Tag Archives: REOs

Real Estate’s Own Groundhog Day

What was that tag line we used to see on posters promoting Rasta bands at the Catalyst way back when? All Killer – No Filler?

Wouldn’t it be nice if we could channel a little more of that sentiment (and mojo) into the real estate inventory these days. Seems like no matter how many times a day you and I and I go onto the MLS to check for new listings or download search engine e mails…nothing much new “of value” comes on. Just the same old same old.

Tired inventory. Picked-over inventory. Stale-inventory. A warmed-over re-hash of all the stuff that didn’t sell last year. Including a strange menagerie of distress properties. Dubious short sales you can never be sure of and a smattering of REOs banks are pinching out of their systems…starting with the worst first.

The sum total? An uninspiring catalogue of places. Most of which aren’t qualified enough to move anyone anywhere. As in: Move buyers in. And move sellers out.

(Quick disclaimer: Individual Sellers, don’t get bent out of shape here. I’m talking about everyone else’s listing except yours.)

I guess we could say it’s All Filler…Very Little Killer in real estate land right now. Not many killer views, killer yards, killer locations. Or to lower our expectations just a little… not many plain old, modest, middle of the road killer houses packaged up in nice presentations at reasonable price points. Specially right there in the sweet spot zone between $600k and $800k. I don’t know about you…but it’s killin’ me.

Most Agents understand. They’ve got clients calling too. Buyers ready to buy. Or who think they are. Buyers becoming increasingly frustrated with a market that doesn’t seem to offer anything up that fits their needs or price range. And by extension, Buyers frustrated with their own Agents, who become more suspect each week when they fail to turn over enough rocks or the “right” rocks to uncover that special hidden gem waiting out there. Somewhere.

The same Buyers who don’t understand why it is so hard to buy in (what keeps getting sledge-hammered into our heads as) the Perfect Buyers Market. Is it safe to say this isn’t a Perfect Buyers Market?

There are certainly incredible interest rates. Prices have certainly come down a long way. Those are two of the defining characteristics of a Buyers Market. What’s missing? Great places that people actually want to buy. I think some people call it supply. Or maybe “effective” supply would be a better term.

I keep having the same deja-vu experience. Clients who’ve been looking forever, pouring over the on-line pictures of homes for sale, who keep calling and asking to see places they forgot they already saw a year ago. Houses that didn’t work then and aren’t going to work after another 365 days on market and a minimal price reduction. I call this “Deja Viewing”. Stare at the MLS long enough and homes start repeating themselves over and over.

So when’s this slow tortuous drip of new properties coming on going to end? When do the floodgates open? I feel like a kid staring at the classroom clock. Waiting for recess from a hard lesson. The minute hand isn’t moving. The fabric of time is frozen.

Thursday was Groundhog Day and another shadow appeared again this year. Was it just the shadow of a huge shadow inventory? Or was it also the shadowy logic of would-be sellers planning to hold out putting their places on the market, for as long as they can.

Either way, looks like the winter of our buyers’ discontent is going to last at least another six weeks. If we don’t shoot ourselves in the foot that is – by kicking the groundhog down the road even further…

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Normal is as Normal Does

What’s the most common refrain anyone working in real estate hears these days? That’s easy. “ I can’t wait until everything gets back to normal.”

 

Screech. Whoa. Stop right there.

 

Normal? What’s normal? What does it look like again? Would we even recognize normal if it jumped up and bit us in the collective behind while we were busy gazing towards the horizon, pining for its return?

 

I confess there’s part of me – not the better angel part – that hears the word normal and instantly imagines a rosey-colored-glasses version of the market circa 2005. I suspect I’m not the only one with flawed vision. You know, lots of supply and demand, tons of transactions and a median price streaking towards $800k!! All without the aid of subprime loans, credit default swaps or a heapin’ helpin’ of irrational exuberance.

 

Dream on. I usually settle back to earth, tempered by my real experience of the past four years. Reminding myself how crazy that craziness was. And I usually throw this question out to the universe: “If we knew then what we know now…would anyone have thought that real estate was anywhere close to normal?”

 

Is it even remotely possible to get back to an 800k median price without finding a new way to give everyone lots of debt disguised as free money while convincing them to buy into the notion that home is just another name for a cash cowabungalow?

 

I think I’m ready to start over. Search for a new story about the marketplace. A new definition of normal.

 

When I close my eyes to paint my fantasy landscape of “new” normal, I always start with a healthy tension between buyers and sellers. Relative balance between supply and demand. Very different from today’s market. Both sides feel comfortable being there. Doing business. Making life transitions. There are willing buyers and there are willing sellers in the new normal. Right now, neither buyers nor sellers are particularly comfortable.

 

I read the front page article in the Sentinel yesterday to see if there might be a new story starting to emerge there. I’m cringing a little as I read it again.

 

That’s not anyone’s fault. Real estate is a complicated thing. Select a headline. Call five agents. Get some quotes. String ‘em together with a few metrics.

 

But I always want to add an extra appendix onto the end to flush out the nuances and hidden meanings. I’m never sure it’s news the average person can use without a lot more translation.

 

Headline: County Home Sales Jump! There’s the hook. A nod to Sellers who need to believe in 2005. And a prod to Buyers. Oh-oh, prices going up. Time to buy.”

 

Real estate is treading a fine line. Parsing perspectives. Playing both sides. Trying to encourage more buyers and sellers at the same time. Get more people off the fence, moving in eachother’s direction.

 

The message in yesterday’s piece? Things are bouncing, not jumping. The market is going up and down simultaneously. When prices fall enough, multiple offers ensue. And there are lots of multiple offers – which isn’t supposed to happen in a “buyers” market.

 

When prices fall, the inventory shrinks, because most sellers don’t want to sell unless they have to. If more sellers would just put their properties on at lower prices, they’d have multiple offers too. Because more buyers would buy. Except if too many put them on. Then the inventory would be too high.

 

Seems like we need more or less inventory at the same time. More or less buyers, sellers and listings.

 

Why so much confusion? Blame the elephant in the market. Distress sales. People talk about them like they’re normal. Question: Can we intelligently assess a marketplace where 40% of the sales (70% condos) are distressed? Involving institutions rather than individuals? This is a significant deviation from anything we’ve known in past markets.

 

Do distress sales fit the definition of fair market value – willing buyers, wiling sellers? Aren’t they fundamentally different? Can we apply the same laws of supply and demand when analyzing data like prices, volume of sales and the unsold inventory index? Can a new normal emerge in an era defined by short sales and REOs. Before the pendulum stops swinging backward?

 

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FRACTURING THE FAIRY TALE!

We toss a lot of words around to describe the real estate market. Words that often come with an encrypted charge and a universe of silent subtext attached to them. Words that carry the weight of metaphor and chains of nuance extending far beyond what the sum of their individual letters are meant to imply.

Which is all to say… I’ve never believed in the fairy tale of a “good” real estate market and a “bad” real estate market. These terms never quite cut it no matter how you slice them. They are way too limited or lopsided in interpretation to do real realty justice. Good for who? Bad for who?

If prices are coming down, is that “bad” for everyone in the marketplace? Or just for some Sellers?  If prices are racing up 2% a month, is that “good” for everyone? What about first time buyers on the lowest rung of affordability watching their point of entry vanish upwards on the horizon?  Its not all so “good” for them.

Is it appropriate for us real estate agents to switch our valences back and forth from side to side, becoming devoted advocates of the buy or the sell depending on whether we perceive it to be a great buyers or sellers market? Just to call it all “good”?

How about  a “move-up” buyer?  One that wants to sell a lower-priced house and purchase a bigger, higher-priced home? There’s an underlying logic that suggests a declining market might be the “best” time for this kind of seller/buyer to make his transition.

The theory is:  The lower the price of the house sold, the more demand there is in that niche of the market.  A lower-priced home should fall less than a higher-priced home in the same declining area. Even though he may sell for less than hoped for, a move-up buyer should make up his “loss” on the other end.  He should pay less for that better, more expensive house. Way less than if the market were going up like crazy.

It is the “relationship” between what move-up buyers sell for and buy for that counts. Not the actual, dollar amounts themselves. Specially, if they can lock-in a portion of their new purchase price at near record low interest rates (like now, with Greece greasing the way).  Nothing like cheap money to help make it all come out nice and tidy in the wash.

So what about this market? This time? How to describe it? Good and bad are particularly inept descriptions for the daily phenomena manifesting itself all around us.

Months ago I mused that there should be two multiple listing systems existing side-by-side. One for corporate-controlled distress properties – REOs and Short Sales. And one for those euphemistic “Organic Listings”  – properties being sold by real human beings going through all the normal life transitions that used to drive regular real estate sales – birth, death, divorce, aging, heath -all the biggies.

But now the fragile dynamic between these two markets occupying the same place at the same time is splitting the market apart even further.  The split has become a full-fledged fracture with prices being driven dramatically up on the low end, at the same time the glass bottom is falling out of the market on the higher end.

If you want to feel like Jeckyll and Hyde for a day – start out in the morning looking for properties with a buyer approved up to $500k. By noon you’ll think you’ve mistakenly wandered into a time warp, transported back to 2004-2005. Everything you look at has 4 or 5 offers and is selling for more than list price.

Get some lunch and boost your blood sugar. Shake it off in time to make your 2pm appointment. That’s the one with the Seller who’s $1.6 listing isn’t selling, hasn’t had any offers and is accumulating days on market faster than cobwebs on the sign out front. Be prepared to spend a couple of hours acting as grief counselor and looking for a sensitive window of opportunity to break the news about just how low their price could really go. A different twist in the wormhole has deposited you smack dab in the middle of 1992!

So what happens when energy in the lower chakras is rising too fast at the same time that movement at the top of  the spine is headed for some serious down time? Welcome to the compression zone. That’s the dense little pocket of  the market lodged between the vertebrae of $550,000 and $750,00. The space being pushed together tighter and tighter from both ends. Its the tiny window of choice that more and more sellers, buyers and listings are finding themselves in – with quite a bit of gnashing of teeth and fraying of nerves accompanying the process.

Sound familiar? Get your helmets on and brace yourselves. Next week we venture into the Compression Zone.

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Number Wonking

I’m never going to be a very good numbers wonk.  Or geeky statistics guy.   It’s not my nature.  I’m much more comfortable wandering off-leash in the obscure realms of tortured introspection, existential angst and abnormal psychology.

I can crunch a dozen zen koans at a time and make sense of them all. I can distill one single universal truth out of the hundreds of universes that populate 2,000 pages of the Urantia Book.  But when it comes to those sales figures the real estate market provides us each month, I’m not sure I can determine anything useful.  My perceptions just don’t seem to jibe with the rest of realty.

This week, I’m throwing caution to the wind. Going against my own grain. Undoubtedly rubbing some of you the wrong way in the process.   I’m foisting my own list of real estate stats on you – those that I personally find most interesting.

I’ll keep my editorial comments to myself and let the numbers speak for themselves. I invite you to log onto the blog. Register your opinions. Contradict my data with your data. Or tell me why I’m full of it.

But first…my all-purpose CYA disclaimer. The following information is not exact. There are many ways that info can be pulled off the MLS System. There are often mistakes Agents make inputting their listings that throw off the results.  Like all aggregate compilations these numbers may be subject to spin, the sins of (c)omission or errors in interpolation or extrapolation. You might not like what you see.  You may find the right side of your brain in vehement disagreement with your left.

I don’t speak for any group or officially represent any organization.  I have no particular allegiance to any thing other than my own thing . Proceed at your own risk. But if you do go forward, be advised that you might want to do so in the company of an experienced real estate attorney, a licensed CPA, a braniac cousin or a well-balanced idiot savant.  Feel free to enlist a priest, shrink, shaman or bartender or, of course, a real estate broker. Moi? I’ve really got no expertise in analyzing numbers. I only know what my gut tells me.

It’s May 22st.  Five more business days till the end of the month.  We’re rooting for you May. Real estate is cheering you on. You’ve got a long way to go in a short period of time if you want to boost our spirits and continue to shore-up our optimism. We draw hope and solace from the fact that a lot of closings often get crammed in right before the end of the month.

As of 11am yesterday, 98 homes had sold in the County during May.  Of those, 3 closed for a million dollars or more, 2 closed between 900 and 1 mill, 10 in the 800’s, 8 in the 700’s, 13 in the 600’s, 17 in the 500’s, 16  in the 400’s, 14 in the 300’s. And the rest…lower. All the way down to a $30,000 shack in the boonies.

Of the 98 properties sold 14 were short sales and 21 were REOs. Eighteen of the properties sold were listed above $800,000 at the time they went into contract. All but one of those 18 sold for less than what they were listed for, at the time of sale.  Most  sold for far less than what they were originally listed for.  Going back to the original listings of all 18 properties, the average property sold for  $316,961 less than what someone was hoping to get, in the beginning. These 18  properties had an average time on market of 254 days.

There are approximately 680 active single family listings (homes not in escrow) on the market – 212 are listed above a million dollars.  Let’s reiterate: 3  properties above a million have sold in May, 9 sold in April,  12  in March, 6 in February, 7 in January.

There are approximately 414 properties currently in one form of escrow or another – euphemistically known in the real estate world as Status 2, 3 or 4 (pending release, pending show, pending no show.) Of the 414 properties under contract, 16 are listed above a million, 11 are in the 900’s, 19 in the 800’s, 33 in the 700’s, 39 in the 600’s, 46 in the 500’s, 72 in the 400’s, 61 in the 300’s.

Of the 414 properties in escrow 216  are short sales and 56 of them are REOs.  Roughly 65% of all properties in escrow are officially – distress sales.

There’s my shorthand synopsis of the stats. What do you make of it all?  Time to roll up our sleeves and apply a little transactional analysis to the marketplace?

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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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