Wednesday, February 14, 2007

Easy Reader: Get RICH owning real estate!

Just kidding. OK, the February 1 Easy Reader did not have a story of that title, but it did publish a few graphs that almost implied as such.

I do not claim to understand the point of this first graph. It is supposed to chart New Permit activity, yet the blurb below almost sounds like something out of a mutual fund prospectus - hang on to your house for more than five years and you'll get great returns. And the returns since 1998 have been stupendous! Of course, the mutual fund has to tell you, PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RETURNS. How come realtors aren't held to that same law??? And by the way, slumping permit activity is one of the leading indicators of a housing slump that San Diego builder Robert Campbell talks about in his book.

This second chart shows homesellers getting rich. Over the past three years, homesellers have reaped a median net profit of over $200,000 (the Easy Reader spells "reap" as "reep"). My big question is, where are they putting that money? Socking it away in T-Bills? Or are they putting it back into another financial market that is as equally at risk as the housing bubble?

I love this last chart. When the market starts getting bumpy, the brokers love trotting out these long-term gain charts in the hopes that you'll forget the rockiness of the past year. Look at how the California housing median decoupled from the national median, and then took off like the space shuttle Challenger in a big way starting around 1998.

Leslie Appleton-Young, chief economist of the California Association of Realtors, in a recent talk to local realtors, assured them that the only bubble in real estate was the one talked about "in articles about the bubble." The article then proceeds to redefine what "bearish" means by claiming that she was bearish in 2006. I got so pissed off about this that I actually wrote a letter to the editor asking, what do you mean by bearish? Oh and by the way, have you actually charted Shorewood's beach cities median price data recently?

Back to Appleton-Young. She says the 2007 market is "not falling off a cliff", but sellers will have to adjust their expectations away from double-digit appreciation, and buyers wanting a fire sale will also have to adjust their expectations.

Ms. Appleton-Young says "follow the inventory." She interprets inventory levels as "improving." Well, I see things a bit differently. I estimate the real inventory for Redondo Beach is roughly twice what the count of listings is in Zip Realty. Only 20% of the 724 records I have tabulated are resolved by sales, updated through February 1. Right now, new inventory is entering the Redondo Beach market at the rate of roughly 3.5 properties a day, from what I see in Zip Realty. That does not include relistings. Much of this new February inventory is ridiculously Fantasyland high-end, that most of us would not even consider, so I doubt it will move quickly. Heck, the Fusion condos will probably sell out before some of this high-end stuff moves.

Well I will agree with Ms. Appleton-Young that the bubble didn't exactly burst in 2006. But it got its first dose of paper cuts.


Blogger wannabuy said...


We'll hear that the bubble "didn't burst" all the way down. My question is when will the next large employer announce a job relocation? RE is killing recruiting. Not just in my industry, but also medicine! Yikes!

Long term graphs do not make real estate affordable. Nor do they stop the meltdown in the MBS market. It made the WSJ.

Of course I blogged it. (WSJ article)

Got popcorn?

6:59 PM, February 14, 2007  
Blogger bearmaster said...

Neil, every time I make myself a little popcorn before I sit down to work at my computer, I think of you now, LOL!

7:10 PM, February 14, 2007  

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