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.


Blogger Rob Dawg said...

Ummm, why are "holidays" a legitimate reason to delist and relist?

Apr 16, 2007, 8:35:00 PM  
Anonymous Anonymous said...

So sorry Marin RE machine, you collectively don’t have enough fingers for this massive, fractured dike.

Apr 16, 2007, 10:09:00 PM  
Anonymous Anonymous said...

Novato is the "foot in the door" community in Marin and represents the beginning of the trend for the rest of the county. Novato has more of those $800K "starter homes" for first time buyers and younger families, so I'm liking what I'm seeing regarding DOM increases and prices sliding. There will be much more of the same to come in the months and years ahead, believe me.

I wonder what the sales numbers would look like if we removed the distressed sales, eg. REO, foreclosures or short sales?

Apr 16, 2007, 10:16:00 PM  
Anonymous Anonymous said...

Sacramento, Central valley, San Diego and other similar places will all see 50-70% price cuts when this is all over. Marin will see a minimum of 35-40% price cuts across the board.. Of course, all of this will take a few years to play out, as the RE machine will be relentless in working the political and monetary side of this disaster (correction, monster) that they created.

A poster the other day made a smart observation by saying that, in times like these, the best place to invest your money is not in some over-inflated asset class, but in yourself.... I concur.

Apr 16, 2007, 10:24:00 PM  
Blogger Marinite said...

Ummm, why are "holidays" a legitimate reason to delist and relist?

It is legitimate to delist during holidays since the owners may not be around. But I don't think delisting due to a holidy is reason to reset the DOM statistic.

Apr 16, 2007, 10:30:00 PM  
Anonymous Anonymous said...

It has to go down.

This stuff is so out of whack.

If you are waiting to buy....

Keep waiting!

Apr 17, 2007, 12:48:00 AM  
Anonymous Anonymous said...

Even with negative sales data and sliding medians,almost all of those prices are hovering close to a MILLION dollars. Frankly, once prices go past 350k, I stop caring, and in order for prices to drop to that level I'd say that either the economy would have taken an enormous hit or there was about a 9.5 earthquake.

Either way, I too want to see those prices come down. But as we still sit with the clock ticking into the 2nd year of a slowdown, those prices are still sky-high. The depressing thing in my east bay neighborhood is that there seems to actually be LESS homes for sale, and of the few that are, most seem to be getting sold rather quickly; we're talking 7 and 800k homes here- just being bought by Ford Taurus driving humbodies.

The fact that people are still buying and are seemingly oblivious to the fact that buying now is insanely foolhardy is frustrating to see.

Apr 17, 2007, 8:12:00 AM  
Anonymous Anonymous said...

As far as I know the first time buyers relying on exotic loans are not existing now because there is no funding available. This has put a lot pressure on cities like Novato. Even south Marin is feeling the pressure now. The market is very slow as of now.

Apr 17, 2007, 8:32:00 AM  
Anonymous Anonymous said...

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

I'll play Devil's Advocate and say that as soon as you get emotionally invested in the RE market, or any market for that matter, going one way or another, you're on shaky ground. Wishing, hoping and arguing for the market to move in the direction YOU THINK IT SHOULD is a recipe for disappointment.

Even if we stipulate that Marin RE market is overvalued and buyers over-extended, nothing prevents it from remaining that way for a long, long time.

If I buy a house intending to live in it for 10 - 15 years, I might not see much of a return, but it's the only asset I own that I can live in.

If you're buying some POS to flip, paying more than you can afford, etc. then you deserve what you get. If you're waiting for a 40%-50% price decline in that house you covet in Southern Marin, you might not get what you think you deserve.

There are no crystal balls.

Apr 17, 2007, 10:01:00 AM  
Blogger Lisa said...

Did anyone catch the article in this morning's SF Chronice? Foreclosures in CA are up 802% versus 1st Quarter 2006. Yes, 802%. First time ever, I wrote an email to the reporter

Dear Pia,

Thank you for this morning's article on foreclosures. I look forward to a headline, perhaps sometime soon, that calls a spade a spade. A lot of people bought houses they couldn't afford.

When I bought my first home in Marin in 1996, banks would not let you buy at more than 3x gross income. A down payment was required. Credit card debt or a car payment was frowned on. They required proof of steady employment and several months cash reserves in the bank. They wanted to make sure you had the ability to actually repay the loan. Imagine that.

Over the past several years, when fixed mortgage rates were at record lows, the majority of loans in CA were adjustable, and to boot, interest only / pick your payment / negative amortization. Wonder why? Because the only way buyers could "qualify" was at an artificially low starter payment. Now these loans are blowing up and people are crying foul.

I'm not sure who bears ultimate responsibility - the lenders who gave borrowers enough rope to hang themselves or the borrowers who took it.

And on the notion that damage will be magically "contained" to Subprime...AltA loans typically have longer teaser periods (3 to 5 years) versus Subprime (1 to 2 years). It makes sense we're seeing problems in Subprime first, because those loans reset first. If a borrower can't afford their payment when the loan resets, their higher FICO score won't help.




Marin won't be immune from this mess. As voodoo financing goes by the wayside, first time buyers can't get in, which means there's no movement above them either.

Everyone on the housing blogs knows that if lending standards start to approach what they were just 10 years ago, these prices won't hold up for 20 minutes. No one could pay them.

It's a disaster, and there is no easy way out. Borrowers are in debt to an extent they can never afford, while other families who refused to take out suicide loans have not been able to purchase a home.

Apr 17, 2007, 10:14:00 AM  
Anonymous Anonymous said...

Okay, I understand the need to vent but......One poster mentioned "Marin will see a minimun of 35-40% price cuts across the board." Being informed is important, but balance your information intake.
The Chief Economist for the California Association of Realtors agreed we are in a down market. A down market that MAY end in a depreciation of nearly 2% over the next two years. She actually studies the statistics and has professionally since 1984.
I encourage anybody who fears the market or wants to eternally wait for prices to meet their delusions, keep waiting. For those people who have good credit and want to become part of a community, do what you want with out fear of would might possibly happen if maybe things possibly crash.

Apr 17, 2007, 10:25:00 AM  
Anonymous Anonymous said...

The rate at which foreclosures are growing is astonishing when you consider how few loans have rest or recast.I do wonder how many people in Marin bought "investment" homes in other markets? this could have a substantial effect on the Marin Market.please remember that declines in the real estate market tend to be rough and jagged,and not smooth.we may well see plateaus and then sudden declines of 5% or more in a month.those who still do not think substantial declines are inevitable haven't looked at the historical record,or have so much invested emotionally they can't see what is right in front of them.

Apr 17, 2007, 11:10:00 AM  
Anonymous Anonymous said...

"I do wonder how many people in Marin bought "investment" homes in other markets?"

I've known a lot of people here in Marin who bought investment property in Sonoma, Napa, central valley, Walnut and other east bay areas. If they sell for a loss and if that loss is big enough, some people might have to sell their marin homes to cover the losses. It won't be the first time. Not saying this is going to happen in record numbers or anything, but it is worth thinking about. People can keep whatever feel good fantasy they want but it won't change reality.

Apr 17, 2007, 11:15:00 AM  
Blogger Lisa said...

In the last downturn (early to mid '90's), I personally know 2 people who lost their shirts on houses in Marin. I mean $100K+, which was a lot of money back then. Think of how much worse it will be this time around, because prices are exponentially higher.

People were having property taxes adjusted because values tanked 20%, and it took 10 years to get those values back.

Why would it be any different this time around?

I think the denial is so deep because people have so much vested in RE. I'm happy I'm not hundreds of thousands in debt on a declining asset, that's all I can say. Plenty of other ways to get tax deductions and save for my future.

Apr 17, 2007, 12:40:00 PM  
Anonymous Anonymous said...

Anonymous @ 10:25 said: "The Chief Economist for the California Association of Realtors agreed we are in a down market. A down market that MAY end in a depreciation of nearly 2% over the next two years. She actually studies the statistics and has professionally since 1984."

A lot of questionable comments get made on these blogs but this was mind-boggling. We are talking about a spokesperson for an industry trade group...not exactly an impartial analyst.

While none of us knows what will happen, we should be able to recognize when someone is paid to profess a certain point of view.

And, by the way Mr. or Ms. Realtor, it is not necessary to go deeply into debt to "become a part of the community". I sold my home in 2003 but I didn't resign from the community.

I don't care if homes decline by 30% to 40% or not. If they do, I might buy again. Otherwise, I may continue to rent.

Apr 17, 2007, 2:04:00 PM  
Blogger Unknown said...

There's still another shoe waiting to drop and that shoe is called interest rates. We've enjoyed historically low rates for close to 5 years. It's naive to think this will continue, especially in light of the government's soaring debt levels.

If you purchased a house in Marin at the county's 2006 median price of $960,000 and put 20% down ($192,000) and financed with a 6.25% 30 year fixed you'd have payments of $4,730 (rounded) on a $768,000 loan. If interest rates increased by a percentage point to 7.25%, keeping your monthly payments constant at $4,730 would require a loan of $693,000. Add back in your $192,000 down and the house you can afford drops to $895,000. If rates go to 8.25%, the loan amount necessary to maintain a monthly payment of $4,730 falls to $629,000 and the total affordable house falls further to $821,000.

Rising finance costs will mean that homes in Marin will become even more expensive. One of two things will happen. Prices adjust downward to adjust for rising finance costs or new buyers in Marin will have higher incomes/greater wealth making the county increasingly exclusive.

Apr 17, 2007, 5:22:00 PM  
Anonymous Anonymous said...

I've read many a blog and many an article and looked at many a chart, and I (still) say Marin Real Estate will tank by 35-40%. God knows how that statement threatens the image the Marin RE machine and current homeowners have of themselves, but that's my estimate and I'm sticking to it. If it tanks a wee bit less or a wee bit more, I won't be disappointed I can assure you.

The peak Novato Hamilton "Traditions" home price that I know of was $899K just last spring (poor bugger). 40% haircut means I will be able to buy that same house for $540K in the years ahead. Given that I see a recession on the horizon, I'll take that bet.

As I've said, home prices, in the end, are tied to wages. They became untied around 2001/2002 with all this BS. This sham of a bubble will continue to unwind until there is balance back in the market.

Apr 17, 2007, 10:03:00 PM  
Anonymous Anonymous said...

Oh, the same floor plan home in Hamilton Traditions I think are being listed for $789K right now (still wishfull), so the slide is well underway.

Hey, where did Leslie run off to? I need to introduce her to a few more people who absolutely regret entering the Marin RE market.

Apr 17, 2007, 10:11:00 PM  
Anonymous Anonymous said...

Wow if you are right about the price change in Novato that is already one quarter of your expected 30% to 40% decline.

Also I do think RE is a market that is extremely sensitive to either positive or negative feedback loops. It is not just like a stock (oh well I lost 12% and forget about it) b/c with real estate there is ongoing costs to maintain your investment and those costs do not decline as prices drop. In fact, as a percent of value, costs to maintain you investment (or should I say house) go up as a percent of your investment, making your investment worth even less.

Apr 18, 2007, 2:06:00 PM  
Anonymous Anonymous said...

Anon,the point about costs rising as equity declines is a good one.and Marinite,I think you will be pleased to hear that one of the people i e-mailed the roller coaster video to checked out your site,and a couple of others and decided not to buy an "investment property". i think this is the 4th couple i have referred to your site who have decided not to buy based on your posts and links.Thanks again...I'm looking forward to a market where i can make a decent living honestly,killing deals does not help the old cash flow.

Apr 18, 2007, 10:09:00 PM  
Blogger Marinite said...

i think this is the 4th couple i have referred to your site who have decided not to buy based on your posts and links.

Oh my!

Apr 18, 2007, 10:28:00 PM  
Anonymous Anonymous said...

Yes,4 couples.They were the ones willing to do a little due diligence before borrowing hundreds of thousands of dollars.I try to be clear about the difference between my opinion,and the ascertainable facts when discussing the real estate market.and I always recommend to people that they verify my statements.very few have,but 4 middle class couples have avoided severe financial distress because they were willing to do a little homework.Without sites like yours,they would not have been able to make an intelligent decision,and their lives would be a whole lot Thank you.

Apr 19, 2007, 6:40:00 PM  

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