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Economic Forecast, Extending the Tax Credit and the Golden Window for Buyers

On October 12, I attended a SILVAR sponsored economic update and forecasting presentation by CAR EVP Joel Singer, and I thought you might find the following summary and comments beneficial:

• As we all know financing is the primary key to housing stability, and Singer is 100% confident that both tax credits and the $729,750 conforming limits will be extended into 2010—both of which are keys to continued recovery
  • 40% of first-time buyers for 2009 bought because of the tax credit
  • The Feds are on track to extend the credit, maybe even improve it, so let’s keep our fingers’ crossed
  • The CA State Senate already approved the extension of the state $10,000 tax credit, and it should pass Assembly this week—yeah!
  • Food for thought: before the competition increases due to formalizing the tax credits, first-timers should make their move sooner than later
• The move-up market here is the most impacted, but will improve as financing does; as such, he feels as though there will be some level of government involvement to stimulate the secondary market for non-conforming loans
  • Right now, inventory levels for $750k-$1mm are at 6.1 months, which is healthy; inventory levels for $1mm+ are at 12.8 months, which signals a clear buyers’ market
  • With government support, non-conforming lending will ease, but not necessarily cause rates to be lower—current margins are already at all-time highs primarily due to risk—by stabilizing the system and improving liquidity, risk is reduced, savings rates increase and rates remain about the same
• Futures point to a Fed funds rate rise of .500% to .750% and conforming 30-year fixed mortgages at 5.6% in Q2 2010
  • As such, this gives anyone needing a conforming loan about 5 months before both rates and prices are up significantly
  • And if you missed the headline on September 24th about the Fed easing their policy of keeping mortgage rates low, you’ll want to know that they are almost cutting in HALF the  the effort– $14B versus $25B
• The overall number of homes/units sold next year will be down, but that’s only because we had a record number of units sell already this year—foreclosures will be DOWN relatively significantly
  • Activity will still be high and it’s likely the $1mm+ segment that will provide buyers with the best value
  • The “second wave” of foreclosures due to rate adjustments is a farce—many people, like myself, are looking forward to loans adjusting at lower rates, which is precisely what the majority of those loans will do
• 2010 will be a growth year with GDP expected at about 1.9%
  • Great news for the economy, but growth causes higher prices and higher rates—
• The population of CA will grow another 1.1%, so that’s about $370,000
  • We’ve added about 600k people per year since 2000, and about 500k babies are born in CA each year, so I guess that means there will be more demand on housing, which is also good news
• Unemployment may be 12% in CA, but that number is tied mostly to construction-related industries. 
  • With High Tech, Finance, Exports and Travel all on the rise for the Bay Area, our property values and local economy should benefit significantly

The Latest on Rates and Activity

Even with the incredible rates that continue to drive the refinance market, over 50% of the transactions that we closed in September were purchase transactions.  Also of importance is the fact that of those purchase transactions, 35% were financed using “JUMBO” loans!   Jumbo 30-year fixed loans are running about 5.75% and that jumbo 5/1’s are around 4.50%.  And if you have a $417k conforming loan, 5/1’s are available at 3.75%!!

According to the MBAA, last week’s applications were down, but the four week moving average is up, along with interest rates (albeit slightly).  We’re seeing the opposite effect locally, but it’s likely due to the many move-up buyers looking to take advantage of the $1mm+ market through Winter.

Is it just me, or does it genuinely feel like the golden window of opportunity for buyers right now..?

A great success story for us lately included funding a loan for a borrower who had a 63% debt-to-income ratio.  We have also bridged three separate transactions that allowed buyers to move up without having to sell their current home first.  And finally, we improved a client’s credit score by 100 points and saved them over $8,000 by having an erroneous collection removed from their credit record.  So even with all the news headlining the challenges in the mortgage world, at least some great success stories continue to be made.

Hate Speling Misstakes And Bad Pictures in the MLS? Support My Campaign For NAR President And Put an End to this Nonsense once and for all

Having a little too much post-Inman fun and excitement…

Right Along With the Grunge Look, the Housing Crisis is Over

Yes, for those of you gents who still may be holding on to the rather relaxed “grunge” look from the 1990’s, I’ve got a newsflash for you: grunge, along with the current housing crisis, is over.  

Articles about the housing crisis ending have been few and buried in their respective periodical, my favorite of which was in TIME magazine back in February titled, “Ignore the Headlines“.  But now we have the Wall Street Journal. claiming that the trough was reached in April with an article from May 6, “The Housing Crisis is Over“.

I agreed with Peter Lynch back in February.., and it’s becoming more an more apparent that the longer prospective home-buyers sit on the fence, the more expensive that home purchase will become.  And this is not just because I believe that home prices will rise, it’s also because I believe that both long and short term interest rates will rise.  The 10-year Treasury Note, for example, is up over 1/2% since the middle of March, and the 10-year Treasury Note is a decent barometer to use when you want to know what the trend in long term mortgage rates have been.

That written, if you really want to continue with the grunge look, might I suggest saving it for your next camping trip?

As always, kindly consult with your trusted real estate, tax and mortgage professional before seriously considering any home purchase.

Public Service Announcement: Nationwide Home Mortgage Loan Company Is Stealing Content

Another despicable splogger is stealing content from various places on the Internet, including this blog.  Sadly, the side gives no contact information, so I’m not able to send my usual polite “cease and desist” notice.

Hopefully this post and picture — which will soon appear on the Nationwide Home Mortgage Loan Corporate blog — will embarrass the owners into stopping this nonsense.

Symantec Issues High-Priority Security Patch For Trulia Widgets, Called

Symantec, the Internet security firm, today released what they described as a “code red” security patch for all real estate bloggers currently using the now-infamous “Google Juice Sucking” Trulia widget.

Tipped off by an anonymous Active Rain’er who had come across this discussion thread, which in turn had been prompted by good investigative sniffing [sniff one, sniff two, sniff three] by the pack at Bloodhound, Symantec’s elite Taskforce Realty Internet Permission Experts (TRIPE) worked through the night to come up with a patch. The head of TRIPE, Dr. Francois Viande-Fichu, released the following press statement:

With thanks to the ever-vigilant Active Rain-droppers for tipping us off, we were stunned to find some pretty damning evidence of foul play in Trulia’s widget, which unsuspecting Realtors have been deploying on their web sites in droves. Trojan Horses are one thing, but what they’ve come up with is something far more nefarious: a Peloponnesian Unicorn.

The Trulia widget does the following:

• Sucks out the hosting web site’s Google Juice, especially the Raspberry flavor.
• Decreases the hosting web site’s Google Page Rank to negative 5.
• Installs a little Trulia MarkerMan on the desktop whose eyes follow you around as you surf, and they roll sarcastically whenever you visit Zillow’s site.
• Automatically and instantaneously rises Trulia to the top of the Google rankings for all searches related to the host site.
• Makes the web site owner/blogger start chanting Gregorian hymns in the original Latin.
• Refers all incoming traffic to the hosting site’s owner’s fiercest competitor, in exchange for a 25% referral fee.

When challenged to provide evidence of the above, Dr. Viande-Fichu displayed the following code embedded into each Trulia Widget.

<;?Php Embed Java Script<Trulia Evil Widget.class.nefarious>;
While {5>1 DO:
Trulia.PageRank = Site.PageRank*2 / Slurp.Giant.SuckingSound;
Site.PageRank=-5;
Install.Icon = http:/trulia.com/images/trulia_markermen_icon.gif; option bug eyes=”true”;
If Site.Visit=”Zillow” Do {Icon.Roll.Eyes And Sigh.Loudly};
Google.LocalSearchRankings.Site.City = “Truliawful”;
Trulia.LocalSearchRankings.Site.City = “TopOfFirstPage”;
Launch Latin.hymns.InstanceGregorian;
End Do}
?end Php>

Agents who’ve installed this widget are advised to uninstall it immediately, then put the following badge on their web site to protect them in the future:

To install this widget, do the following:

1. Download this file to your computer.
2. Open the file in Notepad or some other text editor.
3. Copy and paste the contents of the file into a sidebar Text widget.
4. Rinse and repeat.

Full disclosure:

1. I did a consulting project for Trulia last year.
2. Trulia out-ranks my site for many Google searches.
3. My site outranks Trulia for many other searches, including, most significantly, peace corps volunteer botswana real estate palo alto.
4. Trulia’s no-follow policy applies, as far as I know, consistently across all broker’s listings, including mine.
5. No animals, Realtors, or SERPS were harmed in the production of this post.
6. Void where prohibited.
7. Do not ingest.
8. This blog is not a toy. Keep out of reach of children.

A Perfect Example Of Co-opetition: The Real Estate Industry … Barry Nalebuff Would Be Proud

Maybe it’s the frustrated business school professor in me, or the memories of sitting in Professor Barry Nalebuff’s classes during business school, but what has fascinated me the most about the ongoing debate about Trulia’s no-follow outbound listings links (started here by Galen Ward, then continued here, here, here, and here) is not the arcana of the no-follow tag, not the dissection of SEO intricacies, and not really even the question of what is or is not appropriate to do with listings online.

No, what really fascinates me about this debate is how it accentuates co-opetition in the real estate industry.  Co-opetition is simply the notion that companies compete and co-operate simultaneously.  Arch-rivals Northrup Grumman and Boeing go mano-a-mano to get a lucrative government contract … and the winner often subcontracts part of the project to its rival.  Microsoft and Oracle have competing database platforms but often sell eachother’s products.

In our industry, co-opetition reaches nearly incestuous levels.  For instance:

• Brokers John and Betty compete for the listing at 123 Main Street.  Betty wins and puts the property on the MLS.  The very next week John brings potential buyer clients to the property.  Sure, he would rather have won the listing, but that’s in the past.  Now he’s working with Betty to consummate the transaction.  No hard feelings.
• Realtor Bob hangs his license with ABC Realty.  He puts an ABC Realty sign on the front lawn of all his listings, and the ABC Realty logo is prominent in all his media ads.  He’s co-operating with his real estate brokerage to promote their brand, and he in turn benefits from that brand awareness.  Co-operation.  A phone call from a prospective buyer of one of Bob’s listings, however, may well go through to the agent on “floor duty.”  That agent turns this phone call into a client, who goes on to buy a different listing, not Bob’s.  That’s competition — Bob would have loved to get that phone call and turn it into another client, but his competitor — the other agent, and to some extent his own broker — snagged that client.  Co-operation plus competition = co-opetition.
• A thousand local brokers — each fierce competitors — co-operate to run a local MLS.  They put their competing listings up on the MLS, and they compete to bring buyers to each of the listings.  At the close of each transaction, we again have co-opetition — competing parties co-operating for the sake of the deal.
• Broker Tom snags a listing and puts it on the MLS.  Via the wonders of IDX, that listing spreads its tentacles onto a thousand other sites, including that of arch-rival Broker Sarah.  As long as Broker Sarah indicates that Tom is the broker of record, it’s all good.  Her site is much better than Tom’s, so she gets more traffic and hence more clients online.  The fodder that draws in those visitors?  Listings … not only her own, but also Tom’s.
• Broker Rachel gets the listing at 789 Elm Street and puts it on the MLS.  She also puts it on Trulia, which, like the MLS itself, exposes the listing to a much broader audience than she could reach on her own.  She benefits from the increased exposure, and Trulia gets more inventory to display.  It’s a win-win — co-operation at its finest.  The next day, a prospective homebuyer passes 789 Elm Street and Googles the address to find out more.  Who’s on the top page?  Trulia and Broker Rachel’s listing site.  Now they’re competing — for web traffic.

There really is nothing new under the sun.   This business has always been a co-opetitive one, and we’ve always simultaneously co-operated with and competed against not only every other broker, but many of the third-party advertisers, aggregators, and media companies.

Lies, Damn Lies, And Statistics: What Mark Twain and Benjamin Disraeli Would Say About Menlo Park’s Median Price Numbers (Part 2)

Continuing my earlier rant about how real estate statistics don’t always tell an accurate story, let’s look at what Menlo Park’s numbers seem to indicate for our ongoing robust spring market.

First, a recap:  courtesy of our good friends the quant jocks over at Altos Research, we saw that the median price numbers for Menlo Park had dropped by some 30% — from $1.25M to $850K — over the 9 month period from April of 2007 to January 2008.

That drop in median price, however, by no means reflected the reality on the ground in Menlo Park — in other words, it is not true that a home in Menlo Park that was worth $1M in April 2007 was suddenly only worth $700K in January 2008.  The reason for that disconnect was simply the change in the mix of properties being offered:  in the last half of 2007, the inventory of lower priced homes east of 101 swelled, dramatically pulling down the overall median.

As if to emphasize that disconnect, we see what appears to be a dramatic price recovery from January of 2008 to now in May of 2008; in fact, it looks like the market has regained all 30% of what it ostensibly lost late last year!

Again, the reality on the ground is quite different; that is, a Menlo Park home that was worth $1M in January of 2008 is most emphatically not suddenly worth $1.3M today.

Moral of the story?  Simple:  real estate statistics are good at telling some stories, but not very good at telling others.  In particular, the median often simply reflects the mix of properties currently on the market and not necessarily any underlying ups or downs in the market.

Redfin Select: School-Marmish Innovator’s Dilemma? Becoming What They Hate?

With surprisingly little fanfare, Redfin, that pesky little Seattle brokerage the real estate industry loves to hate, announced yesterday their “Redfin Select” program, which looks suspiciously more and more like … a traditional brokerage offering.

Redfin’s initial business model, which made great sense in the VC’s conference rooms, was to outsource a big chunk of the buying process to its clients in exchange for a big chunk of the buy-side commissions.  For better or for worse, however, that model has continued to run dab-smack into the middle of the reality of real estate:  the listing agent, though representing the seller, is not usually responsible for showing the property to every interested buyer.  That service is usually provided by the agent representing the buyer.  The problem?  In order to make offers on a property, Redfin’s clients have to actually, well, see it.  If they don’t manage to hustle there during an open house, then they’re SOL — unless a Realtor-magic-key-toting Redfin agent comes by to open it.  And just like that, poof! goes half the business model.

Fast forward to today.  If you’re a Redfin client and you want a regular set of property showings, just give up a portion of the commission that was coming due to you and have Redfin show you around, just like a traditional broker would do.  Instead of getting 66% of the commission back, you get 50% back.

Possible explanations come from two different fronts:

First is my “Innovator’s Dilemma” proposition:   Redfin as a classic disruptive company, will first figure out how to be profitable serving the lower end of the market, the price-conscious clients that traditional brokers don’t mind losing.  Then it will move upmarket, charge more, and offer more service — ie. become more like a traditional brokerage, but with fatter margins.

At first glance, Redfin’s move seems to fit this pattern.  However. by Redfin’s own admission, they’re not growing as quickly as they would like, their business model is not as scalable as they had hoped, and they certainly are too young of a company to have taken significant market share yet.

So perhaps the better explanation comes from Mike Simonsen over at Altos Research.  Mike suggests it’s a simple pragmatic response to the harsh realities of the market place and their VC backers:  they need to become a $100M company as quickly as possible, and doing it at $10000 rather than $5000 per transaction will bring that about more quickly.

Other commentary:

• The Bloodhound notes that the rules around home showing seem strict and, well, a bit school-marm-ish.
• Greg Tracy suggests Redfin is becoming what they hate: a traditional brokerage.
• Jon Washburn notes the progression leading to this model and wonders if Redfin may end up becoming simply a lean-and-mean traditional brokerage.

Blogging Stressing You Out? You’re Not Alone, Says The New York Times. A Modest Blogger Manifesto…

The gray lady herself comments today on the stress of blogging:  intense competition to be the first to break a story, the seemingly relentless need to be on top of all the news.

There is a cost to this:

Two weeks ago in North Lauderdale, Fla., funeral services were held for Russell Shaw, a prolific blogger on technology subjects who died at 60 of a heart attack. In December, another tech blogger, Marc Orchant, died at 50 of a massive coronary. A third, Om Malik, 41, survived a heart attack in December.

The article admits, of course, that “the premature demise of two people obviously does not qualify as an epidemic.”

My thoughts?  There’s more than enough stress in my life already, thank you very much, so I try to make sure blogging doesn’t add to this.  I’ve gone several weeks without posting when things just get too busy.  I find blogging in modest doses — say, 30 minutes per day — to be therapeutic.  I like writing, I like reading, I like the camaraderies and interaction.

So here then is my modest blogger manifesto, part serious, part humorous.  Tell me what you think!  Any more we should add to the list?

1. From Saturday at 6pm until Monday morning, no blogging.  [Present post excluded.]  There’s really nothing so important that it can’t wait till then.  [Again, excepting this article.]
2. No vendor pre-briefs less than 48 hours before the news embargo lifts.  I need time to digest the information and come up with a cogent response.
3. Once a month, I will prune my feed reader.  If I haven’t read a blog in a month, off it goes.
4. Many of us in real estate tend to be perfectionists, and our motto traditionally is, “Only perfect is good enough.”  Let’s turn that on its head and say:  “Good enough is perfect.”
5. If it’s starting to be a drag, then it’s time for a break.  A one week moratorium.
6. I will not take it personally when somebody in real estate says they’ve never read my blog, or they don’t know what a blog is.
7. I will not nickname any of my kids “Zillow” or “Trulia” or “Redfin.”
8. I will not obsessively update Wordpress to the latest platform.  Two upgrades per year are enough.
9. I will not tatoo my subscriber stats on my forehead.
10. Above all, I promise not to take myself, my blogging, or my blog more seriously that I need to.

Add your suggestions below…

Is Social Media A Waste Of Time? Texas Realtor Magazine: Yes. Sherry Chris, Better Homes And Gardens: No.

Michael Parker of Blackwater Consulting Group, writing in the Texas Realtor Magazine, says “Yes”:

I respectfully call social networking and Web 2.0 great hype with great future promise. I just don’t think they help sell houses today in any proportion to the emphasis they are receiving.

[Sidenote:  What's Michael doing writing an article about social media in a Realtor magazine?  Shouldn't he be protecting diplomats in Iraq?  Oh, wait a minute -- that's the other Blackwater.]

Michael raises some very interesting points, definitely worth addressing in a future post.

Sherry Chris, CEO of Better Homes and Gardens Real Estate*, however, begs to differ.

Friend and business colleague Pat “Transparent Real Estate” Kitano and I had the privilege of meeting Sherry and Camilla — BHG’s new head of marketing — over breakfast recently.  Sherry’s team has the exciting task of building a brand new nationwide real estate franchise from scratch, but with the incredible advantage of using a name with incredible brand equity.  They’re pulling out all the stops in their pre-launch efforts, including some very interesting online social media initiatives, with participation from the whole executive team.

Taking a page from Rudy and Joe, Sherry always has a video camera with her, and she made the mistake of interviewing Pat and me.  Whether it was the content or the participants that caused this, I’m not sure — but the hotel did give her grief about filming without permission.

[youtube CaYw3yh6wZ4 Sherry Chris of Better Homes and Gardens Real Estate interviews Kevin Boer and Pat Kitano]

* Better Homes and Gardens Real Estate is a client of Domus Consulting, a sister company of 3 Oceans Real Estate.

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