Growing up, my mom was a stay-at-home mom. Each day while doing the laundry, cleaning, and preparing the evening’s dinner she would watch soap operas on the television. It really didn’t matter which show was on; the premise was always more or less the same: a long lost brother returns; Erica Kane has a vindictive affair and someone cheats death through the miracle of Daytime TV medicine, often coming back after several seasons of absence. So too is our housing market making its miraculous return, having been written off as dead and taken off life-support, as millions of viewers watched, helpless to change it yet hoping for a happy ending.
To read the morning paper is to get a confusing picture of the California real estate market: prices down; sales up; distressed properties make up 50% of the marketplace… Sounds pretty bad right? But is it really? As a reminder, real estate is local so if you live in communities like the Inland Empire, Stockton, Patterson, Modesto, you may think me way off base because these markets are down as much as 60%+ and recovery may be a generation or two away. But I don’t work in those areas or even follow them except at a cursory glance. However, I do sell in Ventura and Los Angeles Counties and have many friends and family in the San Francisco Bay Area, and keep an eye on Santa Barbara and San Diego because I like to visit those places, and these markets are nothing like the media suggests. There is little doubt in my mind that our market is healing, but like any serious injury, the healing process has taken a long time, but like they’ve said on General Hospital many a time, “Doctor, the patient’s alive!”
So what’s really happening? Luke married Laura. They need a house. They find a house; they buy it and move in. First time buyers are alive and well. They’re finding that renting is more expensive than owning for the first time in a long time. Investors are buying too. They’re buying homes at the foreclosure auction for cash. This brings down the average and median price. But then they are often rehabbing those properties and “flipping” them, which brings up the price. Jumbo financing is harder to obtain, making higher priced homes harder to qualify for so fewer sell and again the numbers show a decline. It is true that people who need to sell, but can’t find a buyer, will be forced to lower their price. But the same is true when a buyer finds a home that has more than one suitor – something we are seeing more and more of as the inventory numbers decliner. When this happens the price is actually going up or at least is firmer. Sales are up. This is a number we can hang our hat on. Month over month, year over year, the number of sales is just that – a quantifiable figure that can be compared to previous periods of time. Prices reflect many elements, like size condition, location, views etc. but sales are much simpler and reliable. So not all numbers are the same, and in fact some numbers even lie.
If the market is really getting better, then why are home prices down? To answer you have to consider which “home price” is being referred to as being “down”. Median home price is generally the number used most often. Median is the number at which half the homes sell below and half above. For example, if 100 homes sold last month and 60 of them are at or below $500,000, and 40 are above, the median is going to be below $500,000 because more than half of the sales are below that number. Yet does that mean your $750,000 home has dropped? Not necessarily. All it means is that there are more lower priced homes are selling than higher; the median is like the middle point. “Isn’t that the same as the average”? No. The average can be pulled up or down by as few as one property. Consider what happened to the average sales price in Bel Air when Candi Spelling sold her 56,000 square foot mansion for $85M. If 9 other homes sold for $5M in Bel Air that month, the average home sold would be $65M, while the median was $5M. Both median and average are important value indicators but are easily manipulated. I mean, did anyone who owns a home in Bel Air think their $5M home was worth $65M because of the Spelling sale?
Totally confused? It’s OK; the whole median/average numbers thing is confusing. But know this: sales are up and really that’s the key to any housing recovery; because as the sales increase, so do prices. More sales equal higher prices – it’s the whole supply-demand thing. If there were an infinite supply of homes it wouldn’t matter, but as no two homes are the same, the supply is not infinite. And as the distressed inventory declines as it is currently in many of the markets across the country, the supply will become constrained under the demand that accompanies an improving economy.
So like Dorothy Michaels (played by Dustin Hoffman, playing an actor playing a woman) says in the show with-in-a show – soap opera themed movie, Tootsie: “… She was deeply, deeply, deeply, deeply, deeply, deeply loved by her brother. It was this brother who, on the day of her death, swore to the good Lord above that he would follow in her footsteps, and, and, and, and, and, and, and, and, and, and, and, just, just, just, just, just, just, just, just, just, just owe it all up to her. But on her terms. As a woman. And just as proud to be a woman as she ever was. For I am not Emily Kimberly, the daughter of Dwayne and Alma Kimberly. No, I’m not. (now in a man’s voice) I’m Edward Kimberly, the recluse brother of my sister Anthea. Edward Kimberly, who has finally vindicated his sister’s good name. I am Edward Kimberly. Edward Kimberly. And I’m not mentally ill, but proud, and lucky, and strong enough to be the woman that was the best part of my manhood. The best part of myself.”
Confused? Don’t feel bad, it’s been a rough several years, but we’re finally coming out of it… just take my word for it.
Published on 2012-02-17 12:05:49