Another note about the masses

[SD Realtor]

PS I have been thinking alot about the mindset of sellers and why things are so darn sticky… Why do people believe this is a blip and not a secular trend?

I guess it is a combination of a mindset of entitlement/denail along with innaccurate data reporting. The entitlement/denial issues are self explanatory but the data reporting is what is not being exposed.

Even today sellers see fairly minimal declines in the median price. You try to tell them median price data points are meaningless but you get the pie face look back… You can almost see the drool coming off the lower lip… So then you point to the fact that sales are off by approximately 30% in year over year comparisons for the past several months. This is where the data doesn’t tell the true story.

sdrealtor and others can correct me if I am wrong on this but the yoy sales numbers are based on sheer numbers right? So if 1k homes sold in december last year and 900 homes sell this december then yoy sales are off by 10%… Okay but nobody realizes how many homes came off the market. A more accurate stat or I guess an additional stat needed is a success rate statistic. Homes sold verses homes that dropped off the MLS. The stat needs to be done in an intelligent manner though because homes tend to come off of the MLS in cycles. It would be overly simplistic to go, okay out of 1000 homes in this zip code or region for this month, 50 sold and 50 dropped off, thus giving a 5% success rate and a 5% failure rate. However with a little bit of thought it could be done.

The bottom line though is that I still see sellers being very much out of touch with reality as they are simply not accepting the trend. I have started passing on listings because of the pricing some of them want me to price at. It simply is not worth my time. Of course they say well this agent tells me I can get that much so I tell them to go for it.

[bob007]

I see a long term standoff in California real estate markets. Thanks to outsized gains, property taxes limited by Prop 13 and green belt laws some of potential sellers in coastal California can wait unless they get an offer they like.

Markets like Riverside, Central Valley and Sacramento will tumble due to lack of incomes to support the home prices.

[bob007]

I see a long term standoff in California real estate markets. Thanks to outsized gains, property taxes limited by Prop 13 and green belt laws some of potential sellers in coastal California can wait unless they get an offer they like.

Markets like Riverside, Central Valley and Sacramento will tumble due to lack of incomes to support the home prices.

[powayseller]

We’ve got a couple long-time real estate investors on this forum in that same denial. surveyor, counselor, and former poster Docteur come to mind. They think this downturn is either a blip before the next big rally, or their own “superior property” is immune to big drops, certain desireable coastal properties will increase in value in the next few years, in a decade prices will be higher than today, etc.

None of them remember that in the last downturn, coastal properties were in foreclosure and rented out, because there were no buyers.

Let me repeat: there were no buyers for prime real estate in Laguna Niguel and Pacific Palisades, big beautiful homes on or near the ocean. Some homes had to be boarded up to prevent theft. For many years they were rented, until the market turned around and buyers returned.

Now, this horrible downturn occured when median prices dropped 6% year over year, and when people still had to put down 10% – 20% on their home and more on rental property.

How much worse will this one be, when you have 0% down on rentals, 0% down on your own home, and median prices are already down 6% in the first year of the downturn. Just wait until the loans reset and we lose 50,000 construction jobs in San Diego alone. I don’t have time to give out all my theory on the job losses now, but it will be forthcoming in the next month.

So this downturn will make the last one look like a little child’s play. And even the old timers don’t get it!!!!!

How do we expect the average Jane Smith of Eastlake to get it?

The biggest disservice we all do is relying on the median, or the Case-Shiller index to show what is happening with prices. Even Rich says it’s the best we’ve got. I have to disagree with him. The best we’ve got is to stop using the median as a way to measure this market. Bob Casagrand stopped using the median in his monthly reports because they are utterly useless in telling us what is happening today. For historical analysis, they are fine though. But because they lag by 1-2 years, we simply cannot glean current market conditions from them.

Other measures might be better. For example, Rich’s $/sq ft seems like a better alternative. This is something he computes himself from MLS data. Jim Klinge has the active/pending ratio. Your “dropped out” measure could be another one. I like months inventory, because it shows the severity of downward pressure on prices and measure the supply/demand balance or imbalance.

Ultimately, we may find that you cannot distill real estate into one number.

People think this is a blip because they are not educated. I have never seen a book titled “Real Estate Cycles”, “The Cyclical Nature of Real Estate”, “Real Estate: Buy Low and Sell High”, because very few cities even have cycles, and those that do have long 10-12 year cycles, too long for the short attention span of today’s investors who want riches within days or at most 3 months.

Another problem is that the NAR has been the keeper of the data. Their data goes back to 1966. They have the inventory data, but why don’t they release it? Dataquick data goes back only to 1988.

The only reason I know what I do, is thanks to the internet and blogs, and the free exchange of information resulting therefrom. If I were relying on the mainstream media, I would be as clueless as everyone else.

Why do you think homes coming off the market is important? Is this a trend that is increasing, as sellers cannot get their dream price and give up? So in a down market the cancelled and withdrawn listings go up? Maybe you could track that statistic. Again, like months supply it wouldn’t tell us one single number.

There is also that emotional component as mentioned in the thread “anger”. People are defensive when you say their home is worth less.

Last, it goes against people’s experience. Many extrapolate the present into the future. Since home prices have gone up for 5 years, people cannot imagine it can go down. It reminds me of being in college and dead broke, and not being able to imagine ever having money.

Other people remember the last downturn, but correctly realize that prices at this peak ended up higher than the last peak, so they think this too is a blip and eventually prices will end up higher than today. They fail to understand or remember that real estate cycles last 12 years.

I think any listing presentation could include a primer on real estate cycles. People need to understand that housing prices go up for 6 years, down for 6 years. Just as night follows day, prices rise and fall. Do you think people would accept and understand that? Have you shown them any of Rich’s graphs?

Now I better stop writing before sduuuude chides me for writing too much. I thought you all enjoyed my little breather in November, but hoping you are even more glad that I am BACK.

[PerryChase]

powayseller, i’m glad you’re BACK. 🙂

I don’t share your gloom and doom predictions about the general economy but it could be a matter of semantics. I didn’t think that the early 90s downturn was that bad. Even if we have twice that hardship in this coming RE crash San Diego and California will move on.

People will go bankrupt, and there’ll be foreclosures aplenty. But that’s our capitalist system’s way of cleaning house and reallocating resources to more efficent uses. Yes, many will hurt but life will go on. The economy will not come to a halt. I predict 2 recessions before real estate prices stabilize and stagnate for the next 15 years.

And I do belive that SD housing will drop 50% from the peak (I’m not talking about the median but same house comparaison). For the sake of the general economy, I hope that people walk away from their houses instead of scraping by and holding on. It’s better to see house prices drop than people retrench on all other consumption to hold on to the albatrosses.

[surveyor]

hey i heard my name called…

powayseller, i would really appreciate if you would not misrepresent my positions and statements. I’ve tried to be respectful of your opinion. I would appreciate the same consideration. Your putting words into my mouth borders on a lack of reading comprehension.

If you go through my posts, I have never once said that the current market was a blip. I have never advocated the position that prices would continue to go up after a break of a year or two. I’ve also tried to point out the difference to you between RESIDENTIAL and COMMERCIAL properties, as well as the difference between MACRO and MICRO economics. I have also never implied that my properties are superior in any way or that they were immune to drops. In fact, in the previous thread, I AGREED that they would lose value. In fact, I estimated the next boom to be in line more or less with your 12 year forecast (2016).

Anyways, please consider my request.

[sdduuuude]

Your post: 866 words. Mine: 6

[BikeRider]

I was reading an article in a past Kiplinger magazine and it made a good point (though the article was trying to be mostly up beat), a lot of sellers are stuck. They have drawn most or all of the equity out of their home. They can’t afford to lower their price.

My thinking is, this may or may not have been REAL equity, none the less, they withdrew it. So, they don’t have much, if any, wiggle room to lower their price without taking a big hit. I could see new home prices dropping and existing homes just not selling much, due to the fact existing owners can’t reduce their price enough to lure in a first time homebuyer. I think the key player in all of this is the first time buyer. They are the ones that must be lured in to buy, so, in the case of an existing owner, they can move up. Other than location, why would a first time buyer purchase an existing home if they could buy a new home cheapr? I’d think they would pass on the existing home.

Listening to Wall Street Journal Today on XM this morning, they were saying that it was half the price to rent in Washington DC, than to buy, so they recommended potential buyers just wait.

I guess there are all kinds of senerios (sp?).

[an]

Besides unrealistic sellers, I think some agents are still drinking the cool-aid too. I’ve emailed a several agents listing on craigslist and some are telling me price is not negotiable because they believe price are going up, not down.

[no_such_reality]

What’s the historical sales average?

Along with prices, how distorted are the sales numbers? Sure, were down 30% on sales volume from last year, but… the sales rate was at hysterical volumes.

naturally, as the city grows, the gross number will go up, but I’m looking for the long range Sales/capita essentially.

Does anybody have a spin on that number?

[an]

Graph
Base on this graph from DQnews, so-cal sales level is @ where it was in 1998 and well under the last boom as well.

[SD Realtor]

BikeRider I really agree with your post. I think we have all seen that the builders were the most nimble over the past decline this year. They slashed prices radically and offered incentives that prudent buyers, and the astute first time buyers took advantage of. I somewhat less, agree with your points about sellers. I only say this because I have a few of them who are NOT trapped by a lack of equity and they are simply not budging for whatever reason…I do agree with you that there are many sellers who have become financially trapped…however many have not…

[kewp]

People believe this is a ‘blip’ because they *want* to.

Its the same reason people believe in faith healers, they have a strong emotional interest in that belief being correct.

However, reality does have a bad habit of catching up with us all.

[an]

People also believed that the .com crash was a blip the first year too. Then people hope and pray that it’ll turn back up soon. I mean, who would expect a 95% loss? It hasn’t happened since the great depression. I guess the point is, never say never and people will always hope it’s just a ‘blip’ when it passes the apex and on its’ way down.

[SD Realtor]

BikeRider I really agree with your post. I think we have all seen that the builders were the most nimble over the past decline this year. They slashed prices radically and offered incentives that prudent buyers, and the astute first time buyers took advantage of. I somewhat less, agree with your points about sellers. I only say this because I have a few of them who are NOT trapped by a lack of equity and they are simply not budging for whatever reason…I do agree with you that there are many sellers who have become financially trapped…however many have not…

[Author]

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