Altos Research Real Estate Insights

I've surprised myself, but I'm diggin' Twitter. As far as Internet communication goes, I love the blog for it's ability to reach our customers/friends/colleagues; I'm not a big Facebook user (I find FB mostly useful as a repository for friends photos); and I lean to email over IM.

In a fit of myopia, I held out against Twitter for a year, but now I've been tweeting (yes, tweeting) for a couple months. I've come to the realization that Twitter is the social network I've been waiting for. Twitter's focus on pure communication elevates it above the colleague/friend/acquaintance/follower asymmetry problem in the Facebooks of the web. With Twitter I can listen to people who interest me-whether or not they are my "friend". I don't creep them out when I listen. Likewise, my Twitter followers are people who are interested in me and/or Altos whether or not I've ever met them.

I'll often publish market data nuggets on Twitter that are too finite for a blog post. I'll post info on new products to Twitter before it goes anywhere else. Why? It's easy, and the listeners have, by definition, said they want to know.

So in the interest of developing this communication channel, if you are interested in what I/Altos say/do/visit/publish, then follow me on Twitter.

Still asking, WTF is Twitter? See Tara Hunt's explanation

NAR is out this morning with data from March (and updates to February). Thanks guys.

Summary: March prices ticked up from February ($195k to $200k), but sales volume resumed its decline.

The money quote from NAR's release:

[NAR economist Lawrence Yun] "Though mortgage rates are at historically low levels, some borrowers are facing restrictive lending practices in declining markets," Mr. Yun said.

Some borrowers?!

If you're looking for the inflection point at the bottom of this market, watch the trends in lending to people with good credit. Right now, even good buyers are blocked.

More at WSJ

I did a bunch of press calls last week and they all had one question in common: Everyone wants to know if it's a good time to buy.

Our BusinessWeek article from Friday carries the theme:

Where some see despair, others see hope. Sellers, who were once clinging to boom-time expectations, are trimming asking prices. But the news isn't all bad for buyers. In fact, for some the timing couldn't be better. The lower prices—at least in some markets—are making homes affordable for first-time home buyers and more attractive for investors on the lookout for fire-sale discounts.

Prices are down so much, there must be bargains, right?

Well, yes. But don't kid yourself. Getting a steal on a great property is NOT a slam dunk.

Glenn Kelman at Redfin has an excellent post on the challenges involved with mining for bargains in short sales, foreclosures, and other distressed properties. (aside: Glenn's Redfin corporate blog is consistently cogent and entertaining. If you're at all interested in real estate or startups, you should read it.)

Some of our Wall Street clients are well-financed funds that buy distressed mortgages from the banks. In many cases they're actually taking ownership of hundreds of properties every month. Guess what. As a buyer looking for a bargain, these guys are your competition.

So what's the recipe for investing in this market?

1. Be well-financed. In fact, be over-financed. Even good-credit first-timers are having trouble getting loans this spring. But if you're a well capitalized investor with a solid loan-to-value portfolio and a good relationship with your lender, you have a strategic advantage right now.
2. Build insider channels. Chances are if you're only driving around on weekends, you're going to miss the deals. You'll need to augment your search with other avenues, like foreclosure auctions or even direct lender relationships, to truly capitalize on the opportunities. Kelman points out that Redfin's buyers making offers on short sale properties are only succeeding at a 15% rate. Remember that you're competing against professional investors and specialized Wall Street firms for these deals. Also know that these specialized firms don't really want to be long-term owners, so the opportunity occurs when you work directly with them.
   
3. Do your homework. Know your market and your strategy. How are you finding the property? Where are you going to find them? Has your realtor handled many? Is she already selling some? You already know Altos for market analysis, but there are lots of excellent investment analysis websites (some marvelous Altos partners include Deedquest.com and InvestmentRiches.com, check them out.)
4. Be persistent. There's no question the bargains are out there. But your bid on a short sale or foreclosure will be subject to lender approval. (Kris Berg did a great illustration of the trend San Diego.) That means if you're aiming for a bargain, some of your offers will be getting rejected. That means you'll have to keep shopping.
5. Hope against large-scale bailouts. Every government deal aimed at helping owners ironically hurts buyers. You can argue right or wrong, but if you're a buyer, bailouts shrink your opportunity.

In short, bargain shopping for homes is like any bargain hunting. It takes insight and perseverance. It takes relationships. And above all it takes the financial wherewithal to capitalize when the opportunity strikes. Good luck.

Spent much of the day looking up data for press requests. Everybody wants to know if we're at a bottom. Thought I'd drop some in here. Not a lot of time to write today, so here are some comparison charts for homes around the Bay Area. San Francisco, Burlingame, Walnut Creek, and San Jose. All Data as of April 11 2008.

Median Price Trends for homes in San Francisco, Burlingame, San Jose, and Walnut Creek.

Days on Market for the same cities. Note the seasonal decline still leaves us higher than last year at this time.

Our Market Action Index for the same cities. This is a composite of market demand statistics rolled into one number. Under 30 implies demand weakness, or "buyer opportunity." Under 20 is frigid. Given the tight scale on this chart, conditions are not worsening considerably in the last few months.

Redfin, the discount real estate broker with a bitchin' website and a CEO who goes on 60 Minutes to rail against the industry, has soft-launched an up-sell - and in my opinion business-model-saving - Redfin Select service.

Given Redfin's history, I had to check the date of the Redfin blog post to make sure it wasn't dated April 1. Although Glenn Kelman hinted in a comment here a couple weeks ago that something was coming.

Select is simply a way to let home buyers opt for some hand-holding on as many home tours as they'd like. They pay a little more and get a little more service. Redfin usually refunds two-thirds of the home buyer's commission. For people who opt for Select, they'll get 50% of the commission refunded.

Still a good option for buyers who want to save some cash, but Redfin makes 50% more per transaction. This is huge step towards making Redfin a viable company. Kudos to Glenn and team.

BTW - I mentioned in my December post of 2008 Predictions for the RE.net that Redfin was going to have to make this move. (I've hit two of those so far. We'll see if Rich Barton promotes himself out of Zillow before year's end...) Here's what I said about the Redfin business model at the time:

I've grown less sanguine about the Redfin business model this year. Champion of the discounters, Redfin's gotta scale its revenue. CEO Glenn Kelman posted some of his business metrics on Guy Kawasaki's blog (which took some serious cojones, so kudos to Glenn for stepping up.) In that post, one thing is clear: he needs to marshal Redfin to $100 million in revenue, fast. If you assume that Redfin clears ~$5000 on it's discount home sales transactions, that means they have to scale to 20,000 home sales in the next couple years. In this market.

Glenn also pointed out that they have more people driving around in the field than they originally planned. (i.e. the model scales less efficiently.) But if you introduce premium services and can bring your average-revenue-per-deal closer to $10,000, that's a much more achievable target. Not surprisingly, this was also the path that Zip Realty took several years ago.

In short, it's a smart move. And it's not surprising, because Kelman seems to be no fool. Good for their clients and good for them.

Slightly more critical (natch) coverage at BHB

Ed Glaeser in yesterday's Boston Globe lays out an excellent argument on the right approach for handling the foreclosure crisis. Though he's more lenient than I'd be.

There are winners and losers in both booms and busts. Owners, who win during booms and lose during busts, get the most attention. We often ignore prospective home buyers, who lose just as much as owners gain during booms and gain just as much as owners lose during busts.
Moreover, housing cycles don't pose huge risks to most homeowners, whose longer time horizons enable them to sit out downturns.

Despite his opening position, Glaeser seems a little more apt to "bail out" the overstretched homeowner than I can imagine. He doesn't sympathize with the speculators, but where do the speculators end and an honest redistribution recipient begin? Assuming you figure that out, I suppose, then spread some tax money around. But it's the passel of legislative "fixes" scare the daylights out of me. As Glaeser points out:

The current proposal for the Federal Housing Administration to increase its refinancing of troubled mortgages is an example of honest redistribution.

...

By contrast, there is little to like about the proposal to give bankruptcy judges the power to rewrite mortgage terms.

Let's be clear here: telling lenders after the fact that their lending terms are subject to bureaucratic whims is akin to Chavez nationalizing oil. It might feel good in the short term, but it the long term, the wells will run dry.

Here's hoping we avoid the overzealous legislators "fixing" us into oblivion.

If you've ever needed an illustration of the supply/demand curve, here is one for you, via the real estate market. I grabbed the inventory levels of four cities, each about 30,000 people big, all reasonably prosperous, nice places in their respective regions. Frisco, Texas; Sammamish, Washington; Los Altos, California; and Winnetka, Illinois.

Single family homes for sale in four cities. data as of March 28 2008.

My overblogging tendencies want me to expound on the reasons for these inventory differences: building regulation, NASDAQ exposure, etc. But I won't. I'm just going to give you the price chart that illustrates the inversion, and let you conjecture for yourself.

Median Price for the single family homes in the four cities.

Altos Links:

Sammamish real estate data

Los Altos real estate data

Winnetka real estate data

Frisco real estate data

The data from Q1 2008 is in. We published our National Real Estate Report today. Key Highlights:

• The Altos 10-City Composite dropped by 1.3% in March and 1.7% in the first quarter of this year.
• Biggest price declines we saw this month are in Las Vegas and San Francisco.
• Dallas, Houston, and Charlotte continue to hold their own. Each city had a modest price increase in March.
• We see some Days-on-Market stabilization. This implies that the springtime has eased the carnage just a bit.

Read the full National Real Estate Report (PDF Download).

Here's the press release.

MOUNTAIN VIEW, CA – April 3, 2008 – The Altos 10-City Composite showed a decline in asking prices of 1.7% over the past three months and continued that decline in March with a decrease of 1.3% for the month. Prices of properties listed for-sale fell in 14 of 23 major markets according to the Real-Time Real Estate Report, jointly published by Altos Research, the premier source for real-time real-estate research, and market analysis consultancy Real IQ™.

Asking prices fell at the fastest rate in Chicago - down 3.9% during March - driven by a large increase in for-sale property inventory of 12.3%. The largest quarterly declines occurred in San Francisco and Las Vegas, off 5.3% and 5.2% respectively. Prices were also down by more than two percent for the quarter in San Diego, Detroit, Los Angeles, Tampa, Washington, D.C. and Minneapolis. Listing prices were up by at least one percent for the quarter in Charlotte, Dallas and Houston.

As the typically strong spring selling season gets underway, we are seeing sellers marking down prices to move their homes,” said Michael Simonsen, CEO and co-founder of Altos Research. “The seasonal inventory buildup is only going to exacerbate the near-term supply-demand imbalance and put more pressure on sellers to reduce their price expectations.”

For-sale listed property inventories increased in 17 of 23 markets during March and all markets showed increases during the first quarter. The Altos 10-City Composite experienced an increase of 4.7% for the month and 7.4% during the first quarter.

Data in the Real-Time Housing Market Report is based on analysis of over one million properties currently listed for-sale in 23 metropolitan markets across the country. The report is the most timely source of housing market data on current market activity.

For the Altos 10-City Composite, the average days-on-market was 118 – an improvement from 121 in February and 124 in January. Miami and Detroit experienced the longest time-on-market spans with an average days-on-market of 146. San Francisco led all markets with the fastest rate of inventory turnover at an average of 65 days-on-market, followed closely by Austin at 67 days. Listing price reductions by San Francisco sellers over the quarter appears to be stoking demand and reducing average time-on-market.

The slight decline in average days-on-market is a positive sign,” said Stephen Bedikian, partner and research director for Real IQ, “but it’s likely to be only temporary as the inventory build up overwhelms tepid demand and drives time-on-market back upward.”

The report examines housing pricing, inventory levels and market conditions in 23 major U.S. metropolitan statistical areas (MSAs): Atlanta, Austin, Boston, Charlotte, Chicago, Cleveland, Dallas, Denver, Detroit, Houston, Indianapolis, Las Vegas, Los Angeles, Miami, Minneapolis, New York, Phoenix, Portland, San Diego, San Francisco, Seattle, Tampa, and Washington, DC. The first report was published December 7, 2007 and will be released every month.

Altos Links:

National Real Estate Data

Dallas Real Estate Data

Houston Real Estate Data

Charlotte Real Estate Data

Las Vegas area existing home inventory. May not include some foreclosures and other general craziness. Data as of March 28 2008

Altos Links:

This is data for the whole Las Vegas MSA. The latest data will be in our forthcoming National Real Estate Report later this week.

Here's the Las Vegas Real Estate Report for the city.