patrick.net

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?

@Randy and SP,

Another potentially confounding factor to your equation is this: many local MLS's use the last listing price after reductions as the "ask" price in calculating asking vs. closing price. This is extremely misleading, as it doesn't account for any price reductions. Does anyone know if this is the case locally?

@Randy H,

Funny. I was wondering if there was such a thing, or if the "expert" in the story just made up his own title.

BTW, can you translate that neologism of yours into German?

skibum

I ran the idea a while back for creating an address (or some other globally unique identifier) driven persistent history database for MLS data. Some kind of crawler that would ping MLS data and pull asking price data then reassign to a persistent key, not MLS#.

The reason being that many properties de/re list with new MLS#'s, sometimes even just the next week. In this case there's no way to easily figure out bid/ask spread.

Zip Realty has something sorta along these lines, but it's incomplete and not very accurate.

Skibum

BTW, can you translate that neologism of yours into German?

No.

Option Dude,

I'm thinking of running another ZIRP thread this weekend.

"there is no way to get true BID prices"

Sir Randal H esq. here's a question for you cutting edge of technolgy types out there. Why not?

It's 2006. Why are we still handling RE offers like they were written with a quill? (As soon this wax melts I'll affix my seal?) WTF? I mean ultimately the offer is faxed to the buyer's agent right? Would it be possible to simply make your offer DIRECTLY over the internet and then keep records of those offers?

Oh wait, that would render RE agents totally worthless now wouldn't it?

Fetch me my cape and call for the coachman to bring the carriage 'round! I'm off to tender on a "manse"! Out of my way you peasants!

This just in, folks. A diplomatic warning to the Democrats to not press China too hard on trade-practices and currency-manipulation:

“China has a clear plan to diversify its $1 trillion foreign exchange reserves and is considering various options to do so, central bank governor Zhou Xiaochuan said on Thursday.” - Reuters

It will be interesting to see if the Democrats give in to the pressure, or if they decide to initiate a trade war with China. If they do go the trade war route, it should add fuel to the housing collapse fire. If China "diversifies," then the dollar would presumably collapse, causing long term interest rates to spike and forcing the Fed to raise short term rates, which would make houses even less affordable.

I think if Pelosi and Rangel have their way, they will lead the China-bashing charge and pass a bunch of lousy trade laws. Hopefully cooler heads will prevail, but I'm not too optimistic. Most Americans have forgotten what really high inflation feels like. Everyone takes cheap imports for granted. And China is a convenient scapegoat for US economic problems. Moreover, very few voters understand the connection between trade policy and inflation. So the Democrats will have a mandate to try to squeeze China. "Blowback" will be the inevitable result.

Bush has given in to protectionist pressures before and he is a hostage to Democratic plans, given his strong desire to maintain his Iraq policy. He is also clearly not a visionary, big-picture thinker. My fear is that we will see myopic populism trump pragmatism.

If this plays out, then inflation will really take hold. The bull market in commodities should continue. The Fed will need to get much aggressive in raising rates to keep dollars flowing to the US. The housing collapse will be longer and deeper than necessary, causing much anguish and gnashing of teeth. Maybe 2016 will be a good time to buy a house. I hope this blog is still around by then.

Not investment advice

-faxed to the buyer's agent
+faxed to the SELLER's agent!

Recorded as:

MLS # 539874 @ 1.25m
Orig. 1.15m 11/10/06 11:59am w/1 pt. SBD DC
CO. 1.15m 11/10/06 1:57pm w/o 1 pt. SBD
CCO. 1.15m 11/10/06 4:59pm w/ 1/2 pt. SBD AC

etc. etc.

Dinor,

Excellent idea re: a public market for real estate. You can already buy or sell real estate on Ebay. This practice should become more prevalent as sellers (especially institutional sellers) get more desperate to unload listings.

We have seen what Ebay did to the market for baseball cards. I suspect better access to market data could also contribute to a decline in housing prices.

Some entrepeneur really should create a site which is customized for real estate auctions (or Ebay should improve its RE section). You should be able write your offer using an electronic version of the standard purchase agreement for your state as a starting point, with the ability to add terms or strike out language as desired. Anyone looking at the site should be able to review all of the details of all offers submitted (financing, contingencies, inspection rights, allocation of costs, etc.). This would create a competitive bidding process. There should even be a privacy-protected way to review bidders' financials.

I predict that something like this will be available in the next five years or so from Ebay, Redfin or some new upstart company. The market opportunity is too great to ignore.

@Glen,

An unknown to me at this point is, how influential are Unions to the Dems these days? Their time seems to be waning (Uniondammerung?) and they were a key part of the Dems' protectionist views and dislike of open trade. However, Rangel especially is an "old time" Dem, and a stupid one at that. Plus, he dresses like he thinks he's a gangster-dandy from the 1930's hanging out with Al Capone.

DinOR

You have a way with words. There is no excuse in the current day and age for RE transactions to be handled as they are, other than maintaining status quo de facto monopoly power.

Fetch me my cape and call for the coachman to bring the carriage ’round! I’m off to tender on a “manse”! Out of my way you peasants!

@DinOR,

Hilarious! This makes me picture David Learah dressed in top hat, cape, and cheesy villain mustache:

http://content.answers.com/main/content/wp/en-commons/thumb/c/ca/180px-Villianc.svg.png

Glen,

I agree with every point except for the real-interest rates necessarily forcing up nominal-interest rates.

I rather think the US would, facing blowback from protectionism, become even more protectionist. In such an environ we'd be more likely to head down towards ZIRP than force a recession to defend the dollar.

When I look at the total global picture I see other countries & trading blocks much farther up the protectionism curve than the US. The EU has been turning extremely protectionist. They are practically begging for an all out trade-war with the US. They're trying to protect themselves from US software, US microchips, US aircraft & related, and US agriculture.

If we're indeed slipping away from globalization then there will be a dramatic rise in demand for USDs as an offset to rapidly slowing growth in Europe. In the worst case scenario, the US loses out on about 1/5 to 1/4 GDP potential with total protectionism. The EU probably loses the U part of the EU, as the western economies come crashing down under the weight of their social entitlements.

China will continue to demand USDs for at least another decade. If I were in charge I'd consider calling their bluff. If they want to threaten to not buy USDs then we should demand floating RMB, open capital market access, and elimination of all their punitive import tariffs. If they refuse I say let them eat their implied 40%-50% per year inflation, and good luck with that. (Of course meanwhile we'd do well to help Japan rearm and develop nukes).

Glen,

You address some very serious and sober issues in your previous post. Some I hadn't even really considered and I want you to save those for MONDAY when I'm in a crappy mode anyway OK! Oh I hear ya!

I'm not throwing down the gauntlet here w/Randy (un-wise any day of the week) but these market gyrations have gone on in RE for centuries. As far as I can tell they'll continue. Why not modernize them and bring it into the realm of the "information age"?

Back in the 1960's the NYSE had legions of clerks. They worked all night and barely had every trade manually entered from the prior trading session just in time to meet the next market open. It was a nightmare and some of my mentors over the years started out in this meat grinder.

Enter "DOT" and then "Super DOT", but..... we did it. RE transactions would be absolutely dwarfed by equity volume standards. When I bought my first house not every office had a fax machine so the realtor DROVE the offer to the sellers RE office! My how things have changed!

DinOR

The primary difference is the existence of the SEC as an empowered regulatory agency over capital markets, both public and private (many people don't realize the SEC has power over private companies & markets too, just they choose to not enforce public reporting or audits).

Add to that the SECs delegation of industry "self-regulation" vis-a-vis FASB, and the subsequent body of standards known as GAAP.

So in finance, recent dalliances excepted, everyone is keeping score the same way and playing by the same rules. When someone breaks those rules or ignores those standards they are investigated and punished, with credibility.

Real-estate would need a similar apparatus for any normalization and harmonization to occur.

That won't happen until something like the events that caused the creation of the SEC happen in RE.

Randy H,

Thanks and exactly. A big part of the "value" for these RE firms purportedly bring to the table is the "handling" of the offer. BFD.

Anyway, globalization and ZIRP aside for just a sec? A buddy of mine and I are trying to set up a "contact database" that we both can access, use and update. I normally just use outlook but are you (or anyone) aware of anything that we can use that's affordable yet reasonably secure?

just they choose to not require public reporting or audits [of private companies or private markets])

Outlook is what most people use. To share you'd need to subscribe to a hosted Exchange Server service or set up your own server. I used to use www.bizatlarge.net in Chicago.

You might be able to use LinkedIn also, depending upon what you want to do. www.linkedin.com

Randy H,

Agreed. I've even been told some of the local MLS don't even cooperate with one another let alone surrender autonomy to some regulatory body. Perhaps the only way for it to be implemented at this point would be to have a "test market" and show realtors they could double, no triple their revenue stream! (Then they'd be all over it).

Oh man, I just went to LinkedIn for the first time in apparently way too long. Way too many messages in my inbox.

Plus, he dresses like he thinks he’s a gangster-dandy from the 1930’s hanging out with Al Capone.

skibum,
Kudos on your critique of Rangel style. You nailed it. You should be on "What not to wear"!

You are right that union power is in decline. However, scapegoating never goes out of style. As the housing bubble continues to unwind, angry voters will be looking to vote for angry politicians. It is no longer safe for Democrats to attack "the rich" (since many Democrats are rich, or at least aspire to be). Latinos are now 15% of the population (and perhaps 20-25% of the Democratic party) and the number of foreign-born Americans continues to increase, so scapegoating immigrants is out. But China is still a convenient target for political posturing. Democrats will be looking for a way to tap into xenophobic sentiment without being too explicit about it. China will be a top target.

If I were in charge of China's policy toward the US, I would employ a two-pronged strategy:
1. Stick: See above comments on currency diversification; and
2. Carrot: initiate a "charm offensive" to familiarize Americans with Chinese people and culture and persuade Americans that China is not setting out to destroy or "take over" America or "steal American jobs." Convince Americans that China is committed to improved labor and environmental standards, etc...

Randy H,

So true. I've had clients that own "private non-voting" stock and treat the shares like baseball cards. Ahh, if they only knew!

Bap33,

Scuzzbutts, I like it.

The scenario you describe above simply has got to stop! I call it "sleeping in the same bed". Probably didn't invent it but it's accurate.

DinOR

I'm sure you know as well as I, having started various C-Corps, made S Elections, LLCs, the whole shebang. Every time you lawyer (should) have you file a little exemption form vis-a-vis your equity shares. That little form is an SEC registration, telling them that this company requests exemption from public reporting and disclosure requirements. I think CA has its own version of all that too.

I believe one of the legendary reasons Google went public was because of either revenue or employees? Either can trigger forced public reporting, even for private companies. At that point, might as well sell the shares on the markets and take the $. This is also why huge companies like Ford can't go private in a LBO unless they dissect the company into pieces.

Oh yea, and the SEC is getting way more active in Private Equity and Hedge Funds of late. I wouldn't be surprised to see a lot more registration, reporting, and disclosure rules forced on those "private" markets.

I'm so glad alot of sellers were stubborn with reducing their asking prices;thus heavily driving up inventories. Without all this, prices would stabilize much quicker. Instead, the inventory will sharply increase by the spring before the panic really begins. I'm looking forward to a very exciting spring :)