May 2012 Market Numbers

So when the first words of Inman’s lead article today are: “U.S. housing market trends tracked by Realtor.com show a trifecta of promise: a shrinking number of homes on the market, fresher inventory, and an increase in median list price”, I think three things:

1. Well of course, that’s REALTOR.com, and not Zillow’s, data 
2. But all three of those are true here, in fact, in better numbers than what they’re reporting…
3. You mean… this recovery might be for real?

Let me set the record straight: being your own boss has it’s privileges. You can make a lot of money in real estate. But gang, it’s been 61 months since the market tipped and the rules changed in April 2006.

Sixty-one months.

Thankfully I have a consumer-rich audience, not a bunch of REALTORS that I’m shouting to, so I just ask you, The Consumer, to pause for a moment and put yourself in my chair: if you worked in an industry that had been in decline for 61 months… wouldn’t you greet the news of “it’s finally in recovery” with a little bit of confusion? 

As a writer, I just sat there writing and erased a half dozen words after “with a little bit of…” That’s how confusing it is. I could have written…

Bliss.

Guarded Bliss.

Pessimism.

Optimism.

Panic.

Trepidation.

Hope.

Yep. All apply.

Welcome to my neurons. Welcome to my heart. Welcome to the dysfunction of properly advising clients whether or not they should put their house up for sale, make certain improvements, buy a certain property, look at foreclosures, wait out a short-sale, seize a low interest rate, “screw it and rent”, or boilerplate an answer as to “how’s the market” between nibbles of salad, when a past client walks up and asks. 

I make no bones about the fact that I write the last names of all my clients on a big white board and hang it in my office. Some people might think “I’m keeping score”. I’m not. I’m trying to remember that at any one time, I technically have a couple dozen “bosses”. I have the responsibility to serve them, execute skill and care, and hopefully, along the way, make it remarkable. I mean sure, the Exclusive Right-to-_____ contracts are two-way streets, yes, they’re all voluntarily entered into, but right now… I have 38 last names on that white board. Do you have 38 little micro projects that all deserve first class treatment that you need to check in on at least weekly? Thirty-Eight Micro Projects for me because they all are factors in my income, but Thirty-Eight Life-Changing Projects for the folks involved in making those decisions. Does the fact that we are down 27% in listed inventory and have over 1700 cooking pending and under contracts today impact each one of them, equally? Is this a market where all of a sudden we can breathe again and just go about working like everyone else and trust that we’ll get paid, rather than carefully managing the debt to income ratios and hope that we only-barely owe five digits on Tax Day (oh yeah, that’s my 3 pm)?

Can we let our guard down at last?

Pretty personal.

Maybe uncomfortable. 

But yeah, everything in real estate is a business decision. Everything. 

So when you track data as religiously and systematically as I do…

When you correctly predicted the 2009, 2010 and 2011 sales years within 95% accuracy…

When you correctly predicted the double dip…

When you called the shot on the inventory declines…

…and when you’ve lived under a shroud of market-wide pessimism for more than half a decade, and almost every day since I turned 30, and shoot, for that matter, every day of Isaiah and Jeremiah’s lives…

The Negative News Outlet that serves as our voice of reality calling out a trifecta of promise… that gives me more than a little pause.

I headed over to Bridle. A roofing truck was leaving that place, there was a guy walking around the front yard aimlessly with an MLS sheet, and two of Hannah’s clients were standing outside their car waiting for Hannah. Dumb luck, I’m unknowingly showing what Hannah is showing, at the same time. Since I was driving a borrowed vehicle, I decided to have some fun at Hannah’s expense. Her buyers had not looked at houses in awhile and were awestruck by the circus-like atmosphere at this house with buyers coming and going everywhere. I pop out, said hi, and asked, “you know I’m looking at this too, and I have the combo. Do you want to join me?” They seized the chance, and I timed it perfectly so that I was just inside leading them through the door when Hannah pulled up. Sensing an agent out prowling the bank-owned’s looking to steal her buyers, Hannah leapt out of her car ready to scrap. She still about punched me when she found it was me pulling one over on her.

This is the world of inexpensive, bank-owned properties in Colorado Springs. They all have multiple offers, they all have lovely features like no 220 for a dryer or planked-over patio door because the entire deck is ripped off… and they all end up selling, way, way over asking price.

The reason is that supply is non-existant under $200,000 and there are almost as many buyers this year as there were in the tax-credit fueled season of 2010. That season was fueled by the false motivator of the $8000 tax-credit; it had a window of time before it expired, and the market went sour immediately after it expired. This season is fueled by the buyer’s perception that the market is appreciating. Re-read that statement: the perception (by buyers) that the market is appreciating. Now why do buyers believe this?

1. There is nothing to buy. 3300 active single-family listings sounds like a lot, but inventory now is 27% lower than the same time 12 months ago.
2. With scarcity comes panic. With panic comes emotional buying.
3. With emotional buying comes a loss of negotiating power. Fear of loss says, “don’t mess around, buy the house.”
4. As more and more houses sell and are removed from the market, buyers inevitably raise their  buying price. When sellers don’t have to discount, and buyers move up to find them, appreciation happens.

This condition describes between 65 and 75% of the homes that sell each month, and 40% to 50% of the active listings for sale. Note, those are not the same numbers. Note, that is not the entire market. What is extra bizarre about April 2012, is that while parts of the real estate market finally return to sustainable appreciation, other parts of the market remain in decline: the over $500,000 market for the most part remains in over-supply and for the most part, is still experiencing depreciation.

Here is a graph from the April Stat Pack . This graph shows the crazy dysfunction at work, where within these popular MLS areas, there are up to four different markets at work:

• An Appreciating Seller’s Market with less than 4 months of inventory based on March sales rate (which is likely going to be dwarfed by the April sales rate, with 1723 pending and under contracts at the end of March, 2012)
• A Seller’s Market where the likelihood is high that the seller will sell and probably won’t have to make a price adjustment in order to sell, but it’s not appreciating yet because the months of inventory is between four and six months.
• A Buyer’s Market where there is six to nine months of supply, decent selection to choose from, and buyers have both the ability to negotiate a better price and sellers have the responsibility to continue to drop price until the find buyers. Note, these markets might be primed to convert over to A Seller’s Market later in the year as inventory diminishes from the lower price ranges and relocating buyer sales close.
• A Super Buyer’s Market where there is a genuine over-supply of listings for the scarcity of buyers. Sellers might have to reduce price just to get showings (usually 9+ months of inventory). Buyers might be tempted to avoid these areas as there is no promise of   “a deal” because the bottom has not yet clearly been reached.

This creates some enormous opportunities for a seller in Briargate say, who has a nice home worth $285,000, but wants a larger home, or a home in the trees. They have scarce competition for their home, and if they want to move to Flying Horse or Bent Tree, they can utilize 4.00% interest rates and buy into a market that still has excess inventory and competitive pressure for price improvements. As long as they have the proceeds they want from their home sale, they’re probably selling, with a good selection to choose from and good negotiating power when they buy.

A buyer relocating from Nashville asked me today, “Ben, is the market just that much better in Colorado than it is here?” I had just video’ed a home for him that had listed the previous day, and told him that it might sell before the weekend was up. The buyer didn’t doubt my assessment, he had seen with his own eyes appealing homes list one day and go under contract the next, and seen this repeatedly. My explanation was that the market is a mess for those looking under $200,000, and if you consider than 81% of all sales year to date were less than $300,000, a big part of the market is looking at scant inventory. But the other problem is that there just aren’t that many great properties out there. That’s different than low inventory. It’s one thing if there is low inventory, but say you want N/W under $350,000 and you want a traditional two story home with about 3500 square feet and some updating. Well technically, you have a lot to choose from. But you don’t want a multi-level or split. You don’t want linoleum floors in the dining room or kitchen. You don’t want old windows. You’d like the deck to be serviceable for oh, I don’t know, three to five years. Well you my friend have ZERO homes to look at that fit that bill today. None. If you can stretch to $355,000 you find your first bogey on Oak Hills, and that’s a bit high for the area, but it is remodeled and they added stucco. While they’re probably over-priced, they’re probably selling soon, too because they have no competition. That’s how appreciation happens. It’s not so much that the cycle of supply and demand got reversed, and we went from over-supply to under-supply and under-demand to over-demand. We went to under-supply and even-demand, and among that supply are a mess of homes that are out-dated floorplans or exhibiting features no one wants. Many sellers still haven’t caught onto this. Another example: My wife and I were brushing our teeth last night, joking about if we sold our home, and Amy said “just price as it is and let someone do it the way they want.” I was stunned. My wife was speaking seller. I pointed at our lovely, faux-marble pink and taupe swirled counters, with integrated sinks with expanding cracks at the bottom, and said sarcastically, “Babe… they just don’t make these anymore. This is the kind of quality people line up for”. No one wants flippin’ pink swirl bath vanities, even if your shower and soaking tub match (that’s some extra sarcasm for those who can’t read sarcasm). You can be on the market, but if you offer what people don’t want, you might as well be off the market.

As the market heals, a necessary step is appreciation. Appreciation IS HAPPENING, it is just active under $200,000 (about 50% of all market sales). That market is moving up. Meanwhile, the average price on the market is also moving up, because the expensive, half million and up market remains sitting while the cheap, under $200,000 market flies off the shelf. In order to sell, this expensive stuff still has to come down in price. So overall, the average price of everything selling is barely showing any change, as it takes five appreciating home sales under $200,000 to cancel out the drop of two depreciating home sales over $500,000. When you further consider that last month there were 394 sales under $200,000 and all of 22 over $500,000, there isn’t much to fuel much of a leap in average price. In fact, average price can actually go down while prices are going up; it’s just not a good measure of what is actually selling.

If you want to see the new and improved Stat Pack, please visit www.COSRealEstate.com. (guess what? We renamed the Stat Pack, “The Stat Pack“. We are pretentious snobs at the Switzerland known as Selley Group, and are now emphasizing the “The”. Another report locally is using a very similar name, but they’ve only been cranking them out for 15 months, not 6 years, and we’re sticking with our permission-asset. We have dibs)

After a six-year run as “The Stat Pack” we have decided that since another real estate company in town won’t let go of the name, we had to change things up. So for this month at least, we’re running with “The Fine Print” as our monthly market report.

When you read The Fine Print (see… it’s working!) you’ll see a market in the midst of dramatic shift and change. Over 70% of all sales right now are less than $250,000, and under $250,000, the months of inventory has decreased to less than six months. I ran a search for a buyer tonight that wanted a 3 bedroom, 2 bath, 1 car garage single family home between Woodmen, Austin Bluffs and I-25. They needed it in 45 days so I eliminated short-sales. Number for-sale: 2. One was a B of A Submarine, the nickname we’ve given the “bring us an ugly bidding war” listing that usually is a Bank of America default that is put out at an unreasonably low number to solicit maximum interest, Pavlovian response, a dozen offers, and usually a final settlement price above what it realistically ought to fetch. In this case, the single MLS photo seems to only deepen the mystery.

I can tell you this all day long… or Bill McAfee can.

The calendar year started with a ten-year low in inventory, 3285 listings for sale. Instead of seeing a build up in inventory in January, inventory actually dropped to 3157 listings by February 1st. This sometimes happens, where January is the doldrums and not much is going on in either the buying or selling side of things. Things usually start happening in February and get rolling in March.

Well things started happening in February, but it wasn’t a build up of inventory. As of this morning there are 3161 listings (patio home and single family combined) for sale. An increase of four units in a traditional inventory-build month. This has happened before, in 2002, inventory levels were almost identical and sale rate was almost identical. Average and median prices were also similar. And February ended up lower than January in terms of inventory. 

The part I find crazy is the sales rate: Last week when I ran the check on Tuesday, there were 1551 “contracted” listings (pending, under contract, under contract short-sale and first-right of refusal contingent on buyer’s listing closing). Six days later… there are 1742. If you throw out the short-sales and contingencies, there are 1325 pending and under contracts. That number is similar to a summer-time figure in 2007. But in summer 2007 there were 7000 listings to choose from. There are less than half that many now. 

I had a buyer scoff at the concept of anyone paying over asking price for any property on Friday. Well, I’ve been involved in 20 written offers since December 1st. I have put together less than half of those. Thirteen have been multiple offers. 

I’m not saying the market has recovered. I’m just reporting what’s going on. 

Customer service has many descriptions (no, there is not one single definition, and no, “the customer is always right” is not the definition). Like a weird Supreme Court decision, “you know it when you see it.”

• Customer Service is repeatable.
• Customer Service is Durable (there’s that word again).
• Customer Service is meant to deepen a connection and increase loyalty. This is very different from “brand-awareness”.
• Customer Service succeeds when it makes the recipient feel 1.) heard 2.) understood 3.) worth attending to 4.) worth keeping 5.) kinda remarkable (or better).

What does this have to do with real estate not being fair?

I got two pieces of snail mail today. Two. That’s about as many pieces as I’ve received all year (amazing how big companies like ERA Shields get spammed with print mail, and little boutiques like Selley Group get nothing generalized. More on that later). Both were from peers in the real estate industry.

One was a recruitment letter. It was on cheap paper. It didn’t have the company indicated on the return address. The business card was ugly. All it spoke about was the stats of the real estate company. It addressed me as “Dear Benjamin” (no one calls me “Benjamin” unless they don’t know me. I use “Benjamin Day” on my business cards because Ben Day Consulting in Boston dominates SEO and the Re/Max Properties Front Desk always – ALWAYS – thinks Ben Gay is setting up a showing when I leave off my “jamin”) so instantly I knew this was circular-file material. Except I kept reading. Not only was it not concerned at all with me, it was obsessed with them. It was NOT oriented around any of the rules of  how customer service succeeds, not one. The only thing “remarkable” was that it made me feel like my special purpose in life was to have a pulse and a NRDS (our REALTOR ID #) to occupy one of their cubes. As long as I had a pulse and a NRDS, that’s all they needed. Who cares what I need?

Worse, I knew Hannah received one last week. So if I got mine this week, I knew I was a tier 2 candidate. I mean, who wouldn’t want Hannah Parsons over Benjamin Day (I’m totally serious, the former is much easier to broker!)? But I used to recruit agents, I did this stuff (I have the scrapbooking paper to prove it!), and when one company goes out on patrol for agents, EVERYONE you could want knows about it within a day. So you better hit all the good ones at once. While this letter was far from flattering, I already knew they had a first wave of “choice” agents that they thought were most recruitable, and I was not in that group. Save the best for later? No. It does not work that way.

The second piece of mail I received today was a handwritten thank you note. From Lee Bolin. Lee owns Saddletree and Symphony Homes. He has for 15 years. My clients said of Lee “I want him to be my Daddy, I love that guy.”

"I _____ Bigger than you, Ben. And, Thanks for bringing your people by"

Lee is like a friendlier version of Jack Palance’s Curly.

Lee wrote me a handwritten note. And mailed it to me. The dude has no email address. But he has the power of the pen.

Now you tell me: when one of these companies is involved in future real estate transactions, which one has my attention? Which one has the greater opportunity for success? Which one is more durable? You tell me. I think the answer is pretty obvious.

Over a year ago I read a column from a futurist who theorized a whole new form of ownership for homeowners, a new mortgage vehicle that would allow enhanced mobility. This was a fascinating article, lacking in specifics, a bit delusion about what it would require to transform an entire industry (and capital’s total unwillingness to do that), but it was still really interesting. It was hitting on something: under-served.

Ron Paul is also running for president, and he essentially wants to return American government to the 19th Century. He’s nice and folksy and all, but, have you really read his stances on anything? Or seen his voting record? But the man is popular, and I know some really smart people that are voting Paul. I think he represents something: under-served.

I point out Penny Parker, and the Futurist, and Ron Paul, because they form a triangle of conversation around the same thing: lifestyle in 2012. We know it is changing, but how deep is this change? Have our agreements with our real estate historically panned out? 

To begin with, real estate has never been fair. Never. By nature, every piece of dirt is different. This is not 10,000 red Kia’s coming off the production line, this is not 1 million incandescent bulbs, 57 Main Street is different than 59 Main Street and different than 59 Lexington. Every piece of dirt is different. There are different views. Solar yields. Traffic patterns. Dimensions. Topography. Distances to amenities. Sounds. In some cases, smells. When you can actually commodify something, it can be easy to see the relative merits of one over the other. A Red Kia might have higher insurance and unintentionally “say something” about the owner that a pleasant Green Kia might not. But take a single piece of dirt, and look at the dozens – nay, hundreds – of individual variables, and the mind gets perplexed. You don’t hear stories about people who missed out on the investment chance of buying a 2004 Red Kia. You do hear about people who missed out on a chance to buy a bungalow across from the Little Nell is Aspen. 

Consumers tend to like easy decisions. We will start the SEVENTH YEAR of post-ceiling real estate in April this year. The market tipped six years ago. The Great Recession began to unravel four years ago. Economic uncertainties and the practicalities of off-shoring of jobs began twenty years ago. To say we live in uncertain times is grossly redundant. Zip is certain. Well, speaking in economic terms, zip is certain. 

So that brings us around to this weird thing that used to account for about $1 trillion in annual GDP called “real estate”. If so much economically is uncertain, how can something so heavily rooted in permanence like real estate be that attractive?

I can make all the arguments in the world that there has never been a better time to buy, and I can shout until I’m blue in the face from the top of my building. Where’s my bullhorn? But all I’d gain is a blue face. It really doesn’t matter what I think. It only matter what consumers think.

Correspondingly, who is buying houses?

The ones that understand that real estate is not fair.

Not all neighborhoods are created equal. Great starting point. Not all floorplans are worth living in for 10 years. Another good one. You can’t change your neighbors and rearranging the topography and slope of your lot isn’t that practical, and if there is a possible six-lane road behind you… why would you want to live there a year, let alone ten? 

Sustainable is an over-used word in the contemporary vernacular, but people of all political and lifestyle persuasions bandy it around as if it was readily understood. Personally, I like the word “durable”. 

The buyers that are buying in 2012 are only interested in durable decisions. They are no interested in fluff. They are heavy, deep-thinkers, and they are looking for value. But value is no longer defined as square footage (note to most of the Colorado Springs HBA). Value is not defined as settling for a ranch home with vinyl floors. Value is not even defined as “new” (this is like a seismic shock in Colorado Springs, where the average age of all residences is less than 32 years old). 

Durable must be:

• Readily obvious
• Proven performance
• Worth talking about
• Highly Functional

Durable can be:

• Possibly more expensive (the Mac argument ultimately winning the masses)
• Possibly more personal
• Possibly more spacious
• Or possibly more space-efficient

Here’s a question:

Last year, 60% of all homes listed, sold. This was the highest percentage since 2005. This is encouraging. But here’s my question: with such a high percentage of those bank-owned and short-sold, what of that 40% that didn’t sell? Is there even a price that can cure the 40% that didn’t sell’s inability to sell? Will a consumer buy that house backing to Briargate Blvd for the Pikes Peak View? Will a consumer buy the bad solar idea house on an odd lot? Will anyone buy a 5000 square foot home with a bizarre floorplan on the simple metric that the dollar per square foot is 20% less than anything else in the area? 

Real estate isn’t fair. And as the consumer adapts to more durable decision-making, it’s getting less fair every day. 

For those unacquainted with paranoid REALTOR speak, the highest and best is this: “we are putting you on notice that we have multiple offers at this time for this property. All participants are encouraged to submit their highest and best offer by ____ (usually 4 pm MST) for submission to the seller (usually a bank) at the same time.”

Showing is better than telling. It is a hallmark of what Hannah and I do. We can’t tell you that there is a real estate recovery afoot. You have to believe personally that there is a real estate recovery. We have a conflict of interest: it suits our financial interests for this market to recover.

But we can show.

I have written five consecutive offers. Granted, all were on bank-owned properties. All five, my buyers have been on the losing end of the stick in multiple offer situations. These properties have been in EAS, N/E, N/W, BRI and Ute Pass. Five different areas. Ute Pass! This morning I called for an investor on a house that was the single-most disgusting condition home I’ve been inside in probably 8 or 9 years. It’s a steal, but you need to wear a HazMat suit in there. Latex gloves all over the floor on both levels are never a good thing. I called the agent to see if we could throw out something cheap. “Owner occupant or investor, I’ve got two from investors submitting this morning so it’s going highest and best later today” he growled.

Don't ask for the freezer full of steaks in inclusions. You'll lose.

We are completing the 2012 Annual Report. You can take a peak at the December 2012 Stat Pack if you like, but we are seeing double the buyer interest from December, and, believe it or don’t, a market that actually has 4 fewer listings for sale than it did January 1st. It’s a ten-year low in inventory. It’s five month’s of inventory in January. It’s flippin’ maddening.

Of course, the real estate community has been telling people this market was poised for recovery since May, 2006 (it tipped 3 days before, back in April, 2006). So if you’re reading this with a healthy dose of skepticism, I can’t blame you.

All I can leave you with is this: you will know the market has recovered when you see it in the rearview mirror. And yes, I coined that phrase four years ago.

One of my business practices is exploring this online history of the property as best I can.

All three properties, for three different buyers, representing three different eras of building (1923, 1979, 2002) had an online permit history at www.pprbd.org which showed voided permits.

That word, VOID, sounds so nasty. It sounds like you are stepping off into the abyss. The first association a buyer is likely to make is “oh no, something is dramatically wrong with my house. The regional building guys black-flagged my house.” The reality is usually something far less noxious.

I really like the PPRBD website and you can drill into the history of any recorded permit and find out what inspections were done, who did, how many times a real estate agent called in the permit (wow) and why it was voided. Here is an example:

It gives good information as to what is going on at a property and also says what happened, when. What I have above is pretty standard, and in the interest of not compromising anyone’s personal property information unnecessarily, I suggest you look at your own property or one you’re interested in to explore it further. But in the case of this permit, it was pulled in one year, work continued for several months, and 18 months later, two years on the calendar, a final inspection found no one home when Regional arrived to check out the property. Everything was fine up until the final, but without a final, the permit was void.

Why this is important:

All year we will focus on the increasingly mobile society, and the strange contradictory pattern of buyers buying for the long-term. Buyers are either getting more mobile and more apt to considering renting as a way of life, or if they are owners, buying for the desire to own on the long-term. If you buy with the desire to own a place 10 to 15 years, you likely are not buying “opportunity” but instead “certainty”.  Does a voided permit smack of certainty… or uncertainty?

Here’s an excerpt:

A New York City subway train holds 1,200 people. This blog was viewed about 6,400 times in 2011. If it were a NYC subway train, it would take about 5 trips to carry that many people.

Click here to see the complete report.