Vancouver Real Estate: Of Crystal Balls and Market Bottoms

Loyal readers of this blog (yes, both of you    ) know that I have been rather skeptical of the propaganda distributed by local real estate organizations and pimped out through the Columbian. For most of the past two years, I have doubted their calls for a real estate rally and dismissed the five or six market bottoms they called.  But now, my analysis of the numbers finally says we actually may be on to something.

As you know, I am a fan of the old stock market axiom that numbers don’t lie, people (with agendas) do. So I have been looking to the numbers, not the press releases, to tell us what to expect next.  Real Estate 101 tells us its all about supply and demand, not sound bites and catch-phrases.  In September 2007, right after the National Association of Realtors and the Builders trade group launched their “NOW is the time to buy” ad campaign, I said this:

Sorry, but to the average Jane homebuyer out there, the Association of Realtors and the Builders sitting on loads of inventory are not the greatest, most credible source for, shall we say, unbiased information. They want houses to sell, NOW… But, candidly, it may get worse before it gets better.  Anyone who tells you they know for sure that NOW IS THE TIME to buy… well, I’d say “run Forrest, run”, away, as fast as you can. I’m not going all negative here, but call me a realist.

Of course, as we know, even as they launched that campaign, sales continued to dry up, inventory exploded and prices dropped precipitously. We will give them some credit, maybe they were just a little “early”.

Anyway, as I’ve told anyone who would listen, we are struggling to find a bottom and have been somewhere in the lower part of a “U”-shaped bottom for months now. So as I looked at this month’s market data, my analysis gave me a glimmer of hope. Months of Inventory is at the lowest point since Fall of 2007, and has been reduced by a staggering 44.3% since January alone.  That’s a big number.

As important, March Y/Y Months of Inventory saw the first reduction since August, 2005. Read that again, I’ll wait. It’s been almost four years of continually advancing inventory ratios. That was one of the primary formulas I used when telling my agents in September, 2005 that we were forming a top in the market. Price appreciation continued for several more months, but we ultimately “saw the other side of the mountain” and have lived and breathed the new market realities that eventually developed.

Look, I’m not an economist, I’m using math learned in public schools, and all this is simply my interpretation from an “on the ground” perspective. But, I think we may finally be getting our arms around the inventory issues.  There WILL likely be another (smaller) wave of short-sales and foreclosures, and that will continue to work negatively on values.  Pricing depreciation may continue – albeit much more slowly – for a while, but the bottom in values will follow the bottom in inventory and then we can get back to some semblance of normalcy in the real estate market. Not rocketing appreciating nor plummeting values… a simple, equitable, manageable, sustainable and therefore healthy market.

If this doesn’t come to pass, look for my crystal ball for sale on eBay soon.

Market Stats so Scary they were Released on Friday the 13th

The local Vancouver Clark County Real Estate market report, as generated by RMLS, came out Friday the 13th of all days,and whether you are a Triskaidekaphobiac or not, these were some scary numbers.

While Months of Inventory (of houses for sale) was down January to February, it was up year-over-year/February. There’s enough real estate data points, ratios and percentages to give anybody wiggle room to spin this report. Really, with enough paint, you can paint this report any color you’d like… as for me, my favorite color has always been transparent.  I know lots of folks can simply throw out the numbers. And while that is the easiest way to get information into the public’s eye, I prefer to dig a little deeper and look at those same numbers from multiple, transparent, perspectives.

Most importantly, where will the Vancouver Clark County real estate market go from here? As a reminder, Months of Inventory (MOI) is defined by dividing the Active Listings at the end of that month by the Number of Closed Sales during that month [Active/Closed]. In my humble opinion, MOI is a key indicator of where we are at and where we are going.  Says something about supply and demand.  I guess that’s important economic mumbo-jumbo.

With MOI in the Vancouver Clark County real estate market standing at 18.6 months in February, it was a 11.4% decrease in MOI from January (yay!), sounds good right?  Sure, but February historically has a decrease in MOI from January.  Problem being that when you consider the average MOI decrease over the past two years from January to February was more than 17%, it doesn’t smell as pretty. Basically, while we decreased MOI January to February, we did it at a slower than historical rate.  In technical jargon, that’s called a bummer.  Still with me?

OK. So we get that the reduction in MOI was slower January to February this year than in the past, that’s just one number.  While I agree, lets continue digging.  Unless you’ve been living under a rock (whereby you’d have little concern about the time it takes to sell a house) you know that MOI has been increasing year over year for the past three years.  More importantly to me is the rate of increase.  For the last four months of 2008, the average year-over-year increase in MOI was 21.2% – that by itself is a BIG number.  Problem is that in January, that number grew to 23.5% and in February, it was 27.4% – Yikes!  While the Law of Large Numbers says it can’t go on this way forever, the year-over-year MOI number is still expanding. Not a good thing.

Back to my question… where do we need to go from here?  Please understand, I bought my crystal ball off of eBay, so I’m not saying its perfect.  But here’s what I’d look for in the March report.  I’d like to see the MOI for Vancouver Clark County in the 14.6-14.9 range (or less, of course!).  One, that would gain some positive traction for decreasing the historical February to March MOI reductions; and two, that would reverse the trend of expanding year-over-year percentage increases back below the number from the past three months. Now really, while I’d like to see that number at about 7.5, I’d simply take movement in the right direction for  now.

I know, them there’s a lot of numbers. And while I may come across as the boogie-man on a scary Friday, I really do think we are searching for a bottom. I talked before about not buying the rah-rah hype.  But, I believe we are finally closer to the bottom than we are the top. The last three offers I’ve written for clients all had multiple offers on the house. Pricing numbers are well on their way to returning to the historical trendline. We’ll likely continue to have an influx of short-sale and repo/REO inventory that will keep a lid on an explosive bounce from the bottom, but if trading stocks for six years in a previous life taught me anything, I know that no one rings a bell when it’s time to buy.

So while it may be scary out there, it’s always darkest before the dawn.

Vancouver Real Estate: Where Priced Right Really is Half Sold

If you’re going to have go there eventually, why put off the inevitable?

I’m talking, specifically, about those two words sellers fear and buyers expect “Price Reduced”.

It doesn’t HAVE to be that way though.  I’ve recently had the chance to dig deep into some data.  I did a dissection of some Real Estate stats from the Vancouver, Clark County real estate market during September, 2008 that puts a huge exclamation point on the old adage “Priced right is half Sold!”

I took a detailed look at the sold Single Family Residential homes in September, 2008, specifically looking for correlation between Sales Price and Days on Market.  The results were nothing short of startling.

Of these sales transactions, 27.4% sold in less than 30 days,  I found this to be a surprisingly high number, based on the current state of the market.  Additionally, nearly one-third (32.7%) of the transactions took 100 or more days to sell, a number I thought would be higher.  But then I remembered: this data was based on the now-modified concept of “Current Days on Market” – which only defined market time based on the most recent active listing for that property (vs. Total or Cumulative Days on Market – which is, get this, based on the cumulative days on market…). Anyhow, I recently dissected this change and what it means to time on market.

More to the point, however, was the Pricing aspect of all this.  Get this:

Of the homes that sold in 30 days or less, the Sales Price was, on average, a miniscule 0.44% discount to the original asking Price… in other words, over 99.5 Cents on the Dollar to their asking price. Wow.

But, as always, there are folks who start out high, hoping for the best, before the reality of the market pulls the rug out from underneath them.  Of the folks who sold with a “Current” Days on Market time of over 120 days, their selling price was, on average, a whopping 14.61% drop from their original asking price.  And with an average current DOM for these folks of 193.3 days (yes, almost seven months)… well, I bet they wish they had just priced it right to start with.

Again, it seems a house – priced right – is half sold. Especially houses for sale in today’s Vancouver and Clark County real estate market. Assuming you had already eliminated dart-throwing or pulling a number out of a hat as the best way to price a house for sale, for more in-depth analysis and a well-thought out selling strategy I know a guy who can figure out how to put two halves together and get a house sold.

Clark County Real Estate: “Days on Market” Doubles!

Well, not really, but the headline caught your attention, no?

Days on Market (how long it takes a home to sell in the Vancouver/Clark County market) jumped from 75 in September, 2007 to 146 in September, 2008, a 94.7% jump, at least according to the details in the way the Columbian reported the September number.  Yikes!

Now, as Paul Harvey used to say, the rest of the story.

Because of the recent challenges in the market, RMLS (the multiple listing service that includes Vancouver, Clark County and Southwest Washington) changed the way they calculated Days on Market (DOM).  The move seemed focused on changing seller’s “expectations” of how long it takes to sell.

The old way, a representation of the current listing DOM, was determined based on only the most recent real estate listing. Where the new “Total” Market Time, reflects the cumulative number of days on the market, including those from a previous real estate listing (so long as the house wasn’t off the market for more than 31 days in between).

Clear as Mud Pie?

Regardless of the complexity of the definitions and massaging of numbers, the new way is actually a much better reflection of the time it takes to sell a home.

Days on Market is a key factor in a listing, especially to buyers. Our free home search service on our site www.search360homes.com allows buyers to sort their search based on time on market, and in conjunction with our daily updates, is a great way to stay on top of the what’s new (or old, if you so desire) on the market.

For kicks, I searched our site and with a little sleuthing found that the “oldest” currently active home on the market has been for sale for 756 days, and counting.  Yes, Seven Hundred Fifty Six.  That’s a lot of time to make mud pies.

Is 17 Your Lucky Number…?

Not if you are a seller in today’s Clark County real estate market.

No matter how many ways I’ve looked at the recent statistics from the local MLS, well, they ain’t purdy (with apologies to all my English teachers). Average “Months of Inventory” (MOI) now stands at 17 months. OK, so that’s a tad bit different than the 1.7 Months of Inventory (MOI) in the Portland market in the summer of 2005. Amazing the difference a decimal point can make!

(A quick reminder, MOI is defined as the time it would take to sell all the houses currently up for sale, based on the number of actual sales, if no new inventory came on the market. Opinions vary, but a market with healthy balance and equilibrium will have between 6.0 and 8.5 MOI. )

As always, we see different areas of town vary in their market performance. If you are looking to sell your home in Fisher’s Landing (7.3 MOI) or Salmon Creek (10.5 MOI) you likely stand a better shot than say, Washougal (33.6 MOI). Yipes!

With the amount of competition throughout the Clark County real estate market, it behooves a seller to be properly positioned. I have talked before about the fact that only the best deals are getting done. And remember, “best” does NOT simply mean just cheapest price, but a well thought out strategy, combining price and condition that creates an unbeatable market presence compared to competing inventory.

We have recently started doing a complete staging analysis as part of some of our home-selling packages. We bring in someone to add another set of eyeballs to the evaluation of property condition and what needs to be done to facilitate a timely sale. While these detailed reports tend to be very, shall we say, well, detailed, I’ve made my sellers promise not to beat the messenger, because in this market, a smart seller will take all the help they can get.

Yes, Virginia, There are Still Buyers in the Market

As the wonder of the Christmas season comes upon us, we are reminded of the simple gifts we look for.

Peace on Earth, Goodwill toward Man (and Woman, of course) and maybe a buyer for this wonderful Greenbelt home in Lakeshore. OK, that last part might be a little selfish for the season, but you get the point.

Anyway, with 4,470 homes on the market and, lets see, count ‘em, one, two, uh, three… um, six buyers, its a far cry from the go-go days of 2004. Of course, a majority of the agents in the business here locally weren’t even licensed in 2004, but that’s a rant for another day. Nonetheless, my exaggeration(s) notwithstanding, there are Buyers out there. I know, I am fortunate enough to have a couple of them (and I am NOT telling anyone where I have them hidden).

In a recent moment of nostalgia for those gory glory days of 2004-05, I recently had a Buyer (yes, Virginia, there is a Santa Claus) sit down to write an offer on this adorable ranch home over on the east side. We are discussing comps and price points and timing and negotiation and strategy and, well, stuff. The house has been on the market a whopping 50 days or so, a proverbial New-York second in this selling season of this year. It did recently have a price reduction (now there’s something different, NOTE: sarcasm alert!), which brought it in line with my Buyers starting point for negotiation.

In an effort to extract some additional concessions clarify some basic pre-offer information, I call the listing agent. At this point. it all starts to get a little fuzzy, but here’s my take on it. First, we must have had a horrible phone connection, because I could swear he said that they had just finalized a signed-around offer. Certain that it was the call quality, not my hearing, or -gasp- the truth, I did what anybody would do in that situation… I hung up and called back. Unfortunately, the technology was fine, the house had…wait for it…patience…here it comes… an “accepted offer”. Wow.

Now I remember the multiple-offer days of lore… remember historically 71.4% of my business is on the Listing side, so I know what it’s like to be part of the “sorry, we have another offer (or two)” conversation. Many of those, in the day. Ahhh. Oh. Sorry, was getting all misty-eyed there. Must be the dust.

I actually have a point (enough with the Bronx cheer, already). Point is, there are Buyers out there. Really. I know there are sellers who doubt the validity of this theory about now, but even with the number of transactions down sharply, this house sold and had other potential buyers, because it was A) priced reasonably, (although it did need one reduction to get there), and 2) was impeccably staged. Really. The house was relatively small for the price, but the statistical analysis of those comps were ignored (at least by my Buyer) relative to the staging, the creation of the atmosphere of home, that this house had. I have talked before about pricing and staging and the fact that only the best deals are getting done. “Best” in this case, and many others, is defined in subjective terms.

I give kudos to this seller and their agent for positioning the house to sell. However, I am certain that Santa would have preferred the transaction to have included my Buyer. Now I have to figure out how to explain this to Virginia.

CSI: Clark County Real Estate… It’s a Crime this House Didn’t Sell!

I’ve been doing this a while, not “Index cards and MLS Book” while, but long enough to know that things are different now.

Out of the hundreds of transaction sides I’ve been part of in the last ten years or so, I have seen my share of those houses where I scratched my head, thinking “THAT sold?” Well, in many cases it was a function of the market.  Economics 101.  Supply and Demand.  Exotic, WTH Mortgages.  That kind of thing.

So, as we pop a couple of Tylenol and suffer through the housing hangover, today’s sellers are paying for the “party”.  I remember pulling some stats from year-end 2005 that showed almost 84% of my listings had sold over the prior two years.  Simply stated, failure was not an option.

That brings me to this Absolutely Fantabulous home over on the eastside.  We recently took it off the market, with the sellers wanting to enjoy Halloween, Thanksgiving and Christmas, without the burden of trying to live in a “can I show your house in a half-hour?” mode.  We’ll try again after that major February holiday… Super Bowl Sunday.

Anyway, I promised them I would take a “Post Mortem” look at what happened.  Being a stats junkie, and a little OCD on the side, I really wanted to see what happened.  Below is a copy of the note I sent to them. I have pulled personal details out of it, but felt the analysis would be of benefit to all my clients, as well as others currently working through the “morning after” effect.

Hey y’all,

As promised, some “post-mortem” stats and thoughts.

First, I wanted to see how we did vs. the competition. I took a look at all the listings that came on the market the same time we did to see how they had fared.  Of the comparable homes, (325-400K, 4BR, east side) only 28.6% had sold as of when we withdrew our listing. Of the balance, 50% of those were still active (or Bumpable, etc…) and 50% had just given up (withdrawn/cancelled).

Of the ones that did sell, they sold on average in 101.5 days, at a price that was 98.8% of “last” asking price, but more importantly, that sales price was only 93.3% of the “initial” asking price. (Or an approximately $24,000 reduction on a $360,000 house).

Additionally, I wanted to summarize some of the notes I have regarding feedback. In general, almost everyone loved the house. And they were especially complimentary of the condition. The only “negative” I heard was that one buyer hated the configuration of the corner lot. Go figure. As far as constructive feedback, the most common theme was a lack of upgrades… specifically flooring (e.g. hardwoods), countertops (e.g. granite) and fixtures (e.g. jetted tub). Buyers who wanted these generally also had the ability to go higher in price and did so, with a couple writing offers on Maple Crest homes.

We seemed to have been in a “no mans land” between price and features, which created a tough selling proposition. The house, its current amenities, condition and location warranted a price higher than comparables in the low 300’s, but the lack of upgrades precluded us from competing with those in the high 300’s. And unfortunately, we felt the burden of the contraction of the overall market when we did have that signed around offer in the first three weeks, but those folks couldn’t find a buyer for their place. The domino effect then comes into effect.

At this point, I would say we regroup for the winter, maybe do those couple of things we talked about to the house if you are so inclined, and look to early February to try again.

In closing, I want to say thank you again for the opportunity to assist you in your goal of selling the house. I tried extremely hard to make that happen, so I am truly disappointed that it didn’t come to fruition. Please let me know how I may of any further assistance. And as always, never hesitate to give me a call or shoot me an email.

Have great day and God Bless,

Mitch

Bottom line, this was a fantastic house, in a great location and priced appropriately (evidenced by the fact that we did receive two offers that failed to close)… and it still failed to sell.  The data were staggering.  We’ve gone from about 6 out of 8 houses selling (overall market stats from the same period I referenced earlier) to almost 6 out of 8 houses failing to sell now (based on this comparable).  Amazing.

As I have said before, houses will continue to sell, but it will only be those that are priced right, marketed aggressively and diligently managed throughout the process.  If you are on the market now, or looking to be on the market soon, remember this: numbers don’t lie.  Make sure your agent is doing everything possible to position your house for a successful sale… anything short of that would be, well, a crime.

Pricing in Today’s Market: The $64,000 Question (recently reduced from $67,900)

I admit it, I’m a geek. Not a “got beat up in High School geek”, no those geeks are somewhere making serious coin writing code for some new fangled web 2.0 gig. No, I’m simply a stats geek. The kind of geek who crunches the OBP and OPS on my nine year-olds baseball team. The kind of geek who can figure the ERA and WHIP on my eleven year-olds baseball team. And the kind of geek who looks at real estate market data with a gleam in his eye and a skip in his step. Weird, huh?

Anyway, sometimes this numerical obsession actually comes in handy. I’m not sure if you have noticed but there have been a couple of price reductions recently in the market (sarcasm alert!). While out looking at houses the other day, a buyer client asked me the most basic, simple, yet incredibly appropriate question I had heard in a long time.

“If the sellers were going to have to eventually drop the price this much, why didn’t they start out with a more realistic price?”

Ah. The $64,000 Question (recently reduced from $67,900, by the way).

I could have waxed and waned about the seller’s unrealistic expectations, or the possibility that the agent had failed to properly advise them on the current, shall we say, pricing pressures in the market, or, who knows, maybe the agent just “bought the listing”. (Nah, that NEVER happens).

But I refrained from mounting the portable soap box (I carry one in the trunk specifically for these occasions) and instead explained to my client that these things happen. I assured her that we would unquestionably be evaluating our purchase/offer options based on our analysis of the homes value, regardless of how much of a “deal” it looked like after the serial price reductions.

While she was satisfied with the answer and my assurances, the question nonetheless remained ingrained firmly in my brain, bouncing relentlessly back and forth between my two remaining brain cells. I had to research this, because, hey, it likely included some variation of stats. Woo hoo.

So off to the database, spreadsheets and refrigerator I went. Determined to create an answer, THE answer, as to why a seller shouldn’t just start off priced high and come down “someday”.

The following chart shows the correlation between initial pricing and final sales pricing, with an analysis of corresponding time on the market. It is the product of a couple of hours of research and a few cold brews. Any inaccuracies should be addressed to the boss.

In a nutshell, these stats were based on homes that were: 1) priced within ~20% +/- of the Median Home Price; and 2) SOLD in the month of August, 2007. Obviously these numbers would be significantly skewed (and NOT positively, mind you) if we were to include all listings that didn’t sell too. But that is another post altogether.

Bottom line, if you actually want to sell your house in a timely manner, this data says it CAN happen, even in this market… but initial pricing is critical.

For those looking for the simple interpretation of the chart:

Sellers who priced their houses right to start (or close to it, as defined by a final Sales Price of at least 98% of initial List Price) sold relatively quickly, on average 39 days. Those who started high and finally sold their house on a reduced basis (defined as a Sales Price of less than 95% of initial List Price) saw the process drag out to 108 days (or almost three times longer). Again, these are successful sellers; the numbers would be waaaay (sorry for the technical jargon) worse if it included all those that failed to close.

There you have it. Now, if you’ll excuse me, all this dry reading has necessitated a thirst-quenching cold one… we’ll see what kind of chart that leads to.