Wisest of the crowds

Kenneth Harney pens another interesting piece entitled How ’systematic inattention’ led to subprime fiasco. My favorite line:

Ninety percent of the appraisers in a 2006 national survey by October Research Corp. said they had experienced threats, nonpayment of fees and other forms of coercion. Many said they had lost business by refusing to play the game.

Harney also details a few scams worth a read but perhaps the key point is that the commercial incentives of banks and other intermediaries are wrecking havoc on the reputations of appraisers. Is it time to re-examine incentives and better structure the industry? Should buyers hire appraisers rather than bankers and agents? I discussed this earlier here.

The National Association of Realtors reported existing homes sales today (the press release). The data was scary and probably indicated the first quarter activity was a knee-jerk reaction by consumers who were sidelined the previous quarter. Of course this didn’t stop the NAR from spinning it as Matt Carter at InmanBlog noted in his excellent post, “Again with the weather”.

Here are the facts:

- Nationally, sales declined 8.4% versus last month and is down 11.3% versus last year.
- The West was hit hardest, being down 9.1% versus last month and down a whopping 16.7% versus last year.

- Median prices were up 1.6% nationally but down 1.8% in the west versus last month

- Inventory declined 60k units (1.5%) to 3.75 million units but because of faster declining sales, the number of months of supply actually increased to 7.3 from 6.8 a month earlier.
- This monthly decline was the largest since 1989 according to the Associated Press via MSNBC and the NYT

What does this all mean? Probably just that there was a “dead cat bounce” in interest in the first quarter of 2007 after the unbelievably slow fourth quarter of 2006. This happens all the time in financial markets where people attempt to bottom pick a falling market resulting in a series of rapid, but ultimately unsustainable, bounces. If this is in fact a dead cat bounce, look for prices to go substantially lower. From my experience as a trader, it will only be when people loose hope that a bottoms in prices gets set. Did you know that more people lost money in the 1929 crash buying stocks 50% below their peak?
Having said all this, markets are hyper-local and what’s true generally can be completely untrue for your neighborhood or street. If you live where new supply is negligible and high-paying jobs abundant and secure, don’t sweat it. If you live in a place where new construction in plentiful and excessive credit rampant, look out (sorry Florida)!

Side note: My-Currency markets are predicting lower prices in many san francisco zip codes over the next 3-6 months. An example for 94117 (Haight, Alamo, Ashbury Heights, Cole Valley)

Since returning to SF from London a little over a year ago, my wife and I have delayed looking for a house until we have decided where we want to live. Our eldest child just went through the interview process in the private schools (San Francisco public schools are poor with only a few exceptions) and lucky found a spot so we are only now truly testing our will to raise our kids in the City.

I spent all day looking at single family houses across the city’s open houses. Here’s how my search went:

-Started with Google base via My-Currency (developement site) for listings

-Re-Checked listings at SF MLS (this site sucks!)

-Re-re checked listings at Trulia and Redfin

-Re-re checked listings at various local firms

-got annoyed at the fragmentation of listings

-Found a few properties

-Checked for tax & prior purchase records at Zillow (some there, some not)

-Checked analytics at My-Currency

-Checked analytics at Trulia

-Read Robert Shiller’s assessment of housing and got scared (recommended reading:”Long-term perspectives on the current boom in home prices”, March 2006)

-Tried to find a good open homes site and failed so grabbed the SF Chronicle Sunday pull-out (yes paper…I still read paper).

-Got annoyed that I had to type in the addresses of a bunch of properties to decipher agent language about location (hint to one exuberant agent: Lyon at Geary is NOT Lower Pacific Heights jackass - not even close!)

-Reviewed some of the price predictions for square feet in various zips in our alpha site.

-Got annoyed again that this is taking so long

-went to open houses

-got frustrated with descriptions that are BS (hint to another exuberant agent: a large closet off of the kitchen is NOT a bedroom unless your dog or cat need bedrooms in your house)

-got pitched by 10 agents (unsuccessfully).

-Learned that one property sold for a whopping $600k over to $3.5 (this may be a lie since the agent was using it to justify her pricing)

-Came home after a full day of research and tours exhausted and feeling no smarter

We real-estate entrepreneurs have a lot of work to do to get this right because this is taking too long, there is still substantial holes in the listings aggregation of all sites including the MLS, and is is still difficult to get things down to numbers. Here’s my review: For listings go to Redfin (only a few cities) or Trulia. For tax and property records Zillow or Redfin. For statistics Trulia. For open house, go fish. For area price predictions and agent reputation, My-Currency (coming soon!)