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Plankton, Vendus Encourigitis, and the Stratification of Market Activity in Silicon Valley

A few days ago I spoke about the effect a mythical local insect, Vendus Encourigitis, has on housing inventory patterns here in Silicon Valley. It quite dependably comes out in the early part of each year, spraying homeowners with pheromones that make the notion of selling their home completely irresistible, thus putting an end to the seasonal problem we have here of low inventory. A close cousin of said insect, Achetus Encourigitis, tends to come out shortly thereafter, encouraging buyers to compete with eachother to buy the new inventory and drive prices up.

To continue the allegory, we look at another creature, this time a real one, but again with an allegorical function in this tale. I speak of the lowly plankton, a tiny oceanic life form: in size, seemingly insubstantial, but in importance, great. The plankton, you see, is at the bottom of many aquatic food chains, and if it were for some reason to disappear, the effect would be disastrous for the creatures that depend on it for food, and for predators of the creatures that depend on the plankton, and so forth: a ripple effect ultimately reaching most aquatic life.

The plankton of local real estate is the humble first-time homebuyer in the lower priced areas such as Redwood City, East Palo Alto, Menlo Park east of 101, parts of Mountain View and San Jose, and so forth. These folks purchased their homes in the last few years, assuming (as we all did) that prices would continue to rise, and they could then “move up” into a ritzier neighborhood with the equity they had built up. A higher than normal percentage (for this area) of such purchases were made with sub-prime loans.

Fast forward to 2008…these markets are hurting, some of them quite badly.

East Palo Alto’s inventory, for instance, has been marching steadily and worryingly upwards since early 2007…

…and prices have been going in the opposite — and expected — direction:

When inventory is over three times what it was a year ago, and prices have dropped by over 15%, the market basically freezes. Deflation does what it always does: makes the bargain-hunters decide to continue salivating just a bit more, because surely those prices are going to continue going down! Homes sell more slowly, prices continue downwards…it’s a vicious spiral.

And the plankton who own these homes? Well, if they can’t sell, that means they can’t buy the $850K starter home in Flood Park…and that homeowner can’t buy the $1.1M home in Palo Alto…who in turn can’t upgrade to the $1.6M property in Los Altos he’s been salivating over…who in turn can’t move to a respectable venture-capitalist-ridden neighborhood in Atherton.

The sub-prime woes affecting the lower-end markets are bound to eventually impact Palo Alto and its kin — though probably not as much as this analogy makes it sound. Why? In this market, there are plankton at almost every price point, so homeowners looking to sell don’t necessarily need to wait for a $500K homeowner to be able to sell his home. For every East Menlo Park’ian who was planning to — but no longer can — move across the 101 to buy an $850K home, there’s a dual-income tech couple who’s looking for the same $850K as their first home. Higher up the food chain, newly minted Googlers represent the plankton of the Atherton market.

But make no mistake about it: the lower end markets here are hurting, and will continue to do so for a while.

For instance, Redwood City’s inventory, much like East Palo Alto’s, is more than triple where it was a year ago…

…and prices in the two lowest quartiles are not looking pretty:

Tags: Atherton, Flood Park, Google, Menlo Park, Mountain View, Palo Alto, Real estate, Redwood City

What Questions Would You Like to See Discussed at Inman Connect 2008 Internet Marketing Session 1: Tap New Methods for Finding Buyers

This week Wednesday through Friday I’ll be in New York at the bi-annual Inman Connect conference. These conferences tend be both fun and intense: it’s always great to catch up with old friends and make new ones, but sometimes the volume of information is a bit fire-hosey.

I will be moderating the panels at the Internet Marketing Workshop on Wednesday morning. I’ve been emailing back and forth with the panelists to make sure we have a good solid core of questions with which to kick off each session. However, I’d like to be even better prepared, so I’ll be “crowdsourcing” additional questions.

Whether you’re going to be at Inman or not, what are some good questions you’d like to see explored during this panel? (In subsequent posts I’ll provide an opportunity to make suggestions for the other panels.)

Here’s what panel one is about:

Wednesday, January 9, 9:00 a.m. - 9:45 a.m.

Tap New Methods for Finding Buyers
What are successful agents doing in today’s market to find buyers? Explore new methods that have proven cost-effective and will keep your prospect pipeline full without wasting time and money.

Moderator: Kevin Boer, Founder, 3 Oceans Real Estate Blog

Panelists:
Jeffrey Bastress, President, Startpoint Realty
Jamie Glenn, Vice President, Product Management, Trulia
Brendon Kraham, National Sales Manager Classifieds, Google
Greg Tracy, Founder/Realtor, Blueroof.com

Tags: Google, Inman, Inman Connect 2008, Inman-Connect, Real estate, Trulia

Mortgage Mania Part 13 - A Halloween Story

Dsiclaimer: The following post is based on a presentation by Christopher Thornberg, an economist at Beacon Economics, that I attended last night, courtesy of my accountant, Tom Wagstaff of Petrinovich, Pugh and Co. This is a departure from my normally upbeat view of the local economy, and fortunately they re-opened the bar following the presentation for all the Realtors in the audience to drown their sorrows.

Economist Chris Thornberg showed some pretty convincing evidence for his expectation that housing prices will fall between 20% and 25% over the next couple of years, primarily because the ratio of home prices to incomes is higher than anytime in history, almost double the peaks in previous economic cycles. Gloom and doom for an hour, ah it brought tears to the eyes of many a Realtor in San Jose. Smugly I said, ” . . .but I live and work in Palo Alto, land of Stanford, Venture Capital, Facebook and Google! Sushi on every table and a BMW in every driveway! We are our own little world here, so we don’t have to worry about the housing market meltdown in Nebraska, or even the East Bay.”

Not so fast. The lastest housing boom has been driven by increasing housing prices, driven in part by cheap credit and loans. More people got these loans, bought more expensive houses, so the demand for these loans went up, and the cycle accelerated.

Now the appreciation is going the other way (flat to negative), and the equity that has driven consumer spending over the last few years (cash out refi = new boat), has gone away (bye, bye boat, and house!).  Thornberg forecasts that the subprime meltdown will be followed by Alt - A defaults (already happening) which will pull down the high-end markets from below (that would be Palo Alto, Los Altos, etc.). Even if the Fed were to reduce interest rates to 0%, it wouldn’t fix this mess. Much like last night’s temblor in San Jose, Palo Alto will be on the periphery of this shakeup. We won’t be knocked flat, but we will rock and roll a bit, and not in the fun way. Sigh . . .

To add to the gloom, I have been attending recent forums for candidates for Palo Alto City Council. Whether the topic is Palo Alto’s aging libraries, or green initiatives, the same topics keep coming up: Infrastructure, Schools, Tax revenue.

If you live or work in Palo Alto, I highly recommend you take an interest in the upcoming City Council race and the issues the candidates are raising. You can learn more about the issues and candidates on the Palo Alto Weekly website.

Happy Halloween!!

Tags: 4---mortgage-mania, Buyer and seller tips, Countrywide, Facebook, Google, Google Analytics, Home selling, Loan-Application, Option ARMs, Preapproval, Prequalification, Real estate, real-estate-market, real-estate-prices

After Active Rain vs. Move.com, What Next?

The ongoing Active Rain vs. Move.com dustup, our very own ongoing soap opera saga, illustrates one fact above all else: the re.net is maturing. As the traditional players in real estate (finally) begin to appreciate the potential of emerging technology in real estate, it’s inevitable that more acquisitions will take place — hopefully successfully.

Move.com’s overtures to Active Rain were actually not the first in which a traditional player courted one of the new ones. That honor, I believe, rests with our very own Joel Burslem of FOREM, which was acquired by Inman a number of months ago.

Some other possible pairings? Google must be looking with interest at both Zillow and Trulia. Inman, Ris Media, and other real estate industry news sources may be eyeing some re.net blogs.

And who knows…maybe the Bloodhound will make a play for one of the other Phoenix re.net blogs? Or perhaps these guys might be interested in this one?

Tags: Active Rain, FutureOfRealEstateMarketing.com, Google, Industry, Inman, Joel Burslem, Move.com, Trulia, Zillow

Bay Area Housing Price Trends … In A Map

After a wonderfully fun — and occasionally frustrating — evening of hacking around, I’m please to present this mashup of Bay Area housing price trends. The graphs are from our friends at Altos Research, and the Google Maps were created using Zeemaps from Zeesource.

For a larger map, click here.

Tags: Altos Research, Consumer, Google, Industry, Mapping software, Real estate 2.0, Real estate data, Real estate mapping, Zeemaps, Zeesource

Introducing The World’s Most Internet-Marketed Property: Come Along for the Ride!

I've been waiting for the right opportunity to really push the envelope of online real estate marketing, and, well, it's here!

I'm working on a listing in San Francisco's Potrero Hill neighborhood that fits perfectly into this new online marketing world:  it's slick, chic, and contemporary, will likely attract a younger and web-savvy crowd of buyers, and the sellers simply love the idea of creating a buzz online.

We're passing on the normal full-color ads in traditional local media like the San Francisco Chronicle, the San Jose Mercury News, and we'll be spending that money online instead.  To hedge our bets, we will be placing open house display ads in print media.

I'll be collaborating with several real estate online marketing companies to promote this property.  They'll be showing me — and, by extension, my readers — how to get the full benefit of their products.  I intend to chronicle our adventures here and invite you to follow along.  If you have some ideas, feel free to join in!

I'll announce the first collaborator tomorrow.

In the meantime, as part of our adventures, let's see how high this site currently ranks for the search, "San Francisco Potrero Hill Real Estate" — I suspect it won't be that good, since I've never written about Potrero Hill before!

Sure enough, on Google, Yahoo, and MSN, I'm nowhere to be found, not even in the top 100. 

Google: 

 

Yahoo: 

 

MSN:

Tags: Advertising, Buyer and seller tips, Disclosures, For sellers, Google, Media, MSN, Newspapers, Online advertising, Potrero Hill, Preparing a home, Real estate, San Francisco, San Francisco Chronicle, San Jose Mercury, Yahoo

Changing the way we think about Zillow: It’s a media company, not a home valuation site

Ok, class, today’s quiz has two true/false questions. No copying!

1. Zillow is like Cyberhomes
2. Zillow is like NBC

Time’s up…here are the answers:

So, how’d you do?

Much of the criticism of Zillow centers on the fact that its estimates are not the last word in accuracy, and in many cases can be far off. If Zillow were, in fact, strictly a home valuation site a la Fidelity’s Cyberhomes, that would be a pretty damning indictment. Zillow’s only hope would be to consistently have the best, most accurate estimates in the business, and Cyberhomes would arguably have a better platform to achieve that, since its affiliation with Fidelity gives it access to more data, more accurate data, and more timely data.

These criticisms are valid, but they simultaneously miss both a relatively minor and a crucial point, both of which can be illustrated by another analogy, this one between Zillow and Google, arguably the best known online media company.

1. 100% accuracy simply isn’t possible: When you type in a search on Google for, say, “Radish recipes,” what you typically get is a “good enough” set of search results to help you find the content you want. It’s an amazing testament to the brilliance of Google’s search algorithm engineers how often within the first page of results you find what you’re looking for. Sometimes, however, the answer isn’t on the first page…or the second or the third…or it simply isn’t found on Google. Somewhere out there on the Internet is the answer, but Google hasn’t found it or classified it or interpreted it correctly for your particular needs. A computer algorithm, however sophisticated, simply can’t always give the right or best answer. Similarly with Zillow, what you often get is a “good enough” estimate. The home’s true value might be $400,000, but Zillow might say $370,000 or $440,000. For many purposes, that’s a “good enough” answer for people to keep coming back, and when they need a more accurate answer — say, they’re planning on selling their home — they bring in an appraiser or a Realtor to give a more accurate estimate. As with Google’s search, sometimes the Zillow answer is way off. As frustrating as that is, it’s just the nature of the beast: A computer algorithm, however sophisticated, simply can’t always give the right or best answer…no matter how smart the engineers, no matter how many data points, no matter how powerful the computer.
2. Successful media companies are all about content and entertainment Google monetizes its search pages by selling relevant ads — just like NBC monetizes Saturday Night Live by selling ads. Google’s “content”, its “entertainment” is the search result and experience.Zillow’s content is all real-estate focussed. During its first season, there were two shows: “Home Value Estimates” and “Sales Prices and Details of Neighboring Homes.” We’ve just entered the second season with the release of a few more shows: “Make Me Move”, “Homes for Sale”, and “Real Estate Wiki.” Just like NBC, some of Zillow’s shows will be hits, and some will be flops. With any enough hits, Zillow will become successful.Don’t get hung up on the fact that Zillow’s “Home Value Estimates” show has inaccuracies in it. These estimates will improve, but they will never be 100% accurate, not only because they can’t be, but because what Zillow is providing is real estate entertainment, not the be-all and end-all of real estate valuation.

Tags: Eppraisal.com, Google, Online advertising, Real estate, Zillow

Escaping from tab hell (aka “Google’s taking over my desktop!”)

I’m constantly coming across nifty blog-worthy items on the Internet.  Typically I keep track of them by leaving them in an active Firefox tab:

That works fine up until about a dozen…but then what?

Enter a new product from Google:  the notebook.  You install a little widget, and voila!  A new option appears on your right-click menu:  Note this (Google Notebook).  From there, you can drag topics where they belong, comment on them, delete them.

Tags: Blogging, Google, Real estate

Outsourcing to your clients

Patrick Kitano’s recent post on the Internet and outsourcing got me thinking about a pretty neat kind of outsourcing — the kind where you pass off some of your work to your clients, sometimes without compensation.
Client outsourcing is one of the drivers behind the Internet’s cost efficiencies. If a consumer can download copies of old checks from a bank’s web site, that means the bank no longer needs a department of people to follow up on requests for dated checks. It’s not that nobody is doing this job any more; it’s that the client is doing it instead of internal staff, and the client isn’t really being compensated for it either, especially when you consider how much bank fees have increased over the last decade.

Google does some very creative client outsourcing:

• Google Image Labeler: This is an entertaining, nearly addictive game, masking its real purpose, which is to provide labels for the millions of images Google has in its archive. Rather than spend millions on technology to scan the images and label them (technology which may not even be completely possible with what we have today), rather than hire several hundred new folks whose sole (and boring) job it would be to write labels — Google has simply outsourced that job to its clients! Pretty neat.
• Google search: While nobody outside the company knows Google’s secret sauce for ranking pages and relevance, we all know that part of it is analyzing incoming links. The legitimate (non-link-farm) links are generated by millions of real, live people who essentially “vote” on how good a particular page is by linking to it. Again, Google’s users are doing part of its job.

What does all this have to do with real estate? Quite a bit, actually — one of the growing current trends in real estate is client outsourcing. In the bad old days of data exclusivity, Realtors took clients around to see properties. Though that still happens a tremendous amount, there are a growing number of home buyers who take themselves out to view properties, thank you very much. Redfin didn’t invent this model, but they certainly have made a big splash about it, and they compensate their clients for doing some of the work by giving them back part of the commission.

Tags: Disintermediation, For buyers, Google, Real estate

G-spot

Just alerted to this on Om Malik’s blog — Google just bought Jotspot.  The obvious name for this new entity?  Take a guess…

With that out of the way…what in the world is Jotspot anyway?  It’s a neat little Web 2.0 hosted wiki application.  What does that mean, and why should that interest somebody in the world of real estate?

A “wiki” is simply an online collaborative application.  The most well-known is arguably Wikipedia, the public-contribution encyclopedia.  Other “wikis” include spreadsheets and maps which have the ability to be used collaboratively.

Some clients of mine clued me in to Jotspot earlier this year, and we found it a pretty effective tool for collaborating on the real estate search process.  I would upload information about the properties I had previewed for them, and they could see the comments I’d made, add their own, and ask questions.  “Did that one have a nice water view?  Did the kitchen in that home have the countertop style we prefer?”  The information was viewable as a spreadsheet, in map format (which homes have we looked at in this neighborhood?), and as a calendar (which homes did we see last weekend?)

Tags: Google, Jotspot, Real estate

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