A recent article from the Los Angeles Times discusses a complaint that has been lodged against the recently launched Zillow.com website.  Zillow, which was 'turned on' 8 months ago, is being accused by a fair housing advocacy group of being purposely misleading.  The complaint apparently says that misinformation about values of homes is being used by many within the real estate industry, such as lenders and real estate agents, to take advantage of consumers.

I have actually been quite curious of the Zillow experiment.  Over the past few months I have noticed that they have made strides to provide information regarding local markets such as historical trends and county and state averages.  The trouble with Zillow, in a state such as Texas, is that our sales information is not public data.  With a system that is based on compiling sold information from public resources, Zillow will seemingly always be lacking in Texas. 

Just to see how Zillow is doing, I went ahead and ran my own home through their system.  I did the same six months ago.  Over the past 6 months it says the 'zestimate' is up $30k.  Is the market really up $30k - no, not at all.  Additionally, they have a heading at the top that says my "30 Day Change" is down $10,464, which is interesting given that the market in Austin has shown consistent growth.  Also kind of weird to me is the "1 year value change" graph which looks like every stock performance chart I've ever seen. 

That said, I do believe the value of this home is within what they give as their 'value range', a task which isn't too difficult given they are giving me a value range of $120,000.  Other magic involved in their value is the 3 comparables they provided me with.  My home is in the Spicewood/Balcones area.  One of the sales is in my neighborhood.  In fact, it's only 1/3 mile away.  The second comparable is in Canyon Creek.  Huh?  Canyon Creek of down Anderson Mill Road, out on 620 and then into Canyon Creek, Canyon Creek?  That's not comparables.  Hmmmmm.  Let's see about the 3rd comparable sale...in....Northwest Hills?  Seriously?  The home they gave me is just west and south of the intersection of 183 and Mopac, 4.17 miles away, according to their own estimates.  I don't know how far in actual driving terms. 

Okay, I'm trying to be fair.  Really!  I am.  However, there are just so many quirks in the system I can completely see where the fair housing advocacy group is coming from.  I truly hate the fact that anybody would use the site and take anything away from it other than entertainment.  A Zillow statement referenced in the article states that "zestimates are designed to be a starting point for consumers who want to learn about the value of homes".  The problem is, what if the starting point is wildly inaccurate.  And honestly, in my own case, what good is a starting point with a range of over 35% of the value of the home?  I would guess that your average consumer is familiar enough with a neighrborhood they are researching to understand the values within 35%.  In truth, a valuation system that doesn't come up with a value within 10% is useless.

This actually brings me to my next point, and that is the treatment of the property valuation like a stock or some similar commodity.  To me, the 1 year value chart makes me want to laugh and shake my head at the same time.  Privacy precludes me from sharing the actual chart with you, but if I did you would see a chart that goes up $10k, then down $15k, then up $30k, then down $5k, then up $15k, then down $20k, all within a 12 month period.  I am not saying that there will not be fluctuations in what you can get for a home over the period of a year as the market conditions change and the seasons change but I don't believe it looks anything like a line graph of specific plotted points.  A better representation might be a range.  Real estate values are not a fixed, exact amount.  Two people can look at the numbers and come up with a different value for the home and honestly that doesn't mean either value is incorrect.  Typically there is not an exact replica of the property to use as a comparable so adjustments will need to be made to the comparable.  Typically new construction is the closest you will get to a set, standard value point.  In the end though a home is worth what someone who likes it will pay for it.  I think technology has opened up many doors and provided us, as the consumer, with so many tools and the ability to access so much more information.  I continue to believe that technology will lead us to some amazing places and provide us with so many new and exciting opportunities.  However, right now in Texas, online property valuation is not something that is tenable.  If you want a property valuation you best bet is to hire an appraisal or I can complete a free Comparative Market Analysis or Broker's Price Opinion.  Just contact me: James Brinkman, West Elm Properties, 512-698-3525, Brink@WestElmProperties.com

As an aside, I just don't feel the whole zillow, zestimate, zindex things is cute at all.  It's seems like one of those things that someone thought, 'let's be clever and throw a 'z' on the front of some words!' (typically words beginning with vowels other than the zillow itself).  Well, to me it's kind of zannoying!

The time does go quickly.  I can't believe it has been over a week since I wrote anything so it looks like I have some catching up to do with you this week - so let's get started...

First, there are a few articles in the Statesman that I found of interest:

This article is about how the internet has changed the real estate business for buyers, sellers and Realtors.  This isn't exactly anything new or profound, but it bears discussion.  As I mention to every one of my sellers, 77% of homebuyers used the internet to search for a home in 2005, and this is a number that has been increasing every year.  I have noted a leveling off of sorts over the last couple of years as we reach some type of critical mass.  The more surprising facet is that nearly one-quarter of all buyers found their home through an internet search - a ten percent increase over the prior year.  This is one reason why I stress property presentation so much to my sellers.  If you look at my website, and in particular the exlcusive listings section, you will notice that I take a great deal of care and time on presenting each listing so that homebuyers can really grasp what a home is about.  Too often, in fact far too often, I see agents who have put no pictures or 1 photo or dark photos up on the internet or in the MLS.  I'm not sure what those agents are thinking when they do that.  It certainly is not going to make a buyer think that they want to see that home.  Time and time again buyers tell me that if there are no photos are bad photos of a property they skip right through the property and cross it off the list.  Additionally, I try to write a description of each property so that the home buyer can visualize what I can't really show in photos.  For the home seller, the goal needs to almost be 'not being eliminated' at this juncture in the real estate business.  With buyers controlling far more of what they see, which is a good thing, it is important to put on the best 'face' you can.  Many sellers need to ask themselves, is my agent really showing my home in the best possible light?  If the answer to that question is no, the seller probably needs to have a discussion with their listing agent or maybe even find another. 

Also of note though is that 81% of those buyers who used the internet to search for homes did use a Realtor.  Of course this brought out the whole "Realtors need to be prepared because we're no longer the gatekeepers of the information", which always makes me laugh.  Honestly, if all you, as a Realtor, could provide was which homes were on the market and the ability to show them, you really shouldn't be in real estate.  Of course, that is just my humble opinion.  A Realtor should be a resource for their client on the transaction, the market, the values and should make their client's lives less stressful and make the purchase as smooth as possible.  There are too many agents who actually interject themselves too much into the transaction and thus disrupt it or cause more drama than is necessary.  Maybe I'm just a little more prepared to embrace the changes in the industry, after all I did spend four years with eRealty or, as they were known in Austin at the time, the devil.  Of course that experience actually brought me to where I am today with my company.  Too often with these 'internet' real estate companies (you know who you are!) they lose sight of what is most important in a real estate transaction - trust!  Too much of the focus is placed on reduced commissions and, due to the reduced commissions, volume becomes the paramount issue because the profit margins are so slim.  In the end when you focus on volume the company starts to lose sight of the individual - the home buyer or seller - and, as my old broker who shall remain nameless used to say 'they just want you to treat them as johns'.  (Yeah, it sounds as horrible now as it did then.)  How disheartening that thought was.

My creation of West Elm Properties, Realtors was in direct response to my experience at eRealty.  I still wanted to be on the cutting edge of technology, to use it in any way that would benefit by clients, but I wanted to get back to the roots of the fact that the real estate transaction is a very human thing.  Buying or selling a home is one of the most stressful things to do and can stir up a whole lot of emotions.  Its important to not only use the best tools available for a buyer or seller but to also 'see' and understand the very specific, very unique needs of each client.  I really believe that having West Elm Properties helps me accomplish the marriage of the two facets new and old, better than any other company out there.

jb

It's time to do a little catch-up on the week that was in real estate, given that some interesting national statistics were released this week.

According to the US Commerce Department the median price of a single family home was down 2.5% from September 2005 to $219,800, the largest year-over-year price decline in records going back four decades.(from the National Association of Realtors).  Even more staggering was the news for new home sales, which saw a decline of 9.7% on the median price to $217,000 (also the largest year-over-year decline since 1970).  The number of new homes sold did rise 5.3% in September but new home sales are down 14.2% in the past year.  Nationally there was a 6.4 month inventory/supply of homes, given the sales rate in September.  Mortgage rates inched up to a 6.40% average for the week of October 26.  I read recently that rates were thought to be headed to 7% by the end of the year but now the thought is that it won't get to that point, at least not yet.  The Federal Reserve's decision Wednesday not to raise rates was at least part based on the housing market slowdown.

September in Austin looked like this:

Current Market Summary
September 2006

All Single Family Sales

2006 2005

2,341 2,280

+  3%

All Active Single Family Listings

2006 2005

8,203 7,835

-  5%

Single Family Median Price

2006 2005

$167,000 $161,750

+  3%

Single Family Pending Sales

2006 2005

2,332 2,030

+ 15%

The average home price in Austin was up 6.5% year-over-year to $227,948 from $213,946.  These are all certainly respectable numbers in light of the sharp declines in national numbers.  Of course, as I always say, all real estate is local.  It is interesting however to keep track of how the national averages shake out.  It will also be interesting to see how long this downturn in the national numbers will continue.

Time to catch up a little on recent articles.

First is on Allandale.  The article writes on how Allandale is becoming increasingly popular for "young families and professionals".  A good percentage of my clients over the past few years have bought in that general area and I have actually noticed that as well.  When areas closer in to town, such as Hyde Park, became cost prohibitive for many younger buyers, neighborhoods such as Allandale provided the right combination of affordability and the older home charm/funkiness that many of those buyers sought (and still seek).  There are actually several sections of Allandale including Allandale Estates, Allandale North, Allandale Oaks, Allandale Park, Allandale Terrace and Allandale West.  There are over 2,200 homes in these combined areas.  Between October 2005 and October 2006 there were 122 homes sold.  The average size of those homes was 1,680 square feet with an average sales price of $256,797, or $157.20/per square foot.  The average list price was $261,570 and on average it took 29 days to get the home under contract.

Sales in the New Home market remain strong.  Nationally sales of new homes are down 14.4% whereas Austin is up over 18%.  Nationally there is a 6.6 month supply of unsold new homes.  In Austin that number is less than 2 months.  Interestingly enough I still get plenty of broadcast emails from certain builders offering incentives for some of their inventory.  Typically I share any commission incentives above 3% with my clients if they decide to purchase one of the new home builder's home.  It seems appropriate to me.  The article does urge caution as the new home sales might be slightly inflated by investors, which I have seen myself.  I've read a couple of articles quoting out-of-state 'investors' saying that they couldn't believe how low some of the prices were for some of the new homes, mostly bedroom communities outside of Austin.  It would seem common sense but maybe it should be said - just because something would be a 'deal' where you live, doesn't mean it's a deal where it sits.

Six years ago, in the summer of 2000, I sat in my car outside a home in Jester Estates waiting to meet a client.  It was a Friday morning, about 8:50AM.  The instructions posted in the MLS said the home would not be shown until Friday at 9AM.  When I pulled up to the home I thought I might as well be going to a party because of the amount of cars sitting outside the home.  Outside my windshield I saw no less than 6 other Realtors and their clients waiting in a scattershot, makeshift line in front of the house.  The listing agent might as well have put a number dispenser at the front of the house and a little “Now Serving Number” digital board over the front door.  As I got out of my car I thought to myself, “Well, this is no good”.

Demand.  I saw a lot of the ‘Demand’ side of supply and demand that summer.  I’ve mentioned it before, but I had 7 different buyers that lost out on a home in best and final situations in July of 2000 alone.  Being in a market with multiple offers, many significantly over asking and actual market value, is not the boon to real estate (and for that matter, Realtors) that many people believe it to be.  Buyers are frequently are disappointed or frustrated and many end up overpaying for the home in that market scenario.  (I, personally, tried to be diligent and make sure the prices my clients paid were supported by comparable sales.) 

While many were caught in the euphoria of the thought of never ending price escalation, I was stuck with the feeling that the Austin boom was about to come to an end.  The words of Dr. Stephen Pyhrr’s article “ Austin ’s Persistent Real Estate Cycle” were resonating.  He wrote that Austin has historically experienced ‘up’ cycles of 8-10 years and ‘down’ periods of 3-5 years.  In 2000, the last ‘bottom’ of the cycle, the beginning of that cycle’s ‘up', had begun in 1991.  We were well into our 9^th year of the ‘up’ and it was becoming evident that cycle had run its course.  The real question was starting to look like, how bad would be the down cycle?

At that same time, in California the market was just beginning to really heat up.

........................................

Six years later it’s hard not to see all the stories and articles about how the boom is over.  It has become one of the bigger business stories of the year and I would wager that most of the major media outlets have at least run one ‘Boom is Over’ in the past month or so.  Yesterday I ran across this article prominently featured on the MSN home page.  It is an article from Forbes magazine titled ‘How Low Will Real Estate Go?’ (Lacey Rose).  The first sentences in the article read, “Get used to it – the seller’s market is closing up shop.  The days of fat, fast home value increases are gone.  Pack away those flipping fantasies.  “The boom is definitely over, there’s no debate about that,” said Mark Zandi, chief economist of West Chester, PA – based research firm Moody’s Economy.com.  “Now the question is more how hard is it going to land, if it lands at all.” ”

So the boom is over, huh?  What boom?  Where have I been?  Last I check Austin went through its down cycle from the Fall 2000 to the Fall of 2004.  Here in Austin , we experienced zero growth, for the most part, between 2000 and 2004.  Since the Fall of 2004 we have seen steady growth, commensurate with that of a market in the beginning cycle of growth.  Growth, based on past history, that should continue through to 2012, maybe even 2014.

Even within the article there is a link title “How Low Real Estate Will Go In 15 Metro Areas” there are examples of markets that look like they will fair just fine during this ‘bust’.  The link graphs out the projected growth for the next 10 years in 15 different markets.  Seattle, Dallas and Houston all are projected to fair just fine during this terrible, terrible time (tongue firmly planted in cheek).  Boston, Los Angeles, Miami, New York, Phoenix and Washington are the only cities they show that appear to actually have a retreat in pricing at some point over the next 10 years.  For those keeping score, that’s 6 out of the 15 cities cited, and yet the article/link is “How Low Will Real Estate Go…”. 

I don’t think it is a big jump in logic to say that the stories we read and see, written for national consumption, are heavily influenced by the east and west coast in this country.  Is it too much to ask that broad brushes not be used when writing the stories though?  Of the 6 cities that actually appear to have price decreases on the way, only Phoenix does not fit the mold as a major east or west coast market.  It definitely appears that this is coloring the news and, in spite of evidence to the contrary in plenty of markets, is causing the writers and reporters of these stories to make such grand sweeping statements as “the seller’s market is closing up shop”. 

I’ve said it before and I’ll say it again: all real estate markets are local.  When a market is down in your town, I’ll find you a market that is up in another.  Point me to a seller’s market in one city and I’ll point you to a buyer’s market in another.  There is no ‘national’ real estate story when it comes to a national real estate market.  Yes, certain factors influence all markets.  A spike in interest rates will have some influence over all real estate markets, but the impact will be different depending on the local factors. 

In Austin we are influenced by technology and the state government, among many other factors.  When the tech options vaporized and the stock market fell in late 2000 and 2001, the Austin real estate market followed.  The record highs of the real estate market in Los Angeles and Miami over the next few years had absolutely no influence as to what was happening in Austin .  Of course it didn’t, why would it?  Yet we heard story after story about how the national real estate market was booming, just as now we are treated to the doom and gloom.  During the last few years, Austinites would ask, ‘What Boom?’ and now, just as easily, they can ask, ‘What Bust?’ 

So as you read and see these stories just remember some simple rules:

Real estate is local.  There are always some points of wisdom to be gleaned from the stories and they are a good way to know what’s going on in different parts of the country but, in the end, what happens with the real estate in New York City has little influence as to what is going on in Austin. 

Real estate cycles are just that – cycles.  They go up and they go down but over the long-term the growth trend line is up.  Nationally, the 50 year growth trend line is up 4.8% per year on average.  Over the past 30 years in Austin the growth trend line is up about 6.7% per year.  Real estate remains one of the best ways to leverage your money over the long term, regardless of the cycle at that moment.

 

Don’t buy into the hype and hyperbole that the reporters use in their stories and articles.  In the end, much of their job is to sell papers, magazines or whatever their medium might be.  The headline, ‘How Low Will Real Estate Go’ will certainly grab one’s attention a lot more than something more pedestrian.

........................................

Six years ago, as I got out of my car outside a home in Jester Estates and got ‘in line’ with my clients I thought to myself what a wild scene it was and how it certainly could not be a good sign for where the market was headed.  My clients actually got the house that day.  There were multiple offers but we stayed within the comparables sales and, after an afternoon of ‘sweating it out’, we got the phone call that their offer had been accepted.  Just a few months later the word came out that Dell would be laying off employees and so began the past downturn in the Austin market. 

Six years later we are still here.  Jester actually did fairly well over the past few years and is a high demand area.  Austin made it through the down cycle and came back out and now we are at the beginning of our growth period.   And, at least for the next few years, the boom starts here.

.......................................

Here is an interesting report on the subject of market performance from First American if you would like to read more on real estate cycles of different market.

Bad news travels fast.  We've all heard it time and again.  So when many of the recent real estate questions I field are related to the housing bust, I know exactly why I'm receiving them.

For the past few years, as the markets in many areas heated up, became sketchy, and then 'popped', resulting in declines in value.  Much of the media is coastally driven - meaning much of our national news comes from people with either an East Coast or West Coast perspective.  I heard and read many stories during the first part of this decade about how 'hot' the real estate market was and the double digit gains many of the major markets were experiencing.  All the while, Austin's real estate market was languishing behind a virtually flat growth trend line from Fall of 2000 to Fall of 2004.  Four years of nada.

More and more there are news stories discussing the slowdown in the real estate market, and the downturn that is actually occuring in many of the markets.  Many people will probably think of 2006 as the year the downturn began.  In all truth the slowdown in many markets began in 2004, according to the Standard & Poor's/Case-Shiller Composite Home Price Index, a housing benchmark that follows 10 major markets.  These markets are San Francisco, Los Angeles, San Diego, Las Vegas, Denver, Chicago, Boston, New York, Washington DC and Miami.

Fall of 2004 is also where I would put the 'bottom' of the last down cycle for Austin's real estate market.

Information released yesterday by the Office of Federal Housing Enterprise Oversight shows that prices declined in 61 of the 275 cities tracked.  Taking it from a local perspective, Austin ranked 123rd with an 8.42% annual growth rate between the second quarters of 2005 and 2006.  Many people might look at that and say, 'well, that's almost right in the middle, whoop-dee-doo'.  Understand that from the first quarters of 2004 to 2005 Austin ranked 7 places away from dead last in the results.  To go from 258th (only 265 markets were tracked at that time) to 123rd over the period of one year is pretty impressive.  When you take into account the historical perspective that Austin typically has worked in cycles of 8-10 years of 'up' and then 3-5 years of 'down', it would certainly appear that Austin is due to continue its climb up the rankings for several more years.

Just remember as you see and read these reports - all real estate is local.  As many of the markets around the country struggle and go down, many other markets will begin to thrive.  My thoughts are that the Austin real estate market should continue to do well for many more years and we will continue to see solid appreciation in Austin home prices through at least 2011.

According to Mark Nash, real estate author of 1001 Tips for Buying and Selling a Home, the 10 best cities for real estate (both for investors and home buyers) are:

• Atlanta, Georgia
• Austin, Texas
• Boise, Idaho
• Dallas, Texas
• Houston, Texas
• Las Vegas, Nevada
• Phoenix, Nevada
• San Antonio, Texas
• Seattle, Washington
• Milwaukee, Wisconsin

If you would like to read more on it and his reasonings, you can find it here

I actually believe it seems like a fairly solid list based on what I've been reading as well.  I don't think it's any coincidence that the only city on a coast is Seattle.  That's not a knock on those coastal cities, it's just that after the run-up those cities have experienced over the past few years its only natural to expect a leveling off and cooling period. 

Also not surprising is that Texas landed 4 cities on that list and that Austin is one of those cities.  Being an expert in Austin real estate and the Austin real estate cycle, I did expect Austin to make the list.  While Austin's cycle does run independent from the rest of Texas, as has been shown over the past few years (and particularly evident during Austin's 'down' cycle from 2000-2004), there still is some degree of similarity across the state as to buyer demands. 

Of course, if I had to choose a city in Texas, I think Austin wins hands down, both for quality of life and appreciation potential.  Austin stands unique from those cities and although growth has changed some of the city's characteristics, the desire to keep austin weird still prevails.  Additionally, while the national 50 year growth trend line for real estate averages an 4.8% annual appreciation, Austin's average appreciation over the past 30 years is approximately two percent higher than that.

I fully expect for the next few years to see lists similar to this one, with the majority of the cities resting in the middle parts of the country.  Eventually attention will turn away and back to the coasts, but that is the nature of any cycle, almost like a wave that runs across the country.  For those ready to catch the wave, surf's up in Austin.