housing

Las Vegas has long been the most maligned city when the housing bubblers do their maligning. The logic of complaints/fears goes something like this:

1. Housing demand of 2000-2005 was driven in large part by second home buyers
   
2. Off the charts levels of new construction keeps supply high
3. When the bubble bursts, those second home buyers are going to be the first to run.
4. Demand will crater. Prices will surely follow.

While no one is popping the champagne any time soon, a year into the housing market burst...erm...correction... and prices for second homes (mostly condos) in Las Vegas are still hanging tough.

This investigation was triggered over breakfast with Altos client Aaron Wheeler of Oakville Properties who mentioned his Las Vegas team is having a surprisingly strong year. (Oakville is headquartered in California, but does a good business matching people with the right properties in Las Vegas.)

Here's a chart that touches on what Aaron was talking about.

Price trends for condos in Las Vegas, NV in 2007. Each line is a Quartile, or 25% of the market. Some fluctuations at the high end. But we haven't observed the bottom dropping out of the market.

What gives? Why hasn't the Las Vegas housing market tanked yet*?

The answer is that Las Vegas real estate appears to be buoyed by those same second homes that the bubblistas were so afraid of.

When I was a kid, the second home market was a cabin on Lake Somethingorother in Northern Wisconsin. Somewhere in the '90s Las Vegas became the second home city of choice for vacation-bound Chicagoans. And Angelenos. And Hong Kongers.

So it turns out that this housing bubble is deflating in unexpected ways. And the Las Vegas housing market is an exaggerated version of the country's experience. Let's sum it up this way:

The economy is pulling real estate, not the other way around. Las Vegas is a global destination and the world's economy is BOOMING.

The pressure is building at the low end of the market. Mortgages are getting tougher and more expensive. But investment is strong, people are working. And the top-end globally is rolling. The whole country benefits from global economic strength. Vegas real estate maybe more so. Who knew?

They say when you age, everything slows down. There's now evidence to say that you home's value is included in that statement.

According to new research from HUD, the homes of people over 75 appreciate at 1-3% less per year than the homes owned by middle-agers.

The phenomenon appears to be determined by a few factors:

• older people = older homes = greater depreciation
• home improvement counteracts home age depreciation, but home improvement activity declines as people age

home price appreciation, by age of owner

Full report here.

Thanks to the folks at FortiusOne, who launched GeoCommons at O'Reilly's Where2.0 conference last week, we finally got around to illustrating the heat map of this phenomenon.

In the following snapshot we've created a heatmap of price reductions. Specifically this is our percent-price-reduction stat--for a given zip code, the percent of properties that have had their asking prices reduced. We have some color tweaking to do still, but you can see the picture pretty clearly. The brighter red, the higher the percentage (and the weaker the market).

San Francisco Bay Area Real Estate Market. Percent Price Reductions. Single Family Homes. June 1 2007. Brightest red is over 50% reductions, darkest red around 10%, which indicates strong demand and healthy turnover rates.

If we zoom into the San Francisco, San Mateo County Peninsula and the north end of Santa Clara County, you can see the strength in Mountain View, up through Palo Alto, and in the San Mateo/Burlingame areas. Also, demand levels in the City have stayed strong.

San Francisco and San Mateo Counties, with parts of Alameda, Contra Costa, and Santa Clara Counties. Affluent neighborhoods are seeing robust demand this spring.

You can get details of the markets in Burlingame, San Mateo, Palo Alto, Mountain View etc. on our free research page. From that page, you can go to our map view and look at price trends for each zip code. (Heatmap not yet included.)

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.

When we first stuck our toe into the blog waters back in October of 2005, the Real Estate blogging community was a bit sparse. We humbly tried to add our voice and help raise a community. It wasn't much later, however, that we discovered some New Yorkers at a blog called Sellsius that outclassed us on every dimension in the blogosphere. Prolific and creative and witty and opinionated. Since then, we've met Rudy and Joe and prodded numerous times, "What the hell is Sellsius actually going to do?" Well today the world (finally) knows.

SellsiusRealEstate.com launches today as the Enhanced Real Estate Classifieds site.

Joe and Rudy have been building this project for a long time. In that time a TON of competition has emerged. But Sellsius has one thing going for them that the others don't: These guys know real estate. In this hyper-competitive space, that could be the x-factor that pays off. Here's why:

Current generic classifieds sites include Craigslist, Oodle, Vast, among many others. Zillow and Trulia have their property listings too of course. This group represents well over $100 million in venture capital and a truly impressive passle of entrepreneurs. (For evidence of the latter, see Vast founder Naval Ravikant's magnificent VentureHacks blog.) Of that bunch, only Trulia is really usable for real estate searching. Craigslist is is optimal for apartments and other random projects, but it's second rate for real estate purchases.

Conventional Silicon Valley wisdom says build the most massive database first and the people and their needs will follow. For a house hunt, though, that approach may not solve my problem. When I search for homes for sale in say, Sunnyvale, California, I do NOT want to see 34,000 properties with the "best match" being in San Jose. Ugh.

So despite all the rivers of money flowing into these firms, there is clearly opportunity for Sellsius.

The "Enhanced" part of Sellsius' classifieds is that they have developed not generically for the world nor just for homes for sale, but for the real estate ecosphere. Sellsius brings understanding of all the participants, from architects, to appraisers, to mold removal that you can't find in any of the existing sites. You might be able to find a mold guy on Craigslist, but who knows what you might come up with. The "Niche Search" feature on Sellsius has real promise.

The biggest hurdle for Sellsius will be filling the database. They've come to market with a compelling framework, but it's still a bit empty. The conventional wisdom became convention for a reason. If users try it and find nothing there, they may not come back. Sellsius charges a fee so the hurdle is even higher than other sites. The firm is riding on the boundless energy and massive personal network of Joe and Rudy, if anyone has the reach to build their advertisers to a critical mass, these guys do. (Remember Craigslist was empty once too...) But that's the key, guys. Maybe you can team with a Vast and put a decent front-end on their big list of properties.

How ever you do it, I'm looking forward to seeing the project grow and morph and solve some real problems for people.

A hotshot Silicon Valley investor friend pointed out a remarkable firm to me the other day. You have got to check this out.

Many of our readers face a similar scenario. The only way to tap into the grand asset of California real estate is to sell the home or take a loan against it. The home equity loan option is always frustrating: it's my house, my equity! Why do I have to pay interest?! Why isn't there some kind of non-debt financing like there is in every other part of the business world?

Well now there is a new option available. And it looks fascinating.

Rex & Co. (Real estate Equity eXchange) will actually invest in you and your home. They hand you cash in exchange for up to 15% of your equity. This arrangement is not a loan, it's more akin to an investment in your company. They participate in the upside when property values go up and share in the loss should they go down.

Let me repeat: this is not a loan or a reverse mortgage. There is no interest, no debt, no monthly payments. It's an equity investment. When you sell, Rex is entitled to a share of the gain or loss.

REX & Co. is an innovative home finance company that has developed a way for homeowners to receive cash with no interest charges or monthly payments. Our patent-pending product is revolutionizing home finance. Now that homeowners can get cash without the burden of monthly payments, they can improve the quality of their lives in ways they may never have thought possible. For example, they can eliminate debt, buy a home with less, pay college expenses, extend and improve retirement, buy life or long-term care insurance, make charitable donations etc.


For most homeowners today the equity in their home is their largest single asset. That's great, but if they want to use it, they either have to sell their home or take out a loan. Those are not great choices if they need a place to live or don't want the burden of monthly payments and additional debt.

The Rex web site identifies a number of uses for their product. Mortgage elimination. More home for less payments. But in my opinion, the real beauty here is the hedge.

This is the first pure-play hedge that I've seen in the real estate world. You can, in essence, lock in your gains today. Rex let's you take real cash off the table. Like any hedge, you give up some speculative potential future upside in order to lock in gains today.

The hedge is particularly important in the housing bubble era we're in. Lots of folks are worried that their home value is going to fall significantly. But, they say, We're not going to sell the house and move to an apartment somewhere. So we'll just have to ride this wave back down.

The hedge will be a success in several scenarios:

• Property prices fall.
• Property prices increase a little bit, but you use the money to pay off expensive mortgage debt.
  
• You have some other investment opportunity available now, that will appreciate at a greater rate than real estate.

Again, like any hedge, the deal looks not so great in the longer term if property prices go through the roof. You've swapped that risk to Rex in exchange for cash today.

Also, fees and other terms play an important role in how profitable the deal ultimately is. Assuming the terms are not onerous, I think Rex is onto something big.

I'd like to hear from my mortgage blogger favs Xbroker and Dan Green to hear their thoughts. Guys? What's your take?

A few weeks ago, we introduced in our paid research three new statistics tracking the percentage of properties in a market that have been priced-reduced, re-listed, or flipped.

Re-listing is the tactic used by agents to re-introduce a property to the market. It gets treated as a fresh property. The tactic can sometimes frustrate buyers who have already seen a property. From our point of view, it's a really fascinating marker of real estate market and housing demand conditions.

Apparently, many MLSes had heard the same market feedback that pushed us to introduce the re-listing monitor feature. In September, the Northwest MLS which serves Seattle introduced member rules to expressly prohibit properties from being relisted (Story today at Inman News.) Also in September, the Silicon Valley MLS introduced a "continuous days on market" which measures the listing time across all the relistings. (Here's Kevin's take on relisting in Silicon Valley). From the Inman article today:

Northwest MLS, a regional MLS in Washington state, on Sept. 1 issued a notice to members threatening "disciplinary proceedings against agents and brokers who improperly cancel and relist properties or input meaningless price changes. Canceling and relisting is only permitted when there has been a substantial change in the quality or condition of the property."

The notice advises that price changes should only be entered into the MLS "when there has been a material change in the price of the property. Otherwise, canceling and relisting and inputting changes are deceptive and misleading marketing ploys, designed only to gain undeserved market exposure at the expense of other properties."

So is relisting a dirty, potentially illegal, trick? Or is it merely smart marketing? Is there such a thing as "undeserved market exposure?" If I'm selling a property, it's ALL deserved, baby. Furthermore, why now?

My take is that the re-listing phenomenon is intertwined with the current legal/monopolistic howling about the MLSes - born of the same parents, as it were. In an ironic twist, by aggressively addressing this relisting tactic, the MLSs may be building the case for their detractors. The logic goes something like this:

• Initially, MLS systems were simply books. Collections of the properties for sale. Everyone had a handy repository for the local properties.

• At that time, property marketing was all personal. Agents show a house. People walk through. Deals get done. Any impersonal marketing, say an ad in the newspaper, was done outside the MLS.

• The paper was the aggregator for whomever is marketing. No one cared if the local paper had FSBO ads along side properties that also happened to be listed with a Realtor, and therefore on the MLS, which was merely a back-end convenience for the Agents to use. No one had to game the MLS to get more attention for their property.

• Enter the internet. MLSs go online and instantly become highly effective marketing channels in and of themselves. Much more effective than a newspaper ad. And everyone gets it for "free".

• On top of that, the internet also opens additional marketing opportunities. Send me an email instantly when a new property meets my criteria. Put the listings on a map. Tell me about the neighborhood crime stats. Great stuff, if you're a home buyer.

• But this is where the trouble begins. You can change your ad in the paper. But is it wrong to change your listing? If the only way to trigger the "new listings" email to put my property in front of hundreds of potential buyers is to re-list it, I'm going to be tempted.

• Now, with the MLS as marketer, they have to fight competitive marketing channels. By blocking out, or even appearing to dissuade, competitive marketers, they invite the monopoly catcalls.
  

• Meanwhile, the MLSes want to be seen as an advocate of the consumer. So they crack down on this nefarious re-listing practice, effectively admitting that they are first and foremost a marketing channel, rather than being a central repository. They're painting the target on their chests. Bummer of a birthmark, Hal.

The duality makes for a catch 22. MLS as repository makes sense to centralize, like a stock exchange. But the MLS as marketing channel makes sense to blow wide open. The repository must have accurate data, be legally binding and consistent. But how do you reconcile that control in the face of external marketing necessities? One thing is sure: the re-listing tactic is merely a symptom of the greater challenge. Addressing the symptom may be desirable in the short term, but there is more pain to come.

This week our articles are featured in two Blog Carnivals:

TheLandlordBlog (passive income, baby!) hosts the ever-growing Carnival of Real Estate and cites our Housing Boom Fundamentals post.

David Daniels at Business and Technology Reinvention host the Carnival of the Capitalists (which sounds to me like a Michael Lewis tale of 1980's Wall Street). Our Bubble Headlines post is included there.

Blog Carnivals are a great way to get a roundup of high quality posts by active bloggers in niche markets. I recommend you check them out.

The current edition of the Chicago Fed's Economic Perspectives publication carries a marvelous article about the fundamental drivers about this massive housing boom we're in. In short: Don't blame the housing bubble on a couple years of cheap interest rates. Rather demographics, technology, and financial market innovation have converged to give us a long boom.

I agree wholeheartedly with the basic thesis of the work - that is, Americans (western economies generally) are wealthier and the costs of acquiring homes has gone down, therefore home ownership and home demand has increased. This uber-capitalist orientation strikes close to my heart and echoes the work of David Malpass at Bear Stearns and the folks at GaveKal Research. Both of whom I've referenced before.

Here's a particularly insightful point, one that runs counter to most real estate bubble headlines these days.

The dramatic rise in residential investment and homeownership has coincided with equally dramatic developments in the mortgage market. Over the past ten years to 15 years, the mortgage market has developed substantially in four areas. First, technological progress has reduced the cost of approving a mortgage under a standardized set of lending guidelines, in part by allowing more precise measurement of a borrower’s credit risk. Second, mirroring developments in financial markets more generally, many new kinds of mortgages have become available. Third, the secondary mortgage market has grown and matured so that many kinds of mortgages can now be packaged and sold as mortgage-backed securities. Fourth, the mortgage market has become more specialized, as firms concentrate on different pieces of the market, including origination, servicing, and securitization.

Of these developments, the second is most important for our argument. We think that the main impact of the other three developments is to increase competition and lower transactions costs. Also, the development of the secondary mortgage market probably improved the risk–return tradeoff between mortgage-backed securities and other financial instruments.

A refreshing counter point to be sure. New Fangled mortgages don't deserve the bad rap they're getting lately. Financial product innovation gives more people more of what they want; it increases competition and reduces costs. Attempts to "protect" consumers from these products will result in less efficiency and higher costs for everyone involved. Proceed with caution.

One beef I have with the article. The authors shrug off recent lax interest rates as a "cause" of current housing market. Rather, they say, a booming economy is a factor. But a booming economy leads to feelings of job security, which is indeed a big driver of housing demand. That's why I fear a coming recession as a pin prick in our lil' housing bubble.

Thanks to Inman News for the link

Update August 28: I notice Jonathan Miller at Matrix has his comments on the report as well. Summary: Duh, of course low rates fueled the boom.

Why re-list? A few reasons:

1. Reset the Days-on-market: When a property sits on the market too long, people start whispering... "what's wrong with that place?" A "new" listing resets that DoM to zero. Makes it seem fresh. In many local California real estate markets, more than just 30 days on market is a red flag for buyer.
2. Lowering the price: You can, of course, lower the price on an existing listing. But when you take it off the market and re-list it, the price history isn't as readily available. The casual home buyer won't see that the seller is getting more motivated.
3. Free Marketing: Anyone can sign up for those email services that alert you when a new place comes on the market. So re-list and get pushed back in front of all the subscribers.
4. Test-the-waters: Watch your neighborhood closely and you will see what I call serial re-listers. People who test the market and then pull the house off, only to test again in a few months. In our experience, this is actually a small percentage of re-listing activity. But it should be filtered out nonetheless.
   

But how pervasive is re-listing? A conversation with a new customer prompted us to do the following analysis. For a handful of Washington and California housing markets, we looked at all properties currently on the market and identified what percentage of them had been re-listed at least once since the beginning of the year. Some of these relistings were done purely for reasons 1. and 3. because they kept the price the same. Here's what we found:

So in Los Gatos, fully 40% of the homes currently on the market have been re-listed. Mostly this was done to drop the price. But one-in-ten were re-listed just to game the MLS's DoM count. That's why when we calculate Days-on-Market in a report for, say, the Los Gatos Real Estate Market, we actually comb through the data and remove this anomaly.

To be sure, any agent will be able to get the listing history for a given property. Make sure you get it before you make an offer. Also make sure you pay attention to the true Days on Market when trying to measure your local real estate market conditions. Want to get some insightful housing demand indicators? The local re-list percentage is a good place to start.

Here's a snapshot from our latest report on Walnut Creek real estate conditions:

Median single family home price as of August 15 is $899,000, that's up a little over 3% from the beginning of the year. Current available inventory of homes is 134, which is up consistently through the year. Demand has kept pace enough to keep us in a seller's market. The market cooling is measurable in a declining Market Action Index, and increasing Days on Market (though at around 40 days, the average time it takes to sell a home is not worrisome.)

Here's an interesting tidbit from our research. Changes in Walnut Creek home prices this year are being driven by a shift in the properties available. In this chart, we look at the four price quartiles for Walnut Creek 94597 (which includes neighborhoods Larkey Park and Beacon Ridge.) Notice that we have a convergence in the properties available. Fewer properties being sold at very high-end of the market keeps a lid on the median price. But the low end of the market (around $700,000) has had relative price stability.

Walnut Creek single family home prices by quartile

If you want to keep track of Walnut Creek in real time, you can bookmark our free Executive Summary page for Walnut Creek real estate market.

I've talked previously about the various factors effecting real estate prices and demand levels. Today we look at the factors from a seller's point of view. When we look at a given local market, you can see rough correlation between the price of a home and how long it takes to sell. Not surprising, the more expensive your place is, the longer it takes. But how much do other factors impact time to sell (aka Days on Market, DoM)?

Check out this chart of several hundred Bay Area zips. I've highlighted two points, Palo Alto 94301 and Rio Vista 94571. Despite their relative extreme price points, these two markets illustrate my proximity-to-power model of the housing bubble.

Bay Area median home prices and average days on market

So yes, there is positive correlation between the price of your home and the time it takes to sell. But there are a lot of other factors too. Note the cluster of markets right around 6-7 weeks. That's not unreasonable in the grand historic picture, but a lot slower than last year at this time.

The blogosphere is thick with stories of impending doom. The real estate bubble is upon us. Since we measure these things pretty closely, I thought I'd highlight a few local markets that have been defying gravity and conventional wisdom this year. This turned out to be harder than I expected.

I queried our database for the zip codes in California and Seattle that are at their single-family home median price peak for the year (within a couple percent) and where demand is strong (comfortably in a Seller's Market), and demand is not showing signs of cyclical or seasonal weakness. This last parameter eliminates some markets where prices are holding up, but demand trends don't bode well. We also limited the query to areas with at least 35 properties on the market to get a good sample.

Of the several thousand zips we cover, exactly seven look strong enough to include. Here they are, in order of demand strength (Market Action Index).

1. Auburn, Washington, 98092: Median price at $422k, Market Action Index of 75. Auburn is the only city on our list strong enough to call "Hot". There's lots of demand in this relatively affordable city just south of Seattle.
2. San Francisco 94122 (Sunset district): Median price at $858k, Market Action Index at 59. The Sunset, long a haven for relative affordability in the City, has reasonably good turnover in the single-family homes. Condos in the Sunset are showing signs of summer demand weakness.
3. Montebello, CA 90640: the LA suburb has shown solid pricing and level demand trends all summer. Also named one of Money Magazine's 100 best places to live. Coincidence?
4. Concord, CA 94519 (including neighborhoods Baldwin Park, Dana Estates): prices have pulled back a tad from their absolute peak in April, so Concord almost didn't make our list. But demand has stayed reasonably robust this summer.
5. San Francisco 94124 (Bayview): at a median price of $677k for a single family home, the Bayview area is one of the most affordable (if unglamorous) parts of town.
6. Rowland Heights, CA 91748: another LA suburb (isn't all of LA suburb?) the most interesting thing I can find about this town (I've never been there) is it's relatively high Asian population.
7. Seattle 98188: At a median price of $353k, this area is among the least expensive in our research areas. That's probably because it's right next to SEATAC airport.

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?