So Cal Real Estate News

The old country veteran looked me in the eye.  “It’s like wrestlin’ a bear, Dave!”

“You either give it your all, and keep wrestlin’ him ’til you finally got him down on the ground & whopped,” he continued,

“Or you just give up and die!”

With those words, spoken to me just a few hours ago in the living room of our model unit deep in the green hills of McMinnville, Tennessee, we resume our adventures in out of state investing (see “What I learned about investing out of state” for the first installment).

Hmmm, I thought to myself.  He sure didn’t use that analogy two and a half years ago when he sold me those two apartment complexes.

About two weeks ago I sent “Brother James” and his associate an e-mail exploring the possibility of disposing of the two rural Tennessee complexes Barb and I acquired two long years ago.  Tired of investing too much time and money trying to turn them around, I’ve begun exploring the option of unloading them sooner rather than later.

This afternoon, after pondering the numbers I sent him and then inspecting both properties, the investment Realtor and his partner were supposed to give me their conclusions about what sort of selling price I could expect.

Instead, it seemed to be turning into a lecture on fighting on in the gallant, life-and-death struggle to turn these properties around.

As a veteran agent myself, it’s always both interesting and educational to have the tables turned and be acting as the seller or buyer.

I’m still in the process of gathering data and evaluating how badly I really want to fight on or if I’m just ready to die, which may be better than the alternative in this case.   We have made a lot of progress, but we’ve still got a lot of “challenges” ahead (in real estate, we never have “problems,” only “challenges”).

At this point, if I had it to do over again, I wouldn’t.  But I think we’ve all had trials that helped us grow, and looking back later, we appreciate the process.  It’s had some fun moments, but they’d be a lot more fun if the cash was flowing in the opposite direction.

So I still say, keep your investments close to home.

And if you do venture far, resist the temptation to leverage yourself beyond what you’re already successful at.  In my case, I bought a complex in rural Tennessee that had three times as many units as our largest California complex, even though it cost less than half what that California complex was worth.  I should have started out with a smaller complex, and I should have at least stayed in a more urban setting at first, such as greater Nashville.

Buying several houses in Franklin might have been a smarter 1031 exchange, in hindsight, as my bar-wrasslin’ realtor suggested.

Or maybe just being content with what I had.  The pursuit of expansion for expansion’s sake does add a layer of complexity which may not be worth it.

I may add more thoughts to this post later.  But right now, I’ve got to go wrestle a bear.

For the next few days, we’re in the process of making several changes to this and two other blog sites.

As long as you’re aware of what’s going on, it’s all good.

First, we’re launching the first of several blogs we plan which will be devoted to one specific community or region.  We’re starting off with Lakewood, where I (David Emerson) grew up and where Blair now lives.  Other regional sites we’ve got in the planning stages include Long Beach and several regions of Orange County.

For a few more days, however,  LakewoodRealEstateNews.com will be forwarding automatically to SoCalRealEstateNews.com, because almost all of our posts here are quite relevent for Lakewood buyers and sellers.  If you were looking for LakewoodRealEstateNews.com, we suggest you click on some of our “Top Posts in the sidebar to your right, then come back in a few days when the Lakewood site will be fully functional.

Second, we’re in the middle of switching our domain from wordpress to our own host. So right now, you’ll find “SoCalRealEstateNews” in two places, SoCalRealEstateNews.com (that’s where you are now, with a closeup of green leaves at the top, for now) and SoCalRealEstateNews.wordpress.com (which has a photo of Blair and Beth at Crystal Cove across the top.)

For now, when you click on “internal” links, you’ll sometimes find yourself switched to the other site, but the posts themselves are the same.

Having our own hosting gives us greater flexibility, so eventually we will phase out the wordpress site.

If this is all confusing to you, don’t worry about it.  Just scroll or click through either site, enjoy, & give us your suggestions and feedback by leaving your comments by clicking “comments” at the end of each post.

Thank you for your patience, and for visiting SoCalRealEstate News.com.

To find out more about who we are and what we do, just click here.

Just as the National Association of Realtors’ forecasts tend to be overly optimistic (see this morning’s post), Chapman University’s tend to be quite pessimistic. I think they’re still mad that Gary Watts made them look foolish several years in a row, or it could just be something inherent in their system.

Anyway, as part of their coming June “comprehensive forecast of key economic variables,” Chapman’s Economic Research Center today released their projection of Los Angeles County, Orange County, and Inland Empire housing prices based only on one variable, affordability.

To reach the historical average affordability rate, Chapman says L.A.County median home prices need to fall an additional 23.3% and Orange County by another 13.7%. The Inland Empire, which has had the more severe overbuilding and foreclosure rates, need “only” fall another 8.2% to reach Chapman’s magical median.

Now for the bad news:

“It is likely that home prices will decline even more . . . since corrections usually drop the affordability index below the historical mean.”

Their math assumes modest income increases and flat interest rates. Declining rates could significantly decrease the amount of “correction” needed, while more modest pay increases could offset at least some of that.

I think historical trends in L.A. and Orange Counties are skewed by many years of affordable land. Today’s situation of being practically built out on the coastal plain should result in higher affordability rates, in our opinion. That doesn’t totally invalidate Chapman’s conclusions–we’d just pick more modest numbers. We’re also hopeful that continue declines in mortgage rates will increase affordability.

It seems to us that both Chapman University and Gary Watts are like broken clocks. Gary’s stuck at sunrise: He always thinks prices will keep going up. Chapman’s stuck at midnight: The worst is yet to come. They’re both right once in each economic cycle, like a broken 24-hour clock that’s right once a day.

Still it’s one more thing to consider. We think a 5% – 10% additional price drop will hopefully do it for the coastal plain at least. (See “A Change in Our Projections“).

Like we keep saying, nobody knows for sure (See “How Low Will Prices Go?”).

For Chapman’s full report, including some nifty charts, in PDF form, click here.

And click here for “a little perspective” on our real estate woes, here for “a little more perspective,” here to find out “what to do when nobody knows what’s next,” or here to find out “how to sell your So Cal home for top dollar in 30 days.”

As for me, I think it’s time to get outside in this beautiful weather & go for a jog.

(4/15/08)  Yesterday’s paper brought an uplifting story that helped put our real estate woes in perspective.

Today’s paper was a little more brutal. “The Next Big Quake: Big One Nearly Certain by 2038,” screamed the Register. The Times was a bit gentler: “Likelier here: the next Big One.”

Fortunately, I try to start each day with a something a little more inspiring. This year I’m reading through Wisdom for Today, a daily devotional by my Pastor, Chuck Smith.

Appropriately enough for April 15th, today’s devotional was taken from the Biblical book of Job.

It’s based on advice the troubled Job received from Eliphaz, a friend who had come to “comfort” Job in his distress. Possibly the oldest book of the Bible, Job could have been written yesterday for today’s California home owners.

Titled “Nothing + Nothing = Nothing,” today’s devotional is taken from Job 15:31, “Let him not trust in futile things, deceiving himself, for futility will be his reward.”

Here’s the first paragraph of “Pastor Chuck’s” thoughts on the passage:

“In his attempt to understand why God had stripped Job of all his possessions, Eliphaz reasoned that Job had foolishly put his trust in those possessions. Though Job had not done so, Eliphaz was right in speaking against the folly of those who are lulled into a deceptive sense of security by their wealth.”

Like maybe thinking Southern California real estate can only go up in value?

Bottom line, even if that were true, you still can’t take it with you!

1,500 years after Job, Jesus put it this way:

“Do not lay up for yourselves treasures on earth, where moth and rust destroy and where thieves break in and steal, but lay up for yourselves treasures in heaven, where neither moth nor rust destroys and where thieves do not break in and steal. For where your treasure is, there your heart will be also.” (Matthew 6:19-21)

I find that last sentence especially interesting. Jesus’ reason for not focusing on material wealth wasn’t so much that “you can’t take it with you,” as that it will distract our hearts from far more important things. Things that are eternal, like our family, our neighbors, our character and God.

Hopefully the last few year’s “shake up” in Southern California real estate values or the coming “shake up” reported in today’s paper will help us all focus more on things that can’t be shaken.

Apparently the majority of the Federal Reserve’s Directors were afraid things might get a lot worse when they approved last month’s 3/4% rate drop, according to minutes released today from that meeting.

Here’s the top of the AP’s report on it:

Worries about a deep recession–not a shallow one–drove Federal Reserve policymakers to slash interest rates again last month, according to minutes of their closed-door meeting.

Even as the Fed battled in almost unprecedented fashion to stem a widening credit and housing slump, some Fed members fretted over the possibility of a “prolonged and severe” business downturn.

It was in that environment that they voted–with two dissents–to cut this important interest rate by three-quarters of a percentage point, to 2.25 percent.

That action capped the most aggressive Fed intervention in a quarter-century.

Some Fed policymakers thought that such a widening recession could not be ruled out given the further restriction of credit availability and “ongoing weakness in the housing market,” according to the meeting minutes that were made public Tuesday.

That doesn’t mean we will fall into a prolonged & severe recession. In fact, it means policy makers are doing all they can to prevent one. But it does mean that’s one possibility that must be considered, as we’ve been saying for months.

To us, it’s just more evidence that nobody really knows what’s going to happen next (See last Friday’s “A Change In Our Projections?“. Maybe “What to do when nobody knows what’s next“)

April 10 update: In the week since writing this post, the roller coaster ride of hopeful and negative news has continued unabated.

One thing that concerns us is this week’s release of California’s Foreclosure stats for March, however (see “So Cal Defaults Up Again & What it Means”). has got us reconsidering. But there are a couple hopeful possibilities we’re also keeping our eyes on. We’re watching to see what Congress might do next, and keeping another eye on the ever-surprising Fed.

So stay tuned for further developments. In the meantime, we still think this is as accurate a description of where we’re at & where we’re going as we can write. For now.

We concluded our last post (“Two Problems with DataQuick’s Median Prices,” with our observation that 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).

The obvious question is, “How Much More Should So Cal Prices Have to Correct?”

25 – 30% may well be about the right amount of correcting–nobody knows for sure, as we keep saying (see “How Low will Prices Go?“).

But the market will almost certainly overcorrect, especially with all the current negativity, all the foreclosures still in process, and the difficulties getting mortgages continuing.

Ben Bernanke, the Fed Chairman, thinks governmental actions already in place will begin to kick in later this year, and things will slowly begin improving from there. He hopes, but he’s not sure. (See “Bernanke predicts bottom later this year” for excerpts from his Wednesday testimony with our English “translation”/summaries.) Remember, however, that part of his job seems to be keeping an optimistic spin going.

But UC San Diego’s Nobel Prize winning economist, Clive Granger, thinks the U.S. economy has already been in a recession for about four months. He expects the current recession to last an additional 2-6 months, depending on what occurs in the housing and financial markets. Like Bernanke, that puts the bottom later this year.

Slightly more pessimistic is Freddie Mac Chief Economist Frank Nothaft. (He was also the panelist from last October’s CAR Expo who formed the basis for our belief that nobody knows what will happen next with his remarks that “we’re in uncharted territory.”) (Obviously, that belief hasn’t stopped us from making our best guesses at what’s next.)

Maybe Dr. Nothaft now thinks the picture’s becoming a bit clearer. Last week he told a lunch audience that he expects that life should begin to return to the housing sector late this year or early next but says prices may not recover significantly until 2010.

Then this morning DataQuick released figures for OC showing prices were still dropping but sales volume is continuing to rise, as we’ve been predicting (see the Register’s R.E. blog for details). (Also bear in mind what we said yesterday about DataQuick’s numbers being several months behind, among other things.

Then this afternoon the Register blog put up another post quoting a South OC Realtor who does a lot of number crunching saying what we basically said a month ago, that activity’s picking up.

Now remember what we said about those two So Cal real estate market cycles on Wednesday. Annual cycle: up in the spring, down in the fall. Add in these predictions that the economic cycle may be nearing a bottom, and what do you get? Could it be we’ll hit bottom this winter, not a year later as we had been thinking?

Maybe, but what about today’s increase in unemployment to 5.1%, with economists particularly worried because the drop was so broadspread, no longer limited to housing and construction.

This morning I spoke with one broker I’ve known for 30 years about activity in his office. Yeah, he said, sales (opening of escrows) were up in February, but then they dropped a bit in March, and the last few weeks have been especially slow. The March slowdown he attributed to actual competition for houses, citing one agent who had presented 8 offers for one buyer who needed help with closing costs. There were enough competing offers and enough buyer activity that the sellers were no longer making those concessions.

The cause of the slowdown over the last two weeks , however, was harder to figure out. “Dave, there’s just so many cross currents,” he told me. “The market’s just in flux.”

That flux may mean that we’re nearing a bottom. Or it may mean the mini-upturn we saw in February and March is turning down.

Or it may just mean it’s still too early to tell what’s going on.

This post was intended to update our projections. So I looked up our most recent forecasting post, March 24′s “What’s Next for Southern California Housing.”

Here’s what we said in summary back then:

“We continue to expect a window of opportunity for sellers for the next several months, followed by opportunities for buyers through this winter. We still thing there’s a significant chance (20%?) of a major price collapse of an additional 15 – 25% , but there’s also a possibility that the worst is behind us.”

“Sorry the picture isn’t clearer, but we’d rather tell you the truth than make something. up”

Looks like there’s not a whole lot to update, although there are some things I might tweak:

• That window of opportunity for sellers may already be starting to close.
• An additional price decline of 5% – 10% through this winter is probably the most likely scenario, but by no means a certainty.
• There’s a significant possibility that the market will bottom this winter, but it’s still to early to really know.
• There’s also evidence that real estate’s woes may spread through the economy and pull prices down much further, into a recession that might last for years.
• Washington is becoming increasingly proactive, which could be good. . . or bad, depending on what specific steps are taken.
• One thing hasn’t changed at all:

Sorry the picture isn’t clearer, but we’d rather tell you the truth than make something up.

What to do? Guess it’s time to again refer to our December 1 post, “What to do when nobody knows what’s next.”

Sorry the picture isn’t clearer, but we’d rather tell you the truth than make something up.

We’d love to hear your thoughts, especially what you see happening in your corner of So Cal.

April 10 note: As of this morning, we’re beginning to think the bottom’s probably at least 20 months off, rather than the 8 we’ve been hoping for recently. Those foreclosure stats we mentioned really have us concerned, but we may be overreacting to one item. Because you never know for sure what’s going to happen next!

Talk about being out in front of a story!

Early April 1, before I went to the Westminster Justice Center for a day of Jury Duty (details later this week), we put up our most popular post yet, “Major Housing Breakthrough Near?”

“It looks like our leaders may finally be setting aside their egos and personal agendas to work together for the common good,” we wrote two days ago.

“Behind-the-scenes discussions between Congressional leaders and the Bush administration may be about to bear fruit. And that fruit would be a pragmatic Housing Relief Act of 2008 which combines the best ideas from partisans of all stripes to provide both immediate relief and long term reform.”

So guess what’s the top story on Los Angeles Times‘ website this morning? “Senate advances mortgage relief plan.”

Here are the first two paragraphs of today’s Times’ article:

WASHINGTON — Senate Democratic and Republican leaders reached agreement Wednesday on a multibillion-dollar package to address rampant foreclosures and other problems stemming from what may be the worst housing slump since the Great Depression.

The compromise measure, placed on a fast track by the election-year desire to mollify voters, could be approved by the Senate as early as this week. It would be the first significant intervention by federal lawmakers to aid victims of the mortgage crisis.

Looks like you heard it here first!

Now, we’re pleased with our reputation for honesty. Really (see Redfin’s post, “A Realtor We Can Trust“). So we’ll also have to disclose that we got a couple of “minor” details wrong near the end of our April 1 prophetic post.

Like Congress eliminating earmarks and passing a line-item veto and Bush cutting back on Iraq spending to help fund the bill. And the AARP agreeing to support a one year suspension of social security’s cost of living increase. And McCain picking Obama as his running mate in the midst of all the bipartisan unity.

But it was posted on April 1.

By that we mean, it took a couple of days for all the details to come out. Right?

Shoot, our first report on a pending bipartisan breakthrough on housing was posted on March 31 (“Pragmatic White House Ready to Help Out?“).

“We think it could be a major step in the right direction–or a major disaster. As always, “the devil is in the details.” We just hope & pray that our employees in Washington (yup–we pay their salaries!) will finally put special interests, dogma, and party politics aside long enough to work for the common good, ” we wrote back then.

Who knows, maybe they were listening in Washington.

So maybe that post coming out on April 1 was just a coincidence? What are we going to do if we get some unbelievable, hot info on April 1? Sit on it until April 2, and let the big boys get ahead of us?

In any case, the devil is still going to be in the details, which range from federal mortgage relief bonds to tax breaks for homeowners, builders, and people who buy and occupy foreclosures.

There’s still time for partisanship to kill the bill, with hearings in the house scheduled for next week. Wouldn’t it be nice if our representatives will use that time to make the bill better for the nation as a whole, rather than to grandstand or advance partisan interests.

Otherwise, the joke might just be on us.

Only we wouldn’t be laughing.

Excerpts from his prepared remarks to Congress today, with my attempts at decoding and summarizing in italics preceding each segment:

We’re not out of the woods yet:

Although our recent actions appear to have helped stabilize the situation somewhat, financial markets remain under considerable stress. Pressures in short-term bank funding markets, which had abated somewhat beginning late last year, have increased once again.

It’s harder to get any loan because of all the losses due to the mortgage mess:

Credit availability has also been restricted because some large financial institutions, including some commercial and investment banks and the government-sponsored enterprises (GSEs), have reported substantial losses and writedowns, reducing their available capital. Several of these firms have been able to raise fresh capital to offset at least some of those losses, and others are in the process of doing so. However, financial institutions’ balance sheets have also expanded, as banks and other institutions have taken on their balance sheets various assets that can no longer be financed on a standalone basis. Thus, the capacity and willingness of some large institutions to extend new credit remains limited.

Even “conforming” loans (Fannie Mae & Freddie Mac) have gotten pricier, and non conforming loans are almost non existent:

Another market that had previously been largely exempt from disruptions was that for mortgage-backed securities (MBS) issued by government agencies. However, beginning in mid-February, worsening liquidity conditions and reports of losses at the GSEs, Fannie Mae and Freddie Mac, caused the spread of agency MBS yields over the yields on comparable Treasury securities to rise sharply. Together with the increased fees imposed by the GSEs, the rise in this spread resulted in higher interest rates on conforming mortgages. More recently, agency MBS spreads and conforming mortgage rates have retraced part of this increase, and conforming mortgages continue to be readily available to households. However, for the most part, the nonconforming segment of the mortgage market continues to function poorly.

The housing market remains weak, and that’s hurting everyone:

These developments in financial markets–which themselves reflect, in part, greater concerns about housing and the economic outlook more generally–have weighed on real economic activity. Notably, in the housing market, sales of both new and existing homes have generally continued weak, partly as a result of the reduced availability of mortgage credit, and home prices have continued to fall.¹ Starts of new single-family homes declined an additional 7 percent in February, bringing the cumulative decline since the early 2006 peak in single-family starts to more than 60 percent. Residential construction is likely to contract somewhat further in coming quarters as builders try to reduce their high inventories of unsold new homes.

Things are worse than we thought, but we think they’ll start getting better later this year. But nobody really knows. [We've been telling you that since November!]

Overall, the near-term economic outlook has weakened relative to the projections released by the Federal Open Market Committee (FOMC) at the end of January. It now appears likely that real gross domestic product (GDP) will not grow much, if at all, over the first half of 2008 and could even contract slightly. We expect economic activity to strengthen in the second half of the year, in part as the result of stimulative monetary and fiscal policies; and growth is expected to proceed at or a little above its sustainable pace in 2009, bolstered by a stabilization of housing activity, albeit at low levels, and gradually improving financial conditions. However, in light of the recent turbulence in financial markets, the uncertainty attending this forecast is quite high and the risks remain to the downside.

We think inflation will start dropping later this year, but we’re not really sure about that either:

We expect inflation to moderate in coming quarters. That expectation is based, in part, on futures markets’ indications of a leveling out of prices for oil and other commodities, and it is consistent with our projection that global growth–and thus the demand for commodities–will slow somewhat during this period. And, as I noted, we project an easing of pressures on resource utilization. However, some indicators of inflation expectations have risen, and, overall, uncertainty about the inflation outlook has increased. It will be necessary to continue to monitor inflation developments carefully in the months ahead.

We think we’re finally on the right track, and expect to turn a corner during the second half of this year. (“Things will turn out fine in 2009?”)

Clearly, the U.S. economy is going through a very difficult period. But among the great strengths of our economy is its ability to adapt and to respond to diverse challenges. Much necessary economic and financial adjustment has already taken place, and monetary and fiscal policies are in train that should support a return to growth in the second half of this year and next year. I remain confident in our economy’s long-term prospects.

At least, that’s what I think he said. Click here for Bernanke’s complete prepared text.

Click here for the L.A. Times’ report on Bernanke’s remarks.

And feel free to use the “comment” option to express your opinion, but in relatively polite language, please.

We sure hope he’s right. Could be.

Note: Most of our market predictions are based on So Cal’s two market cycles: the annual cycle and the broader economic cycle. It’s basic stuff, but if you understand both cycles, you’ll be miles ahead of 90% of the population and 50% of the agents in trying to figure out what’s going to happen next.

Yesterday Peter Viles had an interesting post on who’s buying in So Cal today in his L.A.Times’ blog. That got me thinking about writing a post on “Time to Buy?”

But I’m going to save that post for the near future. Instead, I’m going to “set the stage” for that with the first post in our new “back to basics” Real Estate 101 series.

1: The “Economic Cycle”

In any real estate market, there are at least two basic cycles. We’ll call the longer cycle the “real estate economic cycle” It roughly corresponds with the boom-bust-boom-bust business cycle we’re all too familiar with. 20 years ago I used to say these cycles generally take about 4 – 7 years. In other words, it usually takes 4 – 7 years to go from bottom through peak back to new bottom.

Well, the current So Cal real estate “economic cycle” last hit bottom around 1995, so it’s already gone about 13 years. But we were heading for a bottom before the Fed began their “life support” intervention after 9/11 in 2001 (see “How We Got into this Mess”). That would have been about an 8 – 9 year cycle, at least.

2: The Annual Cycle

We’re not going to insult your intelligence by telling you how long the annual cycle lasts, but we will say it’s much more predictable then the longer “economic cycle.”

All things being equal, the annual cycle has both prices and activity bottoming in December, then gathering steam through the winter, peaking in late spring, leveling off in summer, and heading down in fall.

In what we used to consider a “normal” market, prices only went down in the fall about half as much as they went up in the spring. As we near the peak of a booming economic cycle, prices go up year round, but they go up faster in the spring and slower in the fall. Outside events, like the Fed lowering rates on 9/12/01 or Bush I invading Iraq in 1989 impact both cycles.

By “activity” we’re talking about homes going into escrow, which is what the average Californian means when she says “Our house just sold!” (Not that the average Californian is saying that much right now. But she would if she’d read our post on “How to Sell Your So Cal Home for Top Dollar in 30 Days in Any Market.”)

DataSlow’s median pricing statistics report homes closing escrow, which is usually about 30 – 60 days after they opened escrow. And DataSlow reports those stats about a month after the median closing date, so it’s 2 – 3 month old “news” when you read it in the paper. So DataSlow’s charts would indicate that prices peak in the summer, but that’s just the homes that went into escrow in the spring closing in the summer.

Why . . .

do prices usually peak in the spring and drop in the fall here in So Cal? 3 reasons:

1. Income taxes. Many buyers are brought into the market each year when they have their taxes done and realize they need more tax shelter, and that begins early in the year as those with simple returns file in January. For other’s, buying a home becomes a new year’s resolution.

2. Honey Do Lists. Many sellers also make a new year’s resolution to sell and move up or down. But all it takes for a buyer to “get on the market” (start looking) is to stop at an open house or get online (see “A Better Way to Search for Home Listings“). And first time buyers usually one to get into that home of their own by summer.

But it takes a lot of work for most sellers to get on the market! Work they’ve been putting off for years. And if it ain’t happened in the last decade, it ain’t gonna happen real fast now. For most sellers it takes 4 – 7 months to realize they’re not going to get everything done and call a Realtor for advice on what to do & who to hire. So must sellers are getting on board the real estate train right when most buyers have already gotten off. That affects supply and demand, which affects price.

3. School, Vacation, Weather & Holidays.

O K, that’s really 3 – 7, but we’ll lump them together. Buyers with school age kids want to get into their new home before school starts in the fall, and they want to have it in escrow before school gets out in June. That’s so they can get their kids signed up at the new school before the staff takes off.

Once summer hits, buyers have other things on their plate the rest of the year. Summer vacation, back to school, then Thanksgiving and Christmas. (Despite the weather, Christmas in California begins in September or October. As my pastor, Chuck Smith of Calvary Chapel Costa Mesa, says, “When you see those Christmas decorations going up in the stores, you know Halloween is just around the corner.”)

So buyers are pretty much too busy to buy from when the kids get out of school on. Sellers, however, tend to be at least one generation older than their buyers. They’re less apt to have school age kids, they take their vacations off peak, & they’re often just getting their home ready to put on the market when summer hits, as we said.

Selling a home is frequently a less discretionary decision than buying. Divorce, death, foreclosure, and job transfers occur at a fairly consistent pace all year round. (Actually, death tends to occur in the winter after Christmas, but you really didn’t log onto this blog to hear about my college days working at the Westwood Village Mortuary as a resident manager.)

Local Variations

The annual cycle varies by region somewhat. In areas with brutal winters (which to us is pretty much any place north of Fresno), things continue to drop until the snow starts melting. In resort areas, prices tend to peak during peak seasonl–winter in the desert & in ski areas, summer in most other vacation meccas.

How to Figure Out What’s Next

These two cycles are not synchronized, but they do influence each other. When the economic cycle is in a major downward move, prices may just level off in the spring, or even drop some. But if the downward cycle continues, they’ll drop even faster in the fall.

Our understanding of the annual cycle enabled us to predict the increase in activity that DataQuick and the Association of Realtors reported for February closings. It’s why we think closings will also be reported as up when March figures are released in about a week.

The question is, will the impact of the overall downward cycle overpower the normal seasonal uptick. Remember, it’s still early in the annual cycle: March closings mostly went into escrow in January and early February. Our best guess is that sales will be up but prices down for March closings, but by April or May prices may also be modestly up.

Part of the problem with prices is that DataQuick uses median prices, which can be skewed by differences in which price ranges of home are selling (see Jeff Collin’s summary of a detailed study that proves what we’ve been saying about this for years.)

Well, now you’ve got one of the basics of predictions down. Give it a shot, & see if you can impress your friends. Or shoot us a comment or question, so we can explain it better or add whatever we may be missing.

Good morning! April 1st is over, so I guess we’d better get back to the business of sharing our thoughts and insights about the wonderful world of Southern California Real Estate.

Today we’re kicking off a series on real estate basics. with a post on “So Cal’s Two Real Estate Market Cycles.”

I was working on that post I googled the famous Vince Lombardi football quote above. I was so taken by the story I decided to devote this separate post to it.

The setting was the first day of the Green Bay Packers’ Training Camp, many years ago. Their coach, Vince Lombardi was already a living legend.

I’ll let Bob Kimbrell tell the rest, quoting from his Book on Management:

All the players knew that at the first team meeting, the legendary coach would waste no time getting straight to the point. Many of the men, half Lombardi’s age and twice his size, were openly fearful, dreading the encounter.

The coach did not disappoint them, and, in fact, delivered his message in one of the great one-liners of all time.

Football in hand, the great coach walked to the front of the room, took several seconds to look over the assemblage in silence, held out the pigskin in front of him, and said, “Gentlemen, this is a football.”

In only five words, Lombardi communicated his point: We’re going to start with the basics and make sure we’re executing all the fundamentals. . . .”

We believe a major problem with real estate today is that it’s gotten away from the basics. That certainly was the case for most agents, lenders, and buyers over the last five years. Not to mention the Fed, mortgage bankers, & federal regulators.

Back on St. Patrick’s Day, we posted “When Market Chaos Strikes, Get Back to Basics.”

Today we’ll follow up by “kick offing” our series of “Real Estate 101″ posts on some of the neglected or forgotten basics of So Cal real estate. We begin today with “So Cal’s Twp Real Estate Market Cycles.”

Please let us know what you think.