June 2006 Archives

Haefling on Housing

Carl Haefling:

I believe the stock market is predictive -- not reactive -- except for relatively short periods of time.

Housing stocks topped out in Dec and are now down up to 50% in numerous cases from those highs. It will take a couple of years at least for this scenario to complete itself. A significant decline in the housing market over the next 2 to 6 years is being predicted by housing stocks.

It takes time for the housing market to fully unravel, we are in the early stages of stage 1. Stage 1 is where the market begins to recognize that prices have reached levels that reduce affordability and thus the number of possible buyers. Sellers, who have been holding back selling for fear of not selling at the top, begin posting signs advertising their home, usually at prices that reflect the highest paid for a similar home, and suddenly the inventory of homes foresale explodes. This has already happened in many parts of the country. This stage may take one to three years to fully unfold.

The Lure of Overseas Real Estate

Paul Brown:

The real estate market is still booming — overseas. So reports Worth, which gives three reasons Americans are increasingly making investments outside the United States.

"Buying a House Without Leaving Home"

Phuong Cat Le:

So when Boerner checked out Redfin.com, a Seattle-based home-buying Web site, and saw a modern four-bedroom house in Lake Forest Park he liked, he took the plunge.

He hit the red "buy it" button, and made an offer.

Sight unseen.

"It seemed kind of surreal to throw a half-million dollars into a house, but I have a lot of trust in my own judgment," said Boerner, 39, who made the offer online from California as he and his family were preparing to relocate to Seattle last month.

Former Homestore Executive Found Guilty of Insider Trading


The founder and former chief executive of Homestore, an online real estate listings company, was found guilty Thursday of insider trading, lying to company accountants and federal regulators, and conspiring in a scheme to defraud investors by inflating revenue.

A United States District Court jury in Los Angeles found Stuart Wolff guilty on all counts. He was taken into custody to await sentencing, which could bring a prison term of up to 35 years in prison. His lawyer said he planned to appeal the verdict.

Mr. Wolff headed the company from 1997 until he resigned in January 2002. Homestore has since changed its name to Move Inc.

Consumer Federation of America:

Report Also Shows How Home Sellers and Buyers Can Lower Commissions

Washington, D.C. – This morning, the Consumer Federation of America (CFA) released a report showing how many traditional real estate brokers, and their associations, successfully stifle competition, what reforms are needed to protect home buyers and sellers, and how these consumers can protect themselves.

“Many traditional real estate brokerage firms, and their organizations, function as a cartel that tries to set prices and restrict service options,” said Stephen Brobeck, CFA’s Executive Director. “But consumers can take steps to lower 6-7% commissions without jeopardizing the sale or purchase of a home,” he added.

According to the report, the desire of traditional brokers to maintain 6-7% commissions and the opportunity for a “double-dip” – one broker collecting the entire commission – lies behind almost all of their anti-competitive actions. In nearly all areas of the country, traditional brokers have tried to charge commissions of either 6% or 7%, although many sellers of higher-priced homes have been able to negotiate reductions of one percentage point or even more.
Kristin Downey has more.

Real-Estate War Traps Consumers In the Middle

James R. Hagerty:

About 11% of home sellers last year used "alternative" brokers (ones offering flat fees or other forms of discounting), up from less than 2% in 2002, according to surveys by Real Trends, a publishing and consulting firm.

The competition from discounters has prompted some traditional brokers to use a variety of tactics to fight back, and this can end up hurting consumers. The controversy will get a public airing Monday when the Consumer Federation of America, a nonprofit research and advocacy group, releases a report on "how the real estate brokerage industry functions as a price-setting cartel."

The McMansion Glut

June Fletcher:

Mickey and Jane Finn put their five-bedroom, 6,200-square-foot home in Leesburg, Va., on the market in April, but already they've cut the price to $899,900 from $1.1 million. Now, they've decided to put it up for auction.

What's the hurry? Down the street in their leafy subdivision, two similar-sized houses are also on the market, and around the corner, five more have for-sale signs. The Finns, who paid $692,000 for the new house in 2002, recently retired and, with their two children grown, they're eager to move to a place half the size. "We don't need this big a house anymore -- if we ever did," says Mr. Finn, age 63.

The golden age of McMansions may be coming to an end. These oversized homes -- characterized by sprawling layouts on small lots, and built in cookie-cutter style by big developers -- fueled much of the housing boom. But thanks to rising energy and mortgage costs, shrinking families and a growing number of retirement-age baby boomers set on downsizing, there are signs of an emerging glut.

Housing Leads the Economy Up AND Down

Barry Ritholtz:

This morning, we look at three charts that I believe are telling about both the past 3 years, as well as the next few.
  1. First up is a longer term glance of mortgage rates;
  2. Housing Sentiment versus GDP; 1988-2006;
  3. Consumer Spending versus Housing Index; 1986-2006

The Values of Real Estate

Marlow Harris:

The researchers found four basic psychographic profiles: Winners, Winners with Heart, Traditionalists and Cultural Creatives.

The "Winners" tended to go for the glitziest homes. The "Winners with Heart" were a group of status-conscious people with a spiritual side. There were the religiously oriented "Traditionalists," who, it was assumed, would prefer the more classic architecture there, and more family-oriented activities, such as the annual Easter egg hunt. On the other hand, the "Cultural Creatives" tended to be more liberal-minded, environmentally oriented and "less into conspicuous consumption."

Interestingly, there is doubt that it's working as planned. There's an interview with one buyer of the supposedly "Culturally Creative" homes in the Terramor development. "(he) doesn't consider himself culturally creative. He said a neighbor turned his so-called culture room into a TV room with a 50-inch flat panel, and others in the environmentally oriented village have installed big swimming pools and $100,000 landscaping". One neighbor even has a Hummer.

VC's Talk about Their Redfin Investment

Two venture capitalists discuss their investment in Redfin, a Seattle area online real estate brokerage:

  • Peter Cochran:
    Residential real estate is ripe for disruption. Yes, I understand that Redfin isn't the first VC-backed entrant that is attempting to fix the inefficiencies of the residential real estate industry. But that doesn't change the fact that the current residential real estate model is broken and needs fixing. A recent GAO report to congress on residential real estate competitiveness found that over the past 30 years, "...commission rates for buying & selling a home have remained relatively uniform—regardless of market conditions, home prices or the effort required to sell a home." [my bold]. Let's collectively think about this statement for a second or two and let the economic absurdity sink in. Or let me put it another way: if I'm a Seattle or Bay Area real estate agent (or most anywhere else in the US), in the last five years my average commission check per transaction has doubled, while my average workload per transaction (not including marketing costs) has gone down due to broadband penetration, Internet use (in 2005 78% of home buyers used the Internet for research, up from single digits 10 years ago), and proliferation of online tools and services like Redfin and others (buyers who do research on the web close much faster than those who don't). Does this seem right to anyone? This equation makes no sense and needs to be fixed.
  • Steve Hall:
    I think this intense interest level in what Redfin is doing mirrors the fact that real estate has emerged as bit of a national sport over the past decade. People watch local real estate listings like they do their local news. Dinner conversations naturally turn to the latest house on the market and “Can you believe they listed it for $XXX?!”

    And then there is the subject of real estate broker fees - now this really gets folks talking. Ask anyone who has sold a house recently how they felt about the 6% fee taken off the top of the price – it’s not pleasant. People understand they need the broker to sell their house, but largely view the commission as a necessary evil.

    Interestingly, home buyers don’t have the same sense of leaving money on the table as the sellers do and therefore don’t complain as much. But the reality is that money is flowing out of the hands of both sellers AND buyers and into the hands of the broker. It’s basic economics: the commission impact changes the market value at which a seller is willing to sell, and therefore buyers are forced to pay more, etc.

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