Wisest of the crowds

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!)

Will CFC (Country Wide Financial) be a reasonable indicator that the sub-prime market is truly spilling over to the whole housing market? If you believe that the markets are the best aggregators of information and are forward looking, then keep your eye on the stock. It looks like a break of $30 dollars a share could indicate that investors believe that the housing landscape is still working its way through the mess and that the much discussed resetting of ARM’s may get uglier. This, in the context of a broad consensus that the Federal Reserve will lower fed funds - hence making ARM’s cheaper - is a staggering thought. Take a look at the chart below to get a sense of how well CFC has done over the last 8 years.

Yesterday I did a roundup of the doom & gloom from around the world yet the Philadelphia Housing Index has marched back from its lows in late summer. Take a look at this chart from Yahoo:

I think this says it all. The index has retraced nearly ALL its declines. So what is the market signaling? Is there a relationship between the fortunes of housing builders and housing values?

In time we hope to highlight these relationships between the financial markets and housing but we would love to hear your thoughts.

My First review of headlines around the world this morning brings the following:

• - Canada via the Globe and Mail: “Housing starts off at last” The first line reads “Housing starts are expected to moderate this year and next because a lot of pent-up demand has already been met and carrying costs are rising”
• - USA via Reuters “U.S. housing vacancy suggest further pain - analysts “ First line read: “A glut of vacant homes suggests that the U.S. housing market has not yet stabilized and may be poised for another downturn, Merrill Lynch said in a research note”
• - Europe via Forbes “European housing market set to cool in 2007 after a strong 2006 -RICS”. Interestingly this headline spins positive but six paragraphs in gets justified with the following: “the Bank of America is anticipating price corrections in the UK, Spain and to a lesser extent France. …research by BoA shows these European markets are overstretched and prices are approaching 1991 levels, just prior to the last house price correction, in terms of housing affordability.”
• - Australia via The Australian “Rate rises blames for housing squeeze”. David Uren opens: “The Reserve Bank is being blamed for a dive in housing construction”. The first line read “A glut of vacant homes suggests that the U.S. housing market has not yet stabilized and may be poised for another downturn, Merrill Lynch said in a research note”

These are the just the English language headlines!

So what is going on here? Is housing imploding or is everyone in the media bitter because they are trying to buy a house? Perhaps it is Wall Street, The City (London), and other influential people in the markets and the economy just talking to talk and/or advancing some agenda.

The Truth is housing is a market in a very loose sense. We are all affected by interest rates and the economy but in reality, we don’t buy markets. We buy houses. What is true globally may not be true in your city, your zip code, your neighborhood, or your street. Furthermore, if a lot of people want to buy a house, does it matter what’s happening elsewhere?

In considering your situation, remember to take a hard look at the micro variables and question whether the macro variables are relevant and if so, to what extent they may impact your decision.

My-Currency has embarked upon revealing values and information at micro levels to help you make a better decision, get a better deal and ultimately be confident that your decision was a good one.