S&P: Home Prices to Drop 7% Next Year

7% reduction in OC home prices - Priceless.

Shaving roughly $40K off the price of the typical OC home - Priceless.

Saving nearly $100,000 in PIT over the life of a 30-year loan - Priceless.

For increasingly cheaper housing there's the implosion of the OC RE Market, for everything else there's MasterCard.

Regular readers will recognize this format of chart as being sourced from our friends at http://www.paperdinero.com/. The chart shows the S&P Case-Shiller price index for by month for the last few years as well as the monthly predicted index value as derived from futures prices traded on the index. The line of demarcation between historic values and predicted value is the left-most of the vertical dashed lines on the right-hand side of the chart.

This chart is pretty easy to understand given that each of the predicted values is at roughly -7%. That means for the futures market expects prices to be off 7% on a year-on-year basis at least for the next 12 months. At the current price of $570,000 for the typical OC home, an additional 7% off would mean a savings of a whopping $40,000.

Personally, I think we may be looking at more than 7% YOY. Particularly post-May next year, when the resets hit in mass, I think -10% YOY is rather likely.

Regardless, if the decline in price is only 7% and that keeps me from paying roughly $100,000 in principal, interest and taxes over the life of a 30-year loan, I guess I can live with that.

Viva los Osos!

Profiting from the Weak Housing Market

Bear or bull, there's money to be made in the declining real estate market.

I found a great little ETF that allows investors to short the DJ Real Estate Index. By definition, because the ETF shorts the index, its price goes up with the DJ Real Estate Index goes down proportionately. Conversely, if the index goes up, the price of the ETF falls. The name of the ETF is UltraShort Real Estate ProShares and its trading symbol is SRS.

Now, from where I sit, there is very little positive to say about the housing market these days. And, if I am to believe what I read, things look primed to be much worse next year. While there are few guarantees in life and nearly none in the stock market, it seems like betting against the DJ RE Index makes a lot of sense.

What I find so interesting about this ETF is that that it can benefit those bearish on the RE market whether they own a home or not. For owners, buying an ETF like this one can act as a hedge against dropping home prices. For future owners, it's a way to potentially increase a future down payment.

Now with all of that said, this is still a risky investment. It's non-diversified, relatively-lightly traded, has relatively few shares outstanding, is subject to price volatility and it shorts an index that risen for most of its history. So, if you're considering getting into the ETF, discuss it with a licensed professional before you do, keep your investment to a small percentage of your portfolio and for God's sake, dollar cost average into it--it is way too volitile to try and time it.

(By means of disclosure, I invested in this ETF several weeks ago and the returns, while volitile, have been quite good. Furthermore, I am dollar-cost averaging into the ETF, buying on a dip, every few weeks.)

Viva los Osos!

Must See TV: Home Prices Tumble

Home Prices Tumble

What Do You Make Out of This?

I wrote the following in late October and wasn't going to publish it, but a buddy convinced me to get it out. Sorry it's more than a bit late.

I find this graph fascinating:



It shows a snapshot of recent year-on-year (YOY) price and volume changes for four segments of OC Real Estate: new homes, existing homes, existing condos and then an 'all' category encompassing the other three. The horizontal axis is used to plot year-on-year price changes ,while the vertical axis plots YOY changes in volume/demand. Thus, line the plots the YOY relative change in demand versus the relative change in price for each of our four housing segments.


This first thing I noted on this graph was the fact that prices of new homes had fallen the most of any segment while prices for existent houses had fallen the least. I believe that difference is caused by price different price 'stickiness' between those to segements and that prices for new homes are more 'fluid' and reponsive to market changes than prices for existing homes. Put another way, prices for new homes have dropped more YOY because builders have done more to adjust their prices to reflect today's market conditions than their homeowners counterparts. Why?

1. Builders generally have a specified period of time in which they want to sell their inventory of homes. A homeowner, who is not in a distressed situation, may choose to sell or to wait (wisely or not) to get a 'better' price in the future.
   
2. The getting a lower price for a home has a far smaller impact on a build that a homeowner. For a builder to get a lower price on a house may mean a difference of .00025% in the equity position of a builder. While if an owner takes a 10% loss on a single house, that may mean a loss of 25% or more of his net worth. That's a tough pill to swallow.
   
3. Many homeowners have to get a certain amount for their house for practical reasons, for example to buy a trade-up house, pay-off their mortgage or avoid a shortsale. Builders have no such constraint.
   
4. Builders are dispassionate in their pricing decisions, pricing their homes in order to sell the homes in inventory. Homeowners are often heavily emotionally involved, pricing their to get as much as the guy down the street, x% over what they paid or acheive some other emotionally-satisfying threshold.

With all of these factors working together, home prices for builders have already adjusted to today's market conditions, where prices for homeowners are still lagging, probably by several months. It is my contention is that it is only a matter of time before homeowners' prices catch up with builders' prices.

"Theory and speculation!" you might say. "You're comparing apples (new homes) to oranges (existing homes)", you might say and you might be right. But on the other hand, if new and resale houses are more or less interchangable in a buyer's mind, resale houses in order to catch up to their prior sales pace are going to have to decline appreciably and maybe by as much as 30%. After all, new homes are down 25% and they're still down 10% in volume.

Smart sellers are going to beat the neighbors to the punch and price their homes very aggressively. Those that don't will suffer the death of a "thousand pricing cuts", trimming prices here and there a little at a time until the market bottoms and they get bottom dollar for their homes.

Smart buyers are waiting to buy all together or negotiating extremely aggressively on price, conditons, terms, services of any deal and only buying where the own/buy cost ratio is reasonable.

Vivo los Osos!

Couldn't Have Said It Better Myself

California Association of Realtor chief economist Leslie Appleton-Young was quoted recently as saying, "“We’ve had a fundamental change in the mindset of the buyer,” she says. “There is no reason (for a buyer) to act.”

I couldn't agree more. Of course, I was writing about that very topic on this blog back in February.

Would seem Ms. Appleton-Young's trend indicators seem to be lagging mine by about eight months.

So, in case you're wondering, Ms. Appleton-Young, the next eight months are going to be epically bad. The vast majority of buyers lack the interest, means or both to buy a home. Smart buyers are going to continue to sit on the sidelines at least through 2008. They are too smart to be interested in buying. Those buyers that aren't so smart are going to try and buy, but many, many of them will not be able to qualify. They will not have the means to buy.

The implications are that: volumes are going to slow to a trickle, real prices are going to drop much further, seasonally-adjusted inventories are going to be much higher, the numbers of defaults, foreclosures are REOs will all rise, possibly dramatically, come summer.

No "bounce", no "inverted year", no "firming." Just a good old-fashioned, worsening buyer and financier-led real estate slump. And you can quote me on that.

Viva los Osos!

Formula 409: Wiping Out Dirt, Grime AND High House Prices

Back in May, I posted an analysis on the remarkable similarities between the prices declines we are seeing now versus the last housing price decline we saw in the early 90's here in Orange County. In that post, I showed that during the last decline, according to the Case Shiller index, prices fell fully 40% over the course of roughly nine years.

With all of the talk about prices "stabilizing" and "bounces" set to occur next year, I thought I'd better come up with an easy way for people to remember the depth and duration of the last decline, lest they forget and make bad decisions in the absence of that context. The last decline wasn't pretty and to be quite candid, I'd to see as few of my friends and neighbor burned this time around as is possible. My guess is that if you're reader of my blog, you probably feel the same way.

So, here goes. With a 40% price decline ('40') over nine years ('9') and a little concatenation ( '40' & '9'), we get the handy mnemonic '409'; just like the cleaner of the same name.

Just to get things off on the right foot in committing this little ditty memory you ought to just go ahead and say it: "409." I'll wait...Now, you're going to need to exert more effort than that to remember '409', but I'd like to point out that remembering this handy phrase will benefit you in many ways:

1. You will have an accruate grasp of the extent and duration of the last OC RE price decline.


2. You will be able wow your friends and colleagues with your knowledge of OC RE history.


3. You will have historical context when considering how far prices might drop this time.


4. You will have a quicky and handy ready retort for many bullish rants on Lanser's blog.


5. Not that it's of any relevant value, but you will also know the area code for SE Texas.

One menomic, so much value.

Now, one way to use the valuable information provided by 409 is for your own benefit. There are a lot of shills operating in the OC RE market these days with "7% in the bag", "inverted year", "bounce scenario", "shallow decline", "price stabilization", "good time to buy" and "get off the fence" rhetoric. Before you buy into their bullshit, ask yourself these questions as sort of a first-line filter:

1. Do I think that this decline has fully ran its course?


2. Do you assume this decline is going to be roughly half as bad, as bad or worse than the last?


3. If you assume this decline is only going to be half as bad as the last (prices down 20%), has this market gone down 20%?


4. If you assume this decline is only going to be as bad as the last (prices down 40%), has this market gone down 40%?


5. If you assume it's going to be worse, do you have all of your money in gold bullion and sliver dimes?

If you can't answer "yes" to at least two of these questions, (#2 & #5 don't count) it is NOT a time succumb to the shills and purchase property in OC. The shills words are a siren's song, but if you consider 409, along with your beliefs about the current market

The other way to use 409, is to share it with your friends, colleagues and neighbors. If you hear someone you're acquainted with talking about housing, tell them immediately about 409. In fact, you might want to let anyone you who is considering buying a home about 409 to save them from the fate of those unfortunate enough to buy in the early 90's. Tell someone about 409 today!

Housing Sales to Drop 25% in 2008?

It was reported in the Orange County Register that executives at Countrywide Funding expect retail loan volumes to drop 25% next year and that they are going to lay off 12,000 people as a result. I don't think it's any stretch to say that this also means that there is going to be a 25% drop in home sales as well.

Let's have a look at July sales for the last three years and my estimate for 2008 based on Countrywide's figures:

Clearly sales in Orange Country are falling precipitously year on year and will continue to do so at least into 2008.

What's most striking and a bit difficult to derive from the graph, is just how far housing sales volumes are going to drop from their peak in 2005. In 2005, OC saw 4,341 homes change hands, based on estimates derived from Countrywide's numbers, we we only see anemic sales of only 1,793 units in 2007 or over 2,500 fewer units. That's a decline of nearly 59%.

UPDATE: Based on recent sales figures, I'm going to revise my estimates and am calling for monthly volumes under 1,000 units for some months next year.

So ask yourself this question: "Would I want to buy stock in a company where sales were going to drop nearly 60% over a four-year period?" If you answer "no", then you shouldn't even consider buying a house this year or next. If you answer "yes", I've got some .com-era stock options I'd like to talk with you about.

Viva los Osos!

Deadly RE Sins: Gluttony

Every day or so, Redfin sends me updates of market activity in a few areas of OC that I care to study. In essence, these updates tell me two things: new properties that have been listed and properties where their prices have changed for one reason or another. I always enjoy seeing what properties are coming on the market, but I've got admit, I find the prices changes the most interesting.

As I've been reviewing the pricing changes, I've found that there are essentially three elements to a price change: direction, magnitude and frequency. Direction is simply whether a seller is lowering his price or raising it, magnitude is the amount of the change and frequency is essentially how often the seller adjusts his prices.

Today, I thought I'd noodle a little on that first aspect of price changes: direction. And I'd thought I'd start by looking at people clever enough to raise their prices in today's market, and introduce the first of our Deadly RE Sins: Gluttony.

You might be tempted to believe that no one at this point in the market is raising the price on his home. And you would be wrong. Believe it or not, there are home sellers, some of whom have had their homes on the market for very long durations (90 days+) that are actually raising their prices. Here's an example:

20857 Cabrillo LN #7
HUNTINGTON BEACH, CA 92646
Days on Redfin: 123

Previous Price: $799,00

New Price: $899,000

I mean, seriously, how does conversation go around the dinner table?

Husband: "You know, dear, the house has been for sale for over four months now. And we still haven't gotten it sold."

Wife: "Yeah, hon, I've noticed that, too. Maybe there's something wrong with our pricing."

Husband: "Well sweetie, maybe people just don't realize what a primo condo this really is. Maybe if we raise the price, we'll attract a better class of buyer, the way a Four Seasons resort attracts blue-bloods!"

Wife: "You're right dear. If we're ever going to sell this house, we're going to have to raise the price..."

If we are to believe that the conversation went something like the conversation above, I think we'd have to come to the conclusion that our hypothetical couple just aren't particularly bright or are completely economically naive. Frankly, I don't think that's the case. Instead, I believe that people raise their prices when their homes aren't selling for one simple reason: economic Gluttony.

They want more for their house and damn the torpedoes, they are going to get it!

Rather than focusing on the reality of the market, I think some sellers convince themselves that can get a higher price for their home just because they are asking for it. Maybe the feel elite, may be feel lucky or maybe they feel entitled to earning better ROI, but somehow, they don't seem to feel that the prevailing economic conditions apply to them. They are WRONG. Their house is not going to sell for a dollar more than the market thinks it is worth.

By raising their price, they're seeking to line their pockets with more silver, but in the process they are decreasing the demand for their home! In a market where there is a lot of inventory and many substitutions for a given commodity (i.e. houses) demand elasticity is remarkably high. So, what I don't think they realize is that by raising their price by 15%, they likely are dropping demand for their home by more like 30, 50 or maybe even 90%.

Ironically, given that we are in a declining market, the greed that inspires them to raise the price of their house is the precise cause they will end up getting less than their original asking price.

In The Purgatorio penitents for Gluttony were forced to stand between two trees, unable to reach or eat the fruit hanging from either. What these sellers don't realize it that they are volunteering themselves to play out the same penance with their equity.

OC Inventory Passes 20,000 Units

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Consider this: two years ago, in August, we had 7,209 homes for sale in OC. As of yesterday, ZIPRealty.com showed that there were 20,024 homes for sale in OC, or nearly three times as many as we had just two years ago. Three times as many properties and probably a third as many interested/qualified buyers--its a recipe for an epic market decline.

In February of this year, I wrote about a bet I had with a real estate agent friend. In that post, I explained that he and I had a bet as to whether or not the total amount of inventory of residential properties for sale would pass 20,000 units at any point in 2007. We kept the bet friendly at $100. I spoke my Realtor friend this morning (who I think was kidding when the threatened me with bodily harm if I revealed his name (besides, I could take him)) and he's agreed to pay on our bet.

Now don't get me wrong, the $100 is nice. Being right is even nicer. But 20,000 homes is one hell of a lot of property. With the profound tightness of the lending markets and the exodus from California at this point in time and history, I have to wonder who in the hell is going to buy these homes. And, with the loan resets coming due later this year and all of next, I can only see more inventory in the months to come. But where will the buyers come from?Unless both prices and interest rates drop precipitously, I think the answer (apart from the odd ex-pat foreigner) is nowhere.

Houses are too expensive, the market too weak and rents too cheap to even consider buying right now. In my opinion, even houses 10% below market are unattractive. For housing to rebound, we would need prices and rates to conspire to effectively lower prices an additional 15-20% before buyers are going to jump in with both feet.

Agents, you've seen me joke about it, you've heard me prod, but now I am being dead serious. This market is not going to recover until the cost of homes drops dramatically. If you want transaction counts (read: commissions) to rise, you have to convince sellers to lower their prices today. Talking up the market is only delaying the inevitable decline in prices and keep you from earning your commissions.

More Help for the NAR

According to the data available from the Melissa Data website, unit sales volumes are down dramatically over the last two years. According to them, in August of 2005 5,227 homes were sold in OC while last month only 2,253 were sold. That's a reduction of nearly 3,000 units or 56.9%. Brutal market.

Another interesting stat I was able to create from the fine Melissa Data information was the total value of homes sold by month here in OC. In August of 2005, roughly $3.65 billion dollars of residential real estate changed hands. Last month, only $1.76 billion worth the residential real estate was sold. That's a reduction of nearly $2 billion dollars. Epically brutal market, especially for RE agents.

Consider this, with a reduction of roughly $2 billion in transactions, at a 6% commission rate, Realtors collectively made $120,000,000 LESS in commissions than they did just 23 months ago--those poor bastards.

I've tried to help these poor souls in the past, but they keep on with their 'buyers on the fence', 'good time to buy' drivel trying to spark demand and get their transactions/dollar volumes/commission back up. Based on the inventory levels in OC, this strategy clearly is not working. But, don't worry guys, I am here to help.

At the top of this page, you'll find the latest installment in the OC Prudent Bears' 'Discuss it with a Realtor' campaign. Realtors, feel free to share this with ALL of your sellers, help your clients sell their homes and earn yourself a commission!

More than a Year of Inventory in OC RE Market

Steve Thomas at Remax Real Estate in Aliso Viejo calculates Orange County now has 12.2 months of inventory of homes currently on the market. Inventory numbers are certainly very high compared to the last two years, but the real culprit here seems to be a collapse in OC housing demand.

The following areas have inventories of less than ten months: Anaheim Hills, Brea, Canyon Areas, Cypress, Foothill Ranch, Huntington Beach, Laguna Woods, Mission Viejo, Rancho Santa Margarita and Seal Beach.

The following areas have inventories greater than fourteen months: Anaheim, Corona Del Mar, Dove Canyon, Garden Grove, Laguna Hills, La Habra, Lake Forest, Portola Hills, San Clemente, San Juan, Santa Ana, Talega, Tustin, Villa Park and all ranges above $2 million.

Read more here.

Very interesting analysis, to be sure...then out of nowhere, Steve suggests that it's probably a good time to buy and even employs the tired, noisome 'get off the fence' metaphor. With home sales as sluggish as they are, I can understand the need to drum up some business...but come on, Steve. Are you buying real estate right now, my friend?

Honest to God, every time I hear an RE agent try to explain why they think it's a good time to buy, well, I feel a bit like Brian in this classic snip of Family Guy:

VIVA LOS OSOS!

A Tale of Three Markets

There's been a lot of hoopla lately about the median home price in OC bumping up close to historic highs. The data, such as they are, seem to indicate that is the case, but remember here, that's true only if you're looking at the county-wide median price.

In the past, you've seen me and others deride the county-wide median price stat because of the sheer size and/or heterogeneity of OC. Talking about the county as a whole, particularly when using the flawed median as a metric, just doesn't tell one a whole lot. Parts of the county could be collapsing, while other parts rise, but when you throw every neighborhood in the county into one big bucket, all of that movement is washed out, all of the uniqueness statistically smoothed over. County-level stats just aren't granular enough to truly convey any meaningful information.

For the vibrancy and dynamism of the market to be seen, we need to analyze the market by segment. Simply by bucketing areas of the county together by similar characteristics and then analyzing them, patterns that betray notion that prices in the county are strong quickly appear, particularly if you look at homes by price segment.

I decided to divide OC's ZIPs into three segments based on median price: ZIPs with median prices less than 85% of the county-wide average (23 ZIPs) , ZIPs with median prices between 85 and 115% of the county median (33 ZIPs) and the last group with prices more than 115% of the median (27 ZIPs.) I then looked at the number of ZIPs in each group where the YOY sales volume and/or price were down. The results were dramatic.

In the ZIPs with the lowest prices, essentially all of the ZIPs were down in terms of price (91%) and volume (96%)--a profoundly weak segment. In the middle price group, both price and volume were down for 70% of ZIPs--a weak to very weak segment. While the most expensive ZIPs showed volumes down less than half of ZIPs, at 41%, and a relatively equal number of ZIPs (52% down) with price declines--a neutral segment. Clearly, OC is not one market, but at least three, varying from neutral to very weak in terms of their market strength.

Just to emphasize how different OC's price segments are performing, ZIPs in the lowest price range were roughly twice as likely to be down in terms of volumes and price as the most expensive ZIPs. Twice as likely.

Now, my personal area of interest are the middle ZIPs: white picket fences, middle class, 2.3 kids, regular folk. Fully 70% of those ZIPs have have dropped in terms of prices and volume. At 50%, we'd be at parity, but at 70% were in the midst of some serious volume/price weakness. As half a dozen Realtors told me today at open houses, this weakness could be a sign to buy, but as I explained to them, I don't think so. After all of the mortgage resets occur next summer and sellers panic, that may be a time to buy.

In the mean time bears, eschew claims that the "OC prices are strong", keep your financial powder dry, your FICO score up and enjoy another 12 months of cheap rent. Next summer if the middle is collapsing like the bottom price segment is today, it might, just might be time to get a great deal on a distressed home.

Viva los Osos!

How Many Can You Find?

Fourteen for sale signs (and two others)at the corner of Saybrook and Heil last weekend. Seems though HB's Harbor area is getting a little, if you will forgive the pun, liquid.

My guess is that this intersection has got to have the highest concentrations of for sale signs in the county, but I bet there are some that have nearly as many or maybe more.

If you find an intersection, stretch of road or a street corner with a lot of for sale signs, send it to hbbear at ocpredicts dot com and I'll post it on the site.

HB Joins the 1,000 Club

Huntington Beach has joined the ranks of infamy by passing 1,000 real estate units for sale within its borders. To get just a little idea of how happy this makes your blogger, click on YouTube vid below...the video is fun, but the music conveys, partially, the joy in my heart!

Are They Sure It's "A Good Time to Buy"?

We've been hearing a constant stream of propoganda from the NAR, NAHB and unscrupulous agents that it's a good time to buy. I submit it is time for them to put their money where their mouths are.

We've seen the ads in the paper and on TV and also heard them on the radio where those who benefit to profit from housing transactions are claiming it's "a good time to buy." You've seen me write about how absurd and unethical I believe their claims are, but yet the assault on our sensibilities continues. Go figure.

Clearly these salespeople must know something we don't. Maybe huge amounts of inventory, increasing defaults and foreclosures, historic credit-tightening and affordability actually don't matter and all those years of studying finance and economics have be, in fact, for naught. Apparently, these guys are on to some big secret that they aren't willing to articulate outright, but that feeds their certainty that real estate is still an excellent investment. But they aren't sharing, are they? Must be some kind of, ultra-pervasive, iron-clad non-disclosure agreement they all must have signed. It must be very frustrating to have this secret knowledge and not be able to share it with buyers.

I feel their pain. But I think I have come up with a way that they can convince us that is indeed a good time to buy; it's called a price guarantee and it works like this:

A buyer makes an offer that is accepted by the seller, the house goes through escrow and the buyer takes possession of the property. At the end of five years, the buyer is required to hire a professional appraiser who will determine the market value of the home. If the appraisal for the home comes in below the price the buyer paid, the agent/Realtor/clerk who sold the house would be required to reimburse the buyer for the difference. If the appraisal is above the sales price, the agent/Realtor/clerk who sold the house is off the hook and is under no further obligation.

Can you see the beauty of this? Realtors can now demonstrate their certitude that they believe it's a good time to buy by guaranteeing the price themselves! Now, the price guarantees would have to be collateralized in some way, preferably with some non-real estate asset; so, the NAR may have to place a few billion into a restricted use account to keep the RE clerks liquid. Of course, the clerks/NAR may want to spread the risk a little; so, maybe the could ping Lloyd's of London to see if they want to get in on the action. They're clever folks, they'll figure it out.

Now, it's going to take some time for this idea to spread, but I think if there's enough buyer demand for the program, it'll get legs. So, the next time you're looking at a house, ask the agent about a price guarantee. You will probably have to explain them, (clapping out the big words might help) but if you're patient, I am sure they will understand. Under the unlikely circumstance that they aren't willing to offer a price guarantee, ask them if they'd consider an offer of 20-25% under asking instead. It's got the same net-effect and doesn't have the burden of being a little difficult to understand.

I'm going to go try it out a couple of open houses today and encourage you to do the same.

Vivo los Osos!

Mission Viejo Breaks 1,000 Inventory Units

Congratulations to the newest member of the One Thousand Club, Mission Viejo!

According to ZIP Realty, Mission Viejo joined the infamous ranks of inventory-laden cities this morning at 1,007 units of inventory for sale. If you're shopping for a home in that city, be sure to whack an extra 10 or 15% off of your offer.

Mission Viejo sellers, gird your loins, you officially have lost ALL leverage in any price negotiations. Good luck.

Vivo los Osos!

OC Inventory Passes 18,000!

ZipRealty shows that there are more than 18,000 units for sale in OC.

We all have already heard that cities like Anaheim, Santa Ana and Irvine has more than 1,000 units for sale, but did you realize that there are other OC cities getting ready to join the 1,000 Club?

Leading the pack are Mission Viejo at 993 units and Huntington Beach at 930 units; that these cities will pass 1,000 units for sale this year, is a foregone conclusion.

At over 650 units for sale each, I would say that Garden Grove (732), Fullerton (681), Orange (753) and San Clemente (692) have a better than even money chance of passing 1,000 units this summer.

20,000+ units and unrestrained seller panic, here we come!

Everyone Selling a House in OC, Raise Their Hand!

According to ZIPRealty, the total number of properties for sale in Orange County is 17,779 which is already higher than the peak amount seen last year of 17,758. Not bad, considering it's only May16th and last year's peak happened at the end of August. Looks like it is going to be a long summer for sellers.

All of this is great news for buyers. Though it's still far from a good time to buy, things are lining up for some real bargains, maybe as early as next summer. Be patient, you will be rewarded.

Vivo los Osos!

A Modest Proposal for the NAR Marketing Team

This is one of my favorite posts from the past. I enjoyed writing it so much and the response to it was so positive, I thought I'd throw it up to the top of the list. If the NAHB keeps up with their nonsense, they may be next. Enjoy!

There I was, sitting on the couch, feet up on the ottoman, relaxing with a nice glass of single-malt, watching a little Letterman before bed and then it happened...a commercial from the NAR came on.

There were attractive families from an inclusive range of demographic groups, touring well-staged houses with up-beat music and some fairly good production values. The families all appeared happy and ready to sign on the dotted line for a home. The voice over for the ad among other things said that "When you have a family it is always a great time to buy", "prices are favorable" and "interest are at historic lows", but thankfully I'd only had the one Scotch and was able to resist the temptation to phone up the local 24-hour broker and place a bid on a home.

This bit of theatre was brought to us by the National Association of Realtors as part of their public awareness campaign titled: "Good Time to Buy." This multi-million dollar print, radio, outdoor, web and television campaign is designed to convince the public that buying now the smart thing to do. They even have banner ads for local agents to put on their sites, with my favorite banner being:


Now, don't get me wrong. I'd like to have a fence of my own some day, too. I'm not sure how proud I will be of my fence, but I think it were a good fence and it played nicely with the other neighborhood fences, I might be able to well up with pride like this fella in the ad. There's also a print version of the ad, that does a little better job of conveying the message, but only a little.

These ads are all target at we "fence-sitters" and are designed to compel us to join the fray and buy a fence (and possibly a home as well) of our own.

(Which I think raises a very important question. If we're fence-sitters, but we don't yet own our own fence, exactly whose fence is it that we're sitting on? Is it okay with that person that we sit on her fence? Is it considered a trespass to sit on another's fence? What if that fence borders a common area or is subject to an easement, are we okay then?)

The ads try to speak to the heart, playing on emotions, using messages and images of pride, choice and family security so we feel good about buying a home. They also address the head, telling us rates are low, prices are favorable (for whom, they don't say) and that there are a lot of choices (read: a lot inventory) so that buying at this point is the rational thing to do. But the ads fail on both counts and won't end up compelling a single person off the proverbial fence and into the real estate office.

It's not that we bubble-sitters don't understand all the social, emotional, status and (at some point in the future) economic benefits of home ownership--we do and we don't need to be sold on them and trying to do so is simply a waste of money. What they NAR needs to understand is that, while we appreciate the benefits of ownership, we aren't willing to pay today's price for those benefits. In other words, the cost/benefit ratio is out of whack and until it's corrected, we fence-sitters are not buying.

This may mean a redirection of their advertising dollar from the buyer to the seller.

I've heard many a realtor bemoan the fact that their sellers are unrealistic in their pricing expectations. Based on what I've seen on the market and the lengthening DOM for properties, I have every reason to believe that the Realtors are right. If the NAR were to spend as much time, energy and money educating owners on pricing and the benefits of pricing their homes correctly as they did reselling buyers on home ownership benefits, I think they could really impact sales volumes. With the price benefits ratio in alignment with buyer's expectations, home would start to sell and the commissions would start rolling in once again.

Now, I realize that our friends at the NAR have thrown down a lot of scratch on the "Good Time to Buy" campaign and that they might be a little tapped at the moment. So being the populist humanitarian that I am (we all need to make a living, right?), I thought I'd come up with some ideas, at no charge, to get things rolling. Below you will find some print ad examples for my pro bono seller campaign, "Discuss it with a Realtor."

This first piece is directed at a new seller (click on it for a larger image):

While this piece is directed toward price-stubborn sellers:


And this last piece is to motivate sellers in distress:

I'd like to invite our friends at the NAR to use these pieces, in any way they see fit, to help bring some life back to the real estate market. As I said before, I'm not looking for any payment for these ideas, I'm just trying to do my part.

Sorry So Long

Dear Readers,

As I write this from Terminal 'K' at Chicago Ohare Airport, I want to apologize for the long absence, but the day job has me on planes, trains and automobiles frequently. With that, and trying to be a good dad and husband and the desire to have a modicum of a social life, I just haven't had the time post lately. Hopefully soon I will find the time to catch up on the market and post a little analysis and commentary.

I have to be honest as well that I've lost a little of the steam behind my motivations for posting. You see, I started this blog to debunk the idea that housing prices were going to continue to rise in LA/OC. Now that I consider it a foregone conclusion that prices are set to drop and the bulls have been acting more like geldings, some of the passion's gone. But don't lose heart. I am certain that some some bovine idiot will say something stupid in the days to come and that will stoke my ire, causing me to make the time for the odd posting now and again.

In the mean time, keep the faith, offer bulls percussive maintenance when they need it and for crying out loud, wear sunscreen.