So here’s a story. In case you haven’t noticed, the weather has been pretty nice. That usually translates into good surf. (You out of towners {SoCal} don’t get any ideas, the surf is only marginal here.) So I’m in the water picking up clients (my board will soon be emblazoned with Zephyr stickers so I can write it off), and I run into a colleague.
He tells me a story about two highly qualified buyers that literally wrote offers two months ago, then decided, “the newspapers are telling us it’s a bad time to buy, so we’re going to hold off…” WTF! Who gets real estate advice from the newspaper? That’s like asking me to advise you on which stocks to pick, or what’s the best way to perform a root canal. Not good medicine.
Thoughts?
For owners, the good news is that newspapers are wonderful contrary indicators. By the time any information is widely disseminated enough to be considered newsworthy, sentiment has become imbalanced and then the market reverses. The recent “news” of a tough housing market is a belated public realization of what was already tipped by housing related stocks two years ago.
And better real estate advice comes from a blog, I suppose?
cm: the newspapers were bullish on housing all the way up, how did this serve as a contrary indicator? they were right for years on end along with the trend.
these are the same clowns that didn’t buy google at the ipo!
they didn’t happen to be jill client’s did they?
;)
Here’s the deal. When media is reporting gloom and doom (in the stock market or the real estate market) it is time to BUY! In most cases, this is when you can get a good deal.
Remember the dot com boom when everyone including your cashier at the grocery store was an expert on Internet stocks? Well, most of those people are still ringing up groceries because the news they were hearing was great and they kept buying!
Tony Robbins, leading motivational speaker, says in his financial seminar, “Look and see which way people are going, then go the other way… your chances are better.” This is almost always true with real estate. The time to pick up bargains is when everyone else is selling.
For those who already own and don’t want to lock up a bunch of cash as down payment for another house, a different contrarian approach to profiting from the real estate doom is to buy stock in home builders like KB homes or Toll Brothers. I am actually researching the group to figure out which one has a strong finance sheet and can weather another 10-20% drop. Been thinking about buying in two chunks — buy some now. If it goes down 20% more then average down. If it goes up, great, we have turned the corner and it’s safer to buy some more. Personally I think there is still more downside but since it’s so hard to predict the bottom it’s probably a good time to take a small position.
Today the numbers came out that August was down 4.7% from the previous month. I study the MLS database daily, for hours. I can just about guarantee that September will be better than August. Way more properties have been sold. We’d routinely see 7 sales a day for weeks. Nowadays it’s back to 20 or so. I’m not sure at all what that means, tho. August is traditionally vacation time anyway …
be careful anon. all the bad news is definitely not out on the builders. lennar announced huge losses today.
reading the between the lines, the market must still be pretty damn good if real estate agents are out surfing while everone else is actually working! ; )
[Editor’s note: Hey! Take it easy!]
i kind of read that the other way round. if there are no buyers, might as well go surfing since you are wasting your time trying to convince them the sky is not falling.
Boom Ending,
I seem to recall very different headlines on the way up, a lot of hand wringing about how the trailing bull trend in housing was an unwanted gentrification that would drive away farmers, artists, the “real people”, the children who had grown up in the neighborhood and etc.– generally suggesting that affordability was a thing of the past, therefore these then unsustainable prices must come down (they went up). I saw articles about how iffy the RE market was, even one with the characteristics of a bubble. For investment advice, I remember articles built around the related theme that in the coastal states the costs of ownership were higher than rental costs for comparable properties. Q.E.D.: you ought to be a renter and not an owner. Better yet, park the money you’ll save on the high costs of ownership in that Dow Jones that’s going to 25,000 as part of the Long Boom.
And then right on cue, when it was late in the latest RE cycle, a lot of stories started showing up about the new mini-Midases of 2005, the flippers– even cable TV shows dedicated to their worship. On the business pages there were a lot of stories about how to get in on REITs and just how much Pulte et. al. were making on that new new thing, the McMansion.
Flashing forward, only after the residential builders’ and mortgage lenders’ shares fell apart did it become oft covered news that there was suddenly pain, but worse: threats and recessionary or systemic risks… in real estate. Whereas, are there any stories running now about all those residential trust companies with shares at or near all time highs? I’ve only seen one article YTD about how it’s getting hard to find a place to rent in SF. Bias: I must excuse whatever is published in sfbg as there is no price above free that would stop their screed on this favorite topic of theirs.
cm: You definitely were reading different papers than I was. It does sound like you were reading the sfbg!
I know one thing, rents are UP pretty big this year, and SF property prices are doing quite well :) The big winners this year are landlords.
I like to go against the tide too. So many bubble blogs and doomsday periodicals makes me pretty confident the things will continue to do well. If prices can’t correct by now, I don’t think they’re going to correct much at all, especially with bonus season coming!
RentsUP
As you purchase your housing stocks would you be kind enough to post your positions here? That will help those of us watching at home keep score.
This particular run up in prices has been going on non stop for the better part of what? Seven years? A decade? And you think the downturn is only going to last a couple weeks? Or is it a couple months? I suppose it depends on your point of view but regardless it would be a remarkably short lived bear cycle as compared to previous downturns.
Given that prices are set by the public, I think a sense that the zeitgeist has shifted vis a vis the local paper is a perfectly valid reason to not risk your life savings. As I pointed out in my “comment du jour” not too long ago, even a tiny correction of 5% can translate into a massive loss of personal equity. Certainly it must be frustrating as a realtor, but you can’t expect the market to be spiraling up at 15%+ per annum forever. Not unless wage growth is doing the same, because at a certain point people just can’t afford to buy them anymore. Personally I think the wisest course as a selling agent these days is to convince your client to list below market. If the bidding gets it higher, great, but if not then at least you can hopefully get a sale and move on to the next sale. It seems to me that what you don’t want to be doing is wasting a lot of time and money chasing the market down.
oh, and for whatever it’s worth, contrarian investing is essentially an investment formula. Like any formula it’s only effective to the extent that a) few others are employing the strategy b) you have the reserves to stay solvent and c) you can afford to wait and there isn’t wiser things you could be doing in the meantime.
And of course sometimes people are fleeing a ship because it’s sinking. Heading for the boiler room is not going to be rewarded. Doubling down on a depreciating stock has worked for me a couple times, but just as often, if not more so, it was just spending good money after bad.
Of course, you’re not risking your life savings if you plan to live in a place for 10 years. Let’s not forget that.
“Who gets real estate advice from the newspaper? That’s like asking me to advise you on which stocks to pick, or what’s the best way to perform a root canal.”
I don’t understand the logic of this statement and frankly find it a little disturbing. First of all, why would any responsible investor rely on the word of a party who stands to personally gain from the transaction whether it’s a good choice or bad? When you decide to invest hundred’s of thousands of dollars in stock, do rely on the broker’s assessment? At the very least, wouldn’t you check into the companies 10K reports, take into consideration the ratings and valuations, and look at their long term performance? Or do you just take the broker’s word for it that it’s a ‘great time to buy this stock’ before the prices go up?
Regarding the root canal analogy, Real Estate agents are not held legally responsible for the lives and welfare of home buyers. If you provide a buyer with information that turns out not to be an accurate forecast, you aren’t going to be criminally charged and most likely not liable in any civil litigation. I would think that as responsible representatives of your industry you would encourage your clients to get information from a multitude of sources, including those who provide a perspective contrary to your own, and encourage them to make their own judgment on whether this significant financial investment is actually in their best interest.
You act as if all real estate agents tell people to buy buy buy just to make a buck. That’s baloney. Some of us actually care about our clients. We advise them to pass on things. We advise them to only write up to a certain amount. We advise them to wait. Man. I’m pretty tired of this anti-Realtor crud.
And everybody knows that newspapers number one priority is to sell newspapers.
i’ll back you up on that kenny. a realtor recently talked a buyer out of closing on my place since they decided afterwords that it was too expensive.
It’s more than just the newspapers saying that it’s a bad time to buy. And I agree that the time to pick up a bargain is when reports are saying that the market looks bad and everyone is selling. Except that you still can’t pick up a bargain in SF. Believe me, I’ve been looking and still disappointed by the sale price of houses and how quick they are going. Even the ones that stay on the market for months, go close or slightly below their ridiculously high asking price. What gives?
In all my experience working with RE agents never have they told advised me on a limit or told me to pass on a property let alone that it was a bad time to buy. And believe me, I have asked only to get a shrug and explanation that it’s unethical to tell a person how much a property is worth because buying a home is such an emotional/subjective thing – now that’s baloney!
Randy, there are more than a few ethical realtors on this blog who would be happy to interview with you next time you feel like buying or selling. I tell people to walk away all the time. If you operate with a code of ethics that’s what you need to do.
I didn’t mean to post anonymously before, but I forgot to fill in the Name & mail fields- my bad.
Kenny, did you actually read my post or just take immediate offense and jump to your own conclusions? I never made any implications about the ethics of agents; my argument was with the statement quoted in the original topic implying that the prospective buyers were somehow misguided for following the advice of newspapers. I don’t care if it’s a real estate agent, stock broker, car salesman…you can fill in any industry professional who is operating in a commission based transaction. I would hope that any person looking to invest a significant amount of money in anything would never put too much value on the advice of a person who directly profits from the transaction whether or not it’s in their best interest. I’m sure there are plenty of realtor’s out there who have a buyer’s welfare in mind, but there are plenty of them out there who don’t, so that ‘point’ is a wash. These people referred to in the original story obviously did some research and came to their own decision. Just because their choice went against the realtor’s recommendation, it doesn’t denigrate the validity of that choice. I keep seeing the emotional aspect of home buying interjected into many arguments from both the market bulls and bears, and I agree it plays a significant role in making a decision on whether to buy or not for many people. That is precisely why I cannot understand how a responsible professional of any industry would want to passively or actively discount other data inputs into the buyer’s decision making process.
[Editor’s note: Ollie 12, I think you were writing this while I was writing my own comment. You make some very good points. I, personally, encourage my clients to get all information from all sources. My colleague, on the other hand, referenced “newspapers” specifically. That’s what I’m going off of here. Good discussion nonetheless.]
I said, “Who gets real estate advice from the newspaper? That’s like asking me to advise you on which stocks to pick, or what’s the best way to perform a root canal. Not good medicine.” You could pick those sentences apart all you want. What I said is what I said. I never said don’t get advice from other sources, I specifically said the newspaper. Okay, maybe I should have said, “only” the newspaper, or exclusively, or named the actual newspaper or something to not allow any margin for error. But I said what I said, and think it is ridiculous to base your decisions about real estate on what you’re reading in the papers. Period.
The most honest, most ethically correct answer I give my clients when they ask about the market, “It’s good now, but who knows where it will be tomorrow.” Anybody tells you anything differently, they don’t know what they’re talking about. It could be good, it could be bad. Nobody, and I truly mean nobody knows with 100% certainty what our market is going to do. You all need to make your own educated decisions, and this is just one place to get information.
As for ethics and your statement, “I would think that as responsible representatives of your industry you would encourage your clients to get information from a multitude of sources, including those who provide a perspective contrary to your own, and encourage them to make their own judgment on whether this significant financial investment is actually in their best interest.” You are correct. I tell everyone I work with about this blog, and advise them to follow the comments. I regularly link to articles and opinions on my sfnewsletter, and I’m always reading all the sources, but I have to say, most do not apply specifically to what is happening in SF.
And furthering the discussion, I have told countless clients, “Don’t buy this house.” I have some clients now that have two small children (not you “theClient”) and they wanted this place that had everything they wanted, but some very “sketchy” balcony situations that wouldn’t be remedied too easily. They wanted to write an offer, I said, “no, you’ll be losing sleep wondering if your kids are going to fall off that balcony.” They’re thanking me now.
alex, the Editor/Realtor
Ollie12, I overreacted. Sorry. You were speaking about an anology’s logical conclusion in this context. That was not incorrect. I inferred that you meant we are all solely guided by one motive. Plainly you didn’t write that.
Kenny,
Kudos to you and Alex. You guys clearly are in a minority of Realtors that have not directly contributed to the huge run up of over inflated values around here.
Well done Sirs.
Unfortunately, I’d say their are 9 shit bag Realtors for every one of you guys out there.
[Editor’s note: Maybe it is time I reveal my “Theory of the Starving Real Estate Agent”. Been pondering how to put that thought to pen, but haven’t come up with the best way. Thanks for the Kudos. But I know we are not alone. Not in the slightest.]
alex,
i take it you’ve never heard the stories about the realtors that convince their buyer to take the first offer, so they can move on to the next transaction? how about the other favorite where they don’t tell of another higher offer since the last came in via a colleague in the same office?
happens every day
[Editor’s note: Ohhhh I know it happens. All the time.]
Long term market trends cannot be manipulated by market facilitators (brokers, etc..). Ultimately only market participants (buyers and sellers) or structural changes (i.e.: tax deductability of interest, availability of mortgage funds) in the market can drive trends. Econ. 101 – Stop putting all the blame on Realtors.