David Rathgeber's

Timely Topics

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Updates of David's Washington Times home-selling articles.

Media mess-up of the big Realtor lawsuit!
The Fed, inflation, mortgage rates, etc.
The $1.78 billion Realtor lawsuit! – Part3 and a BIG question
The $1.78 billion Realtor lawsuit! – Part2 - January 2024
The $1.78 billion Realtor lawsuit! – Part1 - December 2023
How the market really works - September 2023
What can go wrong when selling your home? - March 2023
What can go wrong when selling your home? - February 2023
What can go wrong when selling your home? - January 2023
Got some spare time? Need some cash? - December 2022
The truth about home prices - November 2022
Negotiating a contract price when selling - August 2022
Home-search site recommendation - July 2022
Volatility? - June 2022
The sky is falling; the sky is falling! - April 2022
More help for buyers in a tight market - January 2022
The real story behind the Zillow mess! - November 2021
Do you want a higher price when selling? - August 2021
Beware the light at the end of the tunnel - July 2021
How to win your home of choice - June 2021
Condo sellers beware! - April 2021
It's only money! - January 2021
Other market reports! - June 2020
So, you think you understand $/square foot? - February 2020
Are home values dropping 12% monthly? - December 2019
Finally! BrightMLS has corrected their DOM - October 2019
Are homes appreciating 72% per month? - September 2019
They're getting misinformation, but . . . - August 2019
A tale of 2 news stories - January 2019
Special note on the new MLS system - December 2018
Dangle your carrot - September 2017
Don't miss your perfect home! - August 2017
One critical factor in home selling - July 2017
Win $1,000,000 - June 2017
A Look Back at 2016 and a Look Ahead - April 2017
Move over Washington Post! - June 2016
A Look Back at 2015 and a Look Ahead - February 2016
Does your home need a price reduction? - November 2015
Save money on your home purchase - February 2015
We won't get fooled again! - November 2014
Discrimination in housing: Perspicacity - April 2014
Only question needed to select the best agent - October 2013
Exploding the Local Specialist Myth - June 2013
Where have all the contracts gone? - November 2012
Your personal gain from inflation? - January 2012
Where are we and where are we going? - September 2011
A Look Back at 2010 and a Look Ahead - March 2011
An Interesting Question - February 2011
Market Perturbances and more - August 2010
What about prices? - April 2010
A Look Back at 2009 and a Look Ahead - March 2010
Foreclosure and Short Sale Data - August 2009
What are they talking about? - October 2008
Data vs. Information - February 2008
Looking Back at 2007 - February 2008
Real Estate News in Perspective - November 2007
The effects of 911 - October 2001
Market Alert - March 1999
Market Alert - February 1998
Market Alert - February 1994

Media mess-up of the big Realtor lawsuit!

Settlement of the big National Association of Realtors (NAR) lawsuit has been agreed and awaits court approval. In a nutshell, the decades-old (possibly 100-years) custom of commission sharing was attacked, and offering any compensation to a buyer’s agent via the MLS will be forbidden. Changes resulting from the lawsuit could disrupt real estate markets all over the country in July. The NAR has fostered a real estate market that works well, especially for home buyers and sellers. Although I am a NAR member, I am not a NAR fan, because looking out for agent-members is not on NAR's list of priorities nor is educating the public on how the market works. Nevertheless, it should be noted that . . .

1. The NAR has never ever entered a listing agreement with any home seller.
   
2. Real estate commissions are set in a listing agreement (i.e., legal contract) between each home seller and the seller's selected real estate broker. This is NOT new; it has existed forever.
   
3. Hundreds of MLS systems exist in the United States, most owned and/or controlled by various local Realtor associations.

From the outside it appears that this lawsuit was dumb to start with, and it wasn't well handled by the NAR. Also, every major media news story seems to have been written by an ignoramus and edited by someone who was out to lunch. Here are specific examples of major media misinformation, which I'll discuss in detail next month:

• "How to buy a home"
  
• "The 6% commission"
  
• "Buyers erroneously believe that their agent is negotiating on their behalf"
  
• "Offering buyer-agent commissions in the MLS is bad"
  
• "Buyer commission money will now go directly to the buyer instead of to an agent"
  
• "The settlement is a good thing for home buyers"
  
• "The settlement is a good thing for home sellers"
  
• "Commissions will be lower"
  
• "The settlement improves price transparency"
  
• "Commission levels are now negotiable as a result of the NAR settlement"
  
• "Buyers might hire an attorney or an appraiser instead of an agent"

Where does major media find these real estate common-taters? They're making loads of unfounded assumptions about how the market works and how this will all shake out. They certainly don't know, and they're making a mess of the story. The next few months should be "fun." One thing is sure: The real winners from this lawsuit are the lawyers, NOT buyers, sellers, or agents! So stay tuned.

Meanwhile, this is a proposed settlement. If court approved, the NAR has significant power to make its members, as well as non-Realtor state-licensed agents, conform to the agreed terms. It's interesting that this settlement, in effect, changes millions of contracts (listing agreements), which were willingly signed by sellers who received all the benefits thereof: The best of which is that their homes sold! The lawsuit assumed that the home sellers were too dumb to know what they were signing. Well, the lawsuit was filed in Missouri. What do YOU think?
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The Fed, inflation, mortgage rates, etc.

You've likely heard of the Federal Reserve (Fed), inflation, and interest rates as well as the effect on mortgage rates: The 10-year treasury note is a harbinger of 30-year mortgage rates.

You might not have heard of the Fed's qualitative tightening (QT) program, but stay tuned. It is generally believed that inflation is under control and that interest rates will be coming down. But how did we get here, what did we learn, and what might still need to be learned?

The chart above shows the CPI (Consumer Price Index) and the Fed's short term interest rate – red bars.

Inflation became apparent in early 2021. But there was a year of Fed inaction as it exercised due caution, to avoid complicating the extreme uncertainties associated with the effects of COVID-19 and government reaction thereto.

2022 was certainly a year of Fed action! The unusually short (3-month) interval between Fed action and the “break” in the CPI inflation curve makes one wonder if there was an additional inflation moderating effect. The Fed's QT program began in June 2022, the exact month of the CPI curve-break. Nevertheless, while inflation in the last half of 2022 was only 0.2%, the Fed's short-term interest rate rocketed from 1.5% to 4.25%.

The Fed should have taken a clue but instead went right on raising the short-term interest rate to 5.25% in 2023. Not being philanthropic, the banks pass their higher interest costs on to businesses that borrow money. The businesses pass the extra cost on to their customers by charging higher prices. Higher prices? That’s called inflation, and the similarity between the interest curve and the CPI curve in 2023 suggests that the Fed might have been actually creating the inflation it was trying to fight. The correlation is inescapable, but proof of causation is beyond the scope of this discussion.
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The $1.78 billion Realtor lawsuit! - Part 3 and a BIG question

A Missouri lawsuit resulting in this recent decision is one of many past, current, and future lawsuits aimed at the National Association of Realtors (NAR) and individual real estate companies. The major point of contention is the practice of commission sharing, which has been routine for over a century. The current decision will be appealed, and it certainly will be found that the NAR itself never, ever negotiated a real estate commission with any home buyer or seller. Individual real estate companies do have potential exposure, and some have already negotiated settlements.

Real estate agents get paid for their work, in most cases by a commission related to the price of the home sold. Their work is not pro bono. Why? Because just like the rest of us, they need shelter, food, etcetera. They decide, on an individual basis, whether to work for whatever compensation is offered by the seller. It is unlikely any class action lawsuit will have buyer's agents working for free, or even altering their expectations significantly.

Agents generally are NOT employees of the real estate company but instead are independent contractors. Further, agents or companies that try to rig compensation with intercompany discussions, risk severe penalties including possible jail time. I'm not making this stuff up; check the Federal Trade Commission (FTC) antitrust laws related to price fixing. However, FTC lawsuits alleging real estate commission fixing are few and far between. Further, if anyone has noticed, agent compensation as a percent of home selling price has decreased over the past decade or so. This is no doubt a result of market forces and therefore should be irrelevant to current compensation discussions, except that it generally destroys the rigging argument.

Additional lawsuits, similar to the Missouri case, recently have been filed in other states, and many more are coming. An interesting part of the price fixing argument is that home buyers have not been able to negotiate what their agent gets paid. Why? Because that amount has been negotiated with and paid by the seller, with the buyer generally paying nothing directly. Again, it is unlikely that Realtor associations (national, state, or local) have any reasonable exposure. Exposure of real estate companies is always questionable and when a jury is involved it’s like rolling the dice. Exposure of individual independent contractor agents seems way too complicated for these class action lawsuits.

Some have wondered whether current legal wrangling, including attacks on commission sharing, could lead to the end of information sharing; that is, the end of current multiple listing service (MLS) systems. Hopefully, all parties to these lawsuits recognize the immense value of MLS systems, apart from the compensation questions being raised. MLS systems enable a maximum number of buyers and agents to consider a maximum number of homes on the market. No system, real estate or otherwise, is perfect and can always be improved. But returning to the real estate dark ages will require buyers to visit dozens of websites in order to review their entire market. Worse, setting up visits to several properties and getting the keys, or coordinating with individual listing agents, will be an unmanageable mess.

The question no one is asking: If current lawsuits require real estate companies to return a part of their compensation to sellers who have already closed on their homes, will the companies, in an attempt to recover this compensation, approach their closed buyers who have agreed (in their buyer broker agreements) to pay the compensation if sellers do not. Hhhmmmm: Buyers beware!
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The $1.78 billion Realtor lawsuit! - Part 2

A Missouri lawsuit resulting in this recent decision is one of many past, current, and future lawsuits aimed at the National Association of Realtors (NAR) and individual real estate companies. The major point of contention is the practice of commission-sharing, which has been rather routine for over a century. The current decision will be appealed, and it will certainly be found that the NAR never, ever, negotiated a real estate commission with any home buyer or seller. Individual real estate companies do have potential exposure, and some have even negotiated settlements.

In most transactions, the home seller agrees to pay the agent they hire to market their property. Some of the total compensation is offered to other agents to induce them to bring buyers. This is enabled by an MLS (multiple listing service) that allows the marketing (or listing) agent to effectively enlist thousands of other agents. If the marketing-agent had to personally find the buyer, it would be a mess.

Decades ago, the seller hired an agent and poor buyers had no one on their side, even though many believed they did. In the 1980s came the disclosures advising buyers that they were really on their own. In the last 20 years or so it has been become common for the buyer’s agent to have a fiduciary relationship, in writing, which puts them on the side of the buyer: A buyer’s broker. Home sellers understood that they were paying for another agent who was not on their side, and seller objections were rare. It is important to understand that current laws and customs accommodate this compensation system in which all agents involved are paid out of the total contract price, which includes the agents’ compensation.

Current lawsuits could result in an alternative system that would require a buyer pay their agent directly. The net financial result would be unchanged for buyers, sellers, and agents. But current laws and customs would make this an out-of-pocket expense for the buyer, rather than having it neatly wrapped up in the home seller’s listing agreement and the total contract price, most of which is usually covered by the buyer’s mortgage. Mortgage lenders currently are not allowing buyers to finance their agent's compensation over 30 years.

The current compensation scheme was arrived at decades ago after much thought and agreement of sellers, agents, real estate companies, mortgage lenders, etcetera. A new scheme where buyers pay their agent directly would require a lot of industry rearrangement. Why would anyone want to do this, and deal with associated major disruptions, in order to achieve exactly the same financial result? While it seems that such a rearrangement would produce no winners, it would certainly produce losers. For poorer folks, several thousand dollars of out-of-pocket costs could sink their home-buying ship. Why not leave the current system, which certainly works, in place. In any event, let’s hope that nothing happens to make homeownership more difficult for those who have less money.
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The $1.78 billion Realtor lawsuit! - Part 1

The jury in a recent Missouri lawsuit awarded $1.78 billion, contending that commission-sharing (with a buyer’s agent via the MLS) makes selling more expensive for home sellers! Buyer’s agents are not working pro bono, so whatever the cost, it will simply get transferred to the buyer, out-of-pocket. The buyer will then have that much less money to spend on the home and the sellers contract price will be decreased accordingly, all other things being equal. For poorer folks, several thousand dollars of out-of-pocket costs could sink their home-buying ship.

Awarding damages to home sellers who have signed legally binding contracts and received the benefits therefrom, seems radical! But if this occurs, hundreds of thousands of home buyers may well have signed buyer-broker agreements in which they agreed to pay their agent a compensation if the seller did not. So buyers could, individually, be made to pay the damages: This could produce hundreds of thousands of lawsuits, with hundreds of thousands of unhappy buyers, but hundreds of thousands of happy lawyers, who likely cannot provide an effective defense. But don’t celebrate yet: Several additional lawsuits are likely and appeals could take years.

Further, there are severe penalties for agents and companies who try to rig compensation. We are not making this stuff up: The FTC (Federal Trade Commission) enforces the Sherman Antitrust Act relating to price-fixing. Is the FTC mounting prosecutions, or are they asleep at the switch? With few indictments, will civil suits have a hard time?
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How the market really works

The folks at ShowingTime started tracking daily real estate showings in 2020 to measure the effect of COVID, and they continue tracking today. Their data reveals that real estate showings increase for about the first 16 weeks of each year, then gradually decrease until December. Each year’s showings are measured relative to the beginning of the year. If you've ever wondered, showings take significant dips around Easter, Memorial Day, the 4th of July, Labor Day, Thanksgiving, and Christmas. The most significant dip is Thanksgiving. Showings obviously represent home buyer interest in the market. Check it out for yourself at showingtime.com

A peak in showings produces a peak in contracts about 2 to 4 weeks later. A peak in contracts produces a peak in closings about 4 to 6 weeks after the contracts peak. Closings peak in late June or early July, which is about 2 months after the peak in showings. A focus on real estate closings has resulted in many believing they should put their home on the market when the “kids are out of school,” which is actually 4 or 5 months too late.

If you're selling a home, you should obviously put it on the market before the annual peak in buyer interest! All things considered, mid-February is suggested because March is the best month for home sellers. It is important to note that this discussion treats only demand and that the year 2020 has been disregarded. Remember that months supply, aka the market index, is the most important statistic for home buyers and sellers because it includes the supply factor.
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What can go wrong when selling your home?

The problems detailed in this three-part series occur infrequently, but they do occur often enough to be given names and to be addressed in the National Association of Realtors Code of Ethics and in State laws. Thousands of agents are running loose out there, and most of them are trying to do a good job. But many of the problems noted are serious, and you are your first line of defense. A lot can go wrong in the best of transactions, so take care to obviate the potential problems detailed. Remember, trust heads the list of critical factors in agent selection. 9 Critical Factors in Agent Selection. Seller beware!

A few have been granted complete real estate expertise genetically at birth: You know who you are. If you are not a member of that population and wonder what might go wrong when you’re selling your home, read on . . .

Part 3: Sins of omission — What your agent doesn't know can hurt you.

1. In our regional MLS system, days on the market (DOM) figures were grossly incorrect for over a year. What's worse, there was no information advising about this serious problem. A few clever agents recognized the problem, but most kept parroting the misleading figures, albeit unknowingly. Bright MLS finally corrected its DOM.
2. Other MLS glitches made the effective entry of a home's garage, almost impossible. Many agents never recognized this, as again, it was not publicized. Condo sellers beware! Will your agent notice and correct such misinformation?
3. When your home hits the market, ask your agent to give you the printout that buyers see in the public MLS. Also ask for the printout that other agents see, which will show the commission you are offering to them. (See item #1 in Part 2 of this series.)
4. Make sure that your listing shows up in realtor.com, Zillow, and a search site offered by a local broker who isn't yours. If you discover a significant problem, ask your agent to cancel your listing immediately. Most agents will cancel a listing upon request.
5. If your home languishes on the market, it is critical to recognize when a price decrease is needed. Many factors must be examined, and your agent's expertise is indispensable. If you listed your home with the agent who recommended the highest price, such discussions need to be more forceful and arise sooner rather than later! Does your home need a price reduction?
6. Many potential problems can be nipped in the bud when interviewing prospective agents. But you cannot confirm you have selected the best agent until you are negotiating offers. That is where the rubber meets the road. Some sellers will never recognize a poor result and will happily cruise into oblivion. The good news: It’s only money. Maybe those sellers got a discount on their brain surgery too.

Hundreds of important decisions must be made in the marketing of your home. Most will be made by your agent without consulting you. You need an agent with experience, good judgment, and honesty in making every single one of those decisions. Every agent knows it is in their best interest to get an offer signed now and go to closing as soon as possible: The alternative can be waiting additional weeks or months to get paid, or worse, losing the listing altogether. Be sure your agent provides fiduciary care: You first! Trust is the number one item on the agent criteria list; without it, you are lost. See 12 Interviewing Mistakes to Avoid.

Click here for Part 1 What to sort out before listing your home. Part 2 is below.
See the free online $elling Your Home book which includes 3 sections of questions for your prospective agents.
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What can go wrong when selling your home?

Part 2: Sins of commission — Who gets what? Immoral? Illegal?

1. Review the compensation section of your listing agreement to see whether a competitive commission is being offered to entice other agents to show and sell your home. Of course, you are concerned with the total commission you pay, but the commission split is much more important: The total commission is split between your listing agent and the agent who finds your buyer, often 50% each. But some clever agents might be getting a 6% total commission, for example, and offering only 2% to other agents, leaving 4% for themselves. See Item 12. Broker Compensation B. Cooperating Broker in your listing agreement!
2. Ask when the commission is paid. Some firms ask to be paid upfront whether they find a buyer or not. Others might want to be paid for finding a buyer whether you get to closing or not.
3. Many variations exist on the pocket listing idea, all aimed at your listing agent personally finding the buyer and therefore ending up with the total commission instead of just half. An agent accomplishes this by limiting your home's full market exposure, to which you're entitled, often without your knowledge or consent. The easiest way for your agent to do this is by simply not entering your listing into the MLS: This is blatant! Other variations include an off-MLS listing or an office-exclusive listing.
4. There's no earthly reason for your agent to keep your home out of the MLS until their first open house. And some agents have figured out how to obtain the total commission by limiting open house visitors to those without an agent. Remember, most serious buyers do have an agent and are financially qualified to buy. Any attempt to limit your market exposure will hinder your outcome.
5. When you interview agents, ask how often they found the buyer for their own listings. Be wary of an answer that is more than 1 out of 10. It suggests a practice of pocket listings or other chicanery.
6. A few agents will guarantee to personally buy your home if it does not sell. But at what price? You should get an upfront commitment in writing. (Good luck.) Some of these agents make lots of money by stealing their client's homes. This type of arrangement provides a dangerous incentive for an agent to avoid providing your home adequate market exposure.

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What can go wrong when selling your home?

Part 1: What to sort out before listing your home

1. To accurately estimate the value of your home, the method used by State-licensed appraisers is required. A "cookbook" table from the MLS, a Zestimate, or your tax assessment are NOT acceptable substitutes. And don’t get bamboozled by an agent who suggests listing your home for too high a price. The most important determinant of your final selling price is how your negotiations are handled, not your initial asking price.
2. You'll gain a little-known advantage by pricing your home on a round number exactly. You are not selling gasoline, ground beef, or used cars. Remember that the home selling market is uniquely driven by computer searches. Round Number Pricing: 9 out of 10 agents don't understand this. Check it out!
3. Don’t get buffaloed by offers a very low commission. You might be offered an ultra-low commission if your agent personally finds your buyer, but the theoretical likelihood of that is about 1 sale in 25 million. In practice, it probably occurs more often, maybe 1 sale in 2,000: Not great odds. You can ask questions, but remember that prevaricating is standard practice in our society. You need an agent to market your home, NOT to personally find your buyer! And remember that commission rates are not set by anybody or any body. They are set by negotiation between you and the broker, which strictly speaking is the real estate firm.
4. When you're interviewing agents and one says, “I've already got your buyer.” The translation is: I really want to get the selling part of the commission in addition to my listing part. Don't provide the incentive for an agent to push you into accepting their buyer and forget about adequate market exposure: List with someone else. If that agent does have your buyer-in-waiting, be assured they will be on your doorstep as soon as your home is listed, no matter who you list your home with. You'll also learn what the entire market is willing to pay.
5. Modern electronic lockboxes, or key safes, cost more than $100. Some agents save money by using combination lockboxes that cost only $15. These lack important communication features, but worse, some can be hacked (opened easily) using methods readily available on the internet. Google "hack a lockbox" and check this out.
6. Don't be swayed by an agent’s claims of effectiveness for their signs, advertisements, brochures, or open houses. The effectiveness of these methods is usually supported by anecdotal evidence only. Although any of these things will snare a buyer on occasion, their combined effectiveness is not worth a plug nickel. Your buyer will come with another agent as a result of the information published by your agent in the MLS. Hire an agent who understands this and hasn't consumed their own excrement.
7. If you hire a team, your most important advice might be coming from a less experienced team member. Cut out the middleman: Access to timely expertise can be critical, so be sure you get the best.

Got some spare time? Need some cash?
December 2022

Click this LINK to a blast from the past.

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The truth about home prices
November 2022

Three cheers for our free-market economy and the wisdom of the crowds. In order to fight inflation, some of which is merely due to economic, logistical, and statistical aberrations related to COVID-19; the Fed (Federal Reserve) has been increasing short-term interest rates and selling its inventory of government bonds and mortgage-backed securities. This latter action is referred to as quantitative tightening which affects government bond yields and mortgage rates. The Fed's inflation fight is partly aimed at destroying our healthy job market and home prices. While there is concern that Fed actions could produce a recession, they should keep in mind that recessions do not necessarily result in home price declines.

One might wonder why the Fed should be monkeying around with a healthy job market, but let’s examine home prices a bit more closely. Think: Wisdom of the crowds. Home prices are established by millions of individual buyers and sellers each dealing in their own local market. Remember, there is NO national real estate market. The price wishes of sellers don't matter. If sellers ask too much no one will buy. The sky is not the limit for prices buyers will pay, especially for those who need a mortgage. Further, buyers visit many homes before buying. In short, buyers and sellers are making informed personal financial decisions with no interest in creating sound bites for a TV show.

Opinions on home a pricing from national experts, real estate commentators, the media, the Fed, real estate agents, and others are merely opinions. Those with any sense at all do not pretend to know, or try to decide for us, where home prices should be. Reasonably accurate home price averages are available, but why should we even care? Free-market forces are determining every transaction and consequently the averages. History or prognostications be damned: All that is left is the "here and now." Anyone who has an opinion or wants to mess with the free market, including the Fed, should just shut up!
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Negotiating a contract price when selling
August 2022

If your agent knows what to do, and how and when to do it, and you obtain an optimal result: Congratulations! If you receive multiple offers: Enjoy! If you get a strong offer close to your asking price, you're on a roll. If you receive an unacceptable offer, you should negotiate. This is when you'll find out whether you have selected the right agent.

What can happen? Lots!

• Your agent urges you to sign off on an unacceptable offer. Does your agent need this commission in order to make their next mortgage payment?
• Your agent doesn't know what to say or do. Worse: Your agent doesn't know what NOT to say or do.
• Negotiations become emotional or break down.
• Your agent presents brand new information:
  • The market has suddenly worsened.
  • The buyer can afford no more than their current offer.
  • Interest rates are rising.
  • A similar home just sold for 25% less.
  • Your home won't appraise for the contract price.
  • The New York investment folks are predicting doom.
  • The price offered is even greater than your real estate tax assessment.

  Remember

  • You are in control.
  • "Offer" means a written offer on a standard contract form.
  • If you engage in any verbal negotiations, you're putting yourself in a weak position. Anything you hear during verbal negotiations is legally meaningless.
  • Don't get locked in with a buyer who doesn't have the financial capability to buy your home.
  • Your agent is a buffer between you and the buyer. Never negotiate directly with a buyer.
  • Never feel an obligation to split the difference.
  • Take-it-or-leave-it ultimatums are almost always meaningless.
  • Some buyers need to hear the word "NO!"
  • Delays in negotiations almost always favor the seller.
  • Before you "walk out" of negotiations, have a plan with which you can walk back in.

  The buyer put a lot of time and thought into selecting your home, and they knew the price before they visited. They neither want to live in their second-choice home, nor want to start from scratch. 3% or 4% below your asking price should be the absolute minimum that you accept, assuming you haven't received a second foreclosure notice from your lender.
  
  So, you think you’ve got it? Sorry, negotiations are complex — this is just the tip of the iceberg.
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  Home-search site recommendation
  July 2022

  I recommend https://brightmlshomes.com as a homes-for-sale search site. An ideal site does not exist — sorry, — but after much thought, this might be the best one. Why?

  • The site connects directly to the MLS, where all the data originates.
  • The site is user-friendly, and easy to navigate.
  • When you click for an agent, you'll be directed to one who actually knows something about that property, rather than one who has paid $200 a month to get their name in front of you.
  • Information on the site is relevant to our local area and will be more understandable than information on national search sites.
  • The information is offered only to help home searchers and is not designed to trick you into buying anything.
  Enjoy! Meanwhile, all online searching caveats still apply!
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  Volatility?
  June 2022

  When we hear the word volatility, we think of the stock market. The financial gurus even have an index for it: The volitility index or VIX. But there is no VIX for real estate. In a single day, broad-based indices like S&P 500 can go up or down 5%, sometimes both. Individual issues can vary by 30% in a single day. If your home value ever goes up or down 1% in a single week, there will be bigger problems than just your home value.
  
  You can log onto Fidelity and sell 100 shares in less than 2 minutes. Homes are selling fast, but it takes way longer than 2 minutes. An added complication: You must figure out where you’re going to live before you go to closing. Yes, your home is much more than just an investment. And thank goodness that there is NO national real estate market.
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  The sky is falling; the sky is falling!
  April 2022

  Real estate information in the news often is recreational, not actionable. Those compiling and reporting the data have never worked with home buyers or sellers. Further, cost, time, and space limitations inhibit their ability to be incisive. From The Economist: "Pew says the news industry is 'undermanned and underprepared to uncover stories, dig deep into emerging ones or to question information put into its hands.' . . . "
  
  It's has been widely reported that contracts (aka pending sales) for existing homes fell 4.1% in February versus January. The truth is that the NAR (National Association of Realtors) index fell 4.1%; contracts fell only 3.8%. Close enough? Were the editors out to lunch?
  
  But why are we hearing about February data at the end of March? And “HELLO” folks, did anyone ever consider that February has 10% fewer days than January? Maybe minus 3.8% is really a plus 6.2%! And why is any conclusion based solely on demand? We need to combine demand and supply into something called the months supply of homes. That's what matters to buyers and sellers.
  
  Is our market in trouble? What about the Fed (Federal Reserve Board), which certainly has the ability to trash the real estate market? There’s also renewed hype about the inverted yield curve. But neither the number of sales nor home prices move in lockstep with mortgage interest rates. Did you know that rates were over 4% for most of 2018?
  
  Our market is strong. Increases in home prices and mortgage rates can influence the distribution of the sold-homes dataset. But their effect on the number of homes sold and prices of individual homes is negligible. The housing affordability index is also a manufacture-versy; a fabricated news event. If you’re looking for actionable news, forget Henny Penny, and Chicken Licken. But if your news is merely recreational, it matters not.
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  More help for buyers in a tight market
  January 2022

  Case #1: In the early 2000s, when there was a lot of competition between buyers, a Mobil Oil family moving back from overseas very much wanted to live in Hampton Chase, a desirable Fairfax County subdivision that enjoyed glowing reviews in The Washington Post. We made an offer or two but came in second or worse. (This was obviously before my great analytical epiphany.) We zeroed in on about 150 of the 400 homes in Hampton Chase and sent letters to the owners. After getting a few responses, my clients bought one of the homes. It met their specifications, never went on the market, and they paid a fair price with no competition.
  
  Case #2: After 3 decades in McLean, in 2001 I decided to move to Potomac Falls (Loudoun County) to be nearer my family. I wanted a rambler, my favorite kind of home: Many were available but most were old. However, when 3,000 homes were built in the Cascades subdivision after 1989, there were 45 ramblers. I sent all 45 owners a letter, got a response from three, and bought a home from one of them.
  
  If a buyer can be very specific, this unique idea can work like a charm, and it was featured in Lew Sichelman's nationally syndicated article.
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  The real story behind the Zillow mess!
  November 2021

  Have you heard about the Zillow mess? Zillow bought up about $1.5 billion worth of homes, most of them sight unseen, and cannot sell them for more than it paid. How did Zillow go so wrong? Did the homes they bought mysteriously lose value in a rising real estate market? When a company's stock share price plummets from $102 to $64 in 4 days, somebody thinks it's a big deal!
  
  Zillow says it had trouble finding contractors to refurbish the homes. But when you buy a home sight unseen, you don't have a clue whether it needs anything at all. So that excuse does not hold water, despite its wide reporting in the (reporting but unthinking) media. The mention of home price volatility is another cover-up fabricated to mask the real reason. We've all read about home prices increasing in almost every major market in the country, and the pandemic's negative effect on prices was transitory and minor. So, if you buy a home today at market price, you should be able to sell it in a month or two for even more. Major companies can borrow money for almost nothing, so their carrying costs are certainly minimal. So, what really went wrong?
  
  Zillow has been tracking and publishing the accuracy of its algorithm-derived home values, aka Zestimates, for years and it has not been a pretty picture. Why not? One of Zillow's main data sources is government tax assessments, which have absolutely no relationship to home market values despite what your tax assessor tells you. When Zillow recognized problems with its published accuracy data, they ran a contest to help improve their algorithm. When that did not work, it developed a new way to report, in order to make its results look better. The new reporting looked so good it fooled Zillow into thinking that it could rely on its own Zestimates.
  
  That obviously did not work. Why not? If you put tax assessment garbage into the very best algorithm, you get garbage out. But admitting this would blow up Zillow's entire business model. If a Zestimates were worth anything, the entire real estate appraisal industry would be out of business. Mortgage lenders do not rely on Zillow or any of the multitude of third-party home value estimators. They rely on state-licensed appraisers, and we should follow their lead. Unlike tax assessors and Zillow, appraisers will visit the homes they are valuing.
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  Do you want a higher price when selling?
  August 2021

  A recent study by our large regional BrightMLS folks, compared results for homes sold through the MLS with homes not sold through the MLS. Results indicated that in the Washington, DC metropolitan area, prices of homes sold through the MLS were 9% higher. The general conclusion is certainly not rocket-science, but bears on the intuitively-obvious advantage of greater market exposure, which increases the chance of multiple offers and quicker sales.
  
  The MLS’s study was peer reviewed, and was also reviewed by this author, who does not automatically accept any study at face value. Nevertheless, while correlation can suggest causation, we must never assume this is the case.
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  Beware the light at the end of the tunnel
  July 2021

  Millions are still out of work, and eviction moratoria have ended. Federal and state programs to help have been much less effective than was hoped. Foreclosure moratoria are ending. Moratoria have postponed problems, but lenders and landlords will not go without their money forever. We have been "kicking the can down the road" for over a year, but deferred mortgage and rent payments have not been forgiven, and the eventual reckoning is coming. Unemployment payments are ending and failed businesses are not rehiring. Some have decided to not return to work, and others are reluctant. Significant problems seem inevitable and drastic changes could come suddenly within a few months.
  
  When the dust finally settles and the smoke clears, our new normal will look very different. For example, the exodus from cities and the trend toward detached home popularity compared with condominiums is well underway. And COVID-19 has NOT been eradicated: Beware the delta variant, and the return to in-classroom learning, especially for unvaccinated children. No one has any idea how our current situation can have a happy ending for real estate, and few have focused on it. Stay tuned.
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  How to win your home of choice
  June 2021

  The answer appeared in major newspapers across the country in an article by syndicated real estate columnist Lew Sichelman, who has been writing for decades. Here's a link to his article that does not require a subscription.
  
  The method was subsequently presented to George Mason University OLLI members, and specific details are included in the slide presentation. Find out how to make it work for YOU!
  
  In Northern Virginia in mid-2021, 64% of home buyers had to compete with other buyers to win their home of choice. Some buyers made offers on five or six homes with no success. This is likely the result of ignorance, desperation, or both. There must be a better way.
  
  In that market, to have a 90% chance of success, a buyer needed to offer 12% over the asking price. For an 80% chance, a premium of 9% was needed. A 5% premium would have provided a 50% chance of success, but a reasonable alternative to a 50% chance would have been to just wait a couple of years. Of course, offer a premium only when there are other offers.
  
  Ask your agent to analyze a month or so of data on recent sold-homes for your market segment in which buyers paid more than the asking price. It is helpful to tailor your offering price to your specific market segment. Home in on specific ZIP codes, your price range, the type of home you are looking for (detached, townhome, or condo), etc. This can make a significant difference in the premium you should offer. Individual sold-homes data must be calculated on a spreadsheet and sorted by the percentage paid over asking price. Data for 20 or more sold-homes are needed. It should then be easy to determine what you need to offer in order to have a 90% chance (or whatever chance you like) of success for your specific situation.
  
  The home's listing agent should be consulted a few hours before the offering deadline to determine how many offers are in hand. Use this information to adjust your offering price. Use of the local escalation addendum is highly recommended: When you decide on your offering price and the amount you are willing to offer to beat other buyers, increase that figure by $3,500, or $6,500. This is definitely not the time for round numbers. Avoiding round numbers will give you an edge over most other offers.
  
  Remember: Some offers will be cash, which gives the buyer a significant advantage by avoiding the financing and appraisal contingencies. Buyers also might submit offers that waive all contingencies. Good luck!
  
  Note: The discussion above will help you with one critical factor — offering price. But there are many considerations involved in winning your home of choice, which are detailed in Appendix J of the home buying book.
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  Condo sellers beware!
  April 2021

  May 2022: Our MLS system has just fixed this problem.
  
  The MLS computer weenies are at it again: Despite the best efforts of listing agents, other agents searching for a condo with a garage for their buyers might not find your listing in their results.
  
  To avoid this serious problem, a listing agent must choose "Attached Garage" from the drop-down list of choices in "Type of parking" when entering the listing. "Parking Garage" is technically correct and the logical choice but will result in a unit NOT appearing in some searches that include a garage requirement. When "Attached Garage" is entered in the listing, agents searching with "Yes" in their criteria for "Garage YN" will see the listing. This problem might also affect some of the 50+ third-party sites where buyers search.
  
  See the MLS "Agent Full" report for further details.
  
  Note: This garage glitch has a negative effect similar to a previous glitch noted in my July 2017 post. However, the entire MLS system has been revamped since that time. This is a new glitch!
  
  For a comprehensive discussion of how to check your MLS entry, click here.
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  It's only money!
  January 2021

  Earlier this year, neighbors sold their 2-bedroom condo for $588,500. The fair market value was $690,000, so they left about $100,000 on the table. I do not know all the details but wonder how this happens. Perhaps owners who don't have a clue are teaming up with an agent who doesn't have a clue. It is obvious that they priced the condo almost exactly at the tax-assessed value. After all, the Arlington County tax assessor will tell you that properties are assessed at 100% of market value. But this is a statement of the assessor's objective not a commentary on the assessor's results; which can be way off. And Zillow can be way off too because the tax assessment is the number that Zillow starts with.
  
  Values can be estimated by appraisers, not to be confused with assessors, even though both terms begin with the letter "A." Has the tax assessor ever come to see your home? NO! That's why mortgage lenders still require value estimates from state-licensed appraisers.
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  Other market reports!
  June 2020

  It was surprising to see this sentence in an article written by 3 George Mason University experts, to inform local Realtors of current market conditions. "The data may have represented conditions that occurred four months before it is published." This is an exceptionally candid comment. They were referencing similar articles published in the past, and old news is bad news.
  
  The article appeared in RE+VIEW, a publication of the Northern Virginia Association of Realtors, a bimonthly magazine. If the 4-month-old data is quoted by Realtors for the following 2 months, that totals 6 months. Since there is 6 months between our best market and our worst market, anyone relying on this information would be perfectly out of phase. That is why my monthly Report is based on data extracted directly from the MLS on the 1st of every month. No other report comes close: Here's how I do it.
  
  For a peek at the article from RE+VIEW, click here.
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  So, you think you understand
  dollars per square foot?
  January 2020

  Yes, size matters, but here's a word of caution: The calculation of dollars per square foot is now included by our new MLS system instituted in 2018. It is an easy concept to grasp but is often misused. Our former MLS system made no mention of this figure in order to minimize the inherent dangers. While dollars per square foot provides important insight, misuse of the data is one reason your tax assessed value and Zestimate can be off by 30%, and that’s a lot.
  
  Figures quoted are for an average square foot. But a little-known concept (unless you’re an appraiser) is the value of a marginal (or additional) square foot. It is easy to understand that an extra 100 square feet added to a 300 square foot home is of great value. On the other hand, an extra 100 square feet added to a 5,000 square foot home will be worth much less.
  
  Scary? The value of an average square foot in Northern Virginia is often $300 to $500. But State-licensed appraisers, who adjust for marginal square feet, are currently using a value of about $100! So, let’s not get too whacked about dollars per square foot: There are many, many, important factors other than size that determine property values.
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  Are home values dropping 12% monthly?
  December 2019

  Are our 22202 (aka Amazon HQ2) homes losing value at 12% every month? As a famous man once said, "FAKE NEWS." Unfortunately, Washington Business Journal readers just got more bad information. A couple months ago they told us that our homes were appreciating 72% a month. Here’s my analysis of that silly article. They can calculate a median from just 12 sales in November 2019, but it is meaningless. This becomes obvious to everyone (except their editors) with a look at their first chart "MEDIAN HOME SALES PRICE Year to date". Notice the bounce in the 22202 ZIP code lines. (The Greater Washington lines in that chart include enough data points to make some sense.) Why do they repeatedly publish statistical NOISE and call it news? Are they really that ignorant, or do they just have space to fill?
  
  Another serious mistake is their reporting of days on the market: The new Bright MLS system originally calculated days on the market in a strange way that added about 30 days. Here’s my web entry from December 2018 on that debacle. The aberration was corrected recently, but comparing November 2018 days on the market with November 2019 is just plain looney. However, that’s what happens when folks write articles on things that they know nothing about. What we need is actionable real estate information.
  
  When there are so very few data points per month, the median price has a lot of "bounce to the ounce" (i.e., volatility). For example, earlier this year the median 22202 sale was a mere $440,000. So, 22202 friends, the sky is not falling: Our home values are not decreasing 12% each month!
  
  Note: Here are some other gems . . .

  • Washington Business Journal - August 2019
  • RE+VIEW (local Realtor's magazine)
  • WTOP
  • The Washington Post
  • Forbes

  Enjoy!
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  Finally!
  October 2019

  10 months ago (link to the original post) I noted that our new Bright MLS (Multiple Listing Service) was calculating days on the market (DOM) in a strange way, providing data that added almost 30 days to the average and was useless. They have just corrected the error so that their future DOM figures will conform to the established, historical standard. In the interim, I had developed a work-around and continued to report accurate and meaningful DOM as in the past.
  
  But our regional Bright MLS system still has a few growing pains. So, don't assume that terms mean the same as before, and don't assume that their definitions are definitive.
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  Are homes appreciating 72% per month?
  September 2019

  Unfortunately, Washington Business Journal readers who are home buyers or sellers, or aspire to be, just got some bad information. The writer went right to the horse's mouth; our regional MLS folks who run the database serving thousands of agents. The agents serve tens of thousands of clients, so these MLS folks must have the straight skinny, right? Unfortunately, they went to the wrong end of the horse.
  
  The MLS folks collect numbers and store them in a database. It's easy to define a dataset and calculate an average or find a median. Worrying about how home buyers and sellers might use the information is not in their job description, nor is worrying about statistical significance.
  
  The lead sentence should say March or April, not June. And is this really news in August? June data cited in the article is the result of contracts negotiated months earlier. Buyers and sellers need to know when the real (contract) action occurs, not when someone happens to go to closing or if they even make it. If you're looking for actionable real estate information in the mainstream media, you're going to be 3 or 4 months late to the party at best.
  
  They should have been a lot more careful with paragraph 3: Their 72% happens to be a correct calculation if you divide $995,000 by $580,000, the actual June median. And when you're working with so very few datapoints per month, the median price has a lot of "bounce to the ounce" (i.e., volatility). For example, earlier this year the median 22202 sale was a mere $440,000. Sorry 22202 friends, our home values are not increasing 72% each month!
  
  Note: The Washington Business Journal does not have a lockup on sensational and misleading real estate articles:

  • RE+VIEW (local Realtor's magazine)
  • WTOP
  • The Washington Post
  • Forbes

  Enjoy!
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  They're getting misinformation,
  but it's not their agent's fault!
  August 2019

  The current edition of RE+VIEW, the Northern Virginia Association of Realtors (NVAR) magazine, shows 6 charts on page 35 comparing May real estate data to the past. My comments . . .
  
  The computer-weenies are at it again. It's so easy to grab some numbers and calculate an average or a total. No thinking necessary. For those who want to look like they are up to date with the market, the charts on page 35 are all they need. But for savvy folks like us who want accurate and actionable information, the page 35 charts are seriously misleading at best. Only 2 of the 6 charts have any pertinence at all, and they are just plain wrong . . .
  
  Avg DOM Before Sale chart: Where they go wrong . . .
  The real number is 14 not 27. When we went to the new BrightMLS system, the computer-weenies there started calculating DOM (days on the market) in a new strange way. After a month or two they realized the mistake and sent an email saying they would correct it. That was over 6 months ago. Click here for details. Maybe not too bright. The data to calculate the correct number is still available and I extract it for my monthly report. For the full scoop on DOM (ad infinitum), click here.
  
  Months of Inventory chart: Where they go wrong . . .
  The real number is 1.02 months not 1.65. For starters, they seem to be including new-homes in active listings. It's a long story, but that messes up the data for resale buyers and sellers. After adjusting for the new-home aberration, I still cannot figure out where their 1.65 number came from, even after trying to put it together from information on their other charts. Click here for details on using months supply data.
  
  And why are they telling agents about May at the end of July? Hope you have been keeping up to date with my monthly report. You might also like how the report is prepared. As I'm sure you know, I don't make all this stuff up. I extract the pertinent data from the MLS myself, and have decades of raw data to prove it. Enjoy!
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  A tale of 2 news stories
  Fake news? Likely not.
  Accurate news? Definitely not.
  January 2019

  You might have heard these 2 stories recently on WTOP radio who got their information from the Associated Press who got their information from industry experts. The moral of both stories: There is no national real estate market and such news is merely a recreational, not actionable. Further, specific data cited is misleading, selected to reinforce the headline. Read on!
  
  "U.S. home sales cratered in December"
  Cratered? They got my attention. Nationally, " . . . sales of existing homes plunged 6.4 percent to a seasonally adjusted annual rate of 4.99 million last month, . . . " Translation: The sky is falling.
  
  They go on to tell us why this is happening and that price growth has been a modest 2.9% in the past year. Well thank goodness home prices are still increasing!
  
  Here's the real story: The number of home sales locally increased 6% last year. But even more interesting, the number of home sales was down 24% (not seasonally adjusted) in December, and this is not unusual at all. So the sky is not falling.
  
  "Analysis: Falling home sales not helping middle-class buyers"
  Note that this article makes reference to some of the data in the article above.
  
  Nationally, " . . . the number of homes for sale that a household with a median income could afford has slipped."
  
  While we will not quibble with their opinion, the article cites falling home sales and increasing home prices, both of which are irrelevant. The article does allude to the effect of rising mortgage rates. But their confusion does not end there. They fail to realize that the population of homes for sale (local average price currently about $974,000) is quite different than the population of homes sold (local average price currently about $557,000). Why? Because higher priced homes stay on the market longer and therefore comprise a disproportionate number of homes for sale. (Statisticians: Check the skewness.) The newsmaker's conclusion might still be right, albeit nationally, but the percentages sited are based on the wrong database which helps them exaggerate their case. They call that "Analysis?"
  
  Note: if you'd like to take a wider view and put home affordability into perspective, check out Hong Kong, Tokyo, etcetera.
  
  What we can learn from these stories, and this goes way beyond real estate . . .
  Never assume that news stories contain actionable information, nor that they are even accurate, nor that the news folks gave any in-depth thought to what they are reporting. From a 2013 article in the Economist: " . . . Pew says the news industry is 'undermanned and underprepared to uncover stories, dig deep into emerging ones or to question information put into its hands.' . . . "
  
  Direct web-links to the WTOP news articles above are available upon request.
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  Special note on the new MLS system
  February 2018

  Our new regional MLS system will eventually be fine, but there are a few growing problems, Meanwhile, don't assume that terms mean the same as what they used to, and don't assume that their new definitions are definitive.
  
  DOM (days on the market) should be an important statistic, but the interpretation is too tricky: The calculation can be done in over 25 different ways, and no one ever tells you which number they are reporting! To be useful, DOM should be calculated as days to agreement, at the current price, for recently sold homes. Our new MLS system currently provides data that is useless for home buyers and sellers.
  
  DOM will be calculated in a new way that will add almost 30 days to the average. The new numbers represent DOM to removal of all contingencies, not DOM to the initial agreement, as has been reported locally for many years. Therefore, published DOM should never be used by home buyers or sellers. Instead, check whether average prices are rising or falling annually as well as seasonally, and be sure to consider the all-important Months Supply.
  
  I have developed a work-around and will continue to report DOM as reported in the past, so my data will continue to be more accurate and timely than any other. I will keep you on the front of the wave.
  
  For greater detail on this topic, click here.
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  Dangle your carrot
  September 2017

  If you have found a home that you like but you believe it is overpriced or it is more than you are willing to pay, then this idea might be for you. First, you must not be in a hurry. Next, you will need to have a definite idea of what the home is worth to you and an accurate estimate of the market value of the home. This is a strategy for a home that has been on the market for several weeks at the same price. If this is the case, you can conclude that it is overpriced by at least 5%.
  
  To maximize your chance of success, make an offer at the highest price you are willing to pay. Do not make an offer that includes room for negotiation. Submit your offer and your rationale. Your offer will likely not be accepted. Simply resubmit your original offer and explanation. Also let the seller know that you do not currently have a second-choice property, and that you are hoping that your offer might become acceptable in the future.
  
  If you are correct about the market price of the home, you should enjoy success most of the time. The dangling carrot (aka your offer) along with the passage of time, will gradually convince the seller that his price is too high. When this happens and he is ready to sell, your offer will likely be accepted, even before the price is reduced. A bonus: If another offer arrives in the meantime, you will not get blind-sided.
  
  Your plan should consider market seasonality, and care must be taken with...

  • What to say
  • When to say it
  • What not to say.

  Of course, if the true market price turns out to be greater than your offer, someone else will buy the home before the seller accepts your offer. Meanwhile, be patient: It takes time to change a mind, unless it's our own!
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  Don't miss your PERFECT Home
  A guide to online searching
  August 2017

  Home buyers should click here for full details.
  This is just a brief a summary.

  Almost all home buyers search online. Any site they visit gets their data from our MLS service. Each site will decide what data to show, in what format, and what to call the data fields. Your search results often do not contain what you actually intended. Reasonable assumptions can be way off. Do you want to be sure that promising properties are not excluded? Read on.
  
  When an agent enters a home into the MLS, there are required fields as well as optional fields that can be left blank. There are hundreds of fields with thousands of possible entries, but we will concentrate on the fields that are often searched online. We separate the commonly used search fields into 4 categories below.

  • Very reliable search fields
  • Usually reliable search fields
  • Unreliable search fields
  • Fields subject to ambiguity, inaccuracy, or judgment which should never be searched.

  (The complete version includes specific fields
  for each of the 4 categories above.)

  A few examples: If you search for a condo with a garage, you can easily miss half the suitable properties. If you search for a specific school, it could be much worse. Even square feet is not reliable. Value estimates are laughable. Don't rely heavily on the photos; there are wide variations in quality.
  
  An effective online home search will methodically narrow the thousands of available homes down to the handful that are worth a visit, during which you can evaluate the important details. Happy hunting!
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  One critical factor in home selling
  July 2017

  Here's an important tip for home sellers: After you are on the market, be sure to ask your agent to double-check that your garage shows up in the all-important MLS System Summary report.
  
  Entering a garage into the MLS is so tricky that up to 50% of homes for sale with an existing garage do not show it in this critical report. Consequently, an agent searching for a home with a garage (a must-have item for many) will not even see your listing in their search results.
  
  This can be a major problem even if your garage was "entered" into the MLS and might appear elsewhere in other reports or websites. Since at least 90% of homes are sold through the MLS, and the System Summary is the very first screen in agents' searches, showing your garage there is critical. Only an agent can check this; you cannot!
  
  For a comprehensive discussion of how to check your MLS entry, click here.
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  Win $1,000,000
  June 2017

  "Zillow is offering a $1 million award to the 'person or team who can most improve the Zestimate algorithm,' the real estate website said Wednesday. The announcement of the contest comes one week after Zillow was slapped with a class-action lawsuit over its proprietary home-price tool." MarketWatch May 24, 2017
  
  "It's one of the oldest tricks in an internet company's playbook. Concoct a tool that gives the public new statistics on something — the quality of a restaurant or a toaster, say. Then watch visitors flock to the data and worry about accuracy later." New York Times May 24, 2017
  
  Many companies now offer AVMs (automated valuation models), and none are reliable. Why? Because tax assessments (not to be confused with appraisals which also start with an "A") play an important part in their algorithms. (Thanks again, Al Gore!) But when you do any calculation using basically flawed data, the result is inevitably flawed. Garbage in; garbage out. End of story.
  
  The basic methodology is logically unsound: Reflect on how long it has been since the tax assessor even visited your home. Never? For reference: The market value of a home is defined by the price paid by a buyer to a seller, neither being under duress, etcetera, etcetera. Anything else is an estimate, and some of them are way off!
  
  Zillow reports it is within 10% of actual market value 69% of the time, which means it is more than 10% off almost one-third of the time. Click here for Zillow's own accuracy details.
  
  There is no substitute for a properly prepared market value analysis or an appraisal, which are usually within 2% or 3% of market value. Mortgage lenders do not rely on Zestimates, and neither should you.
  
  Nevertheless, Zillow wants to improve, and you can be a winner. Take a chance and click here to enter. If Zillow provides its algorithm, you might tweak it by dithering the factors. Alternatively, you might perform a regression analysis, or matrix inversion, and examine the correlation coefficients. Huh?
  
  Zillow also says it is more than 5% off half the time, and that's a lot. Given the data available, it is surprising the results are even that accurate. In any event, it's a great publicity stunt. Good luck!
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  A Look Back at 2016 and a Look Ahead
  April 2017

  Our local Market Index strengthened significantly in 2016 to a robust 2.1 months supply of homes from 2015's healthy 2.4. Click here for the Market Index chart back to 1991. Months supply ranged from 1.6 in March to 2.8 in September, which has officially replaced December as the worst month for sellers. The Normal Year chart was revised to reflect this new normal.
  
  Townhomes maintained their clear lead over condos and detached homes. Loudoun County strengthened during the year as Washington, DC waned, leaving Northern Virginia and Montgomery County to fight it out in the middle.
  
  Average home prices for Northern Virginia in 2016 were nearly unchanged from 2015. Days on the market were significantly fewer than in 2015, but the average seller concession remained at about 2% off the asking price when the property was priced to obtain an offer. The number of sales increased about 4% over 2015, but the number of homes on the market dropped by 11%.
  
  For 2017 we expect a local market a bit stronger than 2016, with sellers having a chance for multiple offers early in the year. Handling these situations can be critical for buyers: Don't leave it to the fates; click here.
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  Move over Washington Post!
  June 2016

  N.B: The following was written by an unnamed author in an undisclosed location in early May and sent to a few of his Loudoun County friends in real estate. Little did he know that Loudoun's Months Supply (aka Market Index) would very soon beat Washington DC's.
  
  Loudoun County: The sky is not falling!
  
  The online Washington Post article last Sunday was worthy of comment. I'll just take a few bits out of context but the entire article is here.
  
  To summarize: Their claim is that homes in DC have been increasingly popular in recent years compared to homes in the suburbs. One can't argue with the theme, but they first go astray with anecdotal evidence: "...the Cloars can't sell their house..." They forgot to add: for what they think it should be worth. The market's not out of whack, it's an individual seller: We can sell any home in a week if we have to.
  
  They picked on Lansdowne (with 5% appreciation), Zip Code 20176, and Loudoun County in general. For comparison, they cite Washington's Trinidad neighborhood, in the 20002 Zip code, an extreme example selected for its shock value, where homes have appreciated 91% during the carefully selected time period. Thus, "As property values have exploded elsewhere, Lansdowne has been left behind."
  
  A better comparison: A 38% increase for Loudoun's 20164 (a more comparable area) vs 55% for all of 20002. But 38 vs. 55 does not have the impact of 5 vs. 91. This is called "cherry picking" or "data mining." Worse, the data crunchers need to understand that calculating average home prices for any Zip Code is ridiculous. There are not nearly enough data points to draw a reliable conclusion. When they zero in on a neighborhood, the data points are far fewer and the inaccuracy much greater. For a detailed discussion, click statistical significance.
  
  Also, citing tax assessments exposes gross ignorance: See this. Heavy reliance on tax assessments is why Zillow (to name only one) is so inaccurate: How inaccurate? Has the tax assessor ever visited your home? I rest my case.
  
  There is no need to compare a stable suburban neighborhood with an inner-city up-and-coming (once down-and-out?) neighborhood unless you are writing a story. So, Loudoun friends, the sky is not falling! Relax, and continue to enjoy good schools, as well as police, fireman, and ambulance personnel who arrive at the right address well within 15 minutes.
  
  This is but one example of the sad state of media coverage that is pervasive.
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  A Look Back at 2015 and a Look Ahead
  February 2016

  Our local Market Index maintained a healthy 2.4 months supply of homes, with townhomes in the forefront as usual. Click here for the Market Index chart back to 1991. Months supply ranged from 1.6 in March to 3.2 in September, which has officially replaced December as the worst month for sellers. The "Normal Year" chart has been revised to reflect this "new normal."
  
  While the number of sales increased about 8% over 2014 it is still 20% lower than our peak year, 2005. But the number of homes on the market is also lower. For 2016 we expect a local market similar to 2015 with sellers having an advantage early in the year, and a chance for multiple offers. Handling these situations can be critical for buyers.
  
  2015 average prices in Northern Virginia again made small but sustainable gains and remain slightly above their 2006 maximums. Days on the market were a bit longer than in 2014, but the average seller concession remained about 2% off the asking price when the property was priced to draw an offer.
  
  Good news: The number of foreclosures and short-sales in Northern Virginia are a now just a blip on the curve. Don't expect any effect on local real estate from the November election no matter who wins. Even the local media has down-played this one for the last few cycles.
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  Does your home need a price reduction?
  November 2015

  Everyone wants to sell faster and for more money but those two objectives fight each other. Sellers control the asking price and thereby time on the market; but it is "the market" that controls the price the home will bring.
  
  Sellers enter the market based on an estimate. If the home is priced at or below the true market price, it will sell in a reasonable time. But at least half the homes on the market started above that and need a price reduction.
  
  So the questions are...
  1-When should the price be reduced?
  and...
  2-By how much should the price be reduced?
  
  The answer to the second question is easy. In almost every instance a home's price should be reduced by about 5%. We could spend time detailing why, but the short answer is perspicacity. (Click the link or scroll down to the April 2014 entry below.)
  
  The answer to the first question requires a bit more analysis because it varies with market conditions. The number of agents showing a home each week is very important. But as a rule of thumb, the number of days it took to sell half the homes that have sold indicates when a seller should consider a price reduction.
  
  Would you rather have an offer to negotiate, or watch the other homes sell first? Don't languish on the market. When the market speaks, listen.
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  Save money on your home purchase
  February 2015

  Want to save some money? There are over a half dozen detached homes in the DC area priced under $100,000 on the market right now. None are townhomes or condos. None are foreclosures or short-sales. Call me right away to lock up one of these bargains!
  
  Hhhmmmmm. When we buy a book, we can go to amazon for a low price; a box of Ritz crackers, maybe Wegmans. A new car? The buying service. This is how we do most of our shopping. Almost no one is looking for the highest price. So it's a natural instinct to use this approach when home shopping.
  
  But wait! The book or box of crackers you buy for the lowest price is identical to the one with the highest price. You've got it: Homes are different. I never tell my sellers, but each home is actually unique. So, in general, the more you spend, the more you get.
  
  Ok, multi-million dollar homes for everyone! My contact info is on your fridge calendar. But most of us are limited by the mortgage lenders, who do not want to lead us into foreclosure. "But what if I over-pay?" Worry not, there are 3 independent checks to prevent this. (Just ask.)
  
  So what's a buyer to do? Think mainstream: Within the context of your parameters, look for a home that is acceptable to many buyers. While we do not expect another 2007/2008 debacle, the folks who bought the cheapest house got hit the hardest.
  
  While you might come home to your amazon book and your box of crackers every day, you do not have to live in them. (Even Buster Brown no longer lives in a shoe.) And you will not likely need to sell your book or crackers to someone else some day.
  
  Further, the better home you buy now, the longer you are likely to live there happily ever after. And that means saving on movers, real estate commissions, etc. But it's your choice. This is merely food for thought.
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  We won't get fooled again!
  November 2014

  We are starting to hear the financial gurus again beating the "housing bubble" drum. Indeed, housing price averages in many markets, including our own, are back to pre-crisis levels. Fast-backward to 2006: Various financial news folks had been grousing about the housing bubble for at least 4 years.
  
  In the end (2007 / 2008), the problem was not 100% loans or very low down payment loans which had been readily available since 1944. The problem was not interest only loans, or adjustable rate loans (ARMs), or any other kind of loan that they cited. These types of loans had been around for many decades and are still with us today. Note well that ARMs, which have been readily available in the United States since 1981, are the norm in most of the world, where fixed-rate mortgages are rare.
  
  One distinct problem (worse than an "issue") was promoting 1-year ARMs with "teaser rates," where the interest rate used to approve a borrower was artificially low. These loans were no problem for borrowers who were, literate, numerate, and savvy. But this proved to be a combination of virtues that existed in very few borrowers. No, you never heard that from the media.
  
  The mainstream financial media did not have a clue that the real problem was; ignoring existing guidelines, throwing caution to the wind, and making loans to folks who clearly could never repay them. Yes, the Federal Government was pushing to increase sub-prime lending, but they were not in charge of the money. It was a case of the money lenders not doing their job. In a general sense, this was a repeat of the savings and loan crisis of the early 1990s.
  
  If you ever bought a home, you likely signed a 4506-T form which gave your new lender the ability to check (with the IRS) whether the income stated on your loan application was confirmed by your Tax returns. So, while any mortgage fraud (on the part of borrowers and loan initiators) could have been easily spotted, it seems the folks lending the money were not into due diligence.
  
  And all might have been fine if the Fed had not been listening to the news media. Assuming responsibility to head off the alleged bubble, the Fed began raising rates in June 2004. By June 2006 short term rates had increased from 2.5% to 6.75%: In retrospect, way too fast. (Alan never called for my advice, despite the fact that we shared the same Board Room in New York City in the 1970s albeit on different days.)
  
  The effect on 1-year ARMs was delayed a bit, but home owners with these loans saw their interest rates increasing by about 2%. For some, this increase doubled their monthly payment. The foreclosure stage was set, and by the end of 2008, local average prices had dropped more than 36%. The greatest percentage losses were felt in lower priced locations, by the intended "beneficiaries" of the Federal Government's push for lenders to make sub-prime loans?
  
  The resulting financial debacle on Wall Street exacerbated by derivatives, credit default swaps, etcetera had its own greedy undertone; but it might never have occurred without "help" from the excessive number of home foreclosures.
  
  The assumption that the crisis resulted from normal market (boom and bust) forces, is faulty, misleading, and dangerous. Maybe the financial media folks should just try to tell us what will happen to the stock market tomorrow. Good luck!
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  Discrimination in housing: Perspicacity
  April 2014

  Perspicacity is the ability to discern a difference. For example, if you see a home whose real value is $450,000 and a second one whose value is $550,000 you will know immediately which is which. However, if you see a home whose real value is $499,000 and a second one whose value is $501,000 you have only a 50/50 chance of guessing which is which. Somewhere in between a $2,000 difference and a $100,000 difference, there is a level at which most folks can tell the difference. Over many years, I have found that the minimum level where most folks can discern a difference is 5%. This is one (quantum) level of perspicacity.
  
  So what?
  
  For home sellers: When setting their asking price, sellers should consider a figure 2 to 4% over the estimated market value. This added amount is sometimes called "fat for negotiation." Sellers who add too much, often find that they have no offers to negotiate. Why is this? Because buyers who can afford a home worth more, are looking for a better home. They do not want to give up one level of perspicacity, even if they could buy the home at a 20% discount. They simply do not want to live there.
  
  When considering a price reduction, amounts smaller than 5% are just not significant to the market. Sellers must reduce their price so that they are competing with lesser homes. You got it: Homes at least one level of perspicacity lower!
  
  For home buyers: If a home has been on the market for too long at its current price, it is overpriced by at least 5%. This means that there might be some time to negotiate before a second prospective buyer appears. Also, if buyers find they are not seeing homes that are acceptable, they will need to increase their maximum search price by at least 5% in order to find happiness.
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  The only question needed to select the best agent
  October 2013

  Note: You don't need this; you have me. This is written for your less fortunate friends who might be selling their home. They have read their newspapers and are interviewing agents. Give them this, and reinforce your friendship. They will thank you.
  
  A little known advantage will be gained by pricing a home exactly on a round number. You are not selling gasoline, groceries, or used cars. Remember that the home selling market is uniquely driven by computer searches. For a complete explanation in my online book for home sellers click the round number theory.
  
  There is NO magic in selling a home; it's about attention to details. Your friends should disqualify any agent who does not voluntarily suggest that their home should be priced on a round number. This is not rocket science, but agents who have failed to recognize this one detail, could easily fail to recognize other critical details.
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  Exploding the Local Specialist Myth
  June 2013

  Your home's most valuable exposure is through the MLS. It is 50 times more important than whatever is in second place. Well over 90% of all homes are sold through the MLS. No, your listing agent will not actually find your buyer directly. Your listing agent is your connection to the buyer. Your buyer will come from the MLS through another agent, not from the direct sales efforts of your listing agent. (More info.)
  
  Your listing agent will rarely show your home in person and therefore will rarely get to impress a potential buyer with his or her local expertise, assuming it exists at all. The first time your listing agent meets your buyer likely will be at the settlement table! Your listing agent's job is marketing, not selling.
  
  There is absolutely no unique information that a local specialist possesses. What does your local specialist know that you don't know? Nothing! So don't waste precious words in the MLS selling your subdivision or area.
  
  More agent selection criteria that do not matter at all:
  - Office location. In real estate, sales from office call-ins and walk-ins are non-existent.
  - The real estate firm. You will never meet Mr. Long who is long gone nor Mr. Foster who has retired.
  - The dynamite marketing plan: Total baloney. Your agent's direct sales efforts are insignificant in comparison to the efforts of thousands of other agents using the MLS to find your home for their buyer.
  
  It is often difficult for home sellers to separate what is really important from what only sounds really important. But all agents are not created equal. For important considerations click Agent Selection Criteria or for an in-depth discussion of agent selection see CHAPTER 3. Selecting the right agent will reap rewards in personal satisfaction, time, and money.
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  Where have all the contracts gone?
  November 2012

  A one year study of 1,287 contracts entered in November 2011 shows that a year later 86% have closed. 12 contracts (less than 1%) still await closing or have been totally forgotten by their listing agents; all of these are short-sales. 164 contracts (13%) have died along the way; most of these were short-sale contracts. Most standard-sale and foreclosure contracts did close, and 99% closed within 3 months with only 3% of the original total dying before closing. Short-sales, however, experienced a 50% mortality rate, and only half of the successful ones (25% of the total) were closed within 4 months.
  
  Four important observations...
  1-Assuming that all standard sale and foreclosure (excluding short-sale) contracts will close is not correct, but the inaccuracy introduced (due to 3% never closing) is insignificant.
  2-An estimated 75% of buyers entering short-sale contracts are likely severely disappointed. Short-sale homes often have multiple sequential contracts as buyers become impatient and rescind.
  3-Short-sales have resulted in a significant disturbing influence on the analysis of real estate data for some time. Short-sales are counted as "active," but since they are not even considered by many buyers, they inflate the numerator of the Months Supply fraction. On the other hand, short-sales under contract (sometimes called "pending") inflate the denominator of the fraction because about 50% never close and another 25% are on the books for an inordinate amount of time.
  4-The significant reduction in the number of short-sales and recent improvements in lender handling of these cases could minimize the disturbing influence of short-sales on future data.
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  Your personal gain from inflation?
  January 2012

  Conventional wisdom holds that in times of deflation it is best to hold cash while in times of inflation it is best to hold things. Things? Yes, hard assets like gold and real estate. Even if conditions worsen, a double-dip recession that some still fear, inflation seems to be a sure thing sooner or later.
  
  Let's investigate real estate. Local average home prices are around $450,000, well above their December 2008 low of $359,660 but still well below their April 2006 high of $568,074, and continued gains are expected. Let's say you buy an average home for $450,000. At an assumed 5% annual appreciation rate (our 20 year average rate is over 6% and the average has been 8% for the last 3 years) the home will be worth $574,000 in only 5 years. This can produce a tax-free gain of $124,000 if the home is your primary residence! So what are we waiting for? Let's all move up to a larger home!
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  Where are we and where are we going?
  September 2011

  The US economy has been in the dumps for years, and massive government spending programs, supported by unprecedented borrowing, have had too little effect. Much of the borrowing has been from China, whose continued appetite for our bonds is not guaranteed. Those who lend expect interest payments until maturity, and find the recent discussions of default rather worrisome. Creditors also expect eventual repayment. At some point, China and other investors will seek better returns elsewhere or worry about default, and curtail their purchases of our Treasury Bonds. Eventually, we will either go bankrupt (translation: default and be unable to borrow from anyone) or our interest rates will increase to attract lenders.
  
  Meanwhile, trillions of dollars worth of Treasury Bonds have been bought by the Federal Reserve (AKA the Fed). Why is the Fed doing this? To keep interest rates (short and long term) artificially low and increase the money supply in an attempt to spur economic growth. But the Fed buying Treasury Bonds seems like smoke and mirrors. Is this not why Bernie Madoff is in jail and why Charles Ponzi got deported?
  
  What will happen? The scenario above has historically led to inflation. Our stalled economy is likely to postpone the inevitable for some time, but significant inflation seems likely at some point. In the meantime, and likely for months to come, we are enjoying record low mortgage rates. Where do you think we'll be in a year or two with interest rates, inflation, or depression, and what should we (individually) be doing now to prepare?
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  A Look Back at 2010 and a Look Ahead
  March 2011

  2010 was the third year of recovery for our local real estate market as the Market Index maintained a healthy 2.4 months supply of homes. The recovery was led by Northern Virginia with townhomes in the forefront. To see how 2010 ranked, click here for the Market Index from 1991 to date. 2010 was the second year of home price recovery as average prices again made sustainable gains.
  
  For 2011 we see a strong local market with sellers having the advantage early in the year. The upward trend in prices is expected to continue indefinitely. Our market is expected to remain one of the strongest in the country.
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  An Interesting Question
  February 2011

  David, I'm sure you know the market better than reporters but I just read yesterday in the Wall Street Journal that home prices in the Washington DC area declined 5.8% in the fourth quarter. Why would that be if the market is healthy and balanced? Are they focusing on one bad area? Steve
  
  For the WSJ Article click here.
  
  An Interesting Answer?
  My fourth quarter results show average home prices in 2010 8.0% ahead of 2009 for Northern Virginia. So the first difference is that the WSJ's numbers are for some undefined D.C. "metro area." We know that Northern Virginia is the healthiest segment of our market but I doubt there is a 13.8% difference. Nevertheless, we both are reporting home prices for the same time period.
  
  WSJ cites their "quarterly survey" as their data source. This could mean anything and it's likely not worth the trouble to find out. My method is simple and direct: I extract resale sold home data directly from our MLS and calculate an average.
  
  Finally, most news folks have no concept of statistical significance. 5,000 to 10,000 transactions are needed to have a reasonable confidence level for an average-price calculation; any fewer produces results that are meaningless. This could be the biggest reason the WSJ got it wrong: Their data sample size is not large enough. The fact that they found some numbers and calculated an average was good enough for them.
  
  As you know, I could write a book! When we see an article like this, we wonder how any of us can ever make rational judgments, especially about weightier world events. But don't get me started!
  
  Thanks for keeping in touch, Steve, and "HI" to all!
  
  For some additional perspective on the news, scroll down on this page to "What are they talking about? - October 2008"
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  Market Perturbances and more
  August 2010

  There's still more bad news coming for housing as the media catches up with what we reported three and a half months ago. The Federal Tax Credit Program's major effect seems to have been packing sales into March and April, most of which would have happened in May June and July. Consequently, recent months' sales have been somewhat lower than expected and it is strikingly clear that the Program is not having any lasting effect. After the bad news passes, the news will be of increasing sales, albeit merely from current artificially depressed levels. So remember where you heard it first.
  
  This year will turn out to be slightly slower year than last. But at year's end we will look back at a generally healthy, normal year overall, which was skewed up (a statistical term) by a well-meaning Federal Program. Our local supply and demand remain in reasonable balance with the months supply of homes on the market in the range of 3.0 to 4.0. Year-to-date sales are running about 7% lower than 2009.
  
  Meanwhile, the average home price has seen a significant increase this year which is expected to hold, but further increases are not expected until 2011. Great news: The long-heralded rise in interest rates has not yet materialized, due to artificial influences as well as the weak economy. The 10-year Treasury note (widely viewed as an indicator of mortgage rates) has hit record lows recently as have mortgage rates. The current situation is expected to last at least until the spring of 2011. But, higher rates are surely coming at some point. Keep your eye on macro economic data, especially the employment numbers.
  
  And the bubble? When bubbles burst, there is nothing left. This analogy does certainly not describe even the worst housing market in the country. No one thought that the elevated level of sales could continue forever. What was striking and unforeseen: The number of foreclosures and their effect on our home values. In the end, the problem was not 100% loans, interest only loans, adjustable rate loans, or any other kind of loan. Mainstream media did not have a clue! The problem was: Ignoring existing guidelines, throwing caution to the wind, and making loans to folks who clearly could never repay them. It was a case of the money lenders not doing their job. It was a repeat of the "savings and loan" crisis of the early 1990's. Do you remember?
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  What about prices?
  April 2010

  2009 was a year of recovery for our local real estate market as both the months supply of homes and average prices made sustainable gains. To put things into perspective one must revisit the unusually slow market of the early 1990's during which home appreciation was nil for 6 or 7 years. When the market heated up dramatically in the early 2000's the average price peaked at $568,074 in April 2006 and then started to decline. For a look at average home prices from 1991 to date, click here.
  
  Although our recovery started in November 2007, the average home price was not on exactly the same schedule. The decline in prices accelerated through 2008 even as the health of the market (as best measured by Months Supply of Homes) continued to improve. How can this happen? A reasonable explanation is that the price declines were the result of the large number of foreclosures and short-sales. Average prices hit bottom in December 2008 and confirmed the Months Supply turnaround of a year earlier.
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  A Look Back at 2009 and a Look Ahead
  March 2010

  2009 has been another year of recovery for our local real estate market. The recovery was led by Northern Virginia townhomes. To see how 2009 ranked, click here for the Market Index from 1991 to date.
  
  As you know, our recovery started over 2 years ago. For a month-by-month graph of the Market Index for the last 3 years that clearly shows when the market turned, click here.
  
  2010 has started off remarkably well in spite of our record bad weather. We see a strong market for the first half year, spurred on by the Federal Tax Credit and historically low interest rates. The second half of the year should be a bit slower.
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  Foreclosure and Short Sale Data
  August 2009

  Tracking foreclosures and short sales has recently become possible as a result of some timely changes in our MLS data collection process. You might recall that we identified these distressed homes as an important part of our market, but could only approximate the data by tracking vacant homes. Vacant homes data included foreclosures, some short sales, and other homes where the sellers had moved.
  
  Our reporting can now be much more precise. But what does all this mean? Foreclosures represent homes that can readily be purchased. The process is indeed more cumbersome than dealing with individual sellers, but it can work. The net result of each sale is (obviously) to decrease inventory, and as a rule, to affect average prices negatively. It is believed that a large proportion of foreclosure sales during the last half of 2008 is what produced the unprecedented 19% drop in average home prices in our area. As long as foreclosures remain below 10% of the homes available for sale, negative effects on average prices will be slight.
  
  Short sales represent homes that are so difficult to bring to closing that the great majority of buyers are unwilling or unable to deal with them. In other words, in the eyes of most buyers, short sale properties are not an option. When the proportion of short sale homes exceeds 5% the market is measurably stronger (better for sellers) than the Market Index (months supply of homes) indicates, because these not-really-on-the-market homes are included in the current inventory data.
  
  Currently the proportion of foreclosures is relatively low and consequently precipitous drops in average prices are very unlikely. Further, the proportion of short sales is relatively high, making the market easier for sellers and harder for buyers than the numerical data suggest. Both the number of foreclosures and the number of short sales on the market are expected to decrease in the future and eventually minimize the associated aberrations.
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  What are they talking about?
  October 2008

  Putting real estate news into perspective...
  
  Why are the "pundits" telling us all this baloney? What do they think we should do? Sell our homes and live with mommy and daddy? With the kids? In a tent? Stop buying homes? I'd be happy if the Wall Street folks could give me an accurate prediction of the stock market, where they should be the experts! I'll be a bit worried when Realtors on TV start telling me what stocks to buy!
  
  Here are some important questions you should ask yourself about the news:

  • What decreased 3%? The number of sales or home prices?
    
  • For what time period? Compared to when? Last month? Last year?
    
  • Did they consider seasonality?
    
  • Is the data recent, or several months old?
    
  • From what perspective? We get different views if we start tracking data in 1990 versus 1998!
    
  • What is included? Resale homes? New homes? Both? Rentals? Re-finance appraisals? Yikes!
    
  • Is the data for our area? We do have a regional market, but there is no national real estate market. Although national averages can be calculated they are merely useless bits of information for individual homeowners.
    
  • Do they support their conclusion with meaningful data or do they start with a conclusion and support it with anecdotal evidence? An example or two can illustrate a view, but not prove it.
    
  • Do they understand that the value of a home is defined by a buyer-seller, arms-length transaction or do they seek to project their personal opinion on home values? The real price of a home (or all homes) is never defined by some third-party's opinion, even if they represent themselves as experts.
    
  • Are they confusing the homes we live in with shares of stock?

  When you examine the underlying data, you might ask:

  • Do they comprehend the concept of statistical significance? This answers the question: Does the number I just calculated actually mean something? This is of great importance when considering average home prices. When the sample size (number of data points) gets too small, results bounce and individual reports are useless unless you are the producer of a TV news program trying to fill time. Further, for buyers and sellers, there are much more important data than home prices.
    
  • Does the algorithm being used make sense? What does it include and exclude? No one actually adds up all the home prices and divides by the number of homes on a national scale. Delve into the method.
    
  • Are they careful to make the distinction between correlation and causal effect?
    
  • Have they been tracking their data over several decades? The National Association of Realtors data seems to be respectable. (I'm a member not a fan.)
    
  • In the questionable category is the widely reported Standard & Poors - Case-Shiller Index and the government's data from the FHFA (just Google it).

  Of course, radio and TV news spots and newspapers have time and space constraints that make answering all the above questions impossible. So, it's up to us to decipher the truth. Unfortunately, this is well beyond the scope of most listeners and readers, the savvy folks like us being a small minority. Isn't listening to the news just a recreational activity anyway?
  
  Remember that "what everybody knows" is not always right, even when it sounds right. Get your real estate advice from real estate folks, not ignorant Wall Street lemmings. Monitor the local economic conditions including employment, and most importantly, housing supply and demand (yes, the Market Index). And when you are making those really important decisions about your personal housing, good luck!
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  Data vs. Information
  February 2008

  Fourth quarter 2007 (preliminary) data now available from the National Association of Realtors (NAR) shows median home prices in our area (Washington DC MSA) flat for 2007, but down 5.1% in the 4th quarter compared to 4th quarter 2006.
  
  The 4th quarter data show home prices in Lansing, MI and Sacramento, CA down about 19% and prices in Cumberland, MD and Yakima, WA rising by about 19% with the rest of the country in between these extremes. Of course there are parts of our area where home prices are rising and parts where they are not, so even the data for our MSA should be viewed very generally.
  
  While our current market is not as soft as in the mid-1990's, home values seem to have been less resilient. Although the current state of affairs is now vastly different from the years 2000 to 2005, it still does not qualify us for a "bubble-burst" award.
  
  Important lessons to be gleaned from the data?
  1-There is no national real estate market (in case we have never mentioned that before).
  2-Interest rates are not the main key to home price appreciation: Rates are nearly uniform nationally while price changes vary appreciably.
  
  Actionable information?
  1-Keep your job, if only for the income it generates.
  2-Keep paying your mortgage on time.
  3-Do not sell your home in panic: It's way to cold to be pitching a tent in the county park.
  
  More Information: This paragraph originally contained a link to an article by Dr. L. Yun of NAR about home price data and was an expose' of the S&P Case-Shiller Index. Unfortunately, this sensational "shock index" makes bigger news than the NAR reports which are based on sound research principles. But Dr. Yun's article of February 2011 no longer seems to be available. Hmmmmmmmmm.
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  Looking Back at 2007
  February 2008

  2007 consisted of 2 very different half-years. There was the first half: While it felt a bit slow after so many boom years, it actually posted sales slightly higher than normal as was also the case in 2006. Then there was the second half of 2007 with the number of sales down about 20% compared to normal. We know from our experience in 1989 and 1990, that such a drop is significant. Lower sales partly due to tighter mortgage guidelines, along with an unusually high number of foreclosures, led to inflated inventories of unsold homes and the concomitant rise in the Market Index (months supply of homes).
  
  It bears repeating over and over that there is no national real estate market. Further, there is no national labor market. So when you hear that unemployment is 4.9% nationally and that the foreclosure rate in California is 3 million percent, listen for the local data! 2008 is expected to be a normal year in our market and by year end, inventory levels (homes on the market) should be much lower. Assuming our local economy maintains its buoyancy, and the media does not scare the wits out of us, 2009 should be an even better year for local real estate.
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  Real Estate News in Perspective
  November 2007

  The hectic pace of our local real estate market over the past several years has slowed. Even I have noticed! But no one thought it would last forever. The "boom" was mainly the result of demand for housing driven by a healthy economy.
  
  Our current slowness is the result of two factors which are related to indiscretions in home mortgage lending. First, there is a larger than normal foreclosure rate as some folks are unable to make the increased payments resulting from their adjustable rate mortgages. The second factor is a temporary shortage of mortgage money resulting from lenders' reactions to the sub-prime mortgage mess. Both of these problems attained critical mass mainly as a result of the Fed's interest rate increases. The Board's recent decreases in short-term interest rates are calming money markets so that mortgage loans are more available. Lower rates will also help folks with adjustable rate mortgages who have not yet been foreclosed upon. A recent release from the Mortgage Bankers Association: National news on foreclosures is being driven by data from a few large states, none closer to us than Ohio or Florida.
  
  Important: You never hear that there is no national real estate market and the constant implication that such a market exists is unfortunate. There are hundreds of separate markets and a meaningful connection of national averages to any specific location is impossible! History proves that what happens in Las Vegas or Houston has no effect on us. The obvious reality is ignored because it does not support the story. National news is not directly relevant, but alarmist reporting can indeed have a chilling effect locally. News is 80% entertainment, 20% fact on a good day.
  
  Undaunted by the facts, one Standard & Poors (S&P) "expert" recently predicted a 50% drop in home values. You would think that after years of pointless bubble talk, the Wall Street folks would just try to tell us what will happen to the stock market next week. The most recent (Nov 2007) home values report from the National Association of Realtors (NAR) shows areas of the US where home prices are rising as much as 20% and others where prices are falling as much as 20%. Our area (Washington DC SMSA) is in the middle with slight gains (less than 1%). The NAR has been publishing their study for a long time and have inside information through MLS systems around the country. My discussions with NAR indicate that they are aware of "statistical significance" an important concept unknown to mainstream media. S&P can not claim expertise in residential real estate.
  
  As predicted in my Market Report, there will be more bad news in coming months as weak September data become apparent to the general public through media amplification of stale, unfavorable data. Therefore, home sellers who need to sell should take corrective action so they do not get caught in an ugly year-end real estate market. On the other hand, home buyers should take advantage of the current situation: The current inventory surge will not last forever. Meanwhile, you, I, and our neighbors have jobs, need shelter, and are not selling our homes in panic.
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  The monthly market report
  October 2007

  Decreases in sales and increases in inventory pushed the market index to an 8.6 months supply, up from 5.8 months. A 2.8 month increase in the market index is almost unprecedented. Days on the market to sell a home has increased to over 80, up from 20 days a few short years ago. Especially now, sellers need the latest market information to price their homes right. A bright spot: Buyers are finding a good selection of homes to consider, and are now negotiating a 4% average concession from sellers instead of paying a premium to win their home of choice.
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  The effects of 911
  October 2001

  The events of September 11 have had a profound effect on the local real estate market. Data analyzed is for 17 days before and 17 days after the event. September 11, and the Labor Day holiday, have been excluded from the data as aberrations.
  
  A review indicates that sales are down 22% at a time of year when they normally would decline by about 4%. For perspective, the sales decrease that led to the 1990 cooling of the local market was in the range of 25%. The number of homes for sale, has increased 23% at a time when it normally would have decreased by 10% which is certainly due in part to the slowdown in sales.
  
  Although it is easy to calculate before and after statistics, 17 days does not establish a trend. There is insufficient data to determine whether the effects are worsening, or whether the shock-effects have already started to fade. Even after September 11, the Market Index is still in sellers' market territory at 1.7 months supply. While the chilling effects on our market were to be expected, the important question is where the trend will stabilize, which should become clear in a month or so.
  
  Follow-up: By November, it became clear that the events of September 11 had no lasting effect on our local real estate market. While the negative effect on the number sales was significant, the duration was short and there was no discernible effect on local home prices.
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  Market Alert
  March 1999

  The buying momentum from 1998 continues. The big news is that number of resale homes on the market is now as low as it was in the late 1980's. Real estate appreciation is returning to our local market, but not at the 20% to 30% rate from the late 1980's.
  
  February sales were 14% ahead of last year, thanks to interest rates and the weather. But a continuing decrease in the number of homes for sale (at a time when the supply is customarily increasing) pushed the market index deeply into sellers' market territory: 2.3 months supply. Detached homes in Virginia are leading the way with only a 1.6 month supply. Average time on the market is plummeting. Over half the homes sell in less than a month. This market is BIG news. This is a HOT market. This is a first for the 1990's, and March and April will be hotter!
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  Market Alert
  February 1998

  With the cooperation of the weather and interest rates, the momentum continues. February sales were almost 50% higher than last February. But inventory (homes for sale) was about 15% lower than last February. This has sent the market index to an all time low (better for sellers) for the 1990's. The positive trend is still accelerating.
  
  Buyers should act as soon as possible and not get bogged down in protracted negotiations. If the current trend continues undisturbed, which seems likely for the near future, buyers will see a lot of competition for the home of their choice as lucky sellers enjoy multiple offers. This is where you get the news before it's news.
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  Market Alert
  February 1994

  In 1994 you will see the long awaited economic recovery take a firm hold. While economic improvements will be slow, they will be steady. The resulting improvement in consumer confidence will bring strength to the housing market. Economic worries which had a controlling and significant negative influence on our local real estate market in the first quarter of 1993 are not expected to re-appear. Selling your home might not be "a piece of cake," but it will be possible.
  
  Keep an eye on interest rate changes which can have an important effect on the market. A trend toward higher rates could dampen market activity as happened last in 1992. Don't expect any significant appreciation in home prices until at least 1995: The resale home inventory is still too large, although it is being trimmed steadily by about 10% each year.
  
  The foundation for future real estate appreciation is in place, assuming that mortgage interest rates stay below 9% as expected. As interest rates have moved down sharply in recent months, personal income has remained much more constant. This means improved affordability for real estate. So the upward pressure on home values remains, held in check only by economic worries and the large resale home inventory. Both of these factors are moving in a direction that eventually will benefit real estate values. Look for continuing support from first-time buyers to help strengthen the market. In time, home values will experience measurable appreciation again, but you might have to wait a long time to see a repeat of the late 1980's.         Ed. Note (2002): LOL
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