Altos Research Real Estate Insights

The S&P/Case-Shiller index for March 2007 was released today. The San Francisco Home Price index showed it's first increase in a year and came in at 211.09 vs. 210.78 in February. This increase should come as no surprise to our clients (or readers of this blog for that matter.) We whispered to clients on February 26 that the March numbers looked like they were heading higher.

(For the uninitiated, the Case Shiller index tracks existing single family home prices. The index compares prices now to January 2000 where the index = 100. These indexes are then traded as options and futures on the Chicago Mercantile Exchange.)

Broadly speaking, this is not a big surge in San Francisco Bay Area home prices. No

cause for celebration of the end of the bubble burst yet. We see the light trend sustained for a couple more months and then reversing back down by the time the June numbers are announced later this summer. The seasonal spring surge appears to wearing thin already.

In other notable markets reported today with the S&P Case Shiller Index: Los Angeles, Miami, and San Diego were down the biggest of the 10 major metros that are traded on the Merc. Full data table is here.

The teams at Active Rain and Inman News have put together Project Blogger--a contest pairing experienced real estate bloggers as coaches with apprentices as the newbies develop their blog and their business. It's a 14 week (!) contest culminating at the Inman Connect conference in August. The winner gets a million bucks and Howie Mandel's tie. Or something. This week, they've graciously invited me contribute ridiculous hours to judge the contest. [disclosure: I'm friends with many of the coaches on these teams. Some of them are business partners of Altos Research. Still others actively refer new business to our firm. And contestant Kelly Kilpatrick has signed up as a subscriber to the Altos Research services. So I'm about as independent as an East German figure skating judge with a bag of HGH. But I'll try.]

Here's my judging criteria:

1. Blogging is like a big networking party, online. You have to be engaging, and ultimately, you're participating to build your business. You just don't want your conversation partner to feel like he's being sold. Nobody likes being pounced on. Bottom line: points for style here folks.
   
2. Like networking, the more you reach out, the more you get back. I found all of the blogs I judged this week to be starved of outbound links. Blogging is about being found on the internet. Keywords matter. Links matter and you get by giving. Further, link bait matters. I awarded points for content linkability as well as readability.
   
3. I gave a few points for technology & well executed features, deducted points for bugs.
4. Finally - some points for gotta go for shear quantity. Your traffic will be directly proportional to the amount of posts. Black Kettle over here certainly understands the occasional low ebb of creativity, but this is a contest, so bring your A Game.

With that in mind, here are this week's winners for Project Blogger:

1. Kevin Tomlinson with Ardell: Kevin in Miami gets credit for the single best post of the week - Don't want to close on your pre-construction condo? It's funny (can't afford your new Miami condo? Pawn your Rolex!), timely, and structured as good link-bait. People are googling this topic as we speak. Advice for Kevin: Link out to other blogs (lawyers, lenders, economists) anyone with something to say on the topic. Provides more resources for your readers and gives those bloggers reason to link back to you. Develop this into a series of 10 or more posts. Kevin got dinged a little for a bit of low volume.
2. Jackie Colson Miller and Jim Cronin: Get rid of that sound track now! Any tech-y feature that locks my browser even for 5 seconds is a definite no-no. But the content show promise with the tax and international angles. I also like how you've leveraged Active Rain with half-posts that point to your main site.
   
3. Tisza Major-Posner with Drew Meyers: Tisza scores with volume and depth. Question for Tisza:Why are you holding back? Your personality shows through on the Active Rain posts, but seems homogenized out of the posts on Route66 blog. Since your eventual customers will be coming from the latter, isn't that where you want to engage them?
4. Ines Hegedus-Garcia with Paul Chaney: Good looking new design, a great domain name, excellent use of images. But there are still lots of bugs, broken links, etc. It's nice having a sexy town to blog about.
5. Mary Pope-Handy with Frances Flynn Thorsen: Succinct posts keep readability high. Looks like it has a good start on becoming a neighborhood hub. Do they actually allow garage sales in Monte Sereno? Loses points for a funky structure that links across multiple sites unexpectedly.

Some thoughts for the others in the contest:

• London Whitted with Pat Kitano: Take the gloves off man! The promise I see on the commercial front is to go for the professional market, not beginner how-to text. Show me some deal structure, some financing math maybe. There's so much opacity in the commercial real estate market, shed some light.
• Kelly Kilpatrick with Joel Burslem: Kelly, you are at your best when you're ranting. Do more of that.
• Valli Wimberly with Teresa (no 'h') Boardman: We have some clients who are very successful with the impersonal, news-y style blogs. The thing they have in common: volume. Post every day and become the nexus of information for Denver. Otherwise when someone finds you, all they see is something they read in the paper a month ago.
• Julie Ferenzi with Jeff Turner: Julie your best work is socked away on the Active Rain blog. Bring it front and center. The comments about how clients found you are perfect for other potential clients to read and know it's Ok to find you too.
  
• Theresa Lussier with Greg Swan: Theresa, you have pleasantly structured prose, but remember you have 7 seconds to engage a visitor. Punch it up with images (see Ines above) or style.
  
• Madison Hildebran with Dustin Luther: Brotha, I hope you've been busy selling a beach house to Lindsay Lohan, because you haven't been blogging.

The full Project Blogger posts for the week are here.

Joel tracks the action at Inman here.

We got a cool email from a subscriber today.

Rajul Vora put together a Google Maps MyMaps mashup of our AltosCharts for the markets where he's shopping for his home.

Our own map mashup is here with charts available for all our markets around the country, and info on our free AltosCharts is here. Rajul took advantage of Google's new MyMaps feature, crammed lots of AltosCharts on to his specific zip codes, and doesn't have to host any software. Rock on.

Lots of Blogosphere fun going on this week at Altos HQ. In today's post we host the Carnival of Real Estate: Consumer Edition. Tomorrow we'll be playing Simon (Paula? The other dude?) on Active Rain's Project Blogger competition of up and coming real estate bloggers.

First for the Altos Research readers who aren't knee deep in real estate blogging: Blog Carnivals are simply a collection of best-posts on a particular topic self-submitted by a group of bloggers. I like the carnival concept because it gives readers get a filtered-for-quality collection of reading each week. As a blogger, carnivals are a great way to get a little publicity for your best work.

We've been participating on and off in the more broad Carnival of Real Estate over the past year or so. (It'll be hosted on this site next month.) Many of the best posts in that collection are folks writing for real estate pros. Lots of blogging about blogging. Great topics but not meaningful to the consumer who just wants to hear more about home buying and selling. Thus the CoRE: Consumer Edition was born.

On to the posts

Top of the Heap

My favorite post this week is from Jay the Phoenix Real Estate Guy. It's a topic close to our hearts here and I find it a valuable exercise for the consumer reader. In What The Heck is a Buyers' Market? Jay explores the common euphemism for the growing levels of homes on the market. Demand is down and supply is up. If you're in the market to buy, you'll have plenty of selection. If you're a seller, well, opportunity is all relative, I suppose. It's a tricky topic because the converse is true too.

Runner up today, with a timely and compelling topic, is from Toby at the Delaware Ohio Real Estate Blog. Increasing foreclosures and what to do about them. Toby points out that everyone loses in the foreclosure process - the borrower, the lender, the community, etc. The Ohio market is facing higher rates of foreclosure than most of the rest of the country, so what should be done? Toby looks at a few options on the table, but misses the one I see as the logical and most productive choice: Do nothing--gotta let the pain work its way through. I've been meaning to rant on the subject for a while, but I'll leave that for another post.

Some other entries worth perusing:

• Michael Emilio dives into the legal arrangements of who represents whom in the real estate transaction. Good stuff. Michael - you should post this topic in some of the real estate wikis flowering out there these days.
• Athol instructs us not to have a heart attack in rural Connecticut.
• Jill (Kathy?) at ShakandJill gives us tips for not creeping out your realtor on open home visits. By the way, that's a good lookin' web site.
• Nigel in Salt Lake City runs through the emotional reasons for why condos can be good for you. I'd love to see the financial side a bit more.
• HotPads tells us to bring a camera and notepad to your open home tour. It's funny how quickly the different properties run together after four hours of home (or appartment) shopping. I'm a spreadsheet guy, personally.

That's all for the Carnival this week. To submit for next week, go here.

I was in the Chicago area recently and had a chance to tour some cool new properties just on the market from Altos client, real estate broker and developer extraordinaire, Jamie "Ironman" Isberner. Evanston is such a great town, I thought I'd relate a little about the market and show some snapshots of Jamie's properties.

First a bit about Evanston

Evanston is to Chicago as Cambridge is to Boston--it's the college town on the urban edge. Home to about 75,000 people, the town's culture is dominated by Northwestern University, it's lake front position, and proximity to the City. The Claritas/prizm folks peg Evanston's demographics as the hippest mix of youth and creativity with a little money thrown in, but not enough to be blue-blood-boring which you get a few miles north in the Chicago area.

Evanston is bustling and prospering these days with great new condo projects mixed in with 100-year old Victorians on big lots, a walk from the beach (if that's your thing.)

Two Cool Properties

In fact, the location is a big check in the plus column for these new homes built by the Ironman group. A quick walk to Northwestern, restaurants, or hop on the train and be downtown in 20 minutes. Spacious (3 stories + basement!) and nicely decked out. Here's a pic of the properties. You can check out details here (floor plans, etc.) if you're interested.

Evanston Real Estate Market

Enough with the sales pitch, let's look at the where the housing market in Evanston is heading.

The first thing we notice is that Evanston has a broad range of prices, which reflects the new development growing over some lingering urban bungalow style homes. The market has yet to really pick up with spring seasonal buying, so a bit of inventory may offer some buyer selection.

Days on Market has started coming down a bit but notice that 40% of the properties currently on the market in Evanston have had price reductions. "Balanced" is the word used when you want to positively spin conditions like this. And I'm an indefatigable optimist, so I'll use it.

Here's an interesting trend to finish off the post:

In the 60201 zip code, the north side of Evanston that includes the Northwestern campus and the homes we mentioned above, demand is looking a bit stronger at the top of the market than the lesser expensive properties. Not an overwhelming difference but a curious item to note. When buyers have the luxury to take their pick, the best properties are the ones to go first.

We'll be attending the Real Estate Derivatives seminar put on by Fritz Siebel and Clare Yang from Tradition Financial Services on May 29 in Manhattan.

TFS is the leading broker of the S&P Case Shiller options and futures products on the Chicago Mercantile Exchange. This seminar is where they discuss the market mechanics, trading strategies, and will probably get into the development of the OTC products forthcoming.

We get lots of questions from readers and clients about the ins and outs of this market, and this seminar is a great place to start for answers. They cover the commercial real estate derivatives as well as residential housing futures markets.

If you're interested in attending the invite is here (PDF file). They have another seminar coming June 19, 2007.

Fritz has been a tireless advocate of this market. His blog is really the go-to source for housing derivatives news and data. Read it here.

Also - We'll have information on our S&P/Case-Shiller leading-data products too. We now have some of the big Wall Street boys building our feed into their trading models. So if you're in that market, give me a buzz. I can share more details at the seminar.

A few months ago we described 2006 as the online real estate renaissance year. At the time we envisioned pulling together a nice table of all the players categorizing them, collecting logos, and giving a little annotation along the way. Alas, that's a lot of work and I got lazy. Now, Oliver at VFlyer has stepped up and pulled together the definitive collection. Laying out all the players in all kinds of the web 2.0 categories: Aggregators, Blogging, Communication, Distribution, Mapping, Reviews, Social Bookmarking and Networking, Widgets, Wikis, Valuation, and Video! Oh My!

Although Oliver - you missed us in the Widgets category. Our AltosCharts market stats widgets are big time - and you can get some for free!

Full Details at the VFlyer Blog.

ht: Joel at Inman

Money Management firm and Bond King PIMCO has staked out one of the most bearish positions on the Housing Market of any of the serious Wall Street players. Theirs is also one of the most well quantified. The thoughtfulness bears paying attention to. Pun intended.

PIMCO founder and CIO Bill Gross does a monthly economic outlook podcast which I look forward to the first week of each month. Intricate, playful, and self-referential, Gross constructs his essays in a mini version of the Hofstadter style. To grossly oversimplify, Gross has been generally bearish on the economy, primarily driven by his view of housing market recession for over a year. [aside: the article and podcasts are here. But I'm I the only one who finds Apple's iTunes UI absolutely horrible? It takes me hours to navigate through that morass.]

Today, I'd like to call attention to an article by PIMCO portfolio manager Mark Kiesel. He writes this month that he's "still renting." Citing the litany of housing bubble factors (affordability, excess money, rampant speculation, easy lending, inventories, vacancies, delinquencies, etc.) Mark assumed we'd hit a housing market peak and sold his home in 2006 (in Los Angeles presumably). He has been renting ever since. Mark considers that he'll be renting for another year or two. We'll posit here that Mark is wrong: he's looking at 5 or more years.

It turns out that Mark is one of the few who has the cojones to put his money where his bed is. We've had the discussion at the Casa Simonsen breakfast table. Here's how the scenario plays out:

Me: There's a reasonable chance that we'll lose maybe half a million dollars in home equity over the next few years.

The Wife: You think it's that much? Really?

M: Well, there are plenty of scenarios where the housing bubble pops in a catastrophic way. Or it could be flat for 10 years. Remember we never thought the NASDAQ could lose 80% of it's value.

TW: Well then, Mr. Smarty Pants, that business of yours better pick up the slack. 'Cause we're not going to go live in an apartment.

M: Righto. [goes to get coffee]

TW: No coffee for you. Coffee is for closers.

...And life goes on. (That Wife is a funny one.) Despite the fact that we're acutely aware of the capital at risk, we ain't taking any action.

Our situation underscores the trouble with Mark's plan. Even assuming that PIMCO's fundamental analysis is spot-on and the worst case bubble scenario happens, Kiesel faces the speculative problem of market-timing. What if Kiesel is right, but off by say, four years? In fact, Kiesel addresses the condition, but misses the implication:

Over time, housing prices and interest rates should decline, resulting in improved affordability. This adjustment, however, will take time and occur over a period of years, not months. Housing is illiquid and prices are sticky. As a result, potential buyers should exercise patience and not jump back into the housing market too early. A year ago, I described the state of the US housing market as “the next NASDAQ bubble.” The NASDAQ took over 2 ˝ years to go from peak to trough. I suspect that housing prices could display a similar pattern, and we are still over a year away from the bottom. Given these risks, I prefer renting versus owning, and an investment strategy which favors defense versus offense.

The relative illiquidity of the housing market means that we could be in a five to ten year cycle. The highly liquid stock market took 2.5 years to reach is trough. Housing could be 2x - 4x that time frame. Here's an illustration by the fabulous forecasting firm ECRI. Note the average market correction time over the last 30 years has by over 3 years (green shaded areas). And these are corrections following significantly shorter booms. The implication is that we could have many years of mean-reversion ahead of us. Note that "mean-reversion" could simply be stagnation, with no strong growth (but no drastic crash) while new construction slowly withers, affordability creeps up with wealth, and broad cyclical economic changes kick in. Either way could create a multi year (5? 10?) cycle before related factors catch up to home prices. Bore 'em to death.

So now it's 2011 and your kids are half-grown, you're not in the school district you wanted, but you're a few hundred grand richer. Or maybe not, because a stable home environment has given you the opportunity to focus on building wealth in other areas (see The Wife's comments above).

Much Ado

So much of the housing bubble crowd is fueled by vitriol and schedenfreud, that PIMCO's fundamental analysis is refreshingly pure and compelling. But it doesn't address the problem of what to do about it.

That's why we're so bullish on the housing futures markets emerging. We've discussed some new fangled hedging strategies, but the fee structure makes them cost prohibitive. I'm just hoping some decent consumer-retail products develop before catastrophe strikes. It could be that in a few years, home value insurance products are part of every transaction. Like PMI, but for the buyer, not the lender.

In the end, maybe the housing bubble like Mark Twain with the weather: so many people complaining, but no one doing anything about it.