So Cal Real Estate News

Real estate news is coming fast and furious! I take a weekend off from blogging for Barb’s birthday, & suddenly I’m hammered.

Several interesting items popped up over the last few days I found fascinating. In this post we’ll focus on the our own beloved California Association of Realtor’s headline-grabbing announcement that median prices are expected to drop 24% this year.  (Later, a look at remarks by the Fed’s Bernanke last night.)

It happened at the Disneyland hotel where our own Pacific West Board of Realtors was holding it’s spring “expo” and pep rally on Friday. Sadly, and ironically, as we local Realtors were meeting, a businessman decided to end it all by jumping from one of the hotel’s towers. Shades of the Great Depression. It is my understanding he was not a Realtor, surprisingly.

But some Realtors probably thought about joining him after they heard from CAR’s Deputy Chief Economist, Robert Kleinhenz, who revised the Association’s 2008 forecast for median home prices statewide. In March, CAR predicted a 9.5% drop for the year. Kleinhenz almost tripled that 9.5%, to a 24% drop. No wonder his boss, California Association of Realtor’s Chief Economist Leslie Appleton-Young, asked him to give the speech. (Leslie was the one out with 9.5% for the year in March, doubling her 4.5% October figure, which we thought was too conservative. Looks like when she ran the numbers again late in April, she just handed the sheet to poor Bob Kleinhenz on her way out the door to advise some poor businessman staying elsewhere in the hotel.)

But wait a minute–that may not be as bad as it seems. Dataquick’s most recent statewide median prices showed a 26% price drop for March 2008 from March 2007, which was when Dataquick’s price median peaked. Dataquick indicated “about half” of that drop was due to a shift in the market to more sales of lower priced homes. (For a detailed post on the problems with Dataquick’s median numbers, check out “Two big problems with DataQuick’s median prices.”)

So if you read between the lines, Kleinhenz, who apparently is playing “bad cop” to the missing Leslie Appleton-Young’s “good cop,” is implying that the worst is behind us. 2007 ended with CAR reporting a statewide median for Single Family homes of $476,000, and their latest number, for March 2008 is down to $414,000! (Click here for CAR’s press release on their March numbers) . That’s actually lower than the $424,000 median average for the year they’re now predicting.

As a 28 year CAR member, I picked up the phone to talk to old Bob himself, but discovered he was in Sacramento giving another speech today. Something about a statewide tour sponsored by Pierce Brothers Mortuary.

In any case, his capable associate, Oscar Wei was available to assist me, and he confirmed my suspicion that CAR now thinks the worst is behind us: “Hopefully, and that’s a lot of hope, things should be bottoming out soon in terms of price,” he told me.

That agrees with Oscar’s bosses comments last Friday at the resort formerly known as “The Happiest Place on Earth: “We do think this is the year we’re going to see our low point for sales. … Monthly sales have already bottomed out.” Also “All these numbers are going to stabilize and slightly improve. … We’re basically climbing above the liquidity crunch to pre-liquidity numbers.”

Well, I may be paying Bob & Oscar’s salaries, but I’m not quite ready to eat their breadsticks. With homes entering foreclosure still increasing (see “So Cal defaults up again“), and the liquidity problem far from solved, Blair and I are still expecting additional declines in values and sales as we move through fall and winter (See “Predictions 101: Our 2 market cycles“).

That doesn’t mean now may not be a good time to buy if you’re in a position to do so.  Shoot, Bob & Oscar could well be right, and Dave & Blair wrong.  Well, Blair anyway.  In fact, we continue to believe that if you find a home you love at a payment you can live with on a 30 year fixed loan, and you don’t intend to move any time soon, at least write an offer on it.

But if you’re not yet in a position to buy, there’s no need to panic.  While sellers may be less motivated as prices firm, we’re not going to see double digit appreciation any time soon.  And there’s a good chance the bottom may still be a year or two away.

But nobody knows for sure, as we keep saying, much to the annoyance of some of our gentle readers.  (See “How low will prices go?”

That’s what makes So Cal Real Estate so interesting.

What do you think’s next?

In about ten days, there will be much media noise as DataQuick releases their So Cal median price figures for March.

We expect sales will be up from February, but down from March ‘06. Some analysts will be surprised. Prices will be down from a year earlier, but not down nearly as much as expected from a month earlier. In fact, the median price for Orange County might actually be up slightly from February.

But it’s not really news. And it’s not even what you think it is.

It’s not news because they’ll be reporting what took place back in January and early February, when those homes that closed in March actually went into escrow, as we explained in “Market Predictions 101: Our Two Real Estate Cycles.” By the time “DataSlow” reports them, they’ll be almost 3 months old.

“DataSlow’s” median price numbers aren’t what you think because any average, median or mean (for you mathematicians), can be skewed by shifts between market segments, as was so clearly pointed in a recent statistical study by Zillow’s number-cruncher.

For example, let’s say DataQuick started reporting “median grocery prices” at your local Vons. In November, when lots of people are buying expensive items like turkeys, that median would go up. Now the prices of things might actually be down (at least in our hypothetical, if not in the real world right now. Turkey might be cheaper than it was a month earlier. But because more people were buying turkeys instead of hamburger, the median price would still go up.

Same thing in the real estate market. When there are more first time, low end, buyers the median goes down. When there are more high end buyers, it goes down.

That’s why through most of 2006 DataQuick’s median price kept moving up, even as prices in most neighborhoods were dropping. As subprime loans stated to dry up, activity was switching from the low end to the middle and higher prices. So the median average moved up, since more of the sales were in higher priced neighborhoods, even as the prices in those neighborhoods fell.

More recently, there’s been an increase in lower end sales as lenders foreclose on many subprime borrowers in starter homes, then quickly unload the property at whatever price the market will bear. Meanwhile, most high end homeowners moved up and put a substantial down payment into their home, so there are far fewer foreclosures and distressed sales in the higher neighborhoods. Instead, those homeowners for the most part have decided to just wait out the current down turn.

In 2006, DataQuick’s median price was going up while actual prices were dropping in most neighborhoods. Lately, DataQuick’s median has been dropping faster than actual prices in most neighborhoods. We believe the actual drop in So Cal home values from top to current bottom is about 25 - 30% (less in higher end areas, more in condos, starter areas, and areas with lots of new construction).

In our next post, which should be out soon, we’ll combine that last little nugget of information with our Bernanke post and our Predictions 101 post to update our own predictions.

In the meantime, your thoughts and questions are always welcome. If there isn’t a “Leave a Comment” box below, then click on the “0 comments” or “2 comments” comment-counter just below this paragraph on the right. Make up a “Name” or just use your first name, as that will be public. Your e-mail will remain entirely confidential, but we can use it for a confidential response if requested. Thanks for visiting!

Over 30 years of selling property has shown us that selecting the right agent may be the single most important step to a successful sale or purchase.

Unfortunately, experience also has shown us that most sellers pick their agents for the wrong reasons, and they pay a huge price for that mistake.

Yesterday, we listed 5 of the most common mistakes sellers make in choosing an agent. Today we’ll identify the top 5, starting with one we’ve seen a lot of in the last two years, picking their agent based on:

5. Past performance as a buyers’ agent, in an easier market, or in another area. These might be good reasons to consider an agent, but they don’t prove anything about selling your property in today’s market. We could give dozens of examples from our experiences, but we’ll settle for just one, from baseball:

Just because Tim Salmon played great outfield for the Angels three years ago doesn’t mean he can play shortstop for them today. Let alone Center for the Lakers. Get the picture?

4. “She works my neighborhood.” This is called “farming,” and we do it ourselves. It’s a good way to get to know a neighborhood over time. But the number of notepads left on your porch or postcards mailed to your home proves neither competence nor integrity.

Until the agent’s been “farming” your neighborhood for at least four years, it proves nothing. In this market, you’d need to go back 17 years to get to the last major downturn!

Even with 17 years experience, you’d still want to investigate track record, and speak with sellers who’ve worked with him or her. The fliers or postcards may only tell half the story.

“Neighborhood specialists,” or “listing farmers” are like preachers, car salesmen, or Realtors as a whole. Some are ethical, competent, and diligent, but many others are not.

3. Lots of sales. This could be good or bad, but it raises a red flag. Most high volume agents operate with what they euphemistically call a “team,” which can also be good or bad.

We have a team–Dave, Blair, a transaction coordinator who is shared with several other agents, and a number of affiliates from escrow officer to termite inspector who are the best we can find. But other teams consist of several licensed and unlicensed assistants who pretty much do all the work for the named agent. You often never see the “superstar #1 agent” again after you’ve signed the listing.

At one seminar I recently heard the superstar speaker describe running into some poor seller of his in an airport. The superstar had “sold” his home a few months earlier, and he was actually bragging to us that this was the first time he’d ever actually met his “client.”

One more true story. A few years ago, the buyer for one of our listings was represented by one of those superstar top producers. When it came time for the walk-through I showed up to keep an eye on things. When the buyers came to the door (alone), I introduced myself as the listing agent. The buyer literally hugged me! “Oh my God! A real, licensed agent–not just an assistant!” she exclaimed. “We haven’t spoken with one since we signed the purchase contract seven weeks ago.”

Turns out, everything had been handled by unlicensed “assistants,” which were pretty much part-time kids. We’ve seen the same thing with sellers. They were “working” with top producing agents, but they rarely saw them, and weren’t happy campers.

2. Great listing packet or presentation. This doesn’t prove anything, either. Just because a politician’s a great campaigner with good commercials doesn’t mean he or she will make a good president or governor. It probably just means they bought a good listing presentation software package.  To get an idea of what they actually do, take them to your computer and ask them to pull up their listings on the web.  Read the remarks, check out the pictures, see how complete the data is.  Then ask to see the web sites for their current listings.  (For comparison, Blair and I buy a separate, appropriate internet “domain” name for each listing and then shoot our own virtual tour.  For example, check out LosAlDreamHome.com, which we shot July 24, 2008.

In fact, most agents know they can easily get any listing if they dress nice, are friendly, have a persuasive presentation and, most important if he or she . . .

1. Tells you what you want to hear. Works every time, and most agents know it. There are even terms for it in the business. When an agent tells you what you want to hear about price, it’s called “buying the listing.” Happens all the time–then the listing sits for months while the agent tries to get a price reduction. Worked in ’04’s up market, but not today!

Sellers have words for it, too. “Great rapport!” “We felt so good about her!” “We just really clicked!” “She was so bubbly!”

It’s kind of like interviewing three doctors about your medical condition, then going with the one who tells you every thing’s fine. Tempting, but not real smart. Better to go with the best doctor, regardless of whether you like with his diagnosis or not.

Telling you what you want to hear (instead of the truth) is amazingly effective. It appeals to the sellers’ pride as well as to their wishful thinking. Kind of like flattering them while promising to make their dreams come true. Not that different from how most politicians operate, and you know how good they are at keeping their promises.

If two people agree on everything, one of them is not necessary. If an agent agrees with you too much, they’re either lying or incompetent, or you don’t need an agent at all. It’s probably one of the first two.

You need an agent who knows and tells you the truth. I remember telling an older seller who was “interviewing” us that they really needed to remove the velvet flocked red wallpaper they loved. I knew they didn’t want to hear it, but it was the truth. A few days later I got the call. “Dave, we decided to go with Suzy Q. We just had such great rapport, and she really loved our decorating.” Guess I’m glad somebody did.

If you want to feel good, go find a friend. But if you want to sell your house for top dollar in any market, especially today, go find an honest, experienced, diligent agent who will tell you the truth.

If you missed the first half of this post, just click here for numbers 6 - 10 of the most common mistakes sellers make in choosing an agent.

Poor Mr. Williams. We just drove by his house & noticed the sign was down. Hadn’t sold. If he’d read this post 6 months ago, it could have saved him at least $50,000 and half a year of his life.

Unfortunately, Mr. Williams has lots of company. We’d say at least 90% of the today’s sellers today are making at least one of ten major mistakes in picking their agent.

These are mistakes people naturally tend to make–and virtually all agents are able to easily take advantage of those tendencies if they choose to. Because they’ve listed a whole lot more homes than you have!

Here’s our list of the most common wrong reasons to pick a listing agent. Read it and weep. We do.

10. Amazing gimmicks. Mr. Williams picked his agent because of his “This House Talks” sign. Uses an 800 number to capture leads & texts them right to the agent’s phone. Very impressive to demonstrate to a potential seller.

But a gimmick is just a tool, & it doesn’t sell the home any more than the latest lazer level makes an incompetent carpenter into an expert. Selling today takes expert pricing, staging, negotiating, and marketing, plus integrity, diligence, & experience. Not one or two flashy gimmicks. Just ask Mr. Williams.

9. Mr. Williams also liked the agent’s warm friendliness. Can’t say we blame him–we like the guy too. But he’s only been in the business a few years, has never seen a market like this before, and it shows:

Of the 27 listings Mr. Williams’ friendly agent has taken over the past 12 months, only 4 have actually sold. 16 have expired or been canceled without selling–4 expireds for every sold! We had zero actual expireds in the last 12 months, but quite a few closed sales. Gimmicks and friendliness alone just don’t cut it.

8. Never list with someone from work. Inherently bad decision. Today you need a full time agent who’s good enough to make his living from real estate sales alone. If you know her from work, she’s not full time, no matter what she claims. Blair and I were both part time once–the first two years of our career, when we were also quite inexperienced. We know a whole lot more now than we knew then! Never, ever, ever list with a coworker, unless you work in a real estate office!

7. Friend or family, especially one who “really needs” the listing (duh!).

I recently met a fellow whose Lakewood home had been on the market for five months without an offer.

“How’d you pick your agent? ” I asked.

“Friend of my wife.”

“Any idea how many homes she’s sold in this tract?”

“Not as many as you.”

Actually, that agent had never even listed a home in that tract before. In fact, I just checked the SoCalMLS data base, & she’s never listed or sold a home in the entire city of Lakewood. And she’s only sold a grand total of one listing in the past 12 months, anywhere! That home in Lakewood’s still on the market, but now it’s in foreclosure.

Blood lines, friendship, club or church membership, or having a kid on the same soccer team as yours has absolutely nothing to do with being a good agent. Before you even mention your situation with a friend or relative, do some research. (We’ll give some tips in a few days.) Otherwise, you may become “obligated” to list with an agent that isn’t right for you. It’s a great way to ruin a friendship or family relationship. And lose money.

6. Because of the office or franchise. You can’t tell a book or an agent by their jacket! Our 30 years of selling hundreds of homes has taught us that their are bad agents in virtually every office. And good ones in some. You’re never even going to see the broker, let alone any franchise employee.

Franchises are primarily created to help the broker recruit agents and secondarily to pool funds for generic TV and other old-media ads.

The office we work at is affiliated with one of the most successful franchises in California, but I don’t think we’ve ever once mentioned which franchise it is. You really have to search to even find it on our commercial website. That’s because it just isn’t that important. We’re the ones our clients see & must rely on.

Those are five of the top ten mistakes we’ve seen sellers make, but this post is getting too long.

For the top five wrong reasons to list, including one that most agents know will get them the listing almost every time, just click here.

Sunday’s New York Times had an interesting article on“How a Bubble Stayed Under the Radar,” dealing with economic theory and herd mentality.

Basically, it said what any long term observer of either the real estate or stock markets must have already concluded: Market prices get too high near the end of most up cycles, and too low at the end of most down cycles.

I figured that out at least three cycles ago, when another Realtor mentioned the insane bidding up of home values in 1989 was typical of the last, overpricing gasps of a market about to collapse. I thought our market had peaked in 2004, which was obviously too early. Still, in 2005 I made my ill-fated effort to beat the market by exchanging for out of state property (see my recent post on out of state investing). It’s the same herd mentality that created bubbles from internet stocks to silver.

Ironically, as our southern California prices drop, people tend to forget the flip side of the same herd mentality: The lows become irrational as well. Which either will at some point create or is currently creating opportunites to “buy low.”

I don’t think anybody can know with certainty if that time of opportunity is now or yet future. Once we know for certain, it will have past, and the best bargains will be gone.

But I do know that thousands of homes are on the market for prices 20% to 40% below the highs of a few years back. And I do know that many sellers are willing to take far less than they’re asking. And interest rates are also quite low.

I also know that prices tend to go up in the first half of the year and down in the second. So it appears that this year’s great opportunity may be passing. December of 2009 may present even greater opportunities. Or not.

But at some point, this market will overcorrect. Maybe it already has.

A while back we discussed some of the unique positive indicators in the So Cal real estate market, & mentioned that we’d discuss some of the negative indicators shortly. Well, shortly wasn’t so short, as we enjoyed Christmas, but here’s our tardy continuation.

Before we go negative, however, we should point out we’re putting our last unsold listing into escrow this week. We think that may be a positive indicator of a nice spring coming, so not all the arrows are pointing down.

However, 3 huge problems do loom on the immediate horizon:

1. Foreclosures. Most of those crazy subprime loans will be “resetting” in the next 6 months. “Reset” is a polite term for “payments zooming,” in some cases doubling. The banks are doing some things t0 help, but most still predict a massive increase in an already high foreclosure rate. They may be wrong, but it still will be a drag on the market.

2. Economic slowdown, or worse. Real estate is generally considered a “leading” indicator, & it may resume that role in the current economic cycle. Most builders and tradespeople we talk too are in a huge slowdown which may well continue to ripple through the economy, as the recent Christmas selling season seems to indicate.

3. Problems getting loans. The lending market has over-reacted to the sub-prime insanity, now making financing harder for everyone, even “prime” borrowers.

For these reasons, most economists predict it will be 2 - 4 years before real estate is back to “normal,” whatever that is.

We can just about guarantee that the December & January median price figures from DataQuick for Southern California will show continuing declines, probably drastic. But those are sales that went into escrow in November and December–old news.

We wouldn’t be surprised to see at least price stabilization locally this spring, for reasons hinted at by our being “sold out” in the middle of winter!

We’ll go into that in more detail in a few days. In the mean time, have a safe and happy New Years’ Celebration. And if you know anybody who needs a couple of good L.A. & Orange County real estate agents, we’re sold out & ready to go to work! Give us a call at 562-822-7653 any time!