Tag Archives: real estate market

Following the Money

Unknown-2On the trail of all those cash offers that have become such a common feature in our real estate market over the past few years… to a degree never really experienced or even thought possible in Santa Cruz County before. This isn’t your Mother’s sleepy-little beach town real estate market anymore. But then, it hasn’t fit that description for quite a while now has it?

What’s behind this unprecedented rise in the use of cash? Even when people have it, why use so much of it to buy homes? Seems like, if they have huge chunks of cash in the first place, most ought to qualify pretty easily for loans with more modest amounts of cash down.

Wouldn’t they rather maximize the use of other people’s money (OPM)? Specially when interest rates are this low? Don’t some of them want to take advantage of the best incentive and outright gift that American Homeowners/Taxpayers ever got – the mortgage interest deduction on their primary residences?

Hasn’t the key strategy for building long term wealth always revolved around leveraging OPM to buy appreciating assets while fully utilizing accompanying tax advantages? That’s what Rich Dad says in all those books. Poor Dad’s the other guy.

All-cash offers made a lot of sense when the distress market was in full swing back in 2011-12 and more than 40% of real estate transactions were short sales, REOs or pending defaults where people had to or wanted to get out quick.

Median Prices were down 35-45% from the peak and cash often allowed hardcore investor-types to hammer purchase prices down even lower. In many cases cash was also the only thing that could cut through the mind-numbing, transaction-killing red tape that bank processes subjected both buyers and sellers to in those distress transactions.

If you were flipping a short sale or buying a foreclosure on the courthouse steps, you paid cash. If you could get an amazing deal but you had to close in 10 days, you paid cash – there was no way the loan process was up to the task. If people wanted to avoid the temporary chaos created by new appraisal regulations, they offered all-cash.

But that was then. This is now. The distress market has waned. Residual distress properties make up only about 5% of total sales. Prices are back up. Not quite to 2005-2006 levels, but almost. Loans are easier to get and going through the process doesn’t feel like a Guantanamo water-boarding experience anymore. The appraisal system has steadied itself. Most of those quick flip artists have migrated elsewhere. To greener pastures where their cash can access better margins of return.

Without all those distress properties haunting the market, the inventory of available homes has steadily shrunk for the last 3 years. And it’s low inventory that has continued fueling the high percentage of all-cash offers.

Showing Us The Money!

Unknown-1Picking up where we left off last week.   (Go to tombrezsny.wordpress.com to grab the thread.)  The big question hanging, call it the $64,000 question or the $640,000 question, (or just keep adding zeros) :  Where are all those all-cash offers coming from?  The one’s the market has been experiencing at an unprecedented clip for the last two or three years?

Who has that kind of money?  Didn’t everything implode in 2008?  Wasn’t everyone hammered by the Great Recession? Where’s all the dough coming from?

Is it funny-money people were stashing under their mattresses or in shoe boxes? waiting to cash-in on just the right rainy day market? Are more people selling their comic book collections? Are a growing number of Doomsday Preppers digging up their backyard coffee cans full of gold kruggerands, sensing that now may be the perfect move-up market for a spacious Post-Apocalyptic bunker to hunker down in for the rest of the world’s dystopian future?

Or are all these cash Buyers someone else? Some new breed of Buyer that’s evolved out of the rubble of 2008?  Homing instincts genetically altered by events radiating out from our bubble blast from the past?  Driven by a different set of needs and desires? And strategies for getting what they want?

I tried asking a few mortgage brokers where all the cash is coming from.  They watch money closely so I figured they might have a good feel for the question.  But unfortunately, mortgage types don’t get the chance to interact with many all-cash buyers, since all-cash people aren’t in need of any loan services.

So I’ve turned to Realtors who are right there, stationed in the trenches and I’ve been going Agent-to-Agent, collecting as many different all-cash client origin stories as I can.  Hoping to create some kind of over-arching  composite profile that helps explain where all those mysterious cash buyers are coming from.

I could probably just say all-cash offers are coming from rich people and leave it at that.  We love to say it’s the rich people these days.  But here in Coastal California, in a County that resides right next door Silicon Valley and where the median price of a home borders on $700,000,  I don’t think it’s that simple.  I’m not sure I even know what a rich person is anymore and it’s not going to provide much helpful insight for anyone scratching their head, trying to figure it out.

Anyone that has a cash offer experience of their own is invited to e mail it to me.  I welcome all thoughts or theories or tantalizing clues that anyone can come up with while we are trying to follow the money trail and track the cash.

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…

Taking Stock

Continuing the discussion…

TakingStockAfter a busy year, all is quiet on the real estate front. The market’s been moving at a more languid pace for at least a month now. And it’s doubtful that this weekend’s ritual orgy of mind-numbing football and tryptophan-laced turkey is going to significantly alter the pattern. Or inspire a lot more of you to run out at halftime and buy a house.

It may be the busiest weekend of the year for Best Buy and Macy’s. But as far as real estate sales go …not so much. We won’t see crowded lines of people camping out at new listings, stampeding open houses or pepper-spraying each other to be first in line to present offers. (That’s reserved for the spring isn’t it? Just kidding about the pepper spray folks.)

So time to take a breath. Take stock of where the market’s at. And perhaps more importantly, take a good look at where your own goals are relative to the market–at-large.

It may be time to rethink your assumptions. Review your options. Weigh your priorities. Consider what you may be willing to compromise on, for the greater good.

Let’s start with all those buyers-in-waiting out there. Earnest homeseekers who finally succumbed to extreme buyer-fatigue after the summer and decided to put their searches on hold for the rest of the year.  Buyers who worked long and hard to find something, but for a variety of reasons, weren’t quite able to pull it off

Taking stock of things is precisely what these buyers in the coming year are going to have to do. Because there’s going to be the same frustrating lack of new inventory, reasonable housing stock and quality listings that characterized 2014.

The Sentinel article on November 17 highlighted a few pertinent statistics in this regard. There were 404 active single family listings at the start of November. The fewest for any November in 18 years (think 1996!)  The number of active listings each month has now been lower than the same calendar month the previous year for 44 of the past 45 months!

By my count there were 325 active listings left in SC County this past Wednesday. A third of them priced at more than a million.  Not exactly music to the ears of an average buyer, with a median income, trying to qualify for a loan.

Bottom line: If you head into next year’s market without examining and tweaking your approach,  you may find yourself coming up short again.  Next week: Let’s explore a few ideas for shaking up your search.

Dialing it Down

DialingDownHere we are. Heading down the home stretch for 2014.

True. The day-to-day market seems like it has decided to dial itself back a few notches. Level itself out for a softer landing. The pace has slowed. There’s less tangible activity. And there’s nowhere near the same kind of ambient intensity that we thought we had become accustomed to as “the new normal”, just a few months back.

The overwhelming sense of urgency that dominated so much of 2014, has suddenly made itself scare. Hell, we aren’t even hearing about all those crazy first day/all cash/multiple offer/million dollar overbids in Palo Alto right now.

So… it’s an interesting time.

Whenever there’s a bit of a downshift like this, specially when it comes in and around the November and December holidays, there’s a huge temptation to sit back and put our expectations on autopilot.

Figuring that it must be time to drop back twenty yards and punt real estate into next year. Acquiesce and accept the notion that nothing hugely relevant is going to happen between now and whenever it is that the frenzy starts up again next spring.

But it’s not that easy to do this year.

There’s still plenty of momentum buzzing around from those early spring and late summer surges we had. When agents, buyers and sellers were all running around with their hair on fire. It’s hard to know what to do with all the extra adrenalin when multiple offers aren’t flying left and right.

When the market’s that en fuego response times are accelerated. Negotiations are quick. Escrows are short. Days on market fly by. Listings come and go in the blink of an eye. Life decisions are made innanoseconds. And money talks because it’s so good at squeezing all the timelines.

It’s always now or never. Or worse yet, it all has to arrive absolutely, positively yesterday.

So maybe it’s a good thing the market is giving itself (and us) a break. Let’s spend a few columns reflecting on what we know now that we couldn’t have known when we started out this year. Let’s also begin to formulate our educated guesses for the coming year.

We’ll track the trends. Point to the patterns. And once again try to hack the meaning of the marketplace in search of a real estate version of the “Theory of Everything.” One that explains why we can’t always explain why the market does what it does.

Stay tuned.

Replaying the Game Film

ReelsLast week we continued rewinding the tape on 2013. Going back over the action to see if we could discern any patterns to help us design a better game plan for 2014.

You never know when you might have to call an audible in the heat of the moment. Specially when the market looks like it’s lining up for another blitz. Things move so fast on the field that it helps to review them in slo mo from a comfortable perch in the skybox.

Here’s a quick summary:

January –  February 2013: Very little inventory.  Rising optimism in the market and real estate’s recovery. Pent up demand. Exceptionally  low interest rates.

March – April 2013:  Rapid escalation into an all-out, over the top, multiple-offer, frenzy.  Think 2005-2006 in terms of rabid intensity.

May to June 2013:  Energy begins to dissipate. Fewer multiple offers. More days on market. Bid-ups aren’t pushing prices quite so high.

IMPORTANT NOTE:  Sold Stats are trailing indicators. When closed sales are published for May and June – it reflects real market activity 30 to 90 days prior. Sales peaked in May, June and July of 2013 – indicating how strong the market was from March to May.

The Median Price jumped from $449,000 to $641,000 in amonth’s time, between March and May –  representing the entire price gain for the year. Alot was happening. Very quickly.

July and August 2013: Vocal enthusiasm still reverberates from early spring but the market begins to level out. Compared to March it feels like a disappointing drop off.  The number of sales dips and the median settles into the low to mid $600s.

On the ground, it seems like the market has run into an invisible barrier. Despite continuing optimism, even the Feds, pull back on their plan to end Quantitative Easing. Economists keep using the phrase “headwinds in the recovery”.

QUESTION:  Are Housing and Real Estate growth supposed to lead the economy out of this recession –like they’ve always done? Or are they waiting for significant increases in jobs, earnings and consumer confidence to lead them out of the downturn this time around? Which is the chicken? Which the egg?

September to October 2013:  Significantly fewer new listings come on. Sellers try to push price points higher while Buyers begin to push back.  Buyers are becoming more particular and discerning about what they buy and what they are willing to spend.  Or can spend.  The number of active listings drops further. The inventory of desirable “quality” listings falls even further than that.  Buyers dig in, trying to muster patience.  Wait for more, better choices to come on.

November to December 2013:  Buyer fatigue is in full force. Many are taking self-imposed timeouts. Fewer transactions.  Sales prices stay steady due to exceedingly low inventory.  Fewer Sellers list during the holidays in traditional fashion.

And we are back to where we started last year. Here are the Important Patterns that have emerged:

– The market is bifurcated.  Homes listed between $500 – $800k continue to experience strong demand.  Homes listed above that are accruing more days on market.  Homes listed above $1mill are accounting for an increasingly large percentage of the unsold inventory.

– The missing piece in a self-sustaining real estate market is Move-up Buyers.  Their healthy participation would allow both supply and demand to increase.  When more transactions flow easier, more people enter the market and pricescan rise.

– Move-up buyers are absent because: a) Sweeping mortgage reforms inhibit flexible loan options, b) Lack of inventory discourages contingent offers that would allow more Sellers to become Buyers and more Buyers to become Sellers.  Lower inventory is self-perpetuating. c) Risk aversion remains strong from the memory of 2008. People are buying beneath their means.

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.