patrick.net

And another one from San Diego:

http://www.sandiegometro.com/2006/oct/resale.php

But sellers aren’t feeling very good about that little bit of appreciation.

‘If it’s priced more realistically, you’ll get more lookers and it will sell,’ advises Ethel Merriman, a Downtown real estate agent since 1999.

“Sellers are still bowing to the 11th commandment: thou shalt not sell thy real estate for less than thy neighbor,” Valone says. “Sellers are being understandably stubborn about holding on to their value.”

The problem with that approach is that buyers won’t look twice — because they don’t have to, says Ethel Merriman, who’s been selling Downtown homes since 1999.

“You can’t price like it was six months ago and you can’t price it too high and expect you will drop it during negotiations,” she says. “Sellers don’t want to hear that but it’s not their market any more.” And, she says, what keeps buyers away — the fear of falling prices — is reinforced by sellers pricing too high.

“When sellers price too high and then drop their prices, it tells potential buyers that prices are still dropping and it makes them reticent to buy,” Merriman says. “If it’s priced realistically, you’ll get more lookers and it will sell.”

And another one from SF:

http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2006/09/03/REGD4KU2B21.DTL

*****

"There's a disconnect between buyers and sellers," says Dona Crowder, a former president of the San Francisco Association of Realtors and a broker with Pacific Union-GMAC, "We've shifted to a normal market where buyers can negotiate, where they're no longer in hurry. But some sellers are not aware of the change."

She describes a recent listing in which sellers put their home on the market for $1.75 million but when they got a single offer for $1.68 million, with no contingencies, the sellers turned it down. "We urged them to take it," Crowder said, "but they didn't want to go below 1.7."

She says it's hard to convince sellers on issues regarding pricing because they are often basing their ideas on sales prices from months before. "Pricing is a matter of perspective. Until you have the perspective, you can't see anything."

Eventually, the asking price for the house was reduced to $1.699 million. It received no offers. Now it has been removed from the market and will soon be relisted at $1.599 million.

Indeed, as the real estate market comes to a screeching halt, agents are finding themselves in the unfamiliar role of dietitians for sellers whose eyes are bigger than their buildings. "It's a classic dilemma in the changing dynamics of real estate," explains John Asdourian with McGuire Realty "Both parties are slow to accept that change."

Of course, real estate agents have a vested interest in bringing sellers up to speed as quickly as possible. The more homes languish on the market, the worse their bottom line in commissions.

Both parties are slow to accept that change.

... in the beginning.

skibum

Thanks for those. They highlight my point exactly. The SF seller is already losing ground to the sale price they *could* have had as the early seller at $1.68. Let's say they paid $1.3. They had booked a gain of +$400K in their head, and envisioned the nicer home they were going to upgrade to.

So to them, $1.68 is a $20K loss, not a $380K gain.

As they get progressively deeper losses, they are ever more reluctant to sell. Escalation of commitment. They're listing for $1.59, which they'll see as a $100K loss, not a $300K gain.

Even notice the new listing price. $1.599. They're trying to mentally limit their "loss" to under $100K. I'll bet anything they *think* they're going to get multiple offers and get _over_ $1.599.

They'll rinse and repeat all the way down *below* their original purchase price. In fact, once they get to their original price, they'll just take it off the market and ride it out, if they can afford to and they don't have to move for some reason.

The only sellers in these early phases will be those who _must_ sell, or the few that actually have *professional* RE agents. The kind who can explain to Mr & Mrs retiree that selling for a lower than hoped for price really is in their best interest if they do it now, before all the other jokers are forced into reality.

skibum Says:

> She (a Realtor) describes a recent listing in which sellers
> put their home on the market for $1.75 million but when
> they got a single offer for $1.68 million, with no contingencies,
> the sellers turned it down. “We urged them to take it,”
> Crowder said, “but they didn’t want to go below 1.7.”
> Eventually, the asking price for the house was reduced to
> $1.699 million. It received no offers. Now it has been
> removed from the market and will soon be relisted
> at $1.599 million.

This does not make any sense since according to Confused Renter everything in SF sells for “above” list price…

RE: 4521 Billings Circle in Santa Clara

“The definition of insanity is doing the same thing over and over and expecting different results.”
–Benjamin Franklin

SFWoman,

I have heard of similar things - which is normally one person selling to another for an inflated price to take the "equity"out and then they do it again to take more"equity" out and eventually it will not appraise for more and then they will default and leave the mortgage company with an over inflated house. While they have the "equity" which has been pulled out.

I'm not sure this is the case here, as I cannot view the title documents - but it could be one possibility.

They seemed shocked when I told her to price it lower than anything else and sell it as fast as possible unless they have solid evidence that Bay Area condo buyers are making 50% more than they did in 2003…

Well... if lending standards somehow get lowered even further and interest rates go down to 1%... it would act like a 50% raise.

SFWoman Says:

> I looked up 130 Ord Street, a house featured on Socketsite,
> where they were making fun of the ‘creative owner financing’.
> (I think ‘Creative like Enron?’ was one thing they said)
> I looked at propertyshark and it appears that the title has been
> resold back and forth between the owners several times.
http://propertyshark.com/mason/san_francisco/Reports/showsection.html?propkey=30503755
> (It’s the info under title documents, they seem to keep selling the
> house to themselves) Why would this be done? Is it usual?

I have no idea where property shark gets their data but the data I have is:

Property: 130 Ord Street San Francisco, CA 94114
Parcel #: 2657-003
Owner(s): Wakeman Christopher J / Wakeman Mountf
Census Tract: 0204.00
Use: Sfr
Year Built: 1908
Sq. Feet: 2080
Lot Size: Ac/Sq Ft .0874 / 3807.14
Sale Date: 04/06/1995
Sale Price: $330,000.00
1st Loan: $230,000.00
Prior Sale Price: $310,000.00
Prior Sale Date: 00/00/1989

Zillow's past purchase info is going to do amazing things for future buyers' mental accounting.

I like to say that I'm the original "renting and loving it" person on this blog. I'm willing to buy, but only if owning is significantly cheaper than renting. This might change one day, but right now, no kids, no house, no worries.

Just got done getting my weekly dose of Mr. Serin. Quite a change of fortune from last week. In the span of one week he's managed to:

1. Get foreclosed on the Dallas property (after stupidly waiting too long on the lender's Deed-in-Lieu offer).
2. Piss off and alienate at least two sets of RE investors who were either a) trying to help/mentor him or b) make money off his notoriety.
3. Get zero payoff from his audience with Mr. Kiyosaki
4. Run through all of the money some bigger idiot lent him.

Still refuses to take any job that fails to meet his demanding "criteria", though.

I hereby revise my assessment of Mr. Serin: he's not a clever, full-of-shit sociopath masquerading as a naive idiot, he's a stupid, full-of-shit sociopath who exactly matches his web persona.

HARM,

I have my own set of job requirement:

1. I will only work in a job that pays for me to blog from home.

2. I need $10,000 a month for walking around money (my iPod needs filling!)

3. I will only blog on patrick.net or greencrabs.blogspot.com

Come on, someone has got to hire me!

HARM,

no worries, there won't be Japan style stagflation for 16 years. I know my countrymen well, they don't have that much cash to last even 16 months.

There are a few notable differences between Japan and US prior to their entering the housing bust. At the height of the bubble in Japan, there was NEVER any crazy loan packages as the ones we are seeing today, which put you right in the bracket of negative equity owner (NEOs) the moment you take out the loan. In Japan, the lowest I ever heard of at the top of the bubble was something like 10%, and as they sank deeper, they kept cutting down that minimum dp requirement to almost 0 down, which didn't happen until early 2000s. We start right off the bat from neg-am, interest only, 0 down, tell me how much lower we can go.

Japanese individuals were not as involved in house flipping as us, it never got to such a point that we reached. There were never as many house flipping shows on TV, I remember reading a lot about these stories on newspapers and columns, but not on TV. The key difference was, house flipping in Japan was more confined to the financially savvy Japanese (which I assure you, are not most of them). Most people were just stretching to buy their primary residence. Therefore, the resistance on the way down was much higher because obviously no one would want to let go his primary residence unless all alternatives were exhausted.

Japanese also entered the housing bubble with a national savings rate of around 15%. What's our savings rate? -1.5%?

Except for very few affluent neighborhoods, I am afraid the rest of the country will be in for a swift crash.

How about the housing bubble in Hong Kong, a lot of ordinary folks were involved (I visited in 1994 and they had 20% or so inflation caused by the bubble). And why do you think the prices are back up now (not to the peak of course).

I think prices are going down again. The Hong Kong property market is very volatile. Their "minor" corrections can mean a drop of 10-20%.

I believe half of Hong Kong's population live in public housing though. So a "house" is more of an asset than a home.

One thing though, AFAIK, the Hong Kong housing crash in 1997 did not bring prices back to 1990 level. Very far from it.

It often seems to me that the knowledge of bubble-burst is still a secret to many folks - esp in BA. I routinely meet with people who say prices are going to start increasing in the spring. This is the bottom. Some of the renters I meet are really tempted to buy and are now looking.

We need multiple months of YOY declines in median prices reported in "main street media". Period. Without the proof, the eternal "BA is different" optimists will not accept that RE is in trouble.

Especially the spring. Everyone is now looking forward to that. But a nasty surprise awaits them. It will be a first spring of -ve YOY in median in a long time. The prince per sqft will be lower YOY.

I have lost interest in the prices. This correction is going to take too long in BA. But I really want the snobbish BA psychology to suffer a reality check.

Bap33,

Well you certainly have struck a nerve there! This is the "A number 1" reason I post w/screen name. These "pocket listings" are out of control. I had a buddy selling his long time residence in SoCal. The realt-whore had no showings in like 2-3 months. I called my buddy and told him to fire the guy! (We were already into Jan. 06 and I was getting very nervous).

One call from my buddy to the realtor and it's sold in a week. Go figure? How do we combat that on the downside? Pffft, I'm open.

Bap33,

I know that of which you speak. It's particularly prevalent amongst ethnic minorities, since the customers are more naive and the realtors are almost all sharks. These guys grab all the good deals, then try to dump their own trash listings onto their buyers...their customers think they're saving 1-3% by buying or selling through them, but they're actually losing a bunch simply by trusting these snakes (my apologies to sharks and snakes).

(my apologies to sharks and snakes)

is it true realtors never get bitten by these out of professional courtesy?

I'd rant about pocket listings, but I'll let DinOR do it for me. Pocket listings piss me off. There is so much of that shit that goes on in Marin that I sometimes think there are really two real estate markets up here. One for the Prols and one for the Pigs.

You know, you guys make all realtors sound like brilliant, diabolical people who are out to generate commissions at any cost. Only George, FAB and a select few are held out as "stand up guys".

I would like to point out that the ranks of realtors have swelled tremendously during the boom because there was "easy money" involved. You're assuming that these rookies are smart enough to understand real finances themselves. This profession doesn't require a college degree. Hell, it barely requires any education whatsoever. There might be sharks and snakes running the "real" real estate show, but there are just as many naive little chipmunks amongst the realtors as there are in the sellers and buyers.

It's the same situation as with financial planners and stock brokers. There are some big fish who make a killing, either ethically by hard work or unethically by various IRS and SEC-questionable means. They really understand how the financial world operates and they have learned how to work the system. But for every big fish, there are lots and lots of little fish who are really just blindly following along with the big school, with nary a thought on how the markets really work, nor a desire to learn.

I have said this a lot lately IRL--I have no reason to believe conspiracy theories when plain old ignorance and laziness provide sufficient explanation. Believe me, if there's an "inside track" in real estate, you can bet that only the lifelong pros and the true illuminati are on it. 90% of realtors are just soccer mom types who wanted an easy part-time day job.

FAB, George, others... am I hitting close to the mark here?

Well you certainly have struck a nerve there! This is the “A number 1″ reason I post w/screen name. These “pocket listings” are out of control. I had a buddy selling his long time residence in SoCal.

Wait... what does that have to do with using a screen name?

Especially the spring. Everyone is now looking forward to that. But a nasty surprise awaits them. It will be a first spring of -ve YOY in median in a long time. The prince per sqft will be lower YOY.

The Silent Spring will follow the Winter of the FB's Discontent.

I'll tell you, I had the luxury of seeing this exact scenario play out in Boston last year. Sellerse there went through this process of dumping a ton of inventory on the market Spring 05 and Fall 05. Many listings got pulled and re-listed Spring O6, and a year later, lo and behold, they have nearly 10% negative YoY price declines from '05 to '06. Now I'm not saying this is what will happen here in the BA, but it does feel eerily familiar.

90% of realtors are just soccer mom types who wanted an easy part-time day job.

Or failed junior analysts like ConfusedRealtor.

CB,

Hong Kong's situation is a bit different. Only the NEW, luxury segment of the market in Hong Kong is back or surpassing 1997 price, the rest of the market are far from coming back to the nominal price of 1997. I wonder if they will in the next 10 years.

The reason why the luxury segment did so well in Hong Kong has a lot to do with the success of the financial elites in US, London, and Hong Kong alike. As the wall street has been handing out record-breaking bonuses in the last few years, Hong Kong has been doing the same. Lots of mega-billion IPOs deals from China's state-owned enterprises have been fueling the boom in the top property segment, and the top segment ONLY. Hong Kong is also a money laundering place for the richest people in China, Merrill estimates that there are about 250,000 millionaires in China, well, over half of them park their dough in Hong Kong. So Hong Kong is this small, physically bound city sitting on the top of the gigantic pyramid called China. I don't think the Hong Kong example is very much applicable to America, except for a handful of the most exclusive suburbs in the country, which obviously don't concern average folks like myself.

When Hong Kong people were generally involved in house flipping, I'd say an average flipper there had much more financial savvy and resources than an average flipper here. I do know many friends who engaged in apartment flippnig (not quite house flipping) at the peak, most of them had a big wad of cash to begin with. Also, in Hong Kong, apartment flipping involves far less risk than house flipping, no improvement, cosmetic or structural, is needed at all. At the height, the most prevalent kind of flipping was chip flipping.

Chip flipping works like this. Because there was a limit on the amount of land (determined by the Chinese and UK joint declaration) that could go on market for auction, there was indeed a shortage of supply, though artificial. So whenever a new project came online, lucky draw was employed to determine who got the slot to buy. Some developers allowed people to line up (for obvious PR reasons) a few days to determine the order of selecting units. Therefore, certain shady organizations (read: Chinese mafia) start to engage in the "lining up" business so that they could sell their seats to investors. Some investors could also sell their "lucky draw ticket" to other bigger idiots. Such ticket or seat went for $10K to $50K at the height.

What is pocket listing?

First report of October is out.

http://rereport.com/scc/csper/index.html

This is what makes BA so frustrating to wait. The median is still +5% YOY. August/Sept showed some signs of a trend forming and then comes the spoiler in Oct.

I know all about the problems of median, temporary pickups and the expected looooong drawn slide. I am not expecting a quick crash. I just want "it always goes up" myth to be shattered. It's happening in San Mateo, it's happening in East Bay, but the core Santa Clara area is amazingly resilient. Even a -0.5% for a few months is fine with me.

I am amazed. Frustrated, but still amazed.

Time check - are posts now showing correct (Pacific) time?

SP,

More than just an inside deal pocket listings deprive the seller the benefit of being listed in the MLS and bringing in all of the potential buyers. (This most frequently is done so that the "listing agent" can get paid on both ends). It may not even be an infraction depending on that particular local MLS!

With fines typically in the range of $500 to $1,000 is it any wonder this practice is so prevelant? Sheesh, at these prices it's hardly a deterrent to getting "both" ends of the commission. The realt-whore's position is if you pull this stunt often enough you'll be frowned upon and "may" get a suspension. Pffft, or they may beat you to death with a wet noodle!

StuckInBA

In even a sharply declining market, the month-to-month figures will be bumpy. The graph you show is a 3-month moving average that doesn't look so good to the fence sitter, but the accompanying text tells a different story.

There you see that year-on-year numbers are languishing, inventory has swelled, and only fallen off in the most recent month -- but is still far above year-ago levels. And closing prices are below asking/listing prices and falling.

Someday, years from now when people are debating the next down cycle, someone will look at 2006 data. They won't look at month-to-month data, but just the yearly aggregate. They'll see 2006 as a down year, and the beginning of a downwards cycle.

Brand,

I'm really torn by your description above of the typical "hack" offender. Your statement has a lot of truthiness (TM) to it. A LOT! But it's more complicated. While most of the new guys ARE struggling just to get the paperwork filled out correctly they've no doubt heard the office buzz about why "Chad" is really the biggest agent! They're not sure just yet "how" he does it, but they're itchin' to know. It's eating them up. So they become a student of the "practice" and resolve not only to master it, but also to never get caught. A scumbag is born.

*The above scenario while omitting the use of (he/she) or "Chad" is not intended to be gender specific in any way nor to deprive females their right to be scumbags.

More stuff about seller psychology in the main-STREET-media:

http://www.washingtonpost.com/wp-dyn/content/article/2006/11/03/AR2006110300666_pf.html

For Sale, By the Owner's Ego
Feelings Often Play as Big A Role as Logic in Setting Prices, Research Finds

By Kirstin Downey
Washington Post Staff Writer
Saturday, November 4, 2006; F01

*****

Interesting excerpts:

In other words, people will cling to prices they recall from a brighter day, even when market conditions have changed; they will walk away from a sale if they feel the buyer is getting too good a deal at their expense; and they are terrified that [if they sell now] the market will rebound and they will feel like fools.

"There's a whole emotional processing system that goes on in the brain that's largely beyond our control," said Kevin McCabe, a professor of economics, law and neuroscience at George Mason University. "The general view is that our emotions control us, and not vice versa."

Little of this research has been applied directly to real estate, but neuroeconomists say the principles would logically apply to housing, too. For example, much work has been done on the concept of "loss aversion," which shows that people tend to deny reality when something they own, such as stock, declines in value. They will keep holding that stock, confident the price will rise again if they wait long enough.

They do the same with their homes, maintaining the asking price even at a level that makes no sense, economists said. Similarly, home sellers become attached to the prices their neighbors received at the top of the market rather than current prices, and they become reluctant to sell unless they get that higher price.

"It's classic loss aversion," said Christopher J. Mayer, director of the Paul Milstein Center for Real Estate at Columbia Business School in New York. "You could do it, but you don't want to. You don't want to realize the loss. It leads to housing markets that don't function very well. You've got a lot of houses on the market and they aren't selling."

Mayer said that people allow their wishful thinking to overcome realistic perceptions because they don't want to view themselves as having made a mistake.

"People should recognize that what they do won't change the housing market," he said. "They could wish their house could sell for more money but it doesn't mean it will do so."

David Laibson, who teaches psychology and economics at Harvard University, said a common error people make is believing that homes can't drop in value below what they paid for them, and, in particular, that they can't fall below their mortgage amounts.

"There seems to be a psychological resistance to taking losses on the sale of a house," Laibson said. "People think they'll make money on it. . . . That logic worked for a long time, and now anyone who bet on that logic is being burned."

"That logic worked for a long time, and now anyone who bet on that logic is being burned"

Damn that's a great way to kick off a Friday! I'd read an article that said only "hard-core" serious sellers will keep their listing active this winter. Many will just de/re in the spring (when things will have returned to "normal") no doubt.

Ha Ha,

But but bu..... that's a fool's errand! You may well be right. If it were me I'd be running the other way claiming all the while that it was R's utter failure to reign in lenders gone wild that took a giant squat on their dreams (delusions) of early and comfortable retirement!

OO Says:

> What is pocket listing?

Then SP Says:

> An insider deal. I think George had explained
> how this works a few months ago?

When I was selling real estate we used the term “pocket listing” to describe both an actual exclusive listing agreement that “was still in our pocket and not yet in the system” (the most common use of the term) and a verbal agreement with an owner that he will look at offers and pay us a fee if we sell his property even though the property is not actually listed…

only “hard-core” serious sellers will keep their listing active this winter. Many will just de/re in the spring (when things will have returned to “normal”) no doubt.

I repeat: the Winter of the FB's Discontent, followed by the (surprise!) Silent Spring.

Sticky prices in action! (nod to Randy H).

SP

Is there enough data on this (current and historical) to use this bid/ask spread as an indicator? I would guess not, given the low volume, but just asking in case someone has figured this out.

There is not enough reliable data. In fact, there is no way to get true BID prices, the best you can do is get settlement price and ASK. And ASK really depends upon the accuracy of MLS, so take it for what it's worth. I suppose you could make some assumptions from that to extrapolate BID, but I wouldn't trust it much.

There could be a business opportunity here for anyone who wanted to figure out a statistical sample surveying buyers and (less importantly) sellers immediately after a transaction to produce said data. I'm not sure the data would be worth the cost of producing it, though.

Look for the Dems to try to fix the housing problem over the next two years.

HOW?

The policy which seems to be most apparent to ease the pinch on FB's would be that the FED and mortgage lenders drop interest rates. Japan had a parallel housing bust. On the way down, rates approached zero, to encourage FB's to keep their properties with negative equity, and to stimulate the economy. Lower rates may soften the crash, in some cases.

Next year, approximately 1.7 TRILLION dollars of Frankenstein financing will reset, or adjust. There will be an unprecedented need to "fix" the situation...

neuroeconomists

L O L

What next, psychoneurobehavioralmacroneoclassicalmicroaustrianeconometricist?