A veritable collection of crap
So much is being written about how high the inventory levels have risen in San Francisco in the past 8 months, and even more dramatically in the past four weeks.
And many media outlets would have you, the casual observer, believe that this is a sign of a coming apocalypse.
As you might imagine, I just don’t believe that.
And why not?
Because in my eight year career in this town, I have never seen so many crappy (or overpriced) listings on the market.
That’s about the best way I can put it. And it’s providing the appearance that there’s something dramatically wrong with the market.
So for this week, here’s my take on things:
What do I define as ‘crap’? It’s really all about pricing, honestly. If some sellers would just realize that their house with one bathroom off the back of the kitchen, which was remodeled twenty years ago, is not the second-coming of the Dwell home-of-the-year, then we’d all be just fine.
Likewise, when you look at the recent sales (from ’05, for example) and you see that the highest price for a unit in a building was $600k, don’t pretend that your unit is going to fetch $650k, no matter how badly you want it to. Most agents are smarter than that, and so are most buyers.
At the right price, everything in this town could sell in three days (not all at once, of course). So for buyers and sellers, what should you make of this market?
Sellers
- Hire a good, local agent
- Don’t pretend that your stuff is as nice as staging. It’s not.
- Learn the comps and don’t pretend you can tell the market what your house is worth. You can’t.
- Just because you paid too much for your house in multiple offers last year, you aren’t entitled to anything special this year. And see #3 above.
- And if you’ve done your homework and interviewed a couple of agents (or more), then let them do their job. And trust their abilities and information. I know agents rank right above used car salesmen for most people, but some of us actually know what we’re talking about.
- If you get an offer in this market, and especially if you get more than one offer, you should seriously consider taking it. There are a few exceptions to this, of course, but there are literally hundreds of sellers out there right now, houses sitting on the market, who turned down their first offer(s) in hopes of something better. And every single one of them is regretting that decision right now.
Buyers
- Hire a good, local agent
- Yes, I’ve read the newspapers, too. I know you want a bargain. But you can’t have both the perfect house AND the bargain.
- Yes, there is more inventory. Yes, it takes time to look at this inventory. So do your homework, look at as many houses as you can, but always be ready to write an offer if the right house comes along.
- If you really like a house, chances are it’s one of those that everyone else is waiting for, too. Don’t be afraid to write an offer the first day something comes on the market. But only if you’re willing to waive your self-imposed right to a bargain.
- And don’t think that this inventory will last forever. I’ve already been slammed for stating this, but I’ll say it again. We’ve already seen our new listing inventory peak for 2006, and you won’t see the large number of new listings hitting the market again until next spring. That means that if you’re looking for a bargain, watch some of the overpriced crap that’s sitting on the market now and start negotiating soon. Or someone else might.
- The ratio of accepted offers versus new listings will rise from now until the end of year (and perhaps till the end of January). That means that buyers will be more active than sellers. This doesn’t mean ‘seller’s market’, but it does mean that fewer people want to sell their homes in Oct/Nov/Dec than during other times of the year. And if you want that ‘perfect’ house, there’s less of a chance that you’ll see it happen in the fall.
To wrap this up, I’ll reiterate that for nearly everyone, this is a very good market. Sales prices in general are about where they were last year, and in many cases are up over the previous highs of 2005. But there are also many more opportunities (due to the higher inventory) than there were in previous years.
So take your pick: nice houses that sell quickly, or bargains on houses with small (or large) defects. There seems to be something for everyone right now.
And for sellers that bought more than 12 months ago and didn’t pull all of their equity out to take up a second career as a race car driver, they’re all just fine, too.
That’s my story, and as usual, I’m sticking to it.
Matt –
You have some classic “one liners” in there. Entertaining…
And I cannot agree with everything you’ve said here.
But I do say this is – by far – the best post you’ve ever written (that I’ve seen) and perhaps the most informative I’ve seen written on the SF market in a very, very, long time.
Well done!
sf jack at September 30th, 2006 at 12:02 am ( )Thanks, Jack. As one of my long-time readers and sometimes critics, I appreciate that!
Matt Lanning at September 30th, 2006 at 12:26 am ( )crap: (noun) piece of property that slumlord is trying to dump, rather than fix up.
Anonymous at September 30th, 2006 at 12:31 am ( )I guess everything is crap to you until the price goes so low that it sells. I strongly disagree. There are a lot of nice properties out there. More properties than there are buyers. It is not just that prices are too high. There is an overabundance of inventory out there. More supply than demand. Sure, we can create artificial demand by dramatically lowering prices. But for most people, their real estate is their biggest asset. Significant price reductions (I mean 15% or more) mean a significant hit to a lot of sellers. Why take the hit if you don’t have to. When the demand picks up, the asking prices will be supported again. So unless a seller desperatly needs out of a property due to cash flow, they are better off just to sit and wait, or maybe take it off the market. Its only the realtors that are desperate for commissions that are telling people to lower their prices. Another example of realtors looking after their own interests prior to that of their clients.
Anonymous at September 30th, 2006 at 8:01 am ( )Wow. You dug deep for that one… Where do you see anything in this post about anyone losing money or taking a ‘significant hit’? My point, if you’ll re-read the post, is that sellers are asking too much for houses with significant defects. Their house with three bedrooms and one bath is NOT worth as much as their neighbor’s house with three bedrooms, two baths, and a master suite. It just isn’t. But that’s where the disconnect lies.
And no, not everything is crap. I didn’t imply that either. Nor do we need to create artificial demand. Sellers just need to be a bit more realistic. And some of the blame definitely lies with real estate agents (not all agents are Realtors) who are ‘buying’ themselves listings by promising sellers the moon and the stars because they need another sale. They figure that it’s better to get the listing first, with promises of a huge sales price, then beat their seller up on price reductions until the house eventually sells.
But that goes back to everything that I said in my post. If you understand the market and you know your comparable sales, you’ll know if your house is properly priced or not.
And just because a house is a seller’s biggest asset does not entitle them to any special treatment, either. The market ALWAYS decides what a house is worth. So the question comes down to pricing.
And unless you paid too much in August of 2005 for a fixer, didn’t improve the property, and are trying to unload it now for a profit, you very likely don’t have anything to worry about.
But like I just said, the market will ALWAYS determine what a house is worth. My point is that the astute sellers and real estate agents can take advantage of what is still a very good market, while the rest will sit on their overpriced listing until the seller or the agent gets tired of open houses and reductions and either sells or pulls the property off of the market.
I’m sure that there are a few agents out there that really don’t care about their clients, but none of the good agents that I work with on a regular basis would fit that description. Some of us really love our jobs and we care deeply about the success and happiness of our clients.
And that’s exactly why home buyers and sellers should do their homework and pick an agent that WILL represent their client’s best interests ahead of their own.
Matt Lanning at September 30th, 2006 at 3:23 pm ( )Matt, I get annoyed with this statement as well…agents need properties to sell to make money. Sure, some agents (particularly new ones who haven’t had the time to set up appropriate reserves) may be in that boat – but the vast majority I know only succeed long term if their clients succeed and we know it.
Anonymous at October 1st, 2006 at 5:20 pm ( )I think the problem is that the market has been supported by psychology, not wages. Residential real estate simply costs too much. The bubble psychology has led people to get funny mortgages, but that doesn’t fix the problem. One of two things will happen: prices will fall (in real terms) or wages will rise.
Camille Roy at October 2nd, 2006 at 8:17 pm ( )You sound like Rebecca of Sunnybrook Farm. I sure hope your client have enough sense to see through your rose colored glasses. Let’s just wait and see what another year of refinancing of exotic loan products brings. This should prove most interesting given the the new tools available to lenders to verify income via the IRS, as well as the new rules from the Federal Reserve governing nontraditional mortgages http://www.federalreserve.gov/boarddocs/press/bcreg/2006/20060929/default.htm. There are a good number of liars loans in the SF market that will prove quite difficult to refinance. The smart money will wait for the real opportunities to come in 2007/08 after many of these unstable loans come home to roost.
Christopher Carrington at October 3rd, 2006 at 12:35 am ( )And these are the same ‘rose colored glasses’ that I wore in 2000 in the post-dot-com era, and again in 2001 after 9/11… And how did that work out?
I’m sure you would have given me the same ‘just wait till next year’ comment back then, too… If I only had a dollar for everytime I’ve heard that in the last eight years…
Someday you might actually be right, but at this point, my money is still in real estate.
Thanks for commenting!
Matt Lanning at October 3rd, 2006 at 1:30 am ( )Matt, you sound like those analysts in 1999-2000 that told people that they should buy Cisco, Juniper and Corning. Because they told you internet is growing to sky and these companies are the ones selling stuff to make internet faster. You know what after 6 years internet is still growing and you know where those stocks are.
Why do I think you are like the stock analyts because you make money ONLY if people buy/sell homes so its in your interest always to paint rosy picture. Have you ever told your clients look you folks are taking on too much debt given your salary, savings? Can you honestly tell that couple making combined income of $150K should be buying median property of $750K in San Francisco?
Subodh at October 3rd, 2006 at 5:41 pm ( )Sorry, but I just don’t get it..
I’ve been reading this string and I just don’t get why real estate agents in general and Matt in particular is part of the problem of pricing in San Francisco.
The world may be slowly changing and internet-based realty companies will eventually handle the bulk of all transactions but in the meantime realtors serve a need. Are there shady realtors that use questionable tactics? Absolutely. But every single one of us can point to less than honest individuals in our own lines of work. Its a fact of life.
If pricing issues were easily manipulated by real estate agents every single city in the country would be overpriced. But if you notice, its just the cities where a LOT of people want to live and the supply does not keep up with demand. (and I am not going to debate the laws of supply and demand)
subodh, do you think a ‘couple’ who has decided to buy a 750,000 home on a 150,000 income will listen to a realtor (who if he/she is smart will not give financial planning advice since the qualifications for giving such advice are different) telling them not to? No, they will just change realtors. They would be insulted that a realtor would try and tell them how to budget and spend their money.
I don’t agree with everthing Matt posts either but please, everyone, debate the message definitely but stop with the insults to the messenger. That is not what this medium is about.
Thank you and best regards.
CameronRex at October 3rd, 2006 at 6:10 pm ( )Thanks, Cameron.
The one thing I remind everyone here is that I continue to put my money where my mouth is. And if I were in the market for a house right now, I would be buying in the next three months. I would not have bought in August, I would not have bought in the first couple of weeks in September, and I would not buy something the day it went on the market. But that’s because no matter the market, there are smart decsions to be made.
I’m just here to help those who are going to buy and sell homes (there will ALWAYS be people buying and selling, no matter what the economic conditions) make better decisions.
I know compared to some sites out there (you know who you are) my picture might appear ‘rosy’, but I’m just giving you my own personal perspective.
I don’t do this because I think it’s going to help me buy or sell any more homes. I’m doing just fine, thank you. I just have lots of information and the ability/willingness to share it.
So debate away, but take all of this information for exactly what it is, one part of the bigger picture. If it applies to you, great. If you’re not in the market to buy or sell, then you’re likely to disagree with me. Period.
And if you are in the market to buy or sell and you adamantly disagree with me, then you might not be studying enough of the market… Or you’re drinking too much Bubble Kool-Aid…
Matt Lanning at October 3rd, 2006 at 6:23 pm ( )Matt, you’re a realtor, not a economist. You’re also an investor in the RE market as well, with a recent investment sale in this market too.
But as a realtor, your observations are correct about the current market. For a buyer, there hasn’t been a better time to be looking in the past year or so. But as a buyer, the fundamentals do seem a bit shaky right now and all the RE naysayer’s are starting to sound like they have some credibility, and the papers / media are only reporting what they are seeing, which are price reductions, withdraws, high DOM and high inventory. All trends that are only growing, and prices ARE declining in most areas. Yes, there are overpriced properties and sellers are only now having to change their mindset about value and appreciation. This is a first in a long time and could be the begining of a downturn.
What confuses me about your post is that you completely rule out the potential downsides of buying in this market. Buyers are driving this market now and they are testing the patience of sellers. So, yes, if you have to buy now, and plan on living there for 5 years, than this may be as good a time as any. Prices probably aren’t going to plummet 15%, but they very well could fall 5-10%. I’d argu that same houses today wouldn’t sell for what they did 12 months ago. And if you are only buying for 3 years, a 10% hit on value, plus 6% RE commission, and 1% transfer tax is simply a disaster scenario for anyone looking at a $1M+ home. That is a 170k in lost value. And that is the reason I just rented a flat for a year. Buying right now is a very scary and expensive proposition except for those that have built equity from previous home ownership, or plan on staying in the home for 5 years or more. I feel strongly that waiting a year to buy isn’t going to hurt me. I think the buyers market is here to stay for a little while. Unlike stocks, you can’t short sell the RE market. You can only rent. I’ve placed my bet.
Andy
PS: You knew this post would get a lot of attention
And it was a good post!
Anonymous at October 3rd, 2006 at 8:27 pm ( )I really admire your optimism, but I really question your appreciation of the broader market dynamics at work. You have never really lived through a market downturn and much of your real estate career happened during an unprecedented period of home appreciation (1996-2006). The question anyone should be asking now, as they contemplate the next five years and their real estate decisions: can I and my finances withstand a possible correction (or return to longer-term trend lines in housing appreciation)? What if the housing market (national and international) corrects, as it seems to be, and one looses 10-25% of the appreciation? Should you really take on an ARM under these circumstances? Can you really expect appreciation beyond the rate of inflation (the rate of SF appreciation over the last year http://www.benengebreth.org/housingtracker/location/California/SanFrancisco/. Will San Francisco really be immune to broader market dynamics? I have no complaints with real estate agents making a living, but a little candor about the the growning risks might be nice.
Christopher Carrington at October 3rd, 2006 at 8:43 pm ( )Andy, it’s actually worse than you paint, because the holding costs of owning (interest, taxes, insurance, hoa or maintenance) in SF are almost twice the cost of renting an equivalent property. From a financial standpoint, even static prices favor the renter at present.
giantaxe at October 3rd, 2006 at 9:11 pm ( )Axe, I am aware of all of those costs and its also what convinced me to rent, and not buy in this market. -Andy
Anonymous at October 3rd, 2006 at 10:30 pm ( )This is hilarious.
It feels like it is a little late too be hammering Matt about his “all is rosy” real estate stance for SF.
That is a known, a given, and it’s not going anywhere (for now, at least – capitulation could come later).
Where were some of you market “geniuses” a year ago, or six months ago, or even three months ago?
All times when I and others were saying what some of you have suddenly found time to say today… oh, and thanks for finally coming out of the woodwork.
AFTER the obvious. Could the elephant in the room have gotten any bigger?
Give Matt some credit. At least he, unlike almost every single other realtor/analyst in this cognitively-dissonant city, is willing to paint a picture of the market today.
A real picture – of how bad it is from a realtor perspective given recent history. He’s sticking his neck out now, with some good analysis.
And taking a stand about today. You’d have to be an idiot not to see that’s he decidedly not making a judgment on the future.
Jeez.
sf jack at October 4th, 2006 at 9:54 pm ( )Like a developer friend of mine always says, “It’s all in the buy.” Meaning, you make money in any market if you don’t overpay. For those of you who bought a long time ago and overpaid, time has taken care of you. If you bought recently and didn’t overpay (didn’t get overcome with the euphoria of the market) you also should be ok. But if you bought recently and did overpay and now need to sell, you are the ones that are going to get hurt by lowering your price to the new “market value”.
Matt, I have to ask you, for all those properties that you think are crap – overpriced – do you think the realtors had any input on what the listing price is? How credible do you think it makes the whole profession when realtors list the property at one price and then 2 – 4 weeks later beat up the seller and get them to drop the price?
For Cameronrex who doesn’t understand why realtors are part of the problem with pricing in San Francisco – who is it that most people trust to properly advise them on what there property should list for – THE REALTOR.
I must laugh at Matt’s advice for sellers to “do their homework” and know what the comps are. Isn’t that the realtors job? If the realtors aren’t doing it, why do we need them?
The least painful way for sellers to reduce their price is to sell it themselves and reduce the price by the amount that they would otherwise pay a realtor.
Anonymous at October 5th, 2006 at 5:41 pm ( )Do I think that some of those overpriced listings were somehow influenced by the agent? Sure. But my point was (and still is) that many of the overpriced listings are represented by agents who ‘bought’ the listing, meaning they promised that seller a higher price than the other agents who were interviewed for the job.
And that is also where I said that sellers should do their homework. With every market analysis, a seller will get a list of comparable properties that an agent thinks best represents how they arrived at their suggested asking price.
If a seller interviews three agents, they’ll likely get a nice, long list of comps that they can review and determine not necessarily who’s promising them the most money, but who has the best ‘read’ on the market and who is suggesting the most realistic marketing approach.
And I certainly don’t recommend that anyone sell their own house. I don’t even list my own houses. There’s too much emotion wrapped up in it to be subjective. Not to mention that the average consumer just doesn’t have the time or knowledge to sell their own house and not get themselves sued in the process.
And no, this isn’t because I’m trying to ‘protect the industry’. I truly believe that using a Realtor when buying and selling a home is something that has tremendous value. Not everyone will agree with me, and that’s why there is are FSBOs and the discount brokerage models that are out there. But rarely, if ever, do I see the sales price of a poorly listed home (such as a FSBO) garner a sales price that even comes close to making up for the savings in commission.
Matt Lanning at October 6th, 2006 at 12:16 am ( )Look I see it here in NYC, there is no way to afford the house i am renting unless you make the basement into an ILLEGAL 3rd apartment…
and then its iffy at $800K if 3 rental incomes will ever be cash flow break even.
But then where would I live?
Now at $400K i could rent out the 2 aprtment and live in the basement and convert the garage to a living room, and barely break even…
that is what we face when you seriouly condsider the numbers of a home purchase.
and truthfully why pay Double to own rather then rent?
Until someone can give me a great answer to that question, i believe real estate agents will be as useless in a few year as travel agents UNLESS you specialize in one small niche market.
Anonymous at October 6th, 2006 at 12:50 pm ( )So Matt, how do the price-to-rent ratios look? How quickly do you think those will revert to the mean?
JP at October 6th, 2006 at 1:50 pm ( )Can I rub your BALD HEAD for luck selling my home?
What happened to the 27%/year increases? I was planning on being a BILLIONAIRE!
This site told me I could be one!
RHFOOTBALL at October 6th, 2006 at 2:48 pm ( )