A Seller's Tale

Posted at 10:10 AM, Aug. 25, 2008

This is a story about one of my neighbors' quest to sell his house. Not a happy tale for the seller. It illustrates one of my recurrent themes  that timing is every bit as important as location in determining real estate value. Although I was not involved in the listing or sale of his property, I get no sense of "schadenfreude," (satisfaction felt at someome else's misfortune.) My perspective is that of an observer watching a pending train wreck, who was powerless to prevent it.

Our saga begins in late December 2006 when this neighbor (we'll call him "Tom') knocked on my door around 6:00PM. He told me he and his wife were going to sell. We have a good, neighborly relationship. Tom asked me to prepare a listing presentation, but disclosed that he would be talking to several real estate professionals before making a decision. At that time, I was managing a real estate office, which meant I was being paid to help my agents, and was not personally involved in selling. I offered to refer him to one of my very best lising agents, and he agreed.

Since he was already in my living room, I proceeded to get some of the preliminary information, such as why he was selling, where was he moving, when did he want to get there, etc. As usual, I concluded with the general question, "is there anything else that is particularly important to you regarding the sale of your house?" This is what Tom said...."the thing that is most important to me is that I get the highest price, and pay the lowest commission."

My first thought was that it was too bad that he wasn't sitting there one year earlier. In December of 2005, we were in the midst of the greatest "seller's market" I have ever seen, and Tom's attitude would have been appropriate and timely. By the end of 2006 however, it was obvious that things  had changed. Buyers simply were refusing to pay the prices that homes had sold and closed for as recently as late Summer of 2006. Although I did not know then how far off the rails our market was going to go, it was obvious to me that the train Tom wanted had already left the station. (Don't ask why I'm using all these raiload analogies today: I just write what my muse tells me to. )

Nevertheless, I sent one of my best agents out to meet with him. She suggested a listing price of no more than $318,000. That was only about 7% less than the closed comparable sales from the peak of the market. She felt she could get this fairly high price, because the property did show very well.Tom decided to list with another broker at $350,000. That was actually higher than the best closed comparables at the market peak. He priced his house as if the market were still going up.

This listing first entered our MLS on Feb 1, 2007. The property has been subject to MANY price reductions. It seemed that each time, the new price managed to remain above current market value. Tom chased the market downwards without ever catching up, untill very recently. The MLS indicates that his property is in escrow but has not closed yet. From the indications such as yard sales, etc, I think the escrow will close soon. Unfortunately, the list price at the time the property went into escrow was all the way down to $234,900. The actual sales price will not be published untill escrow closes.

I'm going to use conservative estimates that Tom's house, if correctly priced, would have sold for  about $305,000 in early spring of 2007, and that the actual sales price in late summer 2008 will be somewhere around $230,000. The 18 months it took Tom to finally face market price reality will have cost him approximately $75,000. There are two points of relatively good news. First, he still sold for a lot more than he paid for the house. Second, he finally faced reality before further denial might have cost him even more money.

This seller had genuine motivation for moving, but was obviously not desperate. I don't want to over-analyze this, but perhaps it is an indication that even stubborn sellers are ready to price to market reality. If that is the case, we may see a significant increase in buying activity. We'll have to track the numbers. I'll publish an updated chart of sales results soon.

Star Views....Going...Going....

Posted at 2:10 PM, Aug. 22, 2008

Last weekend, my wife and I were at our vacation home, way out in the sticks, just north of the White Mountains. Some evenings up there, you can see so many stars that the night sky seems more filled with points of light than spots of darkness. Shooting stars are an almost nightly occurance. You can see quite a few other lights, too far up to be airplanes, that are in motion. Depending on your personality, you can tell yourself "there sure are a lot of satellites up there," or maybe not.  I'll postpone any paranormal pondering untill the coming release of the movie sequel to "The X-Files."

Stargazing was the primary pastime of early mankind. They say it stimulated a lot of creative, spiritual, profound thinking. Wasn't too hard to pursue this practice through the first half of the twentieth century. But on the first clear night where you live, go out in your backyard. The moon should be pretty easy to find. Nevertheless, you probably will see a lot more "empty" sky than stars. That is because the ambient light of everything from residences and commercial complexes to high school football stadiums, makes it impossible to detect the relatively faint light of distant heavenly bodies.

Environmental extremists refer to this condition as "light pollution."   Wait a minute. I think the power to push back the darkness is one of the greatest accomplishments of civilization. Nevertheless, the more rare a benefit becomes, the greater value it has. I forsee a not too distant time when a community with clear view of the evening heavens might command a large price premium, like an unobstructed ocean view.

Obviously, you cannot establish a Dark Sky Preserve near any metropolitan area. Many existing small towns though, may develop the foresight to limit outdoor lighting levels, and require fixtures that direct illumination downward, where it is most useful anyway. There is no reason we could not have shopping centers, hospitals and most urban ammenities while avoiding over illumination, if these facilities were designed to make this a priority. Little League fields and high school football stadiums are a part of American life that I would want to preserve. But when municipalities recognize the fiscal benefits of offering celestial views, they may find it in their bugets to construct indoor stadiums, or at least limit "big lighting" events to weekend evenings with reasonable  "light curfews."

As Joni Mitchell sang in Pave Paradise...."you don't know what you've got till it's gone." I sure don't want the feds to declare starlight views an "endangered species," and prohibit anyone from living in out the country. Heaven forbid that our granchildren will have to visit a "Dark Sky National Park," and have the Big Dipper pointed out to them by some badge wearing, authoritarian "park ranger." It will be much better if rural regions can recognize the profit potential of preserving pristine nights, and guide development accordingly.

Is it "too late" for Prescott? I'm not sure, but there are other locations where you can still invest in those soon to be priceless, starlight views.

"Weird Science," Bank Style

Posted at 1:15 PM, Aug. 18, 2008

Even in these  challenging times, a significant number of Americans have been doing fine. They have worked hard, invested wisely, and practiced fiscal responsibility.  Many of them have never made a late payment or overextended themselves financially. As a result, they have enjoyed credit ratings in the upper seven hundreds....or  higher. You might think they would be the last people to be adversely affected by lenders becoming tougher. But that's not the case.

As we have seen, many banks have failed to practice adequate "financial responsibility." To compensate, they are having to lower credit limits on both credit cards, and Home Equity Lines of Credit, even for borrowers who may have superb payment records. When these  customers receive bank notice that their credit limit is being lowered, it usually doesn't bother them much because they didn't need or plan to use all that credit anyway. 

But they should be upset for a different reason, that the banks aren't mentioning. When their credit limits are lowered, their credit score is going to go down !

One key criteria in credit scoring is "Credit Utilization Rate" (CUR.) You don't want to have too high a number here, because that could indicates that you are stretched too thin. If a borrower has, say $5,000 in credit card debt with an available credit limit of $25,000, their credit utilization rate is only 20%, and considered good. But when the bank sends him a notice that it will not extend any further credit, that $5,000 debt suddenly represents all that they can borrow, and their CUR on that account  goes from 20% to 100%.....BAD. The same thing happens when a bank locks a $200,000 home equity line of credit that the borrower had only tapped for $15,000 for new flooring. Not all banks may limit the credit lines of their very best borrowers, but it is a real possibility. So be alert.

Remember, we are talking about customers who did nothing to justify having their credit lines limited. The fault lies with the banks who became unable or unwilling to honor the lines of credit they already had offered.

Ironically, customers who already have borrowed every penny they could will not see their credit ratings decline any lower than  they already were. On the other hand, the fiscally responsible customer may have a rude surprise next time she wants to make a "wise investment," like picking up a foreclosure property at an incredibly low price. She might find that her CUR increased  enough to lower her credit rating just to the point where she no longer qualifies to get the best loan program at the lowest interest rate.

 The many consumers facing real financial hardships may view this as a very modest inconvenience for those who are well off. Nevertheless, it seems very wrong when banks act to damage their best borrowers. They are behaving like the drowning person who tries to pull down the lifeguard who came to rescue them.

From one end of the spectrum to the other, a lot of economic discontent is building. I don't exactly know what the repercussions will be, but it's going to get interesting.

The "Slow Home" Movement

Posted at 12:59 PM, Aug. 14, 2008

Here is a new,  fairly good idea with a somewhat misleading name. When I think of slow homes, the first things that come to mind are overpriced, under staged listings that have languished unsold, for far too long. But that's not what  the founder of this movement, a registered architect and real estate broker named John Brown, has in mind. He wants to create a counter movement to "the sprawl of of cookie cutter housing that surrounds us like fast food- standardized and wasteful."

Mr Brown calls for "an end to poor construction, bad design, misleading marketing......and environmental neglect in the housing industry."  He puts a high priority on use of organic materials, much more energy efficient heating and cooling, and "sustainability issues. Somehow, I don't think Mr Brown is a big fan of those ostentatious, 4,000+ square foot "McMansions" that were erected a few years ago to accommodate the egos of  the dot.com "instant rich."  You can explore more of his ideas at www.theslowhome.com

I think this is an idea whose time has "almost" arrived. Just like our cars have become safer,  more fuel efficient and environmentally friendly, our housing can too. Although Mr Brown doesn't directly say it, I suspect he might like slow homes to occupy much smaller chunks of real estate. Here's hoping he can figure out some brilliant way to offset the lessened quality of life which frequently is a byproduct of increased population density.

The "slow home" movement is clearly about higher quality (not bigger,) homes. This higher quality and environmentally friendly construction will inevitably lead to higher prices per square foot. Slow home builders may have a challenging time launching this product in the midst of an economic recession and slumping housing market. The first thing the Marketing Director for "Slow Home" builders should do is find a NEW NAME for this product.

*SPECIAL ALERT*  Be sure to check my blog entry on Monday.  I  just received some info that is so surprising and aggravating that I want to carefully confirm it before posting. It's not pretty.

Georgia On My Mind

Posted at 4:28 PM, Aug. 11, 2008

Seems I'm on a song title kick for my posts. Could have kept my "Rolling Stones" run alive by calling this entry "Gimme Shelter." But I think that the country of Georgia is currently on the mind of the whole world.. The title of Ray Charles' great song fits today's topic.

Ever since 9/11, America has focused on Islamic terrorism; perhaps overlooking other threats. President Bush claimed to have looked into Vlad Putin's eyes and "seen a good man," but this may be one more time when he didn't get things quite right.

We now see that Russia remains a Major Power. It is attacking Georgia, a staunch American ally that  sent troops to fight with us in Iraq. Last summer, Russia laid claim to 460,000 square miles of Arctic waters, and planted its flag on the ocean floor at the North Pole. Putin and his nominal Presidential successor Dimitry Medvedev have floated tentative plans to station strategic bombers  in Cuba. Kennedy put a decisive end to the similar Cuban missile crisis. It remains to be seen if America still has the strategic strength to back Russia down in Eastern Europe, the Arctic, or even Cuba.

While hosting the Olympics, China will be on its best behavior. But that country also has a rapidly growing military presence, and a future agenda that is not in harmony with ours.

I don't want to get "too political" in my real estate blog. But it is becoming obvious that America is NOT the world's sole Super Power. And the threat of nuclear war is no longer a historical footnote, but an ominous reality once again.

So how could this affect future real estate values? Lets peruse a map of  fallout patterns after a nuclear strike on America's major targets. Please excuse the primitive imagery. I scanned this map out of Joel Skousen's book, "Strategic Relocation," because it seems more realistic than similar maps offered by FEMA.

The white zones denote areas that probably will remain outside of the major blast and fallout patterns. As you can see, relatively unaffected areas include much of Alaska, Texas, most of the coasts of Oregon and northern California, significant parts of Nevada, and various portions of the Midwest and Great Lakes states. The Eastern Seaboard doesn't look too attractive at all. Southern California would be toast, and Arizona, located downwind, would be exposed to yet one more problem coming in from Cali. 

Each low fallout area has other major issues that must be considered to determine it's future desirability. But those  zones are excellent places to start looking for locations to invest...and maybe relocate. This site is dedicated to helping you evaluate all relevant factors; to find the very best locations. They should appreciate in value quite well. Expect specific location analysis soon.

After all that somber data, I'll wrap things up on a lighter note.. Remember Don Henley's song, "All She Wants To Do Is Dance?" One lady, whose screen name is Artemis Bell, has devoted an extensive Youtube site to that premise. Here's her rendition of  "Gimme Shelter," by the Rolling Stones.

 http://www.youtube.com/watch?v=NfeAezzOTk0

You Can't Always Get What You Want

Posted at 12:51 PM, Aug. 7, 2008

Please forgive the long delay since my last post. A small disappointment put me off my game for several days. Like many Baby Boomers, I learned that back problems are often a byproduct of aging. I have degenerative issues caused both by heredity and cumulative wear and tear. In February, I herniated a couple of discs while rough  housing with a young, very strong Bull Terrier who proved to be "rougher" than me.Very painful and debilitating for a couple of months.And one bulging disc impinged on the Sciatic nerve, causing some weakness and lack of articulation in the toes of my right foot.

 A very good chiropractor and some epidural injections had me almost pain free by mid April. But the nerve damage remained. In most ways, it is inconsequential. I walk without  limping, and can still do 99% of everything I could before. Unfortunately, the 1% of activities that is  adversely affected includes my favorite sport and lifetime passion..... surfing. Just visualize a person surfing, and you see that the only way a surfer steers his board is with his feet. And for normal stance surfers like me, the right foot does about 75% of the work. I soon discovered that except for the slowest, boring waves, my right foot no longer has the strength necessary to effectively surf.

My Doctor told me that nerve damage like mine sometimes heals. Unfortunately, I am now at the far end of the window in time where he predicted that might occur. And there has been no improvement. So barring a surprisingly delayed recovery, I am facing the reality that my stand up surfing days are over. Not  that big a deal for someone who lives in Arizona. Nevertheless, I have spent at least three weeks at the beach each year since we moved here from the coast,  in 1996, and this activity has always been a very big part of my life. So, I spent about a week in low grade mourning. But I'm over it. Have decided to take up body boarding and kayak surfing, which don't require the same foot strength. They are less fun than stand up surfing, but infinitely better than staying out of the ocean.

I think that many middle class  Americans  find themselves coping with  similar kinds of disappointment. Our homes have stopped appreciating while everything else seems to be getting much more expensive.Rising gas prices have impinged on the freedom of mobility we have taken as our birthright. Inflation, plus corporate and political malfeasance place our retirement funds at risk. We know that although we still have many things to be grateful for, some of  the pleasures of our lifestyle have temporarily or permanently vanished.

Now considering the alternative, I  cannot get angry about the inevitable consequences of age. But the losses experienced by middle class Americans were not  so "inevitable." And their disappointment may change to anger. We live in interesting times.

Regular "RealtyIntuition" updates have resumed. You can look  for my next update on Monday.

Fate Of The Suburbs Part III

Posted at 10:58 AM, Jul. 30, 2008

We have talked about the too "close in" suburbs, where residents are still engulfed in an urban environment. And we discussed those too "far out" suburbs whose great distance from jobs and services is unacceptable at today's gas prices.

Now let's discuss the optimum suburban location. I'd say the perfect location is one where quality schools, shopping, services and entertainment can be reached in less than a five minute drive. In the relatively recent days of sub $2.00 gas, an acceptable drive time to such destinations was probably 15 to 20 minutes. Those times are gone.

Ideally, commuting distances should be no more than 25 minutes one way, the shorter the better. Again, twice that amount of time was economically feasible before our fuel prices doubled. Those who can telecommute will certainly have a lot more options about where they can live. Can you configure your job to telecommuting? If you spend a lot of your workday in front of a computer, there is a good chance you could. It might be a good idea to start touting the idea to your boss. Read "The 4-Hour Workweek," by Timothy Harris, for great tips on how to do this.

And of course, proximity to these destinations should be achievable in a neighborhood where you feel safe to walk to the park after dark, where graffiti is rarely if ever seen on the outer walls of your subdivision, and where you rarely if ever have to subject yourself to stop and go rush hour traffic.

Do these criteria seem unrealistic, even idealistic? For some people, yes. But there are areas around the Valley of the Sun, where the majority of middle class workers could have all the above. The Superstition Gateway region of far east Mesa, located just east of the intersection of the 60 (Superstition,) and 202 (Red Mountain) Freeways, is one example. Two years ago, this area was too far out. Within that time frame, new construction has erected a large new hospital and almost all the standard retail and entertainment franchises to fill what were previously huge expanses of dirt fields. It wasn't till two weeks ago however, that completion of the final phase of the 202 freeway linked residents to twice as many employment sources within our prescribed 25 minute commute.

 I happen to live in this area. My wife and I moved into an early phase of the Parkwood Ranch planned community in early 1999, at which time we could hear roosters crowing each morning. The location worked for us, but was relatively "remote" until a whole suburban infrastructure popped up around us almost overnight. Someday, Superstition Gateway may find that it too has become too close in. But with the slowdown in real estate development, that will take ( I think,) the better part of a decade. It will be interesting to watch.

In our turbulent times, there is one more criteria to add to the ideal suburban location. Close enough in to reach the urban center in less than an hour's drive. Distant enough to get completely out of the metro area in less than an hour, in case of terrorist attack, riots or other urban emergencies. By those criteria the is really no "good place to live" in Southern California.

In conclusion, we see that timing will greatly determine which locations make the ideal suburbs. The communities built on the "high ground" of the hills and mountains that surround the Valley, are likely to retain the most value and desirability after the whole region is completely built out. That also holds true for most other urban regions that are surrounded by such hills.

Not everybody shares these suburban values.And if circumstances permitted, the ultimate place to live for many of us might be somewhere other than even "the perfect suburb."  It is high time to start  finding and investing in those locations. We'll be discussing that soon.

Fate Of The Suburbs Part II

Posted at 10:07 AM, Jul. 25, 2008

It is true that suburbanites do much more driving than downtown dwellers. But it is also true that the Peak Oil crew has presented a "worst case scenario" that is usually not applicable.

First and foremost, not all suburban workers commute to "downtown." Several major employers, like Intel in Chandler, and Boeing in northeast Mesa, are conveniently located way out in the burbs.Soon, the Williams Gateway airport, in southeast Mesa will grow into a very  large employment hub. The more affordable cost of large chunks of land in the outer regions of metro areas mean that this trend is almost certain to continue.

Telecommuting is the second reason that $5.00 or even $8.00 per gallon gas will not completely destroy suburbia. A significant number of white collar workers soon will do their jobs completely out of a home office. An even greater number will do this at least three days, and limit physical trips to the office to  twice a week. At the college level, similar benefits will be achieved via online education.

Third, a switch to far more fuel efficient vehicles is already under way. This probably will result in almost doubling the average miles per gallon of the typical commuter craft in less than a decade. Further, if both employers and government implement strong incentives to reward car pooling, the fuel used per  commuter will be greatly reduced once again.

So the increased cost of driving does not seem likely to destroy the suburbs any time soon. But future suburban desirability will be affected  for better and worse by the TWO factors that determine real estate value: location and timing.

First, lets look at the early suburbs, constructed at the edge of any city that is just beginning its growth into a metropolis. All too soon, those areas will become engulfed by the city itself, which is a mixed blessing. Certain parts of Tempe make great examples. The best thing is that these single family homes will always retain their private yards, and a priceless increment of isolation from their neighbors. On the other hand, traffic congestion and crime increase, and public schools begin to suffer the same problems as downtown. Pretty soon, middle class homeowners decide there must be "a better place to raise my family," and they move farther out. A few of these in close suburbs become upper class enclaves, with much better schools and other amenities for executives who really do work downtown.. The more "affordable" subdivisions however go into a decline which will continue until some uncertain time in the future when they will become hip as "historic districts" worthy of restoration.

The other extreme is found in the newest, remote developments, built with an assumption that urban expansion and real estate booms would continue unabated forever. Queen Creek is the perfect example. During the 2004-2006 boom, prices rose so fast that first time buyers felt compelled to "keep driving (ever farther out) till they qualified" to purchase a home. Two years later, these buyers find that their fuel expenses have tripled. Road improvements lag far behind population growth in those areas, so their commuting time and misery factor are almost intolerable. Prices have declined for closer in housing, so those poor folks cannot afford to sell their homes, and too often can no longer afford the commute. As I mentioned in Part I, some streets in Queen Creek have more houses vacant than occupied, and a very desolate ambiance. For remote suburbs like this, the peak oil worst case scenario seems accurate. With time, Queen Creek's prospects may improve. But we are talking about a long time.

That brings us to that final category of "just right," suburbs that at present, are neither too new or old.... nor too close in or far out. They will be subject of Part III.

The Fate of The Suburbs Part I

Posted at 12:50 PM, Jul. 19, 2008

Some "sages" are forecasting a future for the suburbs that reflects the bleak view of James Howard Kunstler. In his book, "The Long Emergency," Kunstler depicts a suburban structure that is based on lots of driving; especially to work, but also to shopping, dining, and the essential services like schools, doctors, dentists, hairdressers, and so on. Kunstler's vision is based on an expectation of genuinely catastrophic effects caused by peak oil. With gas becoming ever more expensive and in shorter supply, the middle class, according to him, will be unable drive more than a very few miles a week. This will make it impossible for most folks to live in places like the suburbs where you have to drive everywhere.

Kunstler and others envision almost deserted subdivisions, with sun bleached "For Sale" signs, and vandalized foreclosures everywhere, and a desolate wind blowing tumbleweeds down abandoned streets. Wow, that sounds a lot like certain parts of Queen Creek Arizona, right here and now.

This variety of "futurists" project a romantic view of everybody moving back into the big cities. We middle class folks will be able to walk or take public transit, like Phoenix's new Light Rail System, to absolutely everywhere we ever will need to go. In exchange we will give up the freedom of personal vehicles except for bikes. We will forsake the luxury of private yards and  pools for municipal parks and community pools. We will pay high taxes to rebuild the aged infrastructures of America's urban cores. We will find a "silver lining" of culture and diversity within the drastically increased congestion and population density.

I do not share this idyllic view of the future urban lifestyle. But I don't think the peak oil folks are completely wrong about the suburbs. In my opinion they are only two thirds wrong...and one third correct. There are different varieties of suburbs, and their future fortunes will differ too. We are going to look at the different types in my next few posts, but here's a preview for you.

Just remember what Goldilocks found when she went to sample the porridge (and other amenities) at the residence of The Three Bears. One bowl was "too hot," one "too cold," and one was "just right."

New MLS System

Posted at 2:51 PM, Jul. 15, 2008

Effective Monday July 28, 2008 the entire Arizona Regional Multiple Listing System (ARMLS,) will convert from our previous Tempo online data system to a new provider known as "flexmls Web." The impact on both Realtors and clients will be similar to trading in a 1990 Toyota Corolla for a brand new Lexus. Where the previous vehicle was state of the art if it had cruise control and a CD player, the new model has radar guided cruise control, an ipod interface, surround sound system, 8 airbags, a Nav system with traffic and weather reports, a program that enables it to parallel park itself....and a lot more power. This is all basically good, although it can make starting the car, and driving to and from the grocery store a more complicated proceedure.

I will conservatively guess that it must double the available amount of property information and search parameters. Our ability to compile, compare, analyze and present that data will be similarly expanded. This should provide two huge benefits.

When working with buyers we will be able to provide much more information for the buyer to evaluate: details that previously may have required driving to and physically inspecting the properties. For just one example, my understanding is that the number of photos per listing has increased from a maximum of six, to as many as the listing agent wishes to supply. We are going to be able to help buyers not only eliminate the "wrong" properties, but also to get to the "right" property faster. Saved time is always priceless. And with skyrocketing gas prices, reducing the number of houses physically inspected will quickly recoup the increased MLS dues now paid by Realtors.

For sellers, we will be able to provide vastly more enlightening Comparative Market Analyses.  Property  and market conditions which sellers previously had to "take the Realtor's word for," will now be tangibly documented. Pricing accuracy will be improved from "being in the right ballpark," to knowing whether one should be in Centerfield or on Home Plate. Of course good Realtors have long been able to supply accurate price estimates. Previously, we did it by personally inspecting every listing in our areas of specialization, and knowing the ins and outs of our local  markets. Such local knowlege will still be invaluable, but about half of what used to inside info will now be available to any agent who knows how to extract it from the MLS data.

Technology is really expanding the amount of information we can supply to our clients.Some benefits however, will remain unique to each individual Realtor. These factors will include agent integrity, negotiating skills, and the ability to make the buying or selling experience smooth and enjoyable.

Is It Time To Buy??

Posted at 2:47 PM, Jul. 6, 2008

Did my graph below seem "depressing?" It's all relative. To see a really bad market, hop in my time machine for a jaunt back to 1979-1980. Interest rates were astronomical  then, peaking at 18%. For every $100,000 you borrowed, your mortgage payment was around $1500.00 per month. That is even worse when you recognize that a 1980 dollar was worth at least 2.2 times as much as today's. http://www.measuringworth.com/calculators/uscompare/result.php  At today's interest rate around 6%, the same $100,000 loan requires a monthly payment of less than 498 of "today's" dollars.

The backlog of unsold inventory in 1980 was measured in years instead of months. Risky and cumbersome "creative financing" was the way most homes were sold. However I did have one client, a young superstar at IBM who was being paid so much that he not only qualified for a loan at 18%, he needed the interest rate tax deduction.

So the "silver lining" of today's market is the fact that interest rates remain historically, incredibly low. That hasn't stopped our declining sales and prices, because everybody who could fog a mirror had already borrowed and bought, at ever higher and more irrational prices back in 2005 and 2006.

 Prices have already declined over 20% and there's probably more to come. With mortgage interest rates still virtually as low as ever, housing has become quite a bit more affordable. What is even more attractive for buyers is the fact that some of these bargain priced homes are also ideally located, and also gorgeous. These are the kind of cream puffs that would sell with multiple offers within a matter of days during any normal market. Right now, buyers can pick and choose amongst the cream of the crop, then submit a below list offer that may very well be accepted.

So why not wait till next year, when prices may be even lower? Because interest rates are not going to stay this low very much longer. Rising inflation plus the dollar's decline against other currencies will inevitably raise rates. Don't look for 18% anytime soon, but we may see 9% before 2010..

My guess is rates will gradually start up soon after the November election. So we are closing in on a unique "sweet spot" where the lowest possible interest rates will combine with dramatically lower ( if not the lowest) real estate prices to provide a brief window of Ultimate Affordability.

Who should take advantage of this opportunity? Investors and owner occupants who are in a position to hold on to the property for at least three years. If they have to sell before then, they may face a most challenging market, with both lower prices and higher interest rates.

So the answer to the "time to buy?" question is a qualified "yes." For certain types of buyers who purchase one of those prime properties, the timing may never be better!

Phoenix Real Estate Market Reality

Posted at 11:38 AM, Jul. 1, 2008

This chart cuts through a lot of the "expert opinions" based on selective perception.

You are looking at a two year overview of supply and demand for single family residences in Maricopa County. The red lines represent the number of homes for sale each month. Blue lines show the number of properties "under contract," which means they accepted a contract, came off the market, and went into escrow. The green lines representing "solds" could more accurately be described as houses that closed escrow and changed ownership.

To determine how large a backlog of unsold inventory exists, simply divide red line (for sales,) by the blue line (under contracts.) For instance, in May of this year, we had 50,246 active listings with 5421 going under contract which equals a 9.25 month backlog of unsold inventory. This is actually better than September 2006, when 4223 sales out of 48,004 actives equalled a 11+ month backlog. So what's the problem?

The problem is that a "normal" market ranges from three months of inventory on the "hot" side to six months on the "slow" end. Even in May 2006, the best month on the graph, we had almost an 8.5 month backlog. When supply so drastically exceeds demand for over two years, prices can only go down significantly, which they have. The chart does not yet show much of a trend that would change the present ratios. Prices will continue to decline until conditions improve.

The good news is that sometimes, both demand and prices can increase very fast. Remember 2005? Usually, the changes occur more gradually. What is in store for us?

Stay tuned.

The "Dog Days of Summer."

Posted at 4:01 PM, Jun. 26, 2008

 Some people say that Real Estate is a "dog eat dog" world. That's just the nature of the beast. You are not seeing a picture of a couple of real estate agents arguing over a commission. They can't be Realtors because neither one of them has their license yet!

Didn't take me long to sneak in one of those puppy pictures did it? What you're seeing is a couple of three and a half week old Bull Terriers: two of five girls to whom our little Show Queen Martina gave birth. Their eyes have only been open  a few days. They eat a lot, and it looks like they are getting hungry again.

I was going to launch RealtyIntuition's  post-intro post with a serious look at what the real estate market is doing right now, at least in the Phoenix region. We have to establish today's reality before we can hope to make projections about the future. I have some charts that depict that reality beyond refute. We'll see them soon enough.Today however, I decided to forsake "serious" for "Sirius," which leads us right into the Dog Days of Summer. We'll be there real soon; July 3rd through August 11th, according to tradition.

But wait. Let's just take a moment to savor the very beginning of Summer. It is kind of a magical time when students are finished with tests, and even those in the middle of a hard core career entertain visions of vacation getaways to places that are cool, fun and/or restful. Enjoy that feeling and make it your reality. All that other stuff will be back...soon enough.

So what does "the dog days of summer" mean? One connotation is a "period of inactivity." Fittingly, this coincides with the hot sultry weather occuring between early July and mid to late August. Historically, this term also alludes to Sirius, known as the "big dog" star in the Canis Major constellation. Sirius happens to be the brightest star in the night sky: so bright in fact, that the ancient Romans thought the earth received heat from it. During summer in the northern hemisphere, Sirius pretty much rises and sets along with the sun, which the Romans incorrectly thought made those days even hotter.

My favorite literary reference occurs in the short story "The Bar Sinister" by Richard Harding Davis. The main character just happens to be a Bull Terrier forced by circumstances to spend some time on the street. He exclaims (with a British accent,) "when the hot days come,I think they might remember that those are the dog days, and leave a little water outside in a trough, like they do for the horses." I know you will do much better than that for your dogs.

Some ancients believed the dog days to be a turbulent time, "when the seas boiled, wine turned sour, dogs grew mad,,...causing to man fevers hysterics and phrensies." -Brady's Clavis Calenderium. That may describe what comes somewhat later this year.....to be discussed soon enough.

Do you think I should make a last ditch effort to wrap this up with some kind of reference to the economy? OK, here we go.

"My dog is worried about the economy because Alpo is up to 99 cents a can. That's almost $7.00 in dog money!" ~ Joe Weinstein.

(Photo credits to Duff Harris. He and his wife Susie co-own Martina along with my wife Karen and me.)

Welcome!

Posted at 8:55 AM, Jun. 24, 2008

Thank you for visiting my Blogsite, "Realty Intuition."

You may be wondering what that title is supposed to mean. I will explain. We are going to evaluate current real estate conditions, and make some educated projections about what is going to happen next. We are not going to be able to correctly forecast everything. Still, you may surprised how many developments can  seen coming "from a mile away," if only one observes what is really happening, and has the experience and perspective to anticipate the logical results.

You can see how this information could be useful for making more money when you buy or sell. The benefits however, can be much greater. Where you live is one of the most important factors in the quality of your life. Things are changing fast in America. Today's nice place to live may be not so nice in the not so distant future, and vice versa. Although almost everyone's present location is influenced by family, work, etc, you still have options. And if you can forsee the best place to work or raise a family in the future, it may empower you to get there.

What qualifies me to attempt this undertaking? Well, I have been sucessfully selling residental real estate through three full market cycles. From 1980 through 1996 I was practicing in Huntington Beach, Ca. In July 1996, my wife and I moved to Phoenix's Southeast Valley. Presently, I'm an Associate Broker at Keller Williams Integrity First Realty, in Mesa, Az. I have been involved in a lot of transactions and managed a real estate office. Although nobody has "seen it all," I have learned to anticipate and deal with most of the usual issues, as well as the small but crucial mini trends that occur within the major cycles.

Along the way, I have developed a somewhat battled scarred sense of humor. So prepare yourself for the occasional tale about not so sublte ironies, and the poetic justice the market can dish out to those who tempt fate.

Beyond real estate, the main hobby/commitment for my wife and me is showing and breeding Championship Bull Terriers. Staging and showing a house has a lot in common with the grooming and ring presentaion of a show dog. One of our girls has a new litter, and I'll probably be subjecting you to puppy photos from time to time. 

You will find new posts here on Mondays and Fridays; sometimes, on Wednesdays too, if the muse is with me, or something important comes up. For poring through all this bio and intro, let me reward you with one of the Core Truths in real estate that is not widely understood....

"Location, location and location" are NOT the "three most important factors in real estate." That only represents half of the equation. Every bit as important as location is "Timing, Timing and TIMING!"