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.

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,

XXX

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?

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!").

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.

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.

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.