Randy_H's Discussions

--You don't have a willing seller in a foreclosure situation. Forced sales are not evidence of market value.--I'm not sure what they teach in realtornomics, but by any economic definition there strictly exists a willing seller and a willing buyer in a foreclosure sale, or else the market would not be made, *by definition*.Fair market value is not the same as market value. FMV has a specific interpretation in terms of accounting against book value. The FMV of all real estate is always determined ex-post, not ex-ante.Here in the Bay Area median prices are going up even as anyone watching sees prices are clearly going down. The answer is simple if one bothers to think through the statistics. Fewer low end homes are selling, so the mix is changing to the top-end of the distribution. In such a case _median_ is not a very useful indicator because it misstates the trend, which can be seen instead by tracking the growing standard-deviation and deteriorating accuracy of the price statistic, solely due to the fact sales (sample points) are decreasing dramatically.Not that anyone here cares, just thought I'd add a non-realtor dose of facts to the discussion.

Zestimates in bubble markets like the SF Bay Area are almost always systematically higher, and not a little but vastly higher. I very often find Zestimates 50% higher or more than a current listing price. Worse, listing prices are exclusively _decreasing_ over time even while the Zestimate for that neighborhood will continue to show the house increasing in value.It would seem to me that the Zestimate interpolation algorithm should heavily weight _changes_ to asking prices, followed by actual sales adjusted for how much above/below asking price the closing price settled, followed by historical sales prices.Clearly the state-to-zip-proximity interpolation is broken and is being thrown off by the changing mix. This is the same phenomenon that is causing median prices to rise even while asking prices drop. It's just that only expensive homes are selling and the sample-set size is decreasing because there are less total sales. If this isn't being adjusted for very carefully the Zestimate will be, well, next to useless. All it's telling us is that the population of homes actually selling is volatile and the accuracy of prediction is diminishing.

KrismerI didn't assume anything about you. I don't even know who you are other than "agent". But you just confirmed for me that I almost assuredly know vastly more than you about economics. I've studied graduate economics at Columbia, the London Business School, and Humboldt Universitaet zu Berlin, as well as UC Berkeley. Quite a bit more than 45 credits, too.But credentials don't make an argument. My argument stands on its own. The only reason I posted was in response to your declarative statements which were categorically false. I don't like seeing blog-bullies.There is strictly a willing seller in a foreclosure. Just not by the foreclosee. The legal owner of the property is a willing seller.Your argument is the same as saying that used cars on lots which were repo'd are priced differently than those sold "willingly". It is nonsensical. There are some other specific reasons why foreclosures will tend to sell lower than for-owner sales, but they have nothing to do with the foreclosee.They have everything to do with the fact that owner-occupiers have different mental accounting than do banks with houses on their balance sheets. The two selling actors rationalize the market differently. But both are willing, or the market would not be made.

My point isn't about semantics, though that was the nature of this interchange, which seems to have focused on who's more authoritative about what.My real point is that the economics of residential housing is very messy. It is driven as much by "mental accounting" phenomena as it is by standard, classic microeconomic theory -- ie. the old supply & demand stuff.Banks have one set of rationalizations. Those motivate them to value risk and time-value over nominal sale price. Homebuilders have another, measured mostly by return on capital followed by marketing concerns. Finally the regular-old owner occupier seller is sensitive primarily to nominal price. This is why so many home sellers will "chase down" markets during down cycles. Their psychology is not such that they project ahead in the same terms as a bank or a home builder.Some sellers also have variability in their holding-period. That is, they can wait a while to move. So really, the only representation of *true* inventory during a down market cycle are foreclosure/re-owned, home-builders/new-construction, and home-owners who really are "forced" to move for overriding life reasons (usually divorce, job change, financial troubles).Worse, this spills into the mental accounting process of home-buyers. I am currently in this category myself. I've owned for 12 years, but sold when we had to move a couple years ago for job reasons. I will not buy again until my own mental-accounting reaches a point where I can buy enough value for my dollar to become "a willing buyer". And my expectations keep changing as I see prices decreasing. Like most buyers, I'm human and not a machine, so I don't just assume "wow, I can now buy A for $X less dollars". I instead say "wow, I can now buy B for $Y less dollars". That keeps me out of the market and reflects back on the entire micro-market.In economic terms this is all just evidence that residential real-estate is very sticky during down-cycles.

Kary,Fair enough. My realtornomics was a pejorative. I apologize for applying it to you without more discretion.Builder cycles are absolutely driven off of overshooting and undershooting phenomenon. They also underbuild before jumps in demand, usually due to shifts in employment fundamentals in a region. This puts pressure on prices upwards and entices more building until the cycle flips.My area is a bit unique. Not unique in that it is magically immune to real estate cycles, as many in the local RE community repeat endlessly (even though something like 70% of them only got into the industry in the past 5 years, so they have no idea). Rather it is unique because there are all kinds of artificial supply constraints, hard to predict foreign demand, and prices generally at a level nearing 2x sustainable levels as per people's median incomes. Without continued price rises for ever and ever, or free debt for ever and ever, this will all end very badly.

When I moved from the Peninsula to Marin a couple years ago we were ready to buy another house right away. An old, established, respected agent who helped us find "temporary" rental advised me quite earnestly to "wait a year or two...get comfortable renting". He ended up retiring a few months ago. But there are honest agents. Sadly, the partner he left us with lost my business after the first time he recited the mantra like the original poster here. "always a good time to buy; it never goes down; this area is special..."Why not buy now? Because it's a terrible time to buy. Prices haven't corrected yet, and a lot of properties are waiting to become distressed. I'm in Marin Cty which is so overpriced it's not even laughable. I used to think everyone here was just that rich, which baffled me given my wife and I do extremely well, have a huge amount of cash from our last sale, and have great employment. Yet we can't afford anything worth a second look? Something is seriously wrong.But then I signed up for PropertyShark and started seeing how houses we liked were financed. Ouch! There are a lot of people with nearly $2mm in variable debt hanging over their heads, and a purchase price from 2005 that has gone nowhere, so no equity build. Good luck with that.I'll wait for those owners to get NODs then I'll buy for 2004 or lower prices.Do I care that interest rates go _up_? No. I welcome it. It reduces demand, drops prices, and allows me to buy at a reasonable price. And, while interest rates will go down sometime in the future, your taxable base (in CA) *never* will. I pity the sucker who paid $2mm for a $1.3mm home in 2004. Have fun paying taxes on $700K of fantasy value.By the way, for those who continue to say "it won't go down" that much. We bought our first home in CA from the owners at significantly below their purchase price. They paid about 11% more in 1989 than we paid in 1996. It does indeed go down (more when adding inflation).

Actually the housing market isn't directly likely to lead to a recession. It's not the housing bubble that risks the consumption/savings ratio. It is the credit bubble, which many argue is the real bubble and housing prices are just a symptom of insanely under priced credit.Americans have little savings. As far as GDP measures go, which is how recessions are measured, your house counts as savings, not investment. So Americans consume based on either direct credit as in credit cards, or indirect credit as in housing inflation cash-outs. Interest rates aren't even that relevant, despite all the hoohaa. Rates can go down even while credit gets tighter -- this is already happening now. Tighter credit means less discretionary spending, means lower house prices, means even less discretionary spending.That's the chance of recession. Or, to sum it up, when no one is willing to lend a fool money to buy stuff with, the fool can't buy any more stuff.

aldrethDo you read more than the first line of anything before you reply? If you had you might have realized that I was agreeing with you but putting it into terms that will overcome what the perma-bulls will say (semantically correctly) in the mainstream media.Follow my link and read a bit before turning on your sarcasm flag. Open discourse betters us all.

Here's another for you, which isn't just a regurgitation of the Shiller work. I took Shiller's data, interpolated HSBC "Froth Finding Mission" 2005 report data, and then narrowed it to a zip code in San Mateo county. The following is a statistically valid regression analysis:http://randolfe.typepad.com/photos/uncategorized/housing_projection.jpg

I keep feeling like everyone is falling all over themselves with complicated, contorted explanations as to why this or that house isn't selling. It's really simple:It's the price, stupid!I keep hearing in the mainstream media, on blogs, from pandering politicians looking to buy some votes with handouts: "people can't sell their homes!". No, they *can* sell their homes. Lower the price. No one guaranteed you a freebie return. Prices go up; prices go down. Get over it.Oh oh, but the Fed will lower rates! Oops, mortgage rates are tied to LIBOR, not the Fed rate, and guess what, the LIBOR has been skyrocketing, and diverging from from the Fed rate. That party's over. The world is moving on.Oh oh, but the Government will bail us out! Oops, the government will probably fumble around too long to help you, but even if they do, they'll only help folks with conforming loans, not jubmos, dumbos or insanebos. And, the big 'but' is you'll have to prove you didn't _lie_ about your income on your current distressed loan, so that rules out about 50% of buyers in the past few years on either coast. Anyway, bailing out a few truly needy folks in Indiana or South Dakota won't help you maintain a fictional 250% gain in California or New York.Oh oh, but we'll just wait it out! Prices will come back after "they" fix everything an people can get jubmos, dumbos, and insanebos again!Oops, wrong. That party is over. Even if everything goes perfectly, no one is going to loan such disgusting amounts of money anymore. Period. No more buying a house that's over 15x your income. It's over. I'm sorry if you bought recently, but there had to be a greatest fool sometime.But if you want to sell your house there's only one answer left: LOWER YOUR PRICE!