Some market info

The news in the real estate world seems to perplex the pundits at a national level and confuses us if we try to make sense of their interpretations. Existing home sales are down, frighteningly so, new home sales are up, encouragingly so. So they say. Median home prices are down, or up, depending on where you live. The median home price nationally is around $220,000, and we just don't have a whole bunch of those in Chico. To make some sense of what's happening it requires looking at the actual events. New home sales are up because the national developers are slashing prices in a big way. They must reduce their inventory, so even though they sell at a modest loss it's better than suffering a continuing drain on their underlying financing. (That's true locally as well, in the Orland area, where homes are selling at sharp reductions from the anticipated pricing.) Existing home sales are down and inventory nationally is pegged at an 8+ month supply. Two reasons probably. First a slight tightening of credit standards, some 76 lenders, mostly sub-prime, have folded their tents since late 2006, so some caution has been injected into the market. Second and main reason is the reluctance of sellers to recognize their home is simply not worth what they hoped it was. In our local market MLS listed home sales for April totalled 87 for Chico, add 36 more for Paradise and Magalia, for April, 2006 it was 66 and 48, and for April, 2005, 108 and 75. Listed properties, (these are all single family home figures) total a whopping 541 for Chico and 383 for Paradise and Magalia. Remember, these are MLS figures and do not count private sales or properties being sold privately. The increase in listed properties may well be an attempt to take advantage of the normal seasonal increase in buying activity. If pricing is not aggressive however, the market forces at work, including higher gas and food prices will militate against any buying surge.
One of the surprises for me is the listing activity that is passing by our offices. We know we can't get all of them, but why any informed person would pay a great deal more money for exactly the same or inferior service simply baffles me. Maybe the operative word is informed and we need to step up our advertising, or maybe our business model simply seems too good to be true. But then so did Costco and Schwab in the merchandise and securities fields.
Just so this recitation of events doesn't seem too doom and gloomy, our web site activity is up, meaning people are looking and are presumably looking for opportunities. We're running over 2000 page loads a month, and for a small broker in a small market area, that's pretty encouraging for the future.
As usual,
thanks for visiting.

Some Postal Musings

Having nothing to do with real estate, other than our use of the Post Office for some direct mail advertising, I'd still like to talk about them, and the latest rate increase. I guess they are not technically a governmental agency, although we all feel that "flavor" about them, they are none- the-less a well protected monopoly, and certainly a bureaucracy, and the behavior of bureaucrats is a constantly intriguing study. The price increase apparently stems from a need to increase profitability which requires increasing income, which in the more formalized government usually means simply raising taxes. For a bureaucrat there may be an almost perfect correlation between raising prices to increase income and raising taxes for that purpose. A businessperson might ask why profits were shrinking in the first place and seek some strategy that would work to try to correct the problem. Unquestionably the use of e-mail and the competition of the private sector such as FedEx, United Parcel, California Overnight, DHL and others have seriously reduced the USPS business volume, and they have enormous investment in plant and equipment to handle a large volume of mail, plus a difficult to dislodge and very well paid personnel roster. The effect of raising prices is likely to be the opposite of the one intended. If shrinking volume caused the income reduction, the rise will likely drive away even more marginal users, and reduce the volume even further, probably eliminating any hoped for increase in revenue and profitability. The high cost of plant and people is not going to go away. A business approach to the problem would more realistically involve studying the capacity of the current system and determining a postage price that would attract sufficient volume to utilize that capacity and return a profit. That determination would likely result in a price cut, but an increase in profit. That isn't going to happen of course, and if the "forever" stamp doesn't save them possibly they might just get out of the business. Private enterprise would fill the void in a heartbeat.
The furor about the mortgage industry continues. Even for those of us in the business it's getting a little tiresome. Barney Frank would introduce some legislation making it possible for borrowers who felt wronged to sue right through the system into the bond holders who buy the security instruments made up of mortgages. Not a carefully thought out idea. If you want to dry up the availability of mortgage money that would be a nifty beginning. Cleaning up the origination arena of mortgages would be a good idea. Support the integrity of the appraisal process, make sure underwriters and staff in loan origination brokerages and mortgage banks are salaried rather than commission employees, eliminate stated income loans for any W-2 employed people. For the most part the hand wringing over the disadvantaged is overplayed. The bulk of the troubles in foreclosures stem from the use of the home as an ATM machine. The people who took out the equity loans, got the money, spent the money, and Detroit, the TV manufacturers and other consumer goods providers were the beneficiaries of this lending activity. The party was fun, but sobriety may be painful. If you want to read some excellent blogs, diverse and daily, http://ml-implode.com/, go there. Note that everyone, including us, speaks from some position of interest, so read accordingly. We think our position is benign, but probably not if you're a real estate agent or mortgage seller.
As usual,
Thanks for visiting.

60 Minutes redux

"60 Minutes" spent some time on the fallacy of the percentage based real estate commission Sunday night and the fall-out will probably be substantial, although muted officially in public. Our local peer group, other agents and brokers, have tried to express their displeasure as will others you may be sure, but very carefully, since to discuss this matter can very quickly drift into conspiracy in restraint of trade territory. We of course, are the guys in the white hats on this issue, and the highly noted Redfin takes a back seat to us on both matters of commission and in service, but even at that I'm happy for the attention that commissions are receiving. When housing prices were accelerating madly the high commissions paid to agents didn't make a dent in the profits realized by the seller. Now it's reality check time. Commissions paid are paid from the owners equity, and squandering it is no longer an option. It never was a good idea to pay those hefty fees, but less so now. I could fill this and several future blogs with the in-person details our agents handle for sellers, the visits to government offices to verify code compliance, the meetings with inspectors, roof, building, termite, etc. The gathering of water samples, arranging for contractors to remedy defects, etc. These are things that neither Redfin nor any purely on-line broker can do, but all full service brokers do. We do all those things, and for fees that are less than Redfin. In this market of sliding home values, retention of equity is becoming increasingly important, and in some cases where equity has been reduced through aggressive refinancing, it may be the difference between selling at break-even or at a loss. The real estate lobby is very powerful and will do whatever it takes to protect the interest of real estate agents. Your protection is being informed and making intelligent business decisions in your choice of agent.
The market is still tough and some sellers have elected renting to try to weather the storm instead of taking price reductions on a sale. Lease options will no doubt increase in number as sellers realize the time required to sell a home is increasing, absent a real price adjustment. The inventory of single family homes is very high and as the following foreclosure figures show, are likely to go higher. The figures are provided by a service we subscribe to and are probably very accurate since they are gleaned from county records. For convenience the following abbreviations are used: NOD=Notice of default, the first step in the foreclosure process; REO=Real estate owned, property foreclosed upon and title held by the lender. Auction=imminent sale date, usually occurring about 120 days after first NOD.
Butte County-302NOD's, 57 Auctions, 94REO's. Tehama County-82NOD's, 7 Autions, 24 REO's. Shasta County-278 NOD's, 45 Auctions, 85REO's. Glenn County-24NOD's, 5 Auctions, 6 REO's. The majority of these NOD's seem to have come about from injudicious refinancing, sometimes serial refinancing, and with home values slipping these folks find themselves owing more than the sale value of their home. Unfortunate, but if this has been a speculative investment it is no different from investing in stocks or tulip bulbs. People who bought their homes to live in will come out ok.
As usual,
thanks for visiting.

Some Random Thoughts

Not precisely about real estate, but close maybe. Our local TV stations were once again on the subject of falling real estate values and citing a report of zillow.com to support the story. We happen to be a fan of zillow, in fact spent a great deal of money modifying our web site to give access to their data base. We hope it helps you, but we would like to point out that zillow statistics in macro form, e.g. covering a broad market area, are likely to be accurate, but in small market areas such as Chico, Red Bluff, Orland, Oroville, etc. their micro estimates of value are not entirely reliable and should be used only as a general guide and should be verified. If you are seriously considering selling we urge you to get a comparative market analysis from a reputable broker. (that's not entirely an oxymoron). A good report will provide you with actual recent sales of comparable properties and enough information to provide an informed opinion of your probable sales outcome. Because that outcome is your money we suggest you consider carefully the fees you agree to pay and the service you expect to get. Compare before you list.
If we consider that the money we don't give directly to the government to be our disposable income, then we are seeing a serious dilution in the effectiveness of that income. Fuel prices are high, driven by what amounts to a lack of competition in the production and distribution of fuel. The government has extended it's catering to the farm lobby by enforcing the use of ethanol from corn as an additive in fuel. Now corn prices are at record levels and animal feed costs are off the charts, so our trip to the grocery store is kind of a double whammy, we can barely afford to drive to the store and then can't afford to buy much when we get there. What does this have to do with a real estate blog? Disposable income. At a time when interest rates are good, home prices are becoming realistic and good loan programs abound, people have less disposable income to divert to housing needs. This fuel issue in not going to go away, and it is not just gasoline at issue. Perhaps some of you are also able to remember when locomotives and ships used coal for fuel, and trucks used gas. Mr. Diesel designed an engine that ran very nicely and economically on what was "garbage fuel", diesel oil. Cheap because refining was fairly simple.
Over time the use of coal was replaced by the new "cheap" diesel in locomotives and ships, and the highly refined gasoline was replaced by diesel in trucks. Even the growth of airlines with jet engines use a variation of this "cheap" fuel. Now since everything that is transported uses some variation of diesel fuel it costs almost the same per gallon as gasoline. Since there are very few producers of petroleum products the control of pricing is a very simple matter, and because the cost of entry into the business, building refineries, etc. is prohibitively expensive, here we are. Almost obscene profits for the oil producers, an incredible burden for the consumer and the government piling on with their aid to the farmer by creating a market where market forces did not provide one.
This whole thing is intended to be commentary, not viewing with alarm. Conditions are what they are, and in the business of trying to guide people intelligently in the process of selling, buying, or financing a home, we'll do it as effectively as we know how. I think being aware of some of the larger issues will help our clients understand the problems we face in helping them reach their housing expectations.
As usual, thanks for visiting.

April Numbers

Some numbers to help satisfy the need to know what's really going on in the marketplace locally. For April the closed sales as reported by MLS. We've noted before that there will be other sales which were private or not MLS generated. For greater Chico, 81 sales compared to 67 for April 2006, for Paradise, 27 compared to 33 last year, for Oroville, 8 compared to 9 last year, and finally for Glenn county, 7 compared to 15 last year. Chico is doing rather well, probably because prices are responding to market conditions and there is a fairly steady demand for Chico properties.
Despite the media attention to the bad news in housing and the finger pointing exercises, things are not all that bad. The tightening of credit and underwriting is long overdue and the people who are now unable to qualify shouldn't own a home anyway. Some government types are saying we need an alternative to high mortgage costs, and my favorite response I've seen in print says there is one already, it's called rent. The phrase "first time home buyers" is used like a mantra as though there is some intrinsic right to own a home. First time car buyers or first time leather jacket buyers don't have the same emotional appeal, but for all of these events it's a good idea to have a financial plan in place. Foreclosures are up, dramatically in some areas, but these are largely the result of treating homes as an investment vehicle, draining equity for some purpose and then suffering the consequence of a debt load that exceeds the ability to repay. People do that with all kinds of investments, buying stocks on margin, etc. and if you make a bad guess you lose. Speculating with home equity is little different, and the bad guesses are catching up. While whining is possibly therapeutic, and certainly good TV fodder, it is not a very good problem solver. The housing market will doubtless correct itself and those industries that have prospered as a result of the cash generated from home equity speculation, (autos, major appliances, etc.) will survive, and the folks who want to buy a home to live in will do so. For those of us who have been in the business for a while, (I started in the middle 1970's) we have always held that the best time to buy a home is now, when you want to. True, a home is an investment and an estate builder, but it is primarily a place to live and raise a family, and it is for the long term.
Hope the sales figures are useful to some, and as usual,
Thanks for visiting