Monday, April 30, 2007

David Lereah -- R.I.P.

Today is a bitter-sweet day for this blogger. As you may already know, David Lereah, chief "economist" for the National Association of Realtors (NAR), he who has frequently been a target of ridicule and an endless source of entertainment for me, has finally been booted from the NAR. First it was Greenspan and now it's David Lereah to jump ship before the shister hits the fan. Who's next? Leslie Appleton-Young of the California Association of Realtors?

In any event, I should think the US real estate industry has breathed a collective sigh of relief as no single person has done more to discredit the REIC than David Lereah IMO.

And what are we now to do with this pic, created by "reskeptic" (aka "marin_explorer"), a devoted reader of this blog (the pic made its public internet debut in this post):

Sunday, April 29, 2007

Responses from Our Elected Officials

When the folks over at sent their "no mortgage bail-out" letters, at least they received replies that were on-topic. I got these bland responses (granted, I sent my letters when the bail-out issue first came up in the news so maybe there were not yet any on-topic, pre-written form letters for their aids to send):

From Hillary Clinton:
Dear Friend:

Thank you for taking the time to share your thoughts and concerns with me via e-mail. I hope you will understand that, because of the volume of e-mails I receive from residents of New York State, I cannot at this time respond to messages received from residents of other states. I encourage you to contact your U.S. senators if you have an issue or concern that needs immediate attention. You can access your senators electronically by visiting for a listing of their contact information. If you are still interested in learning more about the work I am doing on behalf of New York State, I hope you will continue to monitor my work through my website at


Senator Hillary Rodham Clinton
New York State
From Barbara Boxer:
Dear Friend:

Thank you for contacting my office to express your views. I believe that all citizens should become involved in the legislative process by letting their voices be heard, and I appreciate the time and effort that you took to share your thoughts with me. One of the most important aspects of my job is keeping informed about the views of my constituents, and I welcome your comments so that I may continue to represent California to the best of my ability. Should I have the opportunity to consider legislation on this or similar issues, I will keep your views in mind.

For additional information about my activities in the U.S. Senate, please visit my website, From this site, you can access statements and press releases that I have issued about current events and pending legislation, request copies of legislation and government reports, and receive detailed information about the many services that I am privileged to provide for my constituents. You may also wish to visit to track current and past legislation.

Again, thank you for taking the time to share your thoughts with me. I appreciate hearing from you.

Barbara Boxer
United States Senator
I received no reply from either Dodd or Feinstein. I think I'll send another round of email.

Did you get a response letter? Share them here.

Saturday, April 28, 2007

UK Defense Ministry's Prognostications

I found this document (PDF warning), the UK Defense Ministry's DCDC Strategic Trends Programme, extremely interesting. The purpose of this document is nothing short of making quantitative predictions of possible future events and trends:
The Strategic Trends approach starts by identifying the major trends in each of these dimensions [resource, social, political, science/technology, military] and analyses ways in which these trends are likely to develop and interact during the next 30 years, in order to establish a range of Probable Outcomes.
The following are two "discontinuities" that they identify. I picked them out only because, after all my reading and thinking about the housing mess that we find ourselves in, I have sensed that they are becoming a growing force IMO. If I understand their methodology correctly, the following are given an 11-59% probability of being realized:
The middle classes could become a revolutionary class, taking the role envisaged for the proletariat by Marx. The globalization of labour markets and reducing levels of national welfare provision and employment could reduce peoples’ attachment to particular states. The growing gap between themselves and a small number of highly visible super-rich individuals might fuel disillusion with meritocracy, while the growing urban under-classes are likely to pose an increasing threat to social order and stability, as the burden of acquired debt and the failure of pension provision begins to bite. Faced by these twin challenges, the world’s middle-classes might unite, using access to knowledge, resources and skills to shape transnational processes in their own class interest.
Declining youth populations in Western societies could become increasingly dissatisfied with their economically burdensome ‘baby-boomer’ elders, among whom much of societies’ wealth would be concentrated. Resentful at a generation whose values appear to be out of step with tightening resource constraints, the young might seek a return to an order provided by more conservative values and structures. This could lead to a civic renaissance, with strict penalties for those failing to fulfil their social obligations. It might also open the way to policies which permit euthanasia as a means to reduce the burden of care for the elderly.
For the most part the following predictions are given a >95% chance ("near certainty") of occurring:
[Re climate change:] On land, some regions will experience desertification, others will experience permanent inundation, and tundra and permafrost are likely to melt and release methane, possibly in large amounts. Global climate change will reduce land for habitation and will result in changing patterns of agriculture and fertility, while tropical diseases, like malaria, are also likely to move North and into temperate zones. There will be an increased risk of extreme weather events, threatening densely populated littoral, urban and farming regions with eccentric growing seasons, flooding and storm damage. Climate change will remain highly politicized: although the relationship between causes and effects is likely to be increasingly understood as more evidence and computing power becomes available, responses will be contested and affected by selfinterest.

Friday, April 27, 2007

Affordable Housing Bond <> Bail-out

I know this is old news and other bloggers have already covered it, but I find it so dang ironic and so it's been nagging at me.

Basically, because California is unlikely to receive any Federal money to bail out screwed borrowers due to our extremely high housing costs, Ted Lieu and others on the California Banking and Finance committee have decided it would be a swell idea to use part of the Affordable Housing Bond (Proposition 1C, approved by voters last November) to fund a bail-out.

You already know my opinion, for what it's worth, about a bail-out in general (here, here, and here). But I seriously doubt that such a bail-out is what the voters had in mind vis "affordability" when they approved the bond measure. If California assembly members are really interested in affordable housing in California, then bailing out debtors is exactly the wrong thing to do as it will only help to keep prices ridiculously high; more affordable housing would be created if there were no bail-outs at all. Just give the market time to re-establish balance and force prices back down to levels justified by the fundamentals, and then we will have a more affordable housing situation again which would be good for families, communities, businesses, and the state as a whole.

I much prefer Senator Machado's alternative idea (SB385), at least if it has teeth:
...require state agencies that license lenders to operate in California to follow more-stringent loan approval guidelines issued by federal agencies in autumn.

Machado said subprime lending practices should be scrutinized in the future, but stopped short of agreeing with Lieu that the state should create funds to help restructure mortgage loans.
I'm all in favor of doing everything that can be done to prevent a repeat of the insanely loose and, in some cases, "predatory" lending. But bail-outs are not how you fix the problem; they just keep the problem in existence and encourage it to recur in the future.

And I am not alone. Here is a comment left over at the very good Southern California Real Estate Bubble Crash blog that includes a phone number that you can call to express your opinion (I called it and it does indeed lead to Ted Lieu's office):
“TED LIU (CA assemblyman) and others on the California banking and finance committee passed a proposal Monday to use money from the Affordable Housing Bond to bail out homeowners who were “victims” of “predatory” financing and can’t make their mortgage payments. CALL Ted Liu’s office, talk to Tiffany or Mark, 916-319-2053, and call every assemblyman on the appropriations committee (that’s where it goes to a vote next), and call your local state assemblyman, tell them you don’t want your hard-earned tax dollars going to bail out buyers who overpaid and didn’t read their loan documents, tell them the affordable housing bond money was to be used for affordable housing not for bailouts, call or don’t complain when it happens!”
Or write a letter and send it to these people. Better yet, do both.

Thursday, April 26, 2007

Screw the Kids, I Want a Mortgage and I Want it Now!

Continuing on with the theme of how greed and the housing bubble in Marin has torn apart families, I give you the following story emailed to me the other day (and reproduced with permission):
Thanks for starting your blog back up, it was my favorite of all the RE blogs (by wide margin), but when it went quiet, I stopped dropping by.

Anyway, here is my situation, yes it is personal, but here are some of the real life victims of the housing bubble here in marin. It seems like there would be something here for your blog.

Essentially, my spouse of ten years divorced me, and moved with my 6 and 4 year old children, into a cohabitation situation in a house that was "owned" by her "friend". But that was only after her friend divorced his wife of 13 years and evicted the other spouse from the house (while keeping 50% custody of their child).

Apparently, my biggest fault was being a renter. And a saver/investor. No matter that I rented first a small house in San Rafael, then a larger house in southern marin as our little family grew, both chosen by my non-working, stay at home, professionally educated spouse. Renting for about 1/2 the monthly cost versus owning doesn't matter.

Now I continue to rent, but this time a small studio, while I work to provide "family support" to a former marin resident (now sonoma resident) who finally is able to reside in a house that isn't rented.

The three innocent victims of this bizarre marin situation are the three children that had the misfortune to have real estate obsessed parents who would literally do anything to "own" a home.

This bizarre behavior is symptomatic of the social structure in marin. At a certain point, people will do whatever they think they have to in order to pursue the lifestyle in god's country. It is pretty sad.

(for what it is worth, both the adulterous spouses are european imports that don't seem to have the need to work to provide a roof over their heads...Ironically, neither of them are trust funders. They just appear to like to live off other peoples work and equity.)

If you can use any parts of this for inspiration on you blog, be my guest. There is a serious human toll being extracted from the residents of this area due to RE.
Oh, the vanity! The self-absorption! The inflated sense of self-worth! Welcome to Marin.

Do you have Marin RE horror stories of your own that you would like to share? Send 'em in.

Tuesday, April 24, 2007

Yep, The Devil Is Definitely Skiing

Existing house sales plummet across the nation for the first time since 1989 (and here). The Western US is hurt the worst with a -16.8% drop (year-over-year; care of the BubbleMeter blog). The NAR is quick to avoid the truth and blames the weather and makes month-to-month comparisons (Feb to March) instead of the more honest season-adjusted year-over-year comparisons. And never mind the fact that we here in the West enjoyed some of the best weather ever.

But seriously, this announcement really got me thinking... why the hell can't the real estate industry goons just tell the fricken truth for once in their lives? Would it really kill them? Why can't our own local agents? How bad does it need to get before these goof-ups finally admit they were wrong? I mean, this is a total non-event to us bloggers and to most other intelligent, perceptive, critically-thinking people as it was foreseen. Is this don't-think-for-yourself-just-believe-what-we-tell-you culture of ours so far gone that denial is now an officially sanctioned state of mind?

And why is the main stream media so lame? I mean, why aren't they all over this? Why don't they engage in any critical investigative journalism? Why don't they question the practice of interviewing/quoting only paid shills and those with a vested interest in your believing one particular point of view? Why don't they ever run a story where a more critical analysis is performed and experts with opinions that possibly differ from those of the rent-a-RE-economists? Why doesn't our soporific media encourage readers to think? Are we so frightened as a people that the media believe that they must spoon feed us only feel-good, fuzzy-warm news and promote a makebelieve kindergarten world of rubberized playgrounds and colorfull, oversized, difficult to choke on environmentally friendly blocks?

Ah, but Charles Hugh Smith, as usual, is one step ahead of me and has already, and quite elegantly, answered the question (refer to the April 24, 2007 entry).

We need a new local news paper here in Marin. One that is not afraid to engage reality and tell the truth. One that doesn't discover honesty until after the fact. One that is not bought and owned by the local real estate industry. There's a business proposal for you. I know it's not high tech, does not involve Web 2.0 or social networking or whatever, and so is not hip and likely won't make you an over night stock gazillionaire. But I bet that such a paper would be extremely popular and sufficiently profitable and you would be doing an immense public service.

Sunday, April 22, 2007

Stupid Is as Stupid Does

A little vignette into how greed and the housing bubble in Marin can tear apart a family:
Q: Eighteen months ago I and several other cousins inherited my aunt's home when she died. The cousin she named as executor has had the house listed with three real estate agents, and all of them have told him the house isn't selling because his price is too high. What do you say?

A: I say if I had the cure for stupidity, I'd be a zillionaire. A home is worth whatever someone will pay for it. Prices have softened in the months that your aunt's house has sat on the market. If your cousin had dropped his price by, say, 10 percent in 2005, he wouldn't be looking at dropping it by 20 percent to sell in 2007. Moreover, all of the cousins have lost 18 months of opportunity to invest the proceeds they would have received if the house had already sold.
I would not at all be surprised if the house in question is this one in Mill Valley. It is still for sale. Originally listed at $1.1 million (goofus), reduced to $999,000 (ludicrous) in July, 2006, now listed at $729,000 (absurd) -- a 34% price reduction from the original wishing price and still no buyers.

Friday, April 20, 2007

We're Too Special for Bail-Outs

If there are to be mortgage bail-outs, it looks like the Bay Area won't get much or any of it; the Bay Area is just too special. But that's okay. I mean, who wants to be "bailed out" and trapped in their house when their house is worth less than their mortgage? Sometimes it is better to just jump ship and swim to shore than to be handed a designer life preserver while locked in your cabin.
Fannie Mae and Freddie Mac pledged at least $20 billion to help homeowners caught in the subprime meltdown, but those in the Bay Area could be left out.

The loan limit on government-sponsored enterprise loans for single-family homes in California is $417,000. The Bay Area’s median home price in March was $639,000, according to DataQuick.

Since the loan caps are made by the federal government, there’s little Fannie Mae or Freddie Mac can do, said Fannie Mae spokesman Alfred King. ‘It’s going to be tough in some areas like yours,’ King said.

‘It’s cruelly cosmetic for California,’ said Ed Leamer, director of the University of California, Los Angeles Anderson Forecast. ‘It’s just restructuring, not debt forgiveness.’ Leamer said that even $40 billion is too small to make a difference.

Thursday, April 19, 2007

S & P/Case-Shiller/Futures Tool

The following chart is from the S & P/Case-Shiller/Futures tool over at the excellent Paper Money blog where you can also find a tutorial on how to use the tool (I've taken the liberty to annotate some of the chart's major features; but I think its message is self-explanatory); it may be the closest thing to a crystal ball that we have:

Compare with:

Subsidized Irresponsibility

Another perspective on the potential mortgage bail-outs (edited slightly from the original; emphasis mine):
There already currently exists, in place, fully staffed and funded a huge interlocking set of government programs designed to grant relief from too much debt. It is called bankruptcy. To subvert or undermine either the terms or stigma associated with bankruptcy is to fundamentally abandon the principles of capitalism, sense of fair play, and [the] mercantilistic honor system of taxation and commerce that have served our society so well. A FB [f***ed borrower] or FL [f***ed lender] bailout abrogates the contract with the rest of us who played by the rules. Ultimately the[re] is but one operative principle of government; Tax something, get less of it. Subsidize something, get more. Why on earth are we even considering subsidizing irresponsible lending/borrowing?

- Exurban Nation

Monday, April 16, 2007

More March Results

I'm really tired today so I'll make this quick.

The start of the spring selling season is not looking so great in Marin. Here is Vision RE's data to start things off:

Dang! There are a lot of negative numbers in that table.

And I think it's cool that Vision RE is now hinting at some of the problems with the DOM statistic. Is it possible that this blog has actually had an effect?
The days on Market have been stable for the past few months at approximately 90 days. These numbers are deceiving because the Multiple Listing Service does not “Accumulate” Days on market when a listing has been removed for 30 days and then re-listed. It is important as a buyer to get an analysis of the listing history of the property so you know the marketing timeline of the home.

There are good reasons homes are removed from the market, including restaging, holiday’s etc. Sometimes when a home has been on the market for more than 100 days a rest is needed so the listing agent and the owner can regroup and decide on the next steps to get the house sold. When it re-appears you might see a new list price but not always.
Again, I think the DOM should only reset if there has either been a long period of time between when the house was taken off the market and when it was put back on (say six months or so) or if substantial changes to the house have been made during the intervening period such that it is fair to consider it a "different" house (e.g., new floors, new roof, remodeling, new landscaping, additions, etc.).


The Marin Heat Index isn't looking so hot (recall that a reading of 0.80 and below is considered a so-called "buyer's market"):

All of this is consistent with my previous suggestion that DataQuick's results are now likely biased (in the statistical sense) in the everything-is-fine direction.

On a side note, I ran into one of my real estate agent "friends" the other day. About a year or so ago we had a friendly argument about which direction the Marin market was heading. It should come as no surprise to you that I argued in favor of the not so positive direction for all the reasons you will find on this blog. She, quite naturally, disagreed. Well, she came up to me the other day rather embarrassed and said "you were absolutely right" (about the market direction in Marin). Very gratifying (but it's been a friendly debate). Interestingly, she volunteered to me that the subprime "meltdown" has been having a significant impact here in Marin; the lower end is not selling too well and the move-up chain is breaking. This is consistent with what Vision RE says way down in their report:
Demand in the entry-level market has fallen, which will impact the move-up market. The million dollar plus market is pretty much immune to the sub-prime mortgage tightening.
But I would say that it is really the two to three million dollar plus market that is immune; I suspect a lot of the so called "Alt-A" loans found their way into the million to two million dollar Marin market. Somewhere on this blog (here's one, here's another; I know there was another one [note to self: must start using labels]) I have a break-down of the large number of "toxic" loans and "liar's loans" that were made over the last few years in the Bay Area.

But anyway, this is precisely why it can be that prices are coming down while the county median/mean price stays flat or increases slightly. As fewer and fewer "lower end" houses sell, more and more of the selling activity is concentrated in the more expensive houses. Thus the overall county average/median goes up but the sorts of houses that more typical families buy either don't sell or sell at a discount. Sooner or later, the houses that don't sell and that must sell will be sold at steeper discounts -- this mess with the housing bubble simply isn't going away any time soon. So I expect that as the situation worsens with time we will start to see the county median/average being impacted in a more serious way.

But what do I know? My crystal ball is as good as yours. So share your thoughts.

Saturday, April 14, 2007

It's Snowing in Hell

So let me see if I've got this right. After having to endure over the last few years the relentless lying, manipulating, shilling, and outright deception by the NAR, the vast majority of it geared towards making the claim that there was only a snowball's chance in Hell of the national housing market falling, we now learn that the NAR is admitting that the national housing market will fall for the first time since like forever. (Ripley expresses my thoughts the best on this one.) And yet the economy is supposedly doing great, jobs are a plenty, yadda yadda. What could it mean? The real estate industry disgusts me.

From the Motley Fool:

You just know the housing situation has gotten bad if the six-percenters at the National Association of Realtors finally feel the need to reveal the awful truth: Prices are going to fall. The latest verbiage from the world's most vocal housing-bubble cheerleader, NAR economist David Lereah, actually predicts that home prices will drop by 0.7 % in 2007.

Of course, you wouldn't know that to read the headline, which, as usual, paints the fantasy that everything is always good for housing. In other words, it's exactly what you'd expect from a guy who's been shilling housing not only in press releases for his trade group, but in misguided books like the wonderfully timed (from 2005) Are You Missing the Real Estate Boom?, the failed broadside against the skeptics Why the Housing Boom Will Not Bust (from 2006), and the still later "oops-I-better-tweak-my-lousy-thesis" response, All Real Estate is Local. (By the way, this blog post tells a tale of Lereah's real estate investment prowess these days.)...

Fools, what bubbles up must eventually come down. It would just be nice if Lereah, the mortgage bankers, and the rest of the crowd would recognize the monster they've made and make real amends. But don't bet on it. Their paychecks depend on the myth of housing as an investment, rather than a sound living choice if purchased at the right price.

And if the lying NAR isn't bad enough, if the CAR's shilling in Marin and the Marin Association of Realtors' propaganda blitz didn't make you sick, well, guess what? Now the NAR is going to redefine how they calculate the median sale price so that the market's ills don't look so extreme:
U.S. realtors are predicting that house prices will tumble this year for the first time since the 1960s...

And in sharp contrast to assurances from Federal Reserve Board chairman Ben Bernanke, the National Association of Realtors acknowledged yesterday that the subprime lending collapse is already causing banks to tighten lending standards, and that it will prolong the housing slowdown...

The value of homes in some of the country's priciest markets are now falling by double digits, easily overwhelming broader price increases in many more cities where homes cost less...the median price is being driven down by sharp declines in some of the hottest markets during the long housing boom...

"We've never seen a distortion of this effect. . . . This is a weird event," NAR spokesman Walt Molony said.

That's because house prices are rising in a vast swath of the country, including much of the mid-Atlantic, the Northeast, Midwest and Texas.

Mr. Molony said the distortion is so significant that the NAR is working on an adjusted median price to better reflect what's actually happening in most of the country.

NAR has also scaled back its estimate for the volume of sales, which will see an uncharacteristic retreat.
Can you believe that? You should. They did it before with the redefinition of the calculation of affordability* to make housing look more affordable than it is under more traditional calculations.

Clearly, the real estate industry's modus operandi is:
"If there is no way to spin the data in our favor, then change the way we calculate the data until we get the numbers that we like."
Are you mad yet?

This has become a war. A war of perceptions. We have the lying, manipulating, corrupt real estate industry on the one side. And on the other side is the American buying public and our communities. Which banner are you going to rally behind?

And truly, how healthy can a market really be when it is highly dependent on belief and perception and the manipulation thereof?

People in Marin are not particularly religious, that's a fact, but they know all about militant blind faith.

*Thanks Chuck, Lander for the link.

Thursday, April 12, 2007

Some March, 2006 Results

I know I said I wasn't going to use DataQuick's data so much any more, but look at Marin. It's flat for March, 2007. Slightly negative in fact. Recall the changes in how DataQuick calculates the median and then realize that negative appreciation is probably worse; worse for small counties like Marin but not for larger counties like Sonoma.

But appreciation is flat? In Marin? What about that big 'ol 10% jump in appreciation in January that some of our RE trolls wet their undies over? And this is the beginning of the infamous Spring selling season. Is -0.1% a harbinger of things to come?

And I'll throw this one in for free. I know I've said it before...but how can it be that median county-wide sales price can rise in a down market? Why isn't that paradoxical? Because the higher end still sells while the lower end does not. In fact, every single house that sells can be selling at a price reduction and yet still the county median can go up if the net proportion of more expensive houses that sells is greater than the lower end. It's just something to keep in mind and a big reason why people should not put much weight into the reported county medians. I don't, but since most people do you find it talked about on this blog. And as this down market progresses and as lending tightens, that line separating the "lower end" from the "higher end" rises. Sooner or later it will become obvious in Marin. It just takes longer here because prices are so much higher to begin with; the low end for us is the mid to high end for others:

The Union Tribune reports from California. “Sales of San Diego County homes in March dropped to their lowest level since 1995, but prices bounced back, DataQuick reported. There were 3,218 sales, up 12.4 percent from February, but sales were down 26.3 percent from a year ago, the biggest year-over-year decline for any March since 1995.”

“It was also the 34th straight month to show year-over-year sales volume drops.” “DataQuick President Marshall Prentice said in a statement that the medians are rising because of a drop off in starter home sales in Southern California.”

And I better throw this one about inventory into the mix too; sorry to be in such a rush:

Home inventory is on the rise in the San Francisco Bay Area. During the month of March, Bay Area home listings increased at one of the highest rates in the nation. The large amount of inventory could cause prices in the Bay Area to fall even further.

San Francisco Bay Area homes are selling at the slowest rate since 1996, and unsold inventory is on the rise. But that isn't stopping anyone from putting their home on the market.

According to a survey by ZipRealty, home listings in the Bay Area increased at nearly double rate in March. In fact, the Bay Area had one of the highest increases in all of the metropolitan areas surveyed-second only to Los Angeles.

In all, the number of home listings increased 12.2 percent in March compared to the previous month. That's almost twice the 6.5 percent average increase recorded for the other metropolitan areas.

According to the California Association of Realtors, the increase in home listings between February and March usually averages somewhere around 2 percent.

Wednesday, April 11, 2007

Real Estate Roller Coaster

US Home prices adjusted for inflation plotted as a roller coaster

the graph is here:

Our Crap Don't Stink...Nya Nya

Leslie Appleton-Young is at it again with her marvelously funny quotes. Except now she is kissing butt in Marin...and the Marin IJ is, of course, all over it:
"It's God's country, what can I say," Leslie Appleton-Young, chief economist for the California Association of Realtors, told an audience of agents Tuesday in Terra Linda. "When is the 30 percent decline in Marin County's market going to happen? Not in my lifetime."
Have at it. Let this post serve as a discussion post as I am busy traveling for work related reasons and cannot do much on this blog now. Besides, you already know what I think.

To get you started, here are some things said about this article over at Ben's blog:
Comment by TRich
2007-04-11 15:32:44

I was thinking the same thing, LAY is going to have to either die by her own hand, someone else’s hand, or come down with a disease that kills her within about three years for her- as usual- well thought-out and reasoned predictions.

BTW, shouldn’t conflict of interest and bad predictions in the past alert journalists as to the accuracy of a source?

* * *
Comment by LostAngels
2007-04-11 14:56:43

When is LAY just going to shut up finally. She has been a joke for months now. Every time she opens her pie hole I want to puke.

thank god for the internet and google. LAY’s comments will be cached forever so everyone can see what losers she and her posse of REIC clowns really are.

* * *
Comment by kThomas
2007-04-11 14:31:48

Marin County is the state capitol for arrogance. People who live there often think their crap no longer stinks. Besides, Leslie Appleton-Young (love the name) is a paid liar. Her words are worth less than nothng, at this point.

I'm keeping this link for future use so we can rub it in her face when the time comes. Oh, but wait, she'll be dead.

Sunday, April 08, 2007

On DataQuick's Changed Methodology

A reader recently sent me this email:

Hi Marinite,

Welcome back to the bubble blogging world!! I am sure you have had lots of positive comments and replies but it is nice to see you back after such a wild set of circumstances. My name is XXX I work for a Bay Area finance and real estate site based out of Foster City. I read your blog and the Sonoma bubble blog quite often to see whats happening in the North Bay. Living in the Bay Area myself (San Jose) I also have a similar personal interest in the housing bubble. I've actually created a section of our site dedicated to Bay Area and some National housing bubble news. I also feel its important to get the word out especially amongst the misinformation thats currently out there and we've had surprisingly good responses from readers and other bloggers. I'd like to help support your blog by dropping you a donation but notice you don't have a donate button or tip jar on your site. Let me know if theres a way to donate (paypal perhaps?)

I also want to encourage you to read some of our posts. We cover a lot of Bay Area as well as National topics that you specifically blog about. Some of the articles that may be of interest to you are:

Marin County Housing Data Conflict
Gloom and Doom in California: Subprime Loan Foreclosure Projections
San Francisco Bay Area Home Sales Fall Again, Prices Still Flat

So let me know how to donate to your blog. I'm certainly glad your back. And I hope you may find some of our information useful. Please feel free to use any of the articles or data/graphs for your blog.

Best Regards,


I have given thought about asking for donations. I figured if I got some donations then I could use the proceeds to get access to that real estate data that only money can buy and then share the results with readers. But I decided not to as it would only fuel the skepticism of some people and I didn't want to have to deal with that.

Regarding that first article cited in the email: If you didn't notice, when DataQuick announced their January, 2007 results they slipped in a little footnote indicating that they were changing the way they calculate the median sale price for their publicly consumed reports (the ones with the data tables I like to show on this blog) but not the ones given out to realtors. They are also changing the way they count a transaction as a sale.

Regarding the New Calculation of the Median
Starting with the January, 2007 data DataQuick is calculating a straight-up median based on everything that sells in the region of interest. A straight-up median was what I've always assumed they were doing all along. But apparently, prior to January, 2007 they were calculating a weighted average of medians across property types. Here is how someone at DataQuick described to me what they were doing in the past:

For a weighted average of medians, we multiplied the number of sales by the median price, for each home type, added the results together and divided by the total number of sales.
So, in other words, they would take the number of properties in category n1 (say, condos), multiply it by that category's median price, then add to it the product of category n2 (say townhouses) times its median, etc., and then divide the whole sum by the total number of properties that sold in the county. If I understand correctly, the equation they must have been using before looks like this:

Where T is the total number of properties that sold in the county, m is the straight-up median sale price for the ith property category (condos, SFRs, townhouses, etc), n is the number of properties that sold in the ith property category, and e is the number of categories.

This is an average of medians. Because averages are more strongly subject to the biasing effects of "outliers" as compared to medians, DataQuick's previous data was potentially noisier than if they had just calculated a plain-ol-vanilla median. In Marin, we have a very positively skewed distribution of sales -- the vast majority of sales bunches up in the low end of the pricing distribution. So our outliers are the über-expensive, multimillion dollar houses.

DataQuick assures us that there will only be about a 1% discrepancy when comparing current calculations of the median to pre-January, 2007 calculations of the median. I believe their claim but only for large counties with large sample sizes of sold properties and which are more normally distributed.

But what about a small county like Marin where a small number of properties sells in any given month and where there is a wide disparity between the "low end" and the "high end"? You should already have a sense of how "noisy" (i.e., variable) our data is. Recall those plots of mine showing DataQuick's year-over-year percent price appreciation (here is one example). Remember how Marin's data is all over the place whereas the data for the entire Bay Area forms a nice, fairly smooth curve? That's what I am talking about when I say "noisy". The noise is due to our small sample size where a small number of hugely expensive houses can throw off the calculations for the whole county.

And because of our positively skewed distribution here in Marin, it can be seen in the above equation that greater weight is being given to the medians derived from the lower priced property categories as compared to the higher priced categories. Perhaps DataQuick did this in an attempt to make the reported county median more representative of what most people were buying. I can understand the rationale for that. But now, with the new straight-up calculation of the median, the "lowly" $500K condo and the $20 million house are both contributing equally to the calculation of the median. So I think we can expect the reported county medians since January, 2007 to be higher than what they would have been under the old average of weighted medians calculation simply because greater weight is no longer being given to the lower end of the pricing distribution.

Furthermore, when calculating year-over-year percent appreciation for Marin, the appreciation rate will be biased larger when comparing calculations based on the new scheme to that of the old scheme. This explains a lot of the recent appreciation activity in Marin lately compared to the larger counties in the Bay Area. It won't be until January, 2008 when the year-over-year comparison is unbiased.

Regarding the New Calculation of Sales
This is what DataQuick says about the new method of counting the number of sales:

To count as an "arm's-length" sale for our sales counts, the logic we've used insisted that there be a seller, a buyer, and that money changed hands. We've now expanded this to include transactions where there was a purchase loan if no price was apparent.

We're also now including multiple sales transactions. If three homes were bought in the same transaction, we now count them as three home sales, not one sale.

These changes increase monthly sales counts by an average of 10 percent. Intra-family transfers are not included, nor are foreclosures until a home is re-sold to a new buyer.

So it should be clear from the above that the number of sales DataQuick now reports each month will be significantly higher (10% is huge) than it would have been prior to January, 2007. Again, what they are doing now vis-à-vis sales makes a lot of sense and I have to wonder why they weren't doing it before.

The Bottom Line
Overall it should be obvious that comparing DataQuick's current calculations of the median and number of sales with those of before January, 2007 will be problematic at best. For Marin, reported year-over-year appreciation rates will be biased in the direction of being higher. Similarly, year-over-year comparisons of sales will be too high, not just for Marin but for most counties. The net effect will be temporarily biased data in the direction of suggesting that things are healthier than they really are. Don't get me wrong: I don't think DataQuick is purposely biasing in that direction; it is just a natural consequence of their (needed and sensible) changes in methodology. But nevertheless, their year-over-year statistics will remain inaccurate until January, 2008 rolls around when they will again be comparing apples to apples, and oranges to oranges.

As a result of all this, I don't think I will be relying on their data as much as I was before. I am now back to where I was originally, wondering if I should be accepting donations to obtain for-pay data services.

Comments? Suggestions?

Saturday, April 07, 2007

Quote of the Week

This from the Statesman Journal:

"Now that many subprime lenders are going belly-up and causing jitters on Wall Street, housing advocates decided the time was ripe to seek new consumer protections for would-be customers. On Wednesday, the Senate Business Committee rolled out Senate Bill 965, which would enact new safeguards for home buyers against so-called "predatory lending."'

"Sen. Larry George, R-Sherwood, panned the bill. "If someone is being deceptive, I'm with you," George said. But it's not the state's role to "protect people from being stupid," he said."

And God knows we have been overwhelmed with The Stupid over the last few years.

Credit for this find goes to the fantastic Sonoma Housing Bubble blog.

And if you want to do your part to see to it that there is no bail-out of the stupid and greedy, send a letter to your elected representatitives. Here, here, and here are some letters you can use freely.

This whole mortgage bail-out/moral hazard mess reminds me of Christopher Buckley's latest book "Boomsday". Here's a paraphrased excerpt of the book review from BusinessWeek:
Have you heard of the latest proposal out of Washington for fixing the Social Security mess? It's simplicity itself. As the baby boomers shuffle into their sunset years, Uncle Sam will hand them a bundle of juicy tax breaks and assorted perks in return for agreeing to a painless lethal injection at age 65. A second option would give slightly less generous benefits to those who prefer to hang around to the age of 70. Known as "Voluntary Transitioning", the idea has a certain irresistable logic given the boomers' well-known love of tax-code manipulation.
So when will the post-boomer generations finally get fed up with footing the boomers' bills, being saddled with their debt, and funding their retirement by paying their ludicrous prices for houses, etc? What's it going to take before the younger generations finally stand up for themselves and say "No, we're not going to take it anymore" and "It's not our fault you didn't prepare for retirement"?

Wishing Prices vs. Actual Sale Prices

Kelley Eling is a local Marin real estate agent who is kind enough to send me each month an email containing some county statistics for the prior month. Her data basically shows what the average asking prices were vs. what the actual selling prices turned out to be. The trend for the last few months (actually, since she began sending me the data) has been that selling prices are less than asking prices for most Marin towns.

Below is a graph of her March, 2007 data. Notice that for nearly all towns the average selling price (yeah, I know, average, not median) was less than the "wishing" price.

To me this data is a light-hearted measure of denial vs. acceptance vs. depression. If properties are selling for less than the owner's wishing price, the sellers were originally in denial. If wishing and actual sale price are on par, the sellers were originally in a state of acceptance. If wishing prices are below actual sale prices, then the sellers were depressed.

It seems to me that most Marin sellers are still in the denial-anger stages of Kubler-Ross:
  1. Denial ("I am not going to sell this house for less than I paid for it.")
  2. Anger ("Damn if I’m going to believe that lousy report that says I am going to sell this house for less than I paid for it!")
  3. Bargaining ("God, if you let me sell this house for a profit, I promise to be a better person.")
  4. Depression ("I’m so sad that I’m going to sell this house for less than I paid for it.")
  5. Acceptance ("I’m going to sell this house for a loss, but, you know what? I’m all right with it!").

Thursday, April 05, 2007

MAR's Propaganda Blitz

In a desperate attempt to drum up business, the Marin Association of Realtors is engaged in a first-ever-of-its-kind propaganda blitz. Some realtors are even undergoing "special training" for the propaganda campaign. Special propaganda training...hmmm.

Some choice quotes:

In a presentation to the San Rafael City Council - the first of its kind before a municipal body in Marin - the association said newspaper headlines announcing Marin's recent real estate highs and lows are accurate, but not a true measure of the market's rock-solid history in Marin as a steady climber.

"When it comes to real estate prices in Marin ... the true guide should be the long-term history," said Edward Segal, chief executive of the Marin Association of Realtors.

Association officials, concerned about the media's recent portrayal of the market as weak based on "snapshot" data, are making the rounds to Rotary clubs, chambers of commerce, community groups and others across Marin hoping to spread the word that business is good.

About a dozen association officers have undergone training as part of the "proactive" public education campaign, Segal said.

"Public education campaign"? More like public brain-washing.

'Spreading the word"...halleluiah!
One has to wonder why this is necessary now. Are they scared? And what's the deal with the whole "long term" emphasis? Of course long term things look good. No one has ever claimed otherwise, at least not on this blog nor anywhere else that I can recall. It's the short to medium term where things look less rosy. Considering the typical house owner only stays in the house 5-7 years on average, people should be concerned about the short- to mid-term. Shame on the MAR to suggest otherwise.

And then:
"We're much better off than the media would have you believe," she said.
Ah. So it is the media's fault. This being said in the IJ, the MAR's poodle. I don't recall the MAR or RE agents/realtors anywhere admonishing the media when the media was pumping up real estate and down-playing the risks. So you are only bad if you go against the real estate industry's bottom line. Got it.

Well, I sure hope our business leaders are savvy enough to recognize when vested interests are only looking after their financial best interests and no one else's.

"As the name implies, it's data and it's quick," Segal said of the La Jolla-based real estate information service.
Cute. How professional. I'll have more to say about DataQuick's "quickie" data in a later post.
Perhaps these, dug up from the 'ol archives, will help clarify things (and maybe I'll get around to updating them too):

Do you want to do your part to help put these middlemen (or is that "middlepersons"?) out of business and help to lower prices? Check out BuySide Realty. According to the review over at Mish's place (scroll down to the post entitled "The Changing Business of Real Estate (Part 1)"):

In the typical relationship at present, a person finds a home with or without the help of a Realtor, makes an offer, and commissions on the sale are split between the buyer's agent and seller's agent.

Those commissions are usually in the 5-6% range. Historically the split has been 50-50 between the buyer's agent and seller's agent but given the current slowdown the buyer's agent now gets as much as 4% of 6% commission.

The question is "for what?"

BuySide Realty operates on the principle that people who find the home they want to buy should get paid for their effort. So BuySide actually shares with the buyer 75% of the commission it receives. This commission sharing can be substantial. On a $500,000 home with a 6% commission spit equally, BuySide Realty would return $11,250 to the buyer of the house. If the commission was split 4% to the buyer's agent (not uncommon in this market) BuySide Realty would return $15,000 to the new home buyer. The largest rebate so far was $40,000.

The current perception that BuySide is attempting to change, is that one needs substantial help from a Realtor to buy a house. Mr. Fox offered the following comment about those perceptions: "The NAR has done an excellent job of convincing the consumer they are too stupid to buy a house on their own accord even when their own facts show otherwise".

So go out there, find that Marin foreclosure, preforeclosure, bankruptcy, tax lien, and use these guys to get the house. You are not only putting an RE agent out of work, but helping to bring prices down.

And no, for you skeptics out there, I am not in any way, shape, or form affiliated with BuySide.

Monday, April 02, 2007

The Death of Real Estate

It's not every day that a San Francisco area real estate investor, here in the jolly ol' land of we're-too-special-we're-immune, actually gives you the full monty on what he thinks is going down in the world of real estate. Credit for this link goes to the most excellent Charles Hugh Smith blog (and if you value his blog as much as I do, please consider making a donation).

Some choice quotes:
I sell investment real estate in the San Francisco Bay Area. Have been for 25 years. It's a nice business. I've enjoyed it, and I value my clients. My pappy's a realtor. My grandpappy was a realtor. My uncle's a realtor; so is my brother. Heck, some of my best friends are realtors (and it takes a big man to admit that).

That's why it pains me to give you the bad news, to wit: Real estate in America is officially dead. But only for a generation or so.

In other words, it is time to sell all of your real estate, save for possibly your home. If you don't, you will likely regret it. You will gradually watch all of your equity disappear into thin air. And then, unless you have little debt against it, you will likely lose your property to foreclosure. It's as simple as that.

The far better strategy is to sell now, even if you are disappointed with the selling price, take your equity... and put it into safe, interest-bearing cash-equivalents for a while. Do not put it into the stock market. Do not fiddle with bonds. Don't buy gold (for now, anyway). Stay away from the other metals. Just sit there. Don't be cute. Stop annoying your brother. And try not to be smug. Exercise that virtue known to Job as patience.

In case you haven't noticed, or choose to stick your head in the sand, or don't know much about investment manias and credit bubbles, or think that real estate values "always go up in the long run," or believe that just because Ben Bernanke's Fed has a printing press, they can compel ordinary Americans to borrow increasingly reckless amounts of money, allow me to be the one to pour a big bucket of ice water over your head. The fact is, we have officially entered the frightening, post-NASDAQ-bubble, post-subsequent-real estate-double-bubble, credit-contracting, asset-deflationary portion of the 75 year cycle.

Foreclosures are up 79% in California; in Florida they've nearly doubled compared to the same period last year. Nevada's foreclosure rate is up 77%. Colorado, Georgia and Michigan report the same tales of woe. Ohio's Cuyohoga County, where folks have abandoned neighborhoods and thieves steal cabinets and copper pipe from vacated homes, has seen its foreclosure rate increase sixfold since 1995. 2,100,000 households in America were said to be in default as of year-end, 2006. Teaser loan payments are rising, home values are falling, and "greater fools" are no longer stepping into the breech to save anyone's financial day.

We're still in the early stages of Foreclosure Mania and nowhere near the point of full recognition, but even at this point, lenders and homebuilders have begun walking away from their obligations just as quickly as those poor, unsuspecting subprime and zero-equity borrowers.

The first-wave victims of the housing bubble implosion are tapped out and must begin their lives anew with statistically no savings. I suppose that means they will no longer be buying flat-screen TV's, new trucks or trinkets from the "Things You Don't Need On Any Basis" store for a while. And you know those Mercedes-driving, $700 purse-toting realtors, loan brokers, appraisers and title company folks? They'll be hunkering down for the foreseeable future, too. How about the subprime, predatory and other assorted, irresponsible lenders and mortgage "securities" dealers? I imagine they've stopped buying original Monets and Picassos at this point but, hey, I'm just guessin'.

Eventually, everyone will come to the realization that 1) just like when the NASDAQ bubble burst back in 2000, real estate values are going down, down, down, then 2) that this time it's not a "normal real estate cycle" but instead a relentless, post-bubble and post-bubble-bubble real estate deflation that we expect will have no historical rival.

That realization will pervade the consciousness of real estate buyers across the board, as they hear about ever-more distressed and foreclosed inventory competing with already-languishing housing stock. Buyers will conclude that, just like computers, "prices will be lower next year" and they will demand significantly discounted prices; sellers who resist selling now will find an even weaker market and a greater dearth of buyers with each passing year. Nightly news reports will further the psychology, and that dampening mind-set will spread to all real estate types: office and retail buildings, industrial and income property, single lots and land. The implosion of the real estate bubble will quickly translate to snap-the-pocketbook-shut consumer spending, declining rents, more bankruptcies, a moribund job market and fire-sale drops in real estate prices. Fannie Mae, Freddie Mac, bank and lending crises are sure to be sprinkled on top of that soggy cereal at some point, too.

Surviving lenders, under constant pressure due to rampant foreclosures, will make lending standards increasingly more stringent and loans more difficult to procure, meaning more equity will be required to buy property. But Americans have been living on borrowed money and have no such equity; they've been conditioned to borrow to buy things because they assumed that the value of their homes would continue to bail their finances out forever. Another segment of the buying marketplace will therefore be lopped off.

As time goes by, those in a position to buy will consider real estate not worth the headaches and a bad investment, to boot.

In my opinion, the ultimate affect of the real estate bubble -- and its mostly unanticipated implosion -- is that the entire asset class will fall out of favor for many years, possibly for a generation. Only a select few will benefit -- those who had the foresight to sell now and squirrel away the money safely before the real anguish begins.

Sheesh! And you thought I was gloomy.

The only trouble with this is that in order to sell, you have to find an ever more clueless buyer. And we're sure to run out of those as time goes by. I mean, there comes a point in every (apocryphal) lemming's decent into greatness where that big flat dirty-looking looming thing becomes painfully obvious.

Sunday, April 01, 2007

Wiki Letter Update

The wiki experiment is proving once again to be a success: A reader drafted a new letter in opposition to the RE bail-outs that is far superior to my own. Bravo! You now have two letters to choose from.

Send it to your elected representatives. Send it to Senators Clinton and Dodd. Send it to your local paper. Send it to your local news stations.
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