NOT EVERY FACET OF THE ECONOMY GROWS AT THE SAME RATE

The recession hit housing in August 2007.  Every other section of the economy has recovered, but the housing was missing.

We can now absolutely declare that housing has recovered, and the market is normal.

I started to put down a whole series of dates and events outlining the collapse of the economy and how various sectors have recovered.  It is interesting to see the many lists of events, and the reasons why various sectors have finally recovered.  If you want to see short but excellent timeline, go to USATODAY.

Maybe because housing (specifically mortgage financing) was one of the main causes of the economic downturn, it is fitting that it was the last to recover.  But recover we have.

People have to live somewhere.  At first we consider apartments and homes.  As many families lost their homes, apartments were not a good choice.  Where do you keep the kids and the pets?  Many lost homes were picked up by investors, and turned those into rentals.  Supply and demand created a strong rental markets for homes.  Large companies were formed that bought up homes specifically as use for rentals.  Those homes were removed from the inventory of homes for sale, as they were now dedicated to rentals.  Individual investors were renting their investment homes rather than flipping them, because the rental market was so strong, and the sale market was so weak.  Investors now are back to flipping.

We have come full circle.  Finally.  We can now say that the market is normal.  Thank goodness.

Let’s see what normal means for our valleys.  For two years in a row, the available inventory curves have been identical.  They have increased in the spring and decreased in the fall.  Just the way they should.

Conejo3 Active Simi3 Active

The escrows-closed graphs show three years one after another, unlike the inventory graphs.  Again, similar graphs, with different heights.  And the activity this year has been much increased, so the peaks are higher.

Conejo3 Closed Escrows

Simi3 Closed Escrows

Sometimes you can see things visually easier, sometimes the numbers add to what you are describing.  You can send graphs to your clients, but in a conversation we have to use numbers, percentages.  Below are the important numbers to date.  Rather than using the entire 7 months of this year compared to last, these statistics compare the two months of June and July to the same months last year.  Pay special attention to the number of sales, up 15% and 31% from the year before.  Wow.

Stats Conejo3

Stats Simi Moorpark3

For the entire country, economists generally use an inventory representing 6 months worth of sales as being a normal inventory, a balanced inventory not favoring either buyer or seller.  For our excellent areas, I suggest that a 3-4 month inventory would be more appropriate for a normal inventory in our market.  We are well under that in the Conejo Valley, even lower in Simi/Moorpark.  This portends price increases.  Prices are up significantly in both areas.  In Conejo, the Median is up 3%, the Average up 10%.  Big difference, mostly because of higher priced homes.  In Simi/Moopark, we have the reverse, Median up 10% and Average up 7%, due to a much higher percentage of lower priced homes.  Either way you look at it, prices are going up.  See the graphs below.

Conejo Annual Price Changes

Simi Price History

That is our market in a nutshell.  Normal inventories, strong sales, prices increasing but not going crazy.  A good market to be a homeowner, a homeseller, a homebuyer.

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Why would anybody want to make a forecast?

Forecasts are wonderful, if you are right.  But the reality is, how can you possibly forecast something like the real estate market with the huge variety of forces that influence the market?  And always be right?

Leslie Appleton Young is probably the best real estate forecaster in the country.  Certainly she does the best job for the entire state of California.  But as we have seen, sometimes our two neighboring areas (Conejo Valley and Simi Valley) can behave quite differently.   That brings forecasting down to the art of averaging.   The forecast predicts how all the real estate in California will behave.  But not the Conejo Valley.  But not my house.

What if we were forecasting the average temperature in California?  In January.  And the two data points were Mammoth Mountain and Death Valley.  They are actually fairly close to one another.  The average temperature might be 50 degrees.  That average temperature would indicate you should wear a light jacket.  But that light jacket would leave you freezing in Mammoth, and you would have to take it off in Death Valley.

Compare that to forecasting real estate in the red hot market of the Silicon Valley, and the still tepid market in San Bernardino.  Average is good, but all real estate is local.  What is my house going to sell for?

As good as Leslie is, the forecast can change because of something that happens the day after the forecast.  At a meeting I attended last Monday, Joel Singer mentioned CAR’s forecast of 5% growth against the current experience of 10% decline.  Forecasting is a lot of science, and a lot of luck.  And a little fortune telling mixed in.

Why are we not achieving that forecast?

Last year, we did not have enough inventory to satisfy demand.  This year, we have plenty of inventory.  That would indicate the sales numbers should rise.

What about interest rates?  Everyone was forecasting higher rates by the end of this year, probably 5 – 5 1/2%.  Higher rates should mean lower sales.  Rates are happily very boring, as low as last year, maybe lower.  That should give us a boost in sales.  So why are sales 10% lower?

In a conversation at home one night, I mentioned that the stock market took a big jump that day.  My wife asked me “WHY?”  I thoroughly explained that the forward looking economic indicators created a certain buoyancy, that the manufactures index said business was looking rosy, that the Fed announced they would not raise rates.  Then she asked me “Is that really what happened?”  I said “No, more people bought stocks than sold stocks.  that’s why the index went up.”

No matter how brilliant we are in our analysis, and the only really good way to be brilliant is to analyze the past and not forecast the future, the market depends on individual decisions, individual transactions.  Why aren’t we selling as many homes as we thought we would?  Because not enough buyers and sellers agreed with us.

But they do ask us how the market is doing.  Rather than giving them a one word answer, let’s look at the statistics, and give them a story.

INVENTORY GROWTH

Conejo Active

2013 was a close as we have gotten recently to a “normal” inventory graph.  Our inventory should be topping out, and begin to recede in another month.  If this year is to be normal.

Simi Active

It looks like Simi/Moorpark has already begun to flatten.  Notice how the two charts pretty much compare.  Also, compare the two boxes in the charts.  They have the same number of homes listed below $750,000, but Conejo has a much higher inventory.  And note the increases from last year.  Every sector is up, almost double, except in the over-$1 million category.  That category has actually stayed consistent for the last few years, no decrease, no growth.  A separate market.

SALES ACTIVITY—CLOSED ESCROWS PER WEEK

Conejo Closed Escrows

Conejo continues to see strong sales, but not as strong as the previous two years.

Simi Closed Escrows

Simi/Moorpark stays about the same year to year.  This is probably due to the preponderance of sales in the under-$750,000 category.  That category has been strong with short sales and REOs, then strong with investors, and now strong with first time home buyers.

COMPARE THE STATISTICS from April through July, 2014 versus 2013.

Stats Conejo

Inventory is up 51%.  The median price is up 3%, but the average is down 2%.  (higher priced properties are being discounted.)  The number of closed escrows is down 13%.  That is considerable. Particularly when we were hoping for growth.

Stats Simi Moorpark

Simi/Moorpark inventory figures are up much more, but then they started out really low.  Median prices are up, but they have a smaller range of prices, and do not experience as many higher priced sales as Conejo.  Sales are down 7%, still significant, but not as much as Conejo.

Why are these numbers down?

One factor is the increased scrutiny in lending.  We are still experiencing large percentage of escrows closing for all cash.  What better place to invest cash than real estate?  Rates are low, but the process of lending is very difficult.  New government regulations make it so, multiple levels of scrutiny at banks make it so.  It is extremely difficult to get a stated income loan.  While these loans were abused in the past decade, these are the loans needed by non-W-2 workers, these are the loans needed for the 1099 workers.  They have a very difficult time qualifying for loans, and that has put some of them out of the market.

So the market is strong, but not as strong as we would like.  Not as strong as we had forecast.  If only we had a better way to know how each one of those individuals considering buying a home were making their decisions.

And that is the main reason why we are not yet completely done with the recession.  Jobs are back, but lower paying jobs.  Security is returning, but a less secure feeling than before.  Student loans are still onerous.  Building is taking place, but more for multi-family than for single family.  Prices are going up, finally, but wages are not.  Yet.

The economy does not have an on and off switch.  It is a matter of balancing an enormous amount of factors.  Ms. Yellen has a lot of input into how the economy will behave.  But so do each of your clients.

It all boils down how many people are buying and selling.

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Heading into July 4, is the market experiencing any fireworks?

Today, the smartest thing I can do to start this blog is to refer you to another blog.

Tim Freund has outlined the future better than I could have.  Here is the link.

Let’s look at the numbers to see how the past forecasts the future.  We will discuss the Conejo Valley first.

The inventory continue to climb, with no sign of topping out.  But REOs and Short Sales have all but disappeared.  Notice the Over $1.5 Million inventory, it has been pretty flatlined over the past three years.  Inventory growth is in the other price categories.

Conejo Active

It may be a little too early to top out, as you can see in the 2013 graph,  The increase is not scary, particularly because sales continue reasonably strong.  Not as strong as last year, but that should not be the measure of success.  Remember, if a property is completely ready to sell, and is priced right, it will sell quickly, and in multiple offers.  The graph below is strong, things are getting better as the year progresses.

Conejo Closed Escrows

How have prices been trending?  Slightly upwards with the median, more flat with the average, meaning the higher priced properties are not increasing while the lower priced properties are increasing.  Not double digit increases, but small increases.

Conejo Annual Price Changes

And finally, let’s take a look at the chart of statistics.  These are the numbers you want to know so you can quote them to your clients.  You know, the elevator speech.  (Ever notice you can never find a good elevator when you need one?)  the number of sales is down 10%, fairly significant.  The feeling is that activity has gotten a little better, that the beginning of the year was slower than current.  Keep in mind, these figures are not annual comparisons like so many of the statistical reports.  These figures compare the recent three month history with the same period last year, so they are more an indication of what is going on right now.

Stats Conejo

So we are looking at less than 3 months worth of inventory, but for us that is probably a balanced market.  But 63% higher inventory that we had last year at this time.   Prices up slightly, with more activity at the lower end than the million dollar end.  For a better analysis of supply and demand, go back up to Tim’s blog.

SIMI VALLEY/MOORPARK

Their inventory is also climbing, without an apparent peak at this time.   Looking at 2013, we are two months from the peak.  A larger percentage of REOs and Short Sales than Conejo, but not a major percentage of the market.

Simi Active

Their sales activity has picked up significantly since the beginning of the year.  Very low sales in the beginning of the year (notice the white spaces between the lines).  Much stronger now.

I have yet to find an explanation on why Conejo and Simi/Moorpark have such different closed escrow charts.  All real estate is local.

Simi Closed Escrows

Prices in Simi

Simi Price History

Median prices are also edging up, with the high end moderating any increase in average price.

And now, the chart of statistics.  Inventory growth double the percentage in Conejo, and prices up 55.  The inventory is going up more than Conejo, which would tend to moderate prices, but prices in Simi/Moorpark are going up at a higher percentage than Conejo.  Probably due to the larger percentage of higher priced homes in Conejo.  Still, the number of sales is down 6%.   Conejo is down 10%.  This is a reversal of the first three months of the year.  Both areas continue at a slower volume than last year, but Simi/Moorpark has gotten more activity recently.

Stats Simi Moorpark

So there are the numbers.  And my comments.  More importantly, what are your comments?  What do you think is going on?

Overall, forget the comparisons to last year, that is not the standard we should be compared against.  The market is good, and will get better for agents that know how to market, have their plan designed, and are operating according to that plan.

Don’t have a plan?   Hmm.  Time to talk.  Please see me.

Like they said in the movie, “You’re good, but we can make you better”.

Have a prosperous month.

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The 80/20 rule is dead. Welcome to the 90/10 rule.

I am hearing this more and more.  Without analyzing the statistics thoroughly, it does seem that 90% of the business is now being done by 10% of the agents, particularly if you equate listings with business.

In the Conejo Valley, there are 611 homes active on the market, 69% more than at this time last year.  We all thought that the shortage of homes last year prevented us from selling even more homes.  We now have plenty of homes to sell, but total sales are down 11%.  Inventory growth seems to be stabilizing in the Conejo (see the graph).

Stats Conejo

Conejo Active

In Simi Moorpark, there are 401 homes active on the market, a whopping 156% more than last year.  And total sales are down 7%.  Inventory here seems to be on a continuing growth path.

Stats Simi Moorpark

Simi Active

Sales are down, but that is not to say that everyone is not trying.  Of those 611 active Conejo listings, today there were 133 open houses in the Conejo.  Of the 401 active in Simi/Moorpark, 81 had open houses today.  Huge numbers.  And lots of buyers looking.

We never were able to measure open house activity previously, but now we are able to because agents are placing their open house information into the MLS, and it can be searched out by everyone using the many sites available.

A very unofficial estimate of open house activity can be taken by looking at a busy corner, like Triunfo and Westlake.  Every corner today was literally filled with signs.

And buyer activity continues strong.  I visited a couple of realtor friends holding open houses today, and they estimated 30 groups per home.

Unemployment is down, and continuing to decrease.  Mortgage rates continue to be excellent, even though the Fed has cut back significantly on mortgage-backed security purchases.

All-cash deals continue to be very strong.  But the ability to get a client through the mortgage application process continues to be very difficult.  That seems to be our biggest problem in closing escrows.

How have home prices been doing?  We have plenty of reports that show that prices are much higher than they were a year ago.  At this point, price increases have pretty much disappeared.

Conejo Annual Price Changes

Simi Price History

Home prices experienced a huge step-up in the first quarter of 2013.  For the past year we have been comparing prices that  took that huge step into account.

Current comparisons no longer show that huge increase.  The statistics below compare prices for the last 75 days beginning with April 1 to the same period a year ago.  Median  prices are up  1% in the Conejo, up about 5% for Simi/Moorpark.  Average prices for the Conejo are actually down 2%, up 4% in Simi/Moorpark.  This indicates to me that the higher priced homes in the Conejo are not appreciating, while the much smaller percentage of these homes in Simi/Moorpark indicate that lower priced homes are still appreciating.  Higher priced homes, not so much.

But remember, these are averages.  All real estate is local.

Stats Conejo

Stats Simi Moorpark

My final charts show the history of closed escrows since 2010.  Both areas show activity that a normal market leads us to expect.

Conejo Closed Escrows

Simi Closed Escrows

Normal.  A balanced market.  And very much a local market.

That is what your clients are interested in.  What is their home, their investment, doing?  Is it stable, is it growing, how about that house down the block that just sold?

That’s your job, to make these statistics meaningful for your individual clients, for their individual areas.

Have a prosperous week.

Chuck

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Is this year a disappointment, or is this year average?

Last year was a good year.  Many of you had the best year since 2006.

So how is this year turning out?  For many, it is a disappointment.  Not as good as expected.  We expected to sell more homes because we finally had an inventory of homes to sell.  But that equation did not work.  We have more inventory in part because more people are listing their homes, and we have more homes in part because we are not selling as many listings as we did last year.

The forecast expected the number of sales to increase 3% and prices to increase 6%.  Let’s see how we are doing.

Stats ConejoStats Simi Moorpark

 

Conejo Valley is down 13% in number of sales, Simi/Moorpark is down 20%.

Conejo Valley median prices are up 11%, Simi/Moorpark is up 7%.

But the year is not yet over.  Prices increase percentages will moderate, as prices have not increased steadily throughout last year.  Sales appear to be doing better, but still need a shot of adrenalin to come close to last year.

Conejo Annual Price ChangesSimi Price History

We can say that for both areas, prices have been flat for the past 12 months.  The big jump took place in the first three months of 2013.  Comparing the first four months of 2013 to 2014 has been like a step rather than a ramp, they jumped up.  (However, after that, they have been stable.)

Your sellers might read recent news on price increases and think their home should sell for 11% higher than the recent sale.  If the comp sale was in the first four months of 2013, that would be a correct assumption.  But prices have been consistent from April of last year, and if the recent comps are from the past 6-9 months, the listing and sales price should be about the same as those sales.

What has the inventory been doing?  Growing steadily.

Conejo ActiveSimi Active

Both valleys now have inventories that are now higher than 2012, and much higher than 2013.  66% higher in the Conejo valley, and a whopping 152% in Simi/Moorpark.  That is not bad news, the inventory is not outlandishly high, and represents about three months worth of sales.  That, for our area, is a balanced market, favoring neither buyer nor seller.

But remember, all real estate is local.  Chris McClintock had over 100 people at her open house on Sunday, and the home immediately went into escrow.  The sweet spot seems to be the average price, between $600,000 and $750,000.  That is where the most action, and lowest inventory, seems to be.  These graphs show what things used to be.  They do not show what the future will be.  It appears the future is heating up.

Conejo Closed EscrowsSimi Closed Escrows

Closed escrows in Conejo are strong and consistent week to week.  Closed escrows in Simi/Moorpark average out well, but still are inconsistent week to week.  The graph above displays these inconsistencies as white spaces between the bars.  Interesting, but not significant.

What is significant is how your business is doing.  What should you do to get your share, and increase your share.

We all would like a year that is better than last year.  But the reality is, this year is different, different from last year, different from what we expected.  And it is not over.  I think it will continue to get better.  Everything points in that direction.  But we did not get the start that we were expecting.  If we continue to compare it to last year, it may not turn out to be a good comparison.  But last year was great.  I think this year will be good.

 

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What does this first quarter tell us about the rest of the year?

The more data you have, the easier it is to spot a trend.

Now that the first quarter is behind us, we can use the results to modify our original forecast for the year.

Let’s begin today with the statistics for both Conejo and Simi Valley.  These were formulated using the first three months of 2014 compared to the same period 2013.

CONEJO VALLEY

Stats Conejo

Inventory, up 46%, a significant number.  Number of sales, down 5%, certainly below what we expected and not in line with the theory that we could sell more homes if only we had more inventory.  Computing months of inventory, influenced by both inventory (numerator) and sales (denominator), we are at 3.0 months of inventory.  Historically, for us, that is a balanced market, one that does not favor either the buyer or the seller.

Prices are up year over year, but what is happening in the past few months is more important.

Conejo Annual Price Changes

From the chart, you can see that prices are actually stable.  Buyers have noticed that, but sellers are still expecting price increases.  That makes negotiations very difficult.  Listing prices that are in line with recent sales will do well, properties with price increases will stay on the market for a while.  When we have a large price increase, as we had in the beginning of 2013, the market price will usually stabilize or adjust before it begins the expected 2-4% increase this year.

Looking at the graph of closed escrows, so we can see how we compare with past years, shows that the market is behaving as usual.

Conejo Closed Escrows

The 8-week moving average line has turned the corner, and the market appears to be following the normal trend expected as we proceed into the summer selling season.  No surprises here.  Let’s finally look at the inventory, and how it is doing compared to previous years.

Conejo Active

Pretty normal, Conejo Valley is a reasonably healthy market.  Prices stable, a balanced inventory versus sales market.

Now let’s look at Simi Valley and Moorpark.

SIMI VALLEY

Stats Simi Moorpark

Inventory is up 163%, a very large increase.  Number of sales, down 27%, terribly below what we expected and certainly not in line with the theory that we could sell more homes if only we had more inventory.  Computing months of inventory, influenced by both inventory (numerator) and sales (denominator), we are at 3.0 months of inventory, versus less than a month a year ago.  Prices are up year over year, but what is happening in the past few months is more important.

Simi Price History

As I drew these lines, I could very easily have described a downward trend.  Certainly prices are not rising, not the mean and not the average.  Of course, all real estate is local, and these averages do not hold true for a particular home or tract.  But looking at the big picture, it is not show price optimism.  Much of the reason is the drop in sales.

Simi Closed Escrows

Sales are very erratic, up one week, down the next.  The trough the 8-week average goes through as we come out of the winter months is deeper than previous years.  And inventory has been increasing rapidly.

Simi Active

Inventory growth is much more pronounced than what we expect, and this growth will obviously put pressure on the supply/demand ratio, and prices are experiencing significant pressure.

This is a market to be watched.  It is not stable, it is much more volatile than we want.  There are pressures for prices to decrease over the short term.  Buyers can feel it.  If sellers do not know that, their properties will be on the market a long time.

 

 

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The Latest Trends in our Market Areas

Our supply of homes is going up.  Let’s look at both the Conejo Valley and Simi/Moorpark to compare if they are rising at the same rate.  And why.

Conejo Active

Simi Active

From the slope of the black 2014 lines, Simi Moorpark inventory is growing much faster than the Conejo inventory.   But why is the inventory rising?  Are more homeowners putting their homes on the market, or are fewer selling?  Or both?

Let’s consider the number of sales taking place, and how they compare to the previous four years.  Again, comparing both areas.

Conejo Closed Escrows

Simi Closed Escrows

At this time of the year, the 8-week moving average line begins to turn upwards, signalling the sales low for the year.  For Conejo, the line is about even with the previous four years, indicating that sales are basically the same as the previous four years.  For Simi Moorpark, the line dropped lower than the last couple of years.   That is what the charts say.

Let’s next look at the actual number comparisons, for the first 10 weeks of this year against the first 10 weeks of last year.

Stats Conejo

Stats Simi Moorpark

We see from the graphs that both areas are experiencing inventory growth.  But that is ok, that happens this time of the year.  If you compute percentages, it looks like there is a big problem.  Conejo inventory is up 40% compared to last year, somewhat reasonable.  But Simi Moorpark is up 151%, a combination of having an extremely low base of inventory last year, only a month worth, as compared to two months worth of inventory in the Conejo last year.  For both areas, inventory is up such a large percentage because last year inventory was so terribly low.  That makes the percentage increases high.

In spite of those high percentages, we are in reality getting back to normal.  Both areas are now up to 3 month supply of homes based on current sales.  The main reason why inventory has grown relatively quicker in Simi Moorpark is due to lower sales.    Conejo sales are down 2% compared to last year, but Simi Moorpark sales are down 33%.  We originally thought demand was so great that any increase in inventory would automatically generate more sales.  Not really.  We are taking a breather.  The market is relaxing.

Simi was basically sold out last year.  That pace cannot continue forever.  Now the inventory for both valleys is equivalent to three months worth of sales.  We are in a balanced market, one in which both sides have negotiating power.

Prices are up 10-12% versus last year, but the shift away from a runaway sellers market gives us the impression we are no longer moving forward.  Kind of like when you step on the brakes in a car.  The car is still moving forward, but you feel the change in momentum as you press against the seat belt.  The market is still traveling forward at a decent rate, but we can sense the change of acceleration.

What makes this market attractive to buyers and sellers?  In a sellers market, sellers are happy with multiple over-list offers, but not so happy when they go to buy their replacement home.  In a balanced market, they can get a better idea of what their home will sell for, and a better expectation of what they will pay for the home they will buy.  And buyers got depressed after losing continually in multiple offers.  They left.  Now that the market is balancing, they will be back.

Prices have increased probably 40% in the past two years, adding to the equity people will use to buy their next home.  Move-up buyers again have the ability to move up.  A normal market allows them the ability to plan and make decisions.  The economy is more stable, there is job growth and a reduction in unemployment.  Confidence is building  in the stability of the economy.  We are going through the next phase of a recovering economy.

Picture a graph of the Dow Jones industrial average.  It is not a straight, smooth line.  There are dips and jumps, but as you step back you can see the trend.  As I step back from these graphs, I can see the trend is good.  That’s good for you to know, but it is even better for your clients to know.

You are their housing expert.  They look to you to tell them how their home, their investment, is doing.  I hope the thoughts above can help you do that.  Remember, we have gone through a horrible downturn, and finally a strong comeback.  Don’t expect the market to act calmly yet.  It has to go through a little bouncing as it adjust back to normal.  The storm is over, and sailing is beginning to be smoother.

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