive there is a national bubble, but it’s hard not to see that there are a lot of local bubbles.”

I don’t know about you but images of froth and a lots of local bubbles brings to mind belches coming out of bloated beer bellies and the telltale signs of over-indulgent flatulence rising to the surface of the frat house hotubs and bathtubs. (By the way folks, this is just a lowly advertorial column. I appreciate all the thoughtful feedback, and high-minded discourse but how do you know that I’m not setting you up for my latest “make millions on real estate foreclosures scheme?” Just kidding, I think : – )

At any rate, it is clear that the “bubble” and other things suspiciously “bubble-like” are bubbling up in a steady stream from the collective consciousness. Google currently has 2,270,000 entries logged under ‘real estate bubble’.

If it looks like a bubble, walks like a bubble and bubbles like a bubble then it probably isn’t a duck.

But here’s the trouble with bubbles. They are tricky things. Even if we skip over the question of whether or not there is one, we are still stuck with the difficulty of defining
exactly what “it” is or exactly what “it” looks like.  By nature, bubbles are malleable. They float. They bend light and reflect rainbows. They appear and they disappear into thin air. They take many shapes and forms. You can see through them but you can’t quite touch them.

Bubble-sayers and Bubble-nayers. There’s a whole cast of characters out there stepping up to the mound to pitch us their best spin, couched behind a phalanx of logic and arguments and experiences and wishes and dreams and hopes and fears and expectations. If our heads aren’t quite doing Linda Blair 360’s yet, they are sure bobbing and weaving to the leitmotifs of the mosh pit.

Since so many people believe that reality inevitably follows perceptions created in the media – there are a lot of players competing for our hearts and our minds in the psychological battle
of the bulging bubble.

Next week we’ll round up the usual bubblehead suspects ranging from, those hardy souls that do believe in the bubble but also believe that they can time it just right – to those closet Howard Ruffs out there, already packing their survival gear and digging up their krugerrands from coffee cans in the back yard – to those still polishing their jewels of denial and singing the la-la-la song loudly to themselves – to all those others still enjoying the bubbly of the champagne bottle they just uncorked after their last big bazillion dollar sale.

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HOUSTON, WE MAY HAVE A PROBLEM…

(This column first appeared 6/18/05)

skyscrapersQuick. In your best eyes wide shut fashion, check out the marketplace and tell me which
direction is up. Which is down? It is harder than it sounds.

After ten years on a dizzy, vertigo-inducing rocket ship ride to incredible new heights, the G forces (gravity? greed? greenbacks? greenspan?) are finally getting to us. All we can sheepishly say into our headsets is: “Houston, we may have a problem.”

Here we are, standing on the precipice of a fantastic, dreamlike edifice of equity. We are on the roof of a skyscraper breathing rarefied air. Playing in the clouds. The planet of values we left behind a decade ago seems incredibly small and inconsequential. Things are going so well that maybe they are going too well.

We are worried that it will all go away overnight. We keep dreaming about falling. As a market, we have developed a bad case of acrophobia – fear of heights. It was ok climbing up the market ladder. We were so busy concentrating on the steps we didn’t have time to indulge our fears.  Now that we are up here it’s different.

Our brains are working overtime sending warning signals to the pits of our stomachs in the form of the dreaded “what-ifs”. What-ifs are like mind viruses preprogrammed into our genetic code or at least imbedded as negative engrams into our psyches from early childhood. We’re capable of spinning out a zillion of them whenever the going gets fearful.  What if interest rates go up? What if there is a bubble? What if I lose my job?

Imagine that you are minding your own business, riding a bicycle on the roof of the skyscraper. Your Mom pops her head out a window on the 97th floor and shouts: “Be careful, don’t fall.” The first thing you visualize is falling. The handlebars start to wobble and your balance goes. Suddenly riding a bike isn’t automatic. Instead you are watching a movie of yourself doing a long slow swan dive off the edge, straight into the abyss without a parachute.

When you are really high up, people always shout “Don’t look down!” Does anyone ever look down and only imagine themselves falling part way? Just one story? Nah. It is pretty much all or nothing. If you fall in your mind you usually hear the sound of a watermelon splattering on the sidewalk in your mind too.

When (not if) the market changes- if we are mindful, we will notice the market isn’t going up anymore. Our first overreaction will be that the market is going down and that the sky is falling. Even though not going up is not the same as going down, acrophobia is scary. And to quote one of my favorite malapropisms- “Been up so long, looks like down to me.”

I hate to break it to anybody but multiple offers, overbids, quick sales and sellers sitting
at the top of the heap in total control is not a normal market. It is an exceptional market that we have experienced for an exceptionally long time. Equity is not a God-given right. The market can giveth and taketh away.

But it’s ok if the market goes down a bit. If it tripled in the last ten is it so awful to give a
little bit of it back in the short term? If the market falls – it really doesn’t have to fall all the way, despite what Chicken Little or your Mother or your own Inner Phobic says.

Can our fear of heights really blow this whole thing up to the point where we actually believe the market can go from boom to bust in a day? The stock market went down 22% in one day in October of 1987 – can someone make a viable case that this is even possible in real estate?

When flying the space shuttle or standing on the edge of a tall building, quiet wisdom says don’t look up and don’t look down either. Instead pick a longer point on the horizon to focus on and keep your balance. Remember to breath and don’t forget to live. “The only thing we have to fear is the fear of fear itself.”

 

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