Friday, March 26, 2010

Weekly Snapshot Statistics - Santa Barbara Real Estate Market

Beginning the week of 3/15/10-3/21/10:

56 new listings
38 price changes
31 sales pended (25 under $1mm, three $1-2mm, two $2-4mm, one $4-8mm)
19 closed
15 off market (8 expired, 6 canceled, 1 withdrawn)*
9 back on market

*This is the lowest number since November, which is a good sign. "Off Market" homes have failed the marketing test, so it's good to have this as a low number.

Wednesday, March 17, 2010

March Newsletter Link

Click on the title of this blog entry to view my March newsletter.

Malcolm Gladwell on 'Miscalibration'

Miscalibration? What does that mean? It's not in the dictionary.

Last Wednesday Malcolm Gladwell spoke at the Arlington Theater here in Santa Barbara, and he coined this term. I sat down in my seat and expected him to speak on The Tipping Point or Outliers, but it was a both a nice surprise that Malcolm had a different subject in mind and that he was such a powerful speaker.

He shared the story wrapped up with the Battle of Chancellorsville in May of 1863 and how it relates to what has just happened with this financial crisis. He asked, "What should we have learned?" Typically when a catastrophe occurs, we seek to learn from it. If it is a car accident, you would ask, "Was there alcohol involved?" and other leading questions. We like to make sense of things. We have just and still are experiencing a catastrophe caused by smart, savvy, experienced people. Have we really extracted what caused this whole thing? These people who caused the financial crisis were not drunk. They were clear-headed and brilliant. So what happens when experts screw up? Malcolm discussed how we hate incompetence, and we do what we can to get rid of it. But, incompetent people tend to have trivial jobs and therefore make trivial mistakes. With the failure of experts, the impacts can be massive.

The Battle of Chancellorsville was at the midpoint of the Civil War, and the outcome of the war was in doubt. Robert E. Lee was known for being an "extraordinary military tactician" and was no small opponent. Lincoln hand picked the "blue of eye" and "square of jaw" Fighting Joe Hooker to lead the Yankees against the Rebels and Robert E. Lee, as Malcolm put it. (He jokes he can get away with saying this because he's Canadian.) Fighting Joe Hooker studied Lee diligently. He had twice as many men as Lee, twice the guns and ammunition, he had Lee surrounded, and Lee was 56 years old (which was relatively old back then) and in poor health. He had just about 'perfect' information about his opponent, and this caused him to become over-confident. Hooker ultimately lost the battle and did not change his course despite new information as it arrived. Despite clear advantages, the perfect battle plan, and perfect information, he lost the battle.

Malcolm discussed another example of child psychiatrists diagnosing cases. At first, they were given 25 questions with short answers. As they were given more information (and eventually entire files on these children), the new information did not make them more correct in their diagnosis, but more information did make them more confident that they were correct. They didn't get any better at diagnosing, but they thought they were better at it.

Malcolm said that that over-confidence is the "disease of knowing too much" while incompetence is "the absence of knowledge." Again, the "disease of the idiot verses the disease of the expert" is that the first disease is common. In Malcolm's words, "Idiots screw up all the time but at a low level," whereas the thought of expert failure terrifies us, because these authorities, experts, or people in high positions can really impact our lives if they make a mistake.

In the case of Wall Street, these people who failed thought they were equipped with new tools that led them to believe they had "perfect information about the marketplace" and they could predict exact levels of risk. Malcolm's position is that "perfect information always creates miscalibration" and his stance is that we also need humility from our experts. We need to be confident enough to be good, yet not so arrogant in that confidence to stop learning or wind up going through anything like this again.

I appreciate his perspective, and that's Malcolm in a nutshell...opening our minds to new thoughts and ways of looking at the world. Thanks to Malcolm Gladwell for visiting Santa Barbara!

Thursday, March 11, 2010

February 2010 Economic Forecast (long summary)

Piggybacking on my blog entry "February 2010 Economic Forecast (short summary)," here is the longer version, since I mentioned I would write a longer version for those of you who love details.

The speakers at the Forecast were:

Karen Bailey Shiffman, Santa Barbara Bank & Trust
Randy Glick, Prudential
Robert Kleinhenz, Deputy Chief Economist of C.A.R.

Karen Bailey discussed the department she is involved with at SBBT, which handles foreclosures and short sales. She stated that there were 355 foreclosures on the Santa Barbara South Coast in 2009, which represents 25% of the foreclosures for Santa Barbara County. Most of the foreclosures are occurring in the North County of Santa Barbara. From 2008 to 2009, short sales had increased by 167% for homes and 140% for condos. Short sales and foreclosures accounted for 13% of our market in 2008, 22% in 2009, and are expected to be about 15% of our sales in 2010.

Randy Glick stated on behalf of Realtors, "It's nice to be needed." I believe he made this statement because it takes quite a bit of expertise and understanding to make sense of what is happening in this market, and it is taking much more work and knowledge to get homes sold in these times. If you are speaking about a $500,000 condo verses a $4 million estate, you are dealing with completely different stories on the market. Randy also said that "clients need true professionals," and I do agree with him. He discussed real estate malpractice and agents being afraid to tell their clients the truth, which damages them in the end and is not a good business practice.

From Randy's numbers for Santa Barbara South County, we saw an 18% median price drop for single family homes in 2008, and another 18% median price drop in 2009. That's about a 35% drop in the last two years, although this isn't true for all homes. These numbers "look bleaker than they should," as Randy put it, and he says, "We are not so bad!" Inventory has dropped every year since 2006. From 2008 to 2009, we saw a 2% drop in our inventory. We are not doubling and tripling our inventory, which is a great sign. Our low for last year was December when we had 428 homes for sale, and the high was in July when we had 639 homes for sale. That really is not a lot to choose from! Randy also stated that he feels we are back to 2003 numbers. (For more on the predictions for 2010, please refer to the commentary and statements in the short summary I wrote below dated February 25, 2010.)



From Robert Kleinhenz, he first took a look at the overall economy. In 2009, referring to our GDP, he said we saw "the largest annual drop since 1938 of -3.4%." He discussed how we had very few social safety net programs back then, such as unemployment benefits. On the $787 billion stimulus package, he said that "less than one-third has been spent," and he went on to show us those dollars still left to enter the economy. (Out of $288 billion for tax benefits, $92.8 billion has been spent. Out of $275 billion for contracts, grants, and loans, $73.2 billion has been spent, and out of $244 billion for entitlements, $102.8 billion has been spent.)



The California unemployment rate is above 12%, at its highest since 1940, and our number is higher than the rest of the U.S. As of December 2009, the Capacity Utilization Rate (this tells you how much capacity of the economy is being used) of our economy is at 72%, and 83-85% is considered full capacity, so we have a lot of room for growth. He stated that "with this much slack in the economy, the threat of inflation is low" and that he believes it will be "two to three years before we need to worry about [inflation]." Robert also said that "Bernake thinks we're still fragile and he thinks it's too soon to raise rates." Mr. Kleinhenz believes we may see a 0.5% increase this year in interest rates, but that March 31st is a "wild card" with the Federal Reserve Bank being scheduled to end it buying of Freddie Mac and Fannie Mae securities. He said that "Freddie Mac and Fannie Mae have capital limits, and in 2009, they didn't come close to their limits, so they have the capacity to make these loans."



Robert also said that the "consumer sector is still making a transition" and that this sector has less access to credit, but he believes the "worst is behind us, as far as the economy is concerned" and that we will see mixed signals for the next 6-12 months and a below par GDP for 2010.

When he spoke about the housing market for California, he said that we have been above the mid-500,000 levels in terms of the number of sales since mid-2008 and that these were the average levels before the real estate boom. California returned one year ahead of the nation for the number of sales, and a large number of these sales were distressed properties. The California median price went down 59% from its peak of $594,530 in May of 2007 to $245,170 in February of 2009. February of 2009 has been named as the bottom of the California market, and now the median price has pushed up 17% since the bottom. The U.S. median price is up 6% and California has outpaced the nation.



He said "It's a relief to have a trough to refer to now," and that this is true for most regions of California & that most regions hit their trough in the first half of 2009. Inventories have dropped dramatically, and inventory was low this past year, but prices were still falling. Robert said this is due to the shadow market. A number of properties were purchased on the sidelines and on the courthouse steps. He stated that California has about four months of inventory across the board, and "inventory under six months typically correlates to price gains." He believes the "idea of a double dip is a possibility but remote due to this concept." He also believes we will see more sales in the first half of this year than the second half, due to government help. For the California market over $1 million, California had 26.9 months of inventory last year, and this year it is down to 14.8 months, so even the higher end price brackets are seeing an improvement in the market.



When Robert discussed real estate finance, he shared that "Notices of Default maxed out in the first quarter of 2009 and have dropped each quarter since then." He also shared that trustee deeds have leveled out and lenders are working things out. Cancellations are rising with foreclosures, and this is a good sign. Bank owned sales have slowed down. One interesting thing he shared was that 84.6% of all sub-prime loans had already reset by the end of 2009, and 46.9% of all Alt-A loans had reset by that same time. 7.4% of the Alt-A loans will reset in the next 12-23 months, and another 40.4% in the couple years after that. We expect to see 2.4% of sub-prime loans reset in the next 1-2 years, and another 5% left to shake out beyond the next 24 months. This means we have seen most of the bad loans already shake out, and he said this is "becoming a smaller and smaller part of the story." Before, we were seeing 6/10 sales that were distressed, and now it's more like 3-4 out of 10 sales.

All in all, Robert Kleinhenz expects to see single digit median price gains for California this year. His advice to buyers was to find the right home at the right price, get the lowest interest rate possible, to be educated, and to use the tax credits. He also mentioned that Santa Barbara now has a 50% rate of affordability for first time home buyers, so now is a good time to make a move.

More information from the Forecast is available at www.car.org and at www.sbaor.com.

Wednesday, March 3, 2010

Weekly Snapshot Statistics - Santa Barbara Real Estate Market

Beginning the week of 2/22/10-2/28/10:

67 new listings
30 price changes
32 sales pended (22 under $1mm, seven $1-2mm, one $2-4mm, two $8mm+)
28 closed
29 off market (21 expired, 5 canceled, 3 withdrawn)
7 back on market

*We are beginning to see more sales particularly in the $1-2mm range, and more movement is happening in the higher price ranges as well.

Tuesday, March 2, 2010

Update: Months of Inventory (broken down by price range and district)

Here is a quick little update on the months of inventory for the Santa Barbara South County Real Estate market.

Carpinteria through Goleta (Homes & PUDs only, not including Condos):

Our total market has 610 active listings (not in escrow) right now, and this is trending up. In addition, we had 78 homes go "pending" in the last 30 days. This is also trending up. I think this trending up is normal, as we enter the spring and summer. This is the time when more sellers put their homes on the market and more buyers tend to be out looking. We currently have 8 months of inventory, which is steady.

Months of Inventory, broken down by price range:
$0-1mm: 4 months (steady)
$1-2mm: 7 months (this is down sharply & a great improvement)
$2-4mm: 22 months (steady)
$4-8mm: 48+ months (trending up - i.e. further weakening)
$8+ mm: 48+ months (trending up and further weakening here as well)

Months of Inventory, broken down by district:
Carpinteria/Summerland: 20 months (trending up - further weakening)
Montecito: 19 months (steady)
Santa Barbara: 5 months (steady & showing improvement)
Goleta: 5 months (steady)
*Hope Ranch: 5 months (trending down - good improvement)

*There are very few sales in Hope Ranch, and since the numbers are small, the months of inventory tends to fluctuate more than the other districts. One thing to note about Hope Ranch is that the 4 pending sales in the past 30 days have all been under $2 million. Some agents believe Hope Ranch has found its bottom.

Condos:

We have a total of 148 active listings, and this is trending up. We have seen 30 pendings in the last 30 days, so the number of sales has gone up sharply, and this is a good sign. The months of inventory is at 5 months, which is trending down and also a good sign.