Altos Research Real Estate Insights

I just completed an interview with Bob MacKenzie from San Francisco's KTVU channel 2. The subject was right up our alley: Current Bay Area real estate market conditions.

The interview is supposed to air on their 10:00 broadcast tonight. Check it out if you find yourself in front of a TV.

I'll post a link here if I can find one after it airs.

The Kelsey Group, which monitors local market media spending, recently published a report on real estate advertising. The report highlights the latest in the shift to online based channels for marketing real estate and identifies $3.4 billion (44% of local spending) now online.

This contrasts a bit with a Borrel Associates study we cited earlier this year that identified $2 billion online.

In either case, the shift continues big.

Thanks to eMarketer.com for the highlight.

As an aside, I've been enjoying Mike Boland's blog at Kelsey group. If you're interested in reaching your local market through search engine strategy, check out his work at Kelsey for some great nuggets.

Paul Kedrosky references cultural history with usual aplomb today, using this image of a "now hiring" mortgage firm in San Diego as evidence that the bubble burst in his town took people as much by surprise as the Influenza epidemic of 1918.

When the disease surfaced again that fall, it was far more severe.
Scientists, doctors, and health officials could not identify this
disease which was striking so fast and so viciously, eluding treatment
and defying control. Some victims died within hours of their first
symptoms.
-- The Influenza Epidemic of 1918 (National Archives)

By the way, here's what we're seeing in the San Diego real estate market right now.

Zowie. Thirty-nine percent of adult internet users went online to look for real estate information in 2006 - according to a new Pew study released last week. While this shouldn't come as a surprise, I suppose, the shear volume is still striking.

More than half of internet users 18-29 have looked for housing info online. Nine percent looked for housing information on any given day. [ob aside: Maybe the only thing more ubiquitous is porn.]

Internet users who are looking for housing information have a vast and growing menu of resources at their fingertips. Much more specific housing information is readily available online than before, including access to Multiple Listing Services, which were formerly in the private domain of realtors, as well as new search-able housing databases, and even housing information on blogs. Also, layers of cross-referencing applications can help real-estate searchers flesh out their searches with maps, links to community information, monthly mortgage calculation tools, and links to virtual tours or photographs.

Two related data points from our own surveys show that users increasingly make use of internet offerings that might be housing-related: by August 2006, about half of all internet users (51%) have taken virtual tours, up from 45% in November 2004. Also, nearly one third of all internet users (30%) have used online classified ads or sites such as Craigslist, up from 22% in September 2005.

2006 was indeed a renaissance year for real estate online. Along with the illustrious premier of Altos Research, we saw Zillow, Real Estate ABC, Fidelity's Cyber Homes, drop their AVM data onto a map; Google Base, Edgio, Oodle and Vast, join Craigslist to nip at the heals of national MLS collections; Trulia, ShackPrices, RealBird, and HouseValues tackle homes on the map; Movoto, Redfin, Blue Roof, Catalist, BuySide, and many others join Zip in the online discounter space; Homethinking, BuyerHunt and many many others. We also saw the advent of the futures markets that we at Altos are so fond of: on the Merc, Inkling Markets, HedgeStreet.

But the Real Estate Blog Trumps All

Pew gives it only a passing mention, but the exploding real estate blogosphere is above and beyond anything contribution measurable by any of the firms above. We'll predict that Pew could in 2007, if they chose to, measure real estate consumers using blog-found knowledge and relationships as the Internet resource second only to the listings themselves. (The trick here is that many consumers will find their Realtor and decision making information and never even realize a blog was the source or the catalyst.)

Rain City Guide is the granddaddy and case study A for local Realtor blogging. 2006 saw many dozens of Realtors join their ranks to build their brands online. But you could just as easily see the impact that the Matrix blog has had on Jonathan Miller's business and reputation. I don't know any financial numbers, but I do know that Miller has gone from a New York city presence to a national powerhouse in one year.

In 2006 we watched entire firms building their businesses around the blog: Sellsius, RSS Pieces, Transparent RE, The Tomato, Future of Real Estate Marketing. Remarkable, useful, valuable. And just beginning.

Of course it's no coincidence the explosion in usage parallels the explosion in resources. We're swirling in a virtuous cycle. At the risk of touching an open nerve, I'll make the parallel to global trade. The more it happens the more we all prosper. Everyone wins. We live in an undeniably exciting time.

Let's not forget that these success stories are blossoming in an offline real estate market that is most charitably described as "changing."

Here's to 2007 that carries us the next order of magnitude in prosperity.

The blogosphere is packed with self-referential commentary. Bloggers-on-blogging, conversing about the conversation, that sort of thing. I look to the topic as an entertaining lesson in effective marketing. The Escher staircase tumbles across my desk today in the form of a viral game of tag (reveal five things about yourself, and tag five more people). I got tagged by Kevin Boer, Alain Pinel Realtor extrordinaire - all right I'm game.

So here are five things you probably didn't know about me:

1. I married my brother. Last April, I was the officiant at his wedding. It was my second ceremony, actually. I was also the officiant (known to the state of California as the sanctifier) at the wedding of two friends that I introduced to each other.
2. I've known Jason, my co-founder at Altos Research, for nearly 30 years. We grew up as neighbors in Palatine, Illinois. We started writing programs on my Apple IIe when we were 12.
3. I've skied (on snow) in each of the 12 months of the year.
4. I've eaten a McVeggie burger at the McDonald's outside of Mumbai (no beef in India). I had to frogger across six lanes of rickshaws and various high-center-of-gravity trucks with the label "Horn OK Please" to get there, but it was worth it.
5. I've competed in sail boat races against Larry Ellison.

So now I've got to tag a few more folks to keep the ponzi going.

Osman, Andrew, Reggie -and let's try to get this branch out of the real estate blogosphere: Dave at the Open Source Juicer, and Steve - The Skeptical Optimist - I love the way this guy thinks about the economy.

Here's the path the tag-meme took on it's way to me:

Drew’s Marketing Minute

Starbucker

Trevor Gay of Simplicity

Phil of Make it Great

Kammie of Passion Meet’s Purpose

Success from the Nest

Dave of Rothacker Reviews

Andrea Learned of Learned on Women

Ann Handley of the Marketing Profs Daily Fix

Nedra Weinreich, Spare Change

Toby Bloomberg, the Diva Marketer

Paul Chaney, Strategic Blogging

Mary McKnight, RSSPieces

Drew from Zillow

Douglas Heddings of True Gotham

Kevin Boer 3Oceans

We wanted to call your attention to ShackPrices.com which launched this week. Great stuff from Galen, a frequent contributor to Rain City Guide. The site is a very slick real estate search mashup, ala Trulia, or Redfin and Movoto, though they're not real estate brokers.

I hope ShackPrices has a national ambition, and it'll be interesting to see if they can repeat the community flavor elegance (photos, local recommendations) that they've created for their native Seattle. Trulia has been spending a lot of effort on that neighborhood part of their operation. I imagine it's paying dividends.

If you're looking to buy in Seattle, ShackPrices is a great place to start.

A letter to the Housing Derivatives blog today makes a great point.

The Case-Schiller price declines are extremely modest compared to the actual market, in my opinion. I wonder if the Case-Schiller algorithm excludes same-home sales that are in a state of foreclosure, surmising that these homes are in a significant state of disrepair making them unrepresentative of the market. If that is the case, Mr Schiller needs to re-program his computer. I hope those who invest in the Case-Schiller futures are intimately familiar with the algorithm as it may not be exactly perfect just yet.

He's right. But the Case Shiller index also understates to the upside. It only looks at repeat sales of existing single family homes (so big, new homes don't get included) and it specifically excludes homes that have been improved!

The CSI doesn't measure the housing market, really. It tries to approximate some concept of the current price of the same old property.

So what does that mean for Shiller's famous Housing Bubble Graph?

First thing is that you have to keep in mind what is being measured. This index may have little to do with the price of your home. But may indeed be an insightful measure about the relative value placed on real estate across the country. There's a reason it is the most cited illustration of the bubble.

Secondly, here's what gets me about Shiller's chart: it smacks of the old joke about the economist who says, "There's a problem with your reality, because it doesn't fit the model." Shiller's index implies that no one made any money in real estate between 1950 and 1995. How many homeowners that you know would agree with that statement, out of their personal experience.

We've been working on this Case-Shiller housing market data a lot lately. Some cool stuff coming very soon from us. ("Cool," I'll grant you, is a relative term.)

Last week the Federal Reserve released it's Flow of Funds report which measures changes in our collective balance sheets. We're talkin' about measuring the assets of Americans vs. their debts. Everyone knows Americans are deep in debt and saving less and less, right? Wrong.

According to the Fed, Americans' household net worth (i.e. your wealth) grew by 6.9% September 2005 to September 2006 to $54.1 trillion. More than the rest of the world combined.

Sure, you say, but the value of all this bubble real estate is illusory. Poof! Gone in a flash.

I hear you cry.

Turns out though, that the measure of financial net worth, where you include all that mortgage debt, but exclude home values as an asset show us that Americans are still growing wealthier! At a pretty good clip too.

Financial net worth grew 5.8% year over year to $27.1 trillion.

So what's all this about the low savings rate? The number we so often hear takes a very narrow definition of "income" that ignores gains. So anytime we grow wealthier with, say, new technology development, or small business equity, that's not included, even when it's converted to cash in the bank. The savings rate number pretends people make money only through their salaries. In the dynamic US economy, this is less and less frequently the case.

Look again at that graph: Americans continue to grow their wealth faster than their debts. And on average people are very well positioned to weather housing price downturns and interest rate increases. Don't forget that when you're placing your housing bubble bets.

Lately we've seen a lot of web searchers looking for answers to "when will the housing market turn around?" My gut reaction is, "you're looking for a bottom already?"

But to answer that question appropriately, we have to sift out what we mean by "housing market." Which part of the market do you care about? Are you a builder? A Realtor? A home buyer in an established neighborhood? A home seller in the exurb construction boom? Someone trying to hedge against a recession in 2007?

Altos Research deals primarily in the market conditions of existing homes, their prices, and their supply and demand. However, the housing market is much more vast than that. Much of the media coverage of the housing market focuses on new construction, and specifically the numbers of properties being built. So lets lay out the numbers to be tracked, and how they can be tracked:

Market Measure	Source	What does the data say?
Existing Home Prices	Altos, Case-Shiller, OFHEO, NAR	Generally down, locally occasionally up. Likely under-reported. Lagging data, like OFHEO, still says up nationally, but that's several months old.
Existing Home Sales & Inventory	Altos, NAR	NAR sees uptick in October, calls market "stabilizing"
New Home Construction (Housing Starts)	Census Bureau	Way down. But looks like a long way to go.
New Home Sales	Census, NAHB	Down, but also under reported - down more than the numbers say. NAHB sees a bottom now.
New Home Prices	Census, NAHB	Generally flat for the year around $235,000. Curious uptick in October.

So when does "the market" hit a bottom? The most bearish of these segments in our opinion is in new construction starts. Characterized by the frequently cited bubble factors boom, speculation, and (historically) large cyclical swings in both directions.

On the existing home front, the scenario we're favoring currently is the bore-em-to-death model. We see the economy as reasonably strong, not fragile, at least in the next 3 or so quarters. In the markets we measure, inventories are up over last year though starting their seasonal decline, days on market is up over last year, but we see no evidence of panic. Anecdotally, many, though not all, of our Realtor clients are seeing surprisingly strong Decembers. This combination implies that the marginal players (bad properties, part-time or newbie realtors, over-leveraged investors, etc.) get culled out not by a huge bubble burst but long term blahs (I can make payments, but I ain't makin any money). Maybe that takes several years before the cycle can begin anew. Ironically, this scenario helps both bulls and bears justify their positions. The strong get stronger, the weak get left for carrion.

The panic scenario kicks in when interest rates spike and recession hits. Those with the strongest bear position on the US economy for 2007 see residential construction as a primary driver. Can any one help us identify the scenario where the housing markets, prices or construction, surge? We can't see one on the horizon.

So when does the market turn around? Well the thing that both of these segments have in common is time. New construction typically takes over two years of decline. Given the strength of the past boom, maybe it takes double that this time.

We surmise that the searchers are typically home buyers who've read the housing bubble headlines and wondering if they should buy now or wait. The answer, as always, is "It Depends."

Today Altos Research announced our Real-Time Market Research availability in five major metro markets. Los Angeles, San Diego, Chicago real estate markets are added to the stable that previously included the San Francisco Bay Area and Seattle.

Here's the press release:

New technology articulates real-time housing market trends in five major metro regions. Web site provides detailed real estate market analysis for San
Francisco Bay Area, Los Angeles, San Diego California, Seattle Washington, and Chicago Illinois. Realtors subscribe to powerful real estate marketing tools to help inform their clients.

MOUNTAIN VIEW, CA (PRWEB) December 5, 2006 -- Altos Research LLC, the Internet's premier source for real-time real estate market research

today announced the availability of the first real-time real estate market analysis in five major U.S. metro markets, reaching over 30 million people. The company's MarketLeader Technology Platform(TM) automatically analyzes housing market conditions across thousands of zip codes every week, highlights significant trends, and delivers written informative commentary.

Altos Research currently offers real-time housing market trend information in the San Francisco Bay Area, Los Angeles, San Diego, Seattle, and Chicago markets and will be expanding nationwide in 2007.

Traditional housing market analysis fails to be useful for two reasons: the information is regional and it is based on old data. Prior to Altos Research, consumers were able to find historical data about the general real estate market's activity, but not today's local housing market trends. Home buyers and sellers worry about the changing real estate market and seek independent, insightful, current market research for decision making.

Realtors struggle with ways to best inform their home buyers and sellers. As subscribers to Altos Research, real estate agents have powerful web site tools and personalized reports that help their clients understand the market. For details see the company's unique marketing services for Realtors.


"Better housing market information is critical to home buyers and sellers researching their options. To make a the best decisions, people want to reference current pricing data; not data that may be three or six months old," said Michael Simonsen, co-founder and CEO of Altos Research. " Stock investors know what is happening up-to-the-moment on the stock exchange. Buying or selling real estate is one of the biggest financial decisions people make. People feel much more confident making decisions with real-time information about the market. The Realtor who can inform the client looks like a rock star."


"Altos Research provides us super detailed market information. They do it faster and easier than I could get ever before." said Randy Zinn, vice president of marketing with Paragon Real Estate Group in San Francisco, "Our clients love it."


"Pure gold!" added Meredith Martin, a Realtor with Paragon.


Altos Research MarketLeader Technology Platform(TM) is a massive data warehouse and expert system that automatically analyzes the housing market in thousands of zip codes every week. The system scrutinizes home price trends, supply and demand, and other leading indicators of the housing market. Altos Research annotates the data with written commentary to highlight the significance of each trend. The analysis is easily integrated into Realtor websites to bring the information to the clients.

Real-Time Analysis Helps all Real Estate Market Participants
All constituents in the real estate market benefit from real time trend analysis:

• Realtors subscribe to powerful, personalized Altos Research reports and web site trend charts to help to convert web surfers into clients.
• Real estate brokerage firms license the MarketLeader Technology Platform to offer real-time local housing market research to all their realtors and all their clients.
• Consumers, developers, lenders subscribe to get the edge in their local market buying and selling decisions.

The company's web site AltosResearch.com has free tools including local housing market trend reports and mapping tools illustrate the home price trends in every neighborhood. Coverage now includes San Francisco Bay Area, Los Angeles, San Diego, Seattle, and Chicago real estate markets.



Pricing and Availability

Consumers can purchase local market reports for as little at $15. Realtor subscriptions start at $80/month for a personalized reporting and web site tools.

About Altos Research

Altos Research LLC is the Internet's premier source for real-time real estate market research. The company's market analysis products give people better information about current property prices and market dynamics than ever previously available. Our customers include real estate professionals, individual home buyers and sellers, and institutions. The privately held company, based in Silicon Valley, was founded in 2005.

Realtor is a trademark of the National Association of Realtors.

For more information please contact:
Michael Simonsen
Altos Research LLC
650-488-4500

Press Release is distributed through PRWeb and available here.

The latest news out of Freddie Mac this week shows long term rates dropping for five consecutive weeks and are lower than last year at this time. 30-year rates are getting closer to 6% and appear to be fueling a much stronger than expected quarter for builders, brokers, and lenders alike with new mortgage applications up as well.

We've cited this correlation several times since the unexpected rate reversal trend in July: Relative demand vs. available inventory as measured by our Market Action Index has halted it's year long slide in most of the markets we monitor (aside from a math adjustment we implemented in October). Check the real estate market trend charts in say, Redmond, Washington or Menlo Park, California for examples.

The home builder stocks are up significantly from their July lows, so this news is fully reflected in the stocks.

thanks to Andrew Corn at Clear Asset Management for the heads up.