Sunday, December 30, 2007

It's All About Perspective

I was just reading this post on Dallas Dirt where an ignorant real estate jockey think they know more about the real estate market than the experts. So I bristled up and needed to blog on this New Years Eve Eve.

I will be running year end sales statistics after the New Year so we can put all of the stories to bed and you can make up your own mind how "bad" 2007 was for real estate in Dallas. But I couldn't wait to post this from a great blog straight out of Irvine, CA that dedicates itself to sharing stories about sellers who are losing their asses. Here is basically the whole post.

92602 $662,000 -78.4%
92603 $760,000 -31.3%
92604 $630,000 -31.3%
92606 $867,500 -56.0%
92612 $397,500 -14.3%
92614 $650,000 -63.6%
92618 $742,000 23.5%
92620 $892,250 -66.7%

This is the first median I have seen reported under $400K (92612).

I'm not sure if these are year-over-year statistics and there are some other numbers he includes in the post that I didn't know what to make of them. But that's not the point. Here's what you should take away from this.

1. Dallas will never see 60% percentages in appreciation year-over-year which means we will never see these percentages in depreciation as well.

2. Dallas is doing very well heading for a 5% appreciation overall for 2007. Compare that with the -78% depreciation of zip code 92602 in Irvine, CA. We need to be grateful and put our great real estate market in perspective.

3. There is a zip code in CA with an average sales price under $400K. Investment opportunity? I think so.

Am I off base in my thinking? Am I being overly optomistic? I dont' think so. I think I am being realistic. Most important, what do you think?

Thursday, December 20, 2007

University Park Sales Stats

My one and only DREB reader other than my mother, Jim, asked for some UP stats so here you go. Note: All of these numbers apply to homes over $1 million. There are currently 96 homes on the market over $1 million. Of the 46 homes on the market built after 2005 only 2 are resales and the other 44 have never been lived in or purchased.

Eight homes sold in November (only 1 built after 2005) which at that rate would take 11 months to deplete the current inventory on the market.

Now for some sales numbers year-over-year. I used median instead of averages since there can be some huge sales that can throw off the averages.

2005 - No. of homes sold: 108 over $1 million
Median sales price: $1.369 million
Median DOM: 50 days

2006 - No. of homes sold: 122 over $1 million
Median sales price: $1.399 million
Median DOM: 30 days

2007 - No. of homes sold: 146 over $1 million
Median sales price: $1.498 million
Median DOM: 40 days

In 2005, 16 homes built that same year sold. In 2006, 16 homes built that same year sold. Currently in 2007 only 10 homes built this year have sold. (And we know there are at least 7 homes still on the market built in 2006)

So what does this mean for the UP market? The good news is 26% more homes over $1 million have sold this year than in 2005 and the median sales price has increased by 9% since 2005. Some people might be wondering where the double digit price appreciation is? My explanation would be since there is a large number of homes for buyers to choose from and more homes selling each year, the supply is keeping demand down which keeps prices from sky rocketing. Is that a good thing? Probably. Just as long as supply doesn't get so large demand diminishes far enough to start pushing prices down.

Wednesday, December 19, 2007

Well Are They Or Aren't They?

I stumbled across this blog entry out of Irvine, CA and found it to be well thought out and made a lot of sense in terms of explaining why we’ve recently seen such astronomical real estate highs - and lows - across the country. Although it goes against what I learned in the Power Pricing Course and is titled “Houses Should Not Be a Commodity”, I think it has some pretty good information. It has some intriguing graphs and charts predicting how all this will play out and is a pretty long read so here’s an excerpt:
“…once houses become an investment, the prices of houses begin to behave like an investment, and volatility is introduced into the system. You do not want houses to trade with the volatility of a commodities market. It causes more harm than good.”
He goes on to say,
“In a commodities or securities market, you simply cannot have a rally, unsupported by valuation measures, without a crash back to fundamental value. It is very clear the rally in house prices was not caused by a rally in the fundamental valuation measures of rent or income. This was documented in How Inflated are House Prices? and The Anatomy of a Credit Bubble. Many people forgot the primary purpose of a house is to provide shelter — something which can be obtained without ownership by renting. Ownership ceased to be about providing shelter and instead became a way to access one of the world’s largest and most highly leveraged commodity markets: residential real estate.”
Even though Dallas/Ft. Worth doesn’t see huge gains or losses like California, etc. I think there’s a lot of truth and value in what he’s saying and it’s definitely an interesting perspective. And I don’t think this guy is saying houses should be treated as a product either. He kind of invokes Maslow’s hierarchy of needs by saying shelter has always been a basic human need and now we’re in a time where many people are treating it as a commodity and most are losing (just as they would if they tried to beat the stock market).

I’d love to hear your thoughts.

The Dallas Real Estate Market Summed Up

I used a quote a while back in one of my previous posts to explain much of what is going on in our current Dallas real estate market. But here's an equation I like that sums it up nicely.

Seller greed (uneducated sellers) leads to overpriced listings;

Overpriced listings don't sell because buyers don't perceive value;

When buyers don't buy, inventory increases;

Increased inventory over time leads to a decrease in sales prices.

You can take this to the bank. Buyers aren't stupid and don't really care about your "upgrades" if the price doesn't make sense to them. Like it or not, buyers are not willing to pay your asking price just because you "need to make $X amount of dollars" when selling your house. That is what we mean when we say "the market is telling you your house is not worth what you're asking". Buyers determine value and they are always out there looking. Serious buyers are educated about asking prices in the areas they want to buy. They will not waste their time making an offer on a home they feel is over priced.

And don't kid yourself by saying, "Buyers just aren't looking right now" because they very much are. They just aren't seeing value in the homes that are currently on the market. Realtors that understand this and the above equation and how it applies to their clients aren't whining about a terrible real estate market because they're too busy attending closings.

Again With The Quotes

Taken from this article these are great quotes and hold a lot of truth in today's real estate market. So pay attention!

A combination of lower prices, a large inventory and mortgage rates well below 7 percent offer buyers a terrific opportunity. Real estate truly is a long-term investment.
It really doesn't matter if we're at the bottom [of the market cycle] yet. What matters is, can you find what you want? If you wait till it's a good market and everyone's buying, you won't have as much choice.

See? I Told You So

This article from Realty Times discusses overbuilding right on the tail of my previous post about overbuilding in Preston Hollow. The take away line of the article is near the end.
"...homebuilding is still outpacing household formation, which means some areas will continue to have more new homes than they need. "

Yes Preston Hollow, we're talking to you.

Tuesday, December 18, 2007

Preston Hollow Has a Few Vacancies

Seriously builders. Stop! Right now in MLS Area 11, AKA Preston Hollow to area Realtors, there are 140 homes available that were built in 2005 or after. Moreover, there are 213 homes available over $1 million. The kicker is that only 15 sold last month. My fuzzy math tells me that is almost 15 months of inventory currently sitting on the market which is muy malo. But that's great compared with the 33 months of inventory that was available in September. Yes, you heard that right. What's even more disturbing is that 106 of the homes currently available were built in 2007, 22 homes built in 2006 have never sold to anyone and 5 homes built in 2005 have still not sold. That means that only 7 homes (give or take) actually have real owners that need to sell. Every other home is builder owned and most likely sitting there vacant.
The law of supply and demand says, and I repeat, when inventory is on the rise, prices go down. I have personally sold a few homes in Preston Hollow where the sellers have taken a loss at closing. In November of '05, '06 and '07, 119, 187 and 227 homes were available over $1 million, respectively. That is a 64% increase in the number of $1 million homes available since November 2005. With that said, prices should be going down, right?

In 2005 the average sales price for homes over $1 million was $1.614 million and in 2007 the average sales price is $1,898,966. That's about a 15% rise in sales price over 2 years. What does this mean for the future? I think unless some of these builders scale back, poor Preston Hollow's $1 million and up new and resale market is going to tank. (It already has if you ask some of the current sellers whose asking price is below what they paid in 2001) My advice to buyers right now would be to check out some of the 130 new construction homes and throw offers at these builders. Those carrying costs start to add up after 2 years sitting vacant!

$65 Million California Flip? Seriously?

Courtesy of The Real Estalker, a well-to-do couple purchased a home in Belvedere, CA in 1995 for $5.5 million and put an eye-popping $32 million into the property. Now the 11,000 sf home on 1.2 acres is on the market for a staggering $65 million. Check it out.

Saturday, December 15, 2007

Amazing Hip Pocket For Sale...Secretly of Course

(Not actual photo of course)

If you're in the market for a seriously amazing estate property in Old Preston Hollow built in 2006 on a .7 acre lot (closer to .9 per seller) let me know. Whose is it? Where in Old Preston Hollow, you ask? I'm not saying. But the sellers are willing to show the home to the right buyers and I can get you in. Once you see this 7,000+ sf home on this HUGE stunning lot and feel the heated marble floors in the master bathroom, you'll want to make and offer on the spot.

Special Feature: Market Statistics for Your Enjoyment

So I've decided to start posting statistics from different market areas such as average sales price, price per square foot, inventory currently on the market, how many homes are pending, sold, etc.
I'll be giving my interpretation of the data but I'd love to hear how others interpret the numbers as well.


Friday, December 14, 2007

Price Reductions: Naughty or Nice?

Good article in DMN today. My good friend and fellow Realtor, Lydia Player, gets it right in the article with this quote, "You don't need to wait around for six months to decide if your price is right," said Dallas agent Lydia Player. "If we don't get an offer in the first few weeks, we need a price reduction."

People that stick with the same price for 6 months are asking for trouble and an even lower sales price. Do you really think a buyer that knows your home has been on the market for over 200 days is willing to pay you what you're asking? Think about that. So if your house has been on the market for 3 weeks and 15 agents have shown the property but no offers, guess what? The market is telling you your house is overpriced. Yes, we know you added a pool and a Viking range and faux finished the dining room but again, the market is telling you your home is not priced correctly for the current market. And 3 things affect value. Price, Condition and Location. If your home is in a good location and in good condition then that leaves...the price.

And don't blame your agent for asking to reduce the price. They are doing their job by communicating what the market is saying about your home. That is the sign of a good agent to have the cojones to call you up and say, "We missed the mark on price and now we need to make an adjustment." I could end this by using Dr. Phil's "It's time to get real" mantra. So I won't. But you should!

Problem With Contemporary Homes According to Santa Clause

Tuesday, December 11, 2007

What I Learned in Class: Part II

Is real estate a product or a commodity? A product's price can be influenced by marketing and advertising and the seller sets the price. Think products that are advertised during the Super Bowl. A commodity's price is set by the buyer and no amount of marketing or advertising affects the price of a commodity. Think the price of gold, for example.

Realtors and our clients have been treating a home as a product instead of a commodity and unfortunately we are not doing ourselves any favors. Think about it. You bought a stock at $100/share and then 1 year later that stock is at $50/share. So you turn to me to sell it for you for $100/share. But since I have a fee you want me to add that fee on top of the price you want. So even though no one is buying this stock over $50/share you have asked me to sell it for you at $115/share. Does this make any sense? Not really. Even if I advertised your stock on TV during the Super Bowl no one will buy the stock over the market value. Why? Because it is a commodity and not a product.

This is exactly what is happening in our real estate market today. Sellers who bought at the height of the market and have only been in their homes for a year or two are putting their homes on the market at inflated asking prices to recoup their costs. The problem is that buyers are seeing right through this. There is no perception of value. And when there is no perception of value there will be no sales.

Many agents and sellers are saying "There just aren't any buyers out there looking!". This is a myth and here's why. If a home's market value is $500,000 and that home lists for $450,000 how long do you think it will stay on the market? Not long at all. This is because buyers know when a good deal presents itself. The bottom line is that there are just as many buyers out there today as there were in 2005. The only difference is that today's buyers don't see the value in many of the homes on the market because the sellers are asking inflated prices to recoup their costs. And where there is no perception of value there will be no sales.

To wrap up, seller greed is due to being uneducated about the current market conditions which leads to overpriced listings, which means few or little sales, which leads to increased inventory, and when inventory rises, consumers push prices downward. (Supply and demand)

So if someone is thinking of selling their home and they need to ask top dollar to get out of the home without paying money at closing, I would tell them to stay in the home until they can ask a fair price. Otherwise, they will not only be wasting their Realtor's time, they will be wasting their own time and effort showing the home for 6 months or longer.

Monday, December 10, 2007

What I Learned in Class: Part I

The purpose of the class I attended last week was to help agents price their client's listings according to the market they are in using classic economic supply and demand logic. When inventory trends downward, consumers push prices up. Which means the opposite is true or when inventory trends up, consumers push prices down. Eric Celeste over at Frontburner blogged this earlier today by way of the DMN and Steve Brown which is a prime example of real estate "experts" not giving the full picture. Here are a couple graphs taken from Trendgraphix using NTREIS statistics from all North Texas areas to form charts and graphs so people like me can look at pretty pictures and learn at the same time.

So what market are we in here in North Texas? According to these graphs the number of home sales is down from the previous year (6,583 in 11/06 to 5,157 in 11/07) but sales prices are up from $184K in November '06 to $204K in November '07. That is approximately a 10% rate of appreciation. Not too bad. But how can inventory be up AND prices rise? Hmmmm. So what does this mean and where are we headed? How do we interpret the fact that less homes are selling than the previous year, inventory is rising slightly yet home values are increasing?

No, we're not defying the laws of economics. I believe we are at a tipping point of sorts. The laws of economics do apply to our market but we don't fluctuate as much as other states including the outlandish California and Flordia real estate markets. With that said, inventory will continue to increase and prices may drop in certain areas due to overbuilding, short sales, foreclosures in the subprime market, etc. But I believe we will simply see a flattening market meaning prices won't go up, but they won't go down either. Inventory will not reach astronomical levels like the 29 months worth of inventory in some California cities.

In closing, these numbers are for ALL OF NORTH TEXAS AND NOT YOUR NEIGHBORHOOD! Many areas in North Texas will see price appreciation and will always see price appreciation no matter what regional statistics say. So talk with a local Realtor who knows your neighborhood before you start spreading doom and gloom to your friends.

And Speaking of Rates

This is a great article from Realty Times giving us the low down on how 30-Year Fixed-Rate interest rates have fluctuated since 1971. Cick here for the awesome info.

As many people have been trying to tell those scaredy cat buyers out there for a while now, "Rates are great and if you're waiting for rates to go below 5% you're going to be waiting for a while." These stats show that the average interest rate for a 30-Year Fixed-Rate loan between 1971 and today is 9.31%! But since 1998 we have had interest rates hovering around 6% so if people can't get the 6% or 5.85% rate they are upset and think they can wait until they drop further. This is poor business decision making logic and if they're not careful they are going to miss the boat and then what? Probably complain some more to their Realtor.

Can you tell I'm in a good mood today?

Rates Are Still Going Strong for Buyers

This just in. The principal and interest payment on a $250,000 loan has dropped by $117.44 per month since August 3rd on the 30 yr fixed.

According to Freddie Mac the 30-year fixed-rate mortgage (FRM) averaged 5.96 percent with an average 0.4 point for the week ending December 6, 2007, down from last week when it averaged 6.10 percent . Last year at this time, the 30-year FRM averaged 6.11 percent. The 30-year FRM has not been lower since the week ending September 29, 2005, when it averaged 5.91 percent.

Will they drop any lower? I have absolutely no idea so stop asking. Ask a mortgage lender or a financial analyst. Just kidding. You can ask me. But I'll just tell you to ask a mortgage lender or a financial analyst.

Wednesday, December 5, 2007

I'm Back in School

Well, not really. But I am currently in the middle of a continuing education class that is actually providing useful information I can share with my clients and the general public. Because I am all about educating the general public in the ways of real estate. So hold on to your hats because I plan on boggling your minds with some mind boggling information once I graduate.