Altos Research Real Estate Insights

So says Business Week's Toddi Gutner quoting Michael Youngblood of Friedman Billings Ramsey & Co. Really?! Youngblood's projection is surprising because through the first 30 weeks of the year, we're seeing generally flat prices (plus or minus 5% change) for the markets we monitor.

That would imply Youngblood sees a surge in the last five months of the year. And our measures of current real estate supply and demand levels (plus slowing economy) imply that's not going to happen. Buyers have too much choice right now. If you look at the Market Action Index for San Jose or San Francisco, say, you can see that we have reasonable demand levels, but they're steadily trending downward. Weakness does not indicate a popped housing bubble yet. But there's no way this market gets 24% gain in the next few months.

Take a look at 2005 and 2006:

San Jose Real Estate Prices Single Family Homes through July 30, 2006

San Jose Real Estate Market Conditions - Market Action Index measuring supply and demand. (Above 30 is a seller's market.) Through July 30, 2006

Toddi? Michael? Is this a typo? Are you measuring a different California than us?

I gauge the quality of conferences I attend by the number of "nuggets" I take home. Nuggets may be pearls of wisdom, new knowledge, or insights that help me and my business. This week was the Inman conference, attended by lots of technology-savvy agents and brokers, and all the players in the Internet real estate biz. Here are my top nuggets from the week (in no particular order):

1. "Technology won't replace agents. Agents with technology will replace agents." This great quote, by Burke Smith of Prudential California Realty, really nails it. The shifting advantage is clear. The agents gaining share are those investing smartly in technology - be it a online real estate marketing tools, lead generation systems, Blackberries for fast response to leads, blogging to build the community, or search engine optimization.
2. The top producers typically aren't yet spending their marketing dollars on line. Burke's corollary. The top producers in a particular area have been doing this for decades and their entrenched processes continue to work. So they have only lightly embraced the Internet's power to make the real estate
   process marvelous for their clients. With all the innovation happening
   in the marketplace right now, we're at the critical point for the
   early adopters of that technology to grow and solidify their leadership position for
   the next few decades.
3. The largest brokerage in the world, Remax, spends $60 million marketing nationally, another $60 million marketing regionally. Remax agents spend $1.5 billion each year marketing locally. That's over $15,000 per year average. Remax is about 7% of this business. You can finish the math...
4. The 6% commission myth hurts agents-because in many cases it's too low! Everyone knows that the typical sales commission is 6%. Most of the knee-jerk reaction is that this must be too much. What value do agents add, after all? In my opinion, the good ones add a lot of value (and the lousy ones? well, there you go...). But because this number is perceived as fixed and colluded upon, Realtors are under fire. The conference had a session titled, "Defending your commission" which appeared to be well attended. Mike Arrington kicked off the conference with a moderately incendiary presentation about why this business is so screwed up and one of his key points was the 6% number. But Mike made an off-hand comment which was particularly insightful (and I think lost on the crowd of grumbling agents): If that number were more fluid, why shouldn't an agent negotiate a kicker if the client's major goal is met? If you hire an agent to sell your home quickly, and they come through for you, don't they deserve a bonus? Food for thought...
5. The last one is a point made by Rich Barton of Zillow. When you come to the pot luck, bring more than a fork. That means giving stuff back to the community. For Zillow, they announced opening their API. Trulia announced a maps-for-your-website offering. Altos Research, by the way, lets you drop a real-time real estate price chart on to your site. (And if you join our affiliate program, we'll even pay you for referrals!)
6. Bonus! The lead generation business is NUTS and it's going to get nuttier! I counted at least a dozen internet firms trying to sell leads to agents. (There are dozens more who were not in attendance). Some go for high volume, low quality. Some are trying to add filtering and quality assurances with sites that cater exclusively to agent seekers. This quality filter is in my opinion the critical component to bring the slimy-reputation of the business into a respectable enterprise. More on this topic in later posts...
   

Here's a real-time glance at King County property values. This is from our July 22 snapshot.

City	Median Single Family List Price	Trend
AUBURN	$379,950
BARING	$117,475
BELLEVUE	$937,475
BLACK DIAMOND	$584,925
BOTHELL	$499,500
CARNATION	$697,000
DUVALL	$529,999
ENUMCLAW	$449,950
FALL CITY	$875,950
FEDERAL WAY	$358,000
GOLD BAR	$279,950
HOBART	$399,950
ISSAQUAH	$652,000
KENMORE	$590,950
KENT	$389,950
KIRKLAND	$795,000
MAPLE VALLEY	$424,950
MEDINA	$2,250,000
MERCER ISLAND	$1,499,000
MILTON	$429,950
NORTH BEND	$539,950
PACIFIC	$299,950
PRESTON	$679,950
RAVENSDALE	$571,975
REDMOND	$753,490
RENTON	$507,253
SAMMAMISH	$816,250
SEATTLE	$479,900
SKYKOMISH	$195,000
SNOQUALMIE	$679,990
SNOQUALMIE PASS	$536,495
VASHON	$504,750
WOODINVILLE	$700,000

A single arrow means the trend extends over the four weeks. A double arrow means that the trend reaches over the previous quarter. The side-to-side arrow implies no clear trend-prices are bouncing around a plateau.

In short, you can see that King County real estate prices are moderating in the summer months. We're not seeing and housing bubble burst nor a roaring upside. Hope for the best...

Seattle-area readers - give me a buzz and let me know if there are specific real estate research questions you'd like to see answered here. How worried are we about the real estate bubble in Seattle?

Here's the weekly update for the Inklingmarkets.com San Jose Real Estate Prices 2006 market.

This week single family home prices in San Jose ticked up a notch to $757,000. The 90-day moving average has stayed relatively flat through the summer so far. We're bouncing around the market's high point, up a little over 4% year to date.

San Jose is a bellwether in our real estate research. While the outlier suburbs and higher-priced markets are showing considerable demand weakness, San Jose, while cooling, hasn't seen any price dip.

If you're planning on attending the Inman Real Estate Technology conference next week in San Francisco, give me a buzz. I'd love to say Hi to any readers.

Yahoo announced today that they're switching from HomeGain to Zillow as provider of data for the "how-much-is-my-home-worth?" feature. This is a big coup for Zillow, who have been executing flawlessly, I must say. Since, as I mentioned in my last post about calculating a property's value, all these guys have the same (limited) set of input data, this shift by Yahoo is driven by user-interface/technology benefits, not by a desire for better information.

It also underscores the fact that the first-generation Realtor lead generation business of HomeGain.com and HouseValues.com is facing a massive Web 2.0 shift. Like real estate agents themselves, there is a lot of room for these companies to add value to the home buying process. But they're facing an Innovator's Dilemma.

Realtors are not going away, their value is shifting from owning the listing to building their clients' confidence about their buying & selling decisions. The best real estate agents have always been local market experts. But now we live in a world where 80% of real estate buying and selling starts on the Web. So your client's head is filled with visions of the real estate bubble and a price number from Zillow and school data from Redfin and today's open homes from Trulia. So Realtors have to stay a step ahead, provide clear, actionable information, and strong, insightful guidance. They have to interact with their clients like never before. Ultimately the real estate agent who makes their clients confident and successful in their transactions will win this game. For agents, it's no longer about answering "what's for sale?" or even "what price?", it is about the Why, When, and How of the transaction. It's about demonstrating expertise.

As soon as HomeGain and HouseValues realize their Realtor clients success is now based on these high-value services, the more likely they'll be able to save themselves from the Web 2.0 threat.

What services should these guys be providing? What about blogging? If you need any incentive to see the power of the blog for Realtors, look no further than RainCityGuide.com. Great Seattle market information written by folks who are clearly the experts. If I'm buying in Seattle, that's a great place to start finding a agent.

What else should HouseValues and HomeGain be doing for their Agents? What's a great way to communicate the timeliness and appropriateness of a give real estate purchase? How about detailed real-time local market information? Natch.

Other coverage on the Zillow/Yahoo deal at Inman.

The online get-a-price-for-my-house tools sure are a big hit. HouseValues.com has built a $100 million business in a few years essentially from this one consumer desire. Zillow, of course, made big waves this spring with a sexy UI and eliminating the hassle of agents calling. But it's the same real estate porn emotion driving that company's explosion onto the scene. After this long bubblicious ride, we all want to ask ourselves, "Am I a millionaire yet? What's Zillow say?"

The Wall Street Journal's little sister realestatejournal.com has an article following the various internet-home-price-estimator players and their widely varying results for a home in Seattle.

The trouble they point out is that we're all dabbling in a black art. To arrive at an estimate, you have to boil all of a property's characteristics into a mathematical/statistical framework. We've done this with one component of our market research report through a sophisticated pricing analysis of the on-market properties. You can start to zero in on an rough estimate price when you apply some machine-learning and natural language processing techniques to the property listing. But is the estimate ever good enough to bank your buying or selling decision on? Probably not. We like to think of the estimate of an potential-opportunity flag rather than a 'biddable' number.

As one of our Realtor clients puts it, "the estimates are all an attempt to commodify real estate. But it isn't a commodity." His point is that until you walk by a property and see, for example, that the layout is weird but the street is gorgeous can you arrive at a proper valuation in today's market. Because there are practically infinite variables to observe, there's no way to automate the analysis.

In the last few years we've seen the machine-learning and natural language processing techniques start to mature enough to potentially be applied to the vast variables of real estate pricing. What we don't have, however, is a good set of input data for those analyses. County tax and title company data is simple numeric stuff (square footage, beds, baths, lot size, age, etc.) Everything else is subjective. When we arrive at a way to categorically capture things like layout, decorative styles, relative appeal of the nearby shopping center, etc. etc., then the price estimators will be bankable.

So do the price-estimator-sites have any value? Well, if you want to know what your boss', or your in-laws' house is worth, roughly, knock yourself out. If you want to know where to price your house to sell quickly, get a good Realtor.

This week's median price for San Jose single family homes remains unchanged at $750,000.

Here's the snapshot from the InklingMarkets.com market. The stocks all started trading at the same level.

Yesterday we looked at how demand is related to median price in the Bay Area. Today, let's apply the same lens to the Seattle Area.

This chart plots 30 towns in King County. The regression line crosses into Buyer's territory at just under $1mil. (In the Bay Area it's $1.5mil)

Because King County isn't that big, I sense that the proximity impact we see in the Bay Area is less on this chart. Kirkland and Auburn are two bigger towns sitting in the Buyer's market zone.

Also notable difference between Seattle and the Bay Area is that none of the cities have demand at levels that we describe as "Hot" conditions. That surprises me. (We do know, however, that some individual zip codes, though not plotted here, are hotter than the cities overall. See the West Seattle post I did a few days ago.)

In addition about 70% of these towns have been experiencing declining relative demand as measured by the Market Action Index. That mirrors the Bay Area's hottest markets, but appears to be weakening faster than the Bay Area as a whole.

We've been discussing a lot about the weakening markets lately. Indeed, I've commented frequently that slack demand tends to be related to two factors here in the Bay Area: Proximity to the cities' economic engines, and prices over a certain threshold. I thought I'd map it out for you today. This chart plots this week's home prices vs. our Market Action index for 168 towns in the 12 or so counties around the Bay Area.

Note that anything to the right on the X-axis, the most expensive towns, are all in Buyer's Market territory. That means demand is slack and sales relative to the amount of available properties is low. The regression line crosses into Buyer's zone at about $1.5mil.

Other things to note:

1. The highest-demand markets are also the big cities. The top 10 markets on our index are (plotted in the upper third of the chart) - San Francisco, Fremont, San Jose, Palo Alto, Sunnyvale, San Leandro, Santa Clara, Menlo Park, and San Mateo. Of those, only Palo Alto and Menlo have median prices over $1mil.
2. Slightly over half (53%) of the towns in the sample are in the Buyer's Market, another 14% are on the cusp (index < 40).
3. 54% of the towns have a negative trend in the Market Action Index (relative demand is declining for at least a month).
4. Of the 25 towns with the highest Market Action Index (i.e. the hottest markets) fully 72% are in a downward, cooling trend.

Craigslist for discriminatory ads placed on its site. In what is clearly a headline grabbing move, the group has targeted the Internet equivalent of the supermarket bulletin board, rather than the nefarious landlords who are looking to rent to "Clean Godly Christian Males" or "Muslims Only."

I find it particularly ironic since Chicago, like most big US cities, has laws sooo in favor of tenants, that if the group wanted to actually get action, they could just go to the city, rather than Federal court.

Via TechDirt

is a non-profit center that pioneered the use of weekly economic samples as an insightful mechanism for forecasting upcoming economic conditions. They have an impressive track record of predicting recessions and, more importantly, not having false-positive predictions of recessions that fail to arrive. That's why this week's report is starting to get worrisome.

The Weekly Leading Index (WLI) rose to 136.8 in the week ending June 30 from 135.9 in the prior week, but its smoothed growth rate slipped to 0.9% from 1.2%. WLI growth has declined steadily in recent weeks, and is at a new one-year low. Thus, U.S. growth prospects
continue to fade.