Bubbleheads, Prognosticators and Shrinkage

Stevetn.jpgWhat do these diverse words have in common? Nothing actually. Well, almost nothing…

Bubbleheads – They are forever espousing that we have entered the Nuclear Winter of the real estate market. “Don’t buy! Don’t buy!” is their mantra. The San Diego Bubbleheads predict as much as a 30% drop in sale prices and ten years until the market is stabilized. I think their bubble is getting a bit fogged from all of the hot air and they can no longer see clearly. Sorry to burst their bubble (pun intended) but as someone I know used to say, “it ain’t gonna happen”, at least not nearly to the extent they may think. Kris and I and other San Diego real estate agents saw the market shifting to the downside as early as July, 2005. It had not yet shown up in the stats, but the sentiment was clear as day and our instincts were put on alert. Both buyers and sellers were getting jittery, very jittery. As agents, we don’t have the luxury of living in a bubble. We literally see, hear and experience the sentiments of the buyers and sellers who are “The Market” every day. And, after 15 months of living with the Bubbleheads, I can tell you that we are sensing a shift in the winds. A subtle shift, but a shift nonetheless. We see too many buyers wanting and waiting for the right value. Already, in many cases that point has been reached, and they have happily moved ahead with their purchase. It’s going to start showing up in the stats soon. Not in a big way (it never does), but in the same way we noticed 15 months ago. Subtly.   

Prognosticators – The problem here is multifaceted. Everyone has a prediction. Most people who know me know how I feel about economists and forecasting (the perfect job because you’re never wrong, the assumptions just changed). The problem here is that the big headline numbers (sales and sale prices) are always trailing indicators. Although “pending” indices are helpful, they are not as reliable. Companies providing real estate information and trends like DataQuick are pretty much confined to the “objective past”. We (the agents), on the other hand are dealing in real time and get a large dose of the “subjective present” . Advantage agents! Why? Because buyer sentiment is an extremely valuable leading indicator that stats companies don’t/can’t measure. The monthly University of Michigan Consumer Sentiment Survey just doesn’t reach into real estate or local real estate markets.  

Shrinkage – No, not the shrinkage made famous by the Seinfeld episode, but shrinkage as in Inventory. For example, in my little part of the world in San Diego (Scripps Ranch), the inventory of detached homes for sale has been steadily dropping for three months from a high of 158 in July to the current 114 today (11/7). Now here is a stat for our Bubbleheads – a 28% drop in inventory in the three months. Blasphemy! Yes, a portion of this shrinkage may be attributed to listings that expired or cancelled, but many/most of those sellers were discretionary – “I’m only selling if I can get my price”. Most of these have just about disappeared now. And yes, it is still a buyer’s market, but as we have predicted on many occasions, more and more homes are now priced correctly for TODAY’S market and are starting to sell. Also interesting are the year-to-date sales/sale price stats from SANDICOR for 92131 (Yikes! I’ve become one of THEM, an economist!”). Although total sales are down 30%, the average sale price (per square foot) is actually up 1.8%. Take that, Bubbleheads!!

Note to DataQuick – Please start using sale prices expressed as “per square foot” instead of the median sale price. It provides a much more accurate picture of the market. 

The moral of this story is that trying to anticipate the future market and precisely when may be the perfect time to buy or sell is a losing proposition. We, as agents, do have an advantage over all those who are writing the doom and gloom newspaper articles and preparing economic forecasts with only the objective historical data (think Zillow). Our advantage is embodied in the instincts we derive from the everyday “in the trenches” experiences we have simply by listening to buyers and sellers. It might be a mistake to ignore the benefits of these experiences.

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