They say that a picture is worth a thousand words. This is not one of my best pictures but I think it is worth a thousand words.
I took this yesterday at the Residential Real Estate Summit. This pannel talked about new construction in the twin cities. It was moderated by Michael Noonan, of Rottlund Homes, who is standing on the right. Also on the pannel: Jason Budzynski, TJB Homes, Rick Packer, Arcon Development, Mike DeVoe, Pulte Homes, John Dierbeck, The Beard Group, Inc.
They did not have any good news for us. There will not be much new construction in the Twin Cities this year and there are new condos on the market that are not selling very quickly. They talked about going fishing and hunkering down. They don’t look like a happy group.
These people are all smiling and I am not exactly sure why. They are the leaders of the local boards of Realtors. Kevin Knudsen, Minneapolis Area Association of REALTORS®, Greg Bauman, St. Paul Area Association of REALTORS®, Rod Schimmel, North Metro REALTORS® Association, Kay McDonough, Southern Twin Cities Association of REALTORS®
They gave us an update on local real estate market conditions and made some projections. They projected that in 2008 there will be fewer home sales than there were in 2007. The number of homes sales was lower in 2007 than it has been at any time during the last decade. Greg Bauman, the president of the St. Paul Area Association of Realtors pointed out that a bell will not ring when the real estate market hits bottom.
The Chart is from the St. Paul Pioneer Press
They predict that there may be an up tick toward the end of 2008, and that home sales will pick up by 2010. They talked about pent up buyer demand and buyers sitting on the fence. I tried to get a question in but they did not see my hand raised. No one talked about affordability. There is pent up demand and some buyers are in "wait and see" mode, but there are also buyers who want to buy homes but can not afford them. Homes prices have gone up much more quickly than wages, pricing some would be home owners out of the market.
We were also told that it is a great time to buy real estate and that it is a great time to sell real estate. I was not the only one in the room who had a problem with such a statement. For some people it is a good time to buy or sell a home but for some it is not. I guess I don’t agree with the blanket statement I kept hearing.
I was one of the speakers in the conference and on my panel we talked about communicating with the general public. My part of the discussion had to do with the internet and web 2.0. I actually mentioned a couple of my blog readers by name. 
Patient Buyer, and bubble_up. I talked about how consumers need to be part of the conversati0on when we talk about real estate and the difference between talking at people and having a conversation with them.
It would have been great if bubble_up and Patient Buyer had been at the Summit and on a panel so they could talk about the real estate market from the consumers point of view. Thank you both for leaving comments on my blog and keeping me on my toes.
I met Jennifer Bjorhus from the St. Paul Pioneer press in person yesterday for the first time. I have talked to her on the phone several times and exchanged email with her. I really enjoyed meeting her. She has a smile that lights up a room. She of course covered the conference for the paper. See her article at twincities.com
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Thanks for the acknowledgement.
I’m patient now, but perhaps as prices decrease, I may change my name to the The
Pent-up-Demander.
I’ll throw this out, however: There is probably a lot of pent-up demand for Ferrarris if the
prices ever decreases to $30k.
I’d like to address (rebut?) the bell-at-the-bottom point.
Just as prices and sentiment overshot good sense at the top, pessimism may overshoot at the
bottom.
My personal opinion is that unlike the stock market where shares are highly liquid, can be
sold with negligible transaction costs, and one share of microsoft is as good as any other,
housing is different. Also, the bulk of shares are traded by professionals with an army of
analysts.
Housing market participants, in general, are amateurs relative to stock market participants.
There is no group of professional traders swapping housing in a trading pit somewhere. And
transaction costs are much higher, as we all know.
Of course we also know that most housing demand is not elastic. Most households want one
house – no more no less. Sure there are investors, but for most demand is limited to one.
(The boom saw the multiple-house investor a la liar loan).
Where am I going with all this rambling?
I reject, to some degree, the idea that market-timing in housing is ill-advised as it is in
stocks.
Timing stocks pits me against a bunch of sophisticated money managers. Timing housing pits
me against mostly the average Joe.
The average Joe’s sentiment is much easier to evaluate. When people who spent a few nights
watching HGTV decide to buy and flip without a full investor’s understanding of price, risk,
and their market, and they overpay for the privilege, I hear the ‘bell rung at the top’.
In the same way, we probably won’t have a bottom until most of the foreclosures are worked
off, many of the amateur flippers get burned, and everyone has heard somebody’s story about
losing their shirt in real estate. Widespread negative sentiment is typical of a bottom.
The other factor that seems to be ignored is the access to funds.
The lenders have been badly burned. Might they overshoot on tightening standards a little,
as they overshot on loosening them? Much of the refi money has been spent into the economy,
never to be repaid. Overseas investors and state investment funds that supplied the cash for
structured mortgage products are not interested any more.
The money has to come from somewhere, and only the best credit risks will receive loans.
to summarize, here are the factors that will put pressure on PRICES (not sales volume).
*Increase in credit card debt service costs (banks are hiking cc rates)
*Increase in healthcare costs
*Increase in energy costs
*State/Federal budget shortfalls (higher taxes)
*Layoffs in high-paying sectors (Citi, Indymac, Countrywide)
*Unwinding trade deficit will raise the price of imports
But the number one thing that will keep pressure on prices – in my view – is that the bloom
is off the real estate rose for a little while. Here are things that are largely gone:
*Fear of being priced out forever
*Thoughts of flipping riches with no money down and little work
*HELOC money for excessive remodeling paid for by rapidly rising equity
*The idea that there could never be a national RE downturn
Sorry for the long post, thanks Teresa.
PB
While the US real estate market slumps and corrects itself, look at some of these international investment opportunities. http://www.unifersal.com
Talk abound about the market abounds. I have an opinion, a little long for the comment section, that I have expressed in my blog. I make a point I haven’t heard voiced. I wonder what others think?
http://4mnhomebuyers.blogspot.com/2008/01/real-estate-and-web.html
Teresa, you really should put a picture of Jennifer up on the board… that picture with her smiling was great!
The conference on the whole was good but the Press Event wasn’t as strong as it could have been, missed some important points to this market, and had a few things said that aren’t really true or appropriate.
It’s a shame that when we had the opportunity to speak honestly about the positives and negatives of this market that we were unable to fully take advantage of it.
Dear Ms. Boardman — thank you for the mention at the summit, and it’s a pleasure to try to keep you on your toes (which must be cold, given what I hear about local weather). And, more importantly, thank you for acknowledging that in real estate, absolute statements, like “it’s a great time to buy/sell/rent/move back in with Mom,” are false. Now if I can just get you to acknowledge that in a market like this, all real estate is NOT local! — these same conditions exist, in varying degrees, of course, nationwide.
I think the next bit of conventional wisdom to be debunked will be the notion that the slow sales, falling prices and declining new-home starts all are due to the “subprime mortgage crisis.” As you indicate, what we’ve got is an affordability crisis: housing prices grew too fast relative to incomes (and rents). In order to correct that imbalance, incomes have to go up and/or housing prices have to come down. So far, incomes aren’t going up….
Stay warm!
Bubble_Up
PB – love your remarks. You are dead on. You are right about the other economic factors that are contributing to the mess. I sincerely hope that people will come to understand that a home is a place to live and that people who own them long enough come out ahead.
Bubble_up – I know that it is not all becasue of the mortgage crisis, that just made it worse it would have happened anyway the price increases were not sustainable because wages did not keep pace. I will agree that nation wide prices are dropping or will drop. The reason that I harp on the “real estate is local” is because there are wide variations between markets and becasue most people only really care about prices in their own neighborhood and don’t see the big picture. So yes you are right but I am right too. Real estate is local, and national.
Very cold here. Not much heat in my office. Feet are cold and hands too.
Thanks you both for stopping by, you really do add value for my readers and make me think, or as I said, keep me on my toes.
Aaron – I noticed that the press looked bored and had to be cajoled in to commenting. I too like the picture of Jennifer that I took with my phone. I don’t think she likes it and as someone who has had my own pciture plastered all over the internet when I did not want it any where I am sensitive to that.
It was great seeing you yesterday too. I had meant to put that in the post.
I’ll wade in here about the ‘real estate is local’ issue.
When I had discussions with people about RE prices getting too high, they dismissed my data-laden analysis with three simple little words:
“Supply and Demand”, usually delivered with a smug look, as though they had caught me on some point.
What they were missing is that that OF COURSE supply and demand drive price, but what drives supply and demand? That Demand was unsustainable at that price was my argument.
All real estate is local, just like water is wet.
Where the trouble comes is when a handful of people haev used that to imply that there could never be a national downturn.
RE pricing is local. What is NOT local is the global finance system that put tremendous amounts of cheap credit into the public’s hands.
This boom had less to do with real estate than it did with credit markets, the Federal Reserve, investment banks, banking deregulation and yield-chasing institutions that forgot about risk.
It wasn’t like all at once everyone went house crazy. Houses and reomdeling have always been available.
Cheap credit found a public willing to deploy it, and the notion that it would all turn out okay because real estate is a foolproof investment creating a self-reinforcing cycle of credit, debt and asset (house) values.
This was really a financial bubble more than it was a real estate bubble.
Humans apparently need to re-learn some lessons over many times, and one of those is that credit mixed with exuberance can get you into more trouble than you can get out of.
All real estate PRICING is local. VERY local, but credit markets are global.
Everyone happy now?
PB