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What Locals Know About Real Estate--
and what the Big Guys could learn (but won't)

2/11/2010

The natives are getting restless. The phrase conjures ugly images from colonial days in Africa and South Asia, where the wisdom of the ruling elite doesn't seem to be commanding the compliance necessary to keep the machinery of empire running smoothly. But its implications and use over the decades reveals a much broader cynicism about the way power works. We are always supposed to listen: to our elders, to experts in suits, to officials in power, to the pundits in the media. It is not for nothing that whenever hearings are scheduled on the latest giveaway to corporation X, the imposing table at the front of the room is always crowded with consultants, vice presidents of one stripe or another, and the guy with the gavel (the Sergeant-at-Arms stands by the door, ready to throw out the rowdies).

In good times, the system works to the advantage of those in power. Generally, The People meekly take their place in the hierarchy, assuming that those in power know better, or know something they don't, or...well...something. Intellectuals fancy themselves something apart from the rabble in this regard, thinking that, since they went to college, they must belong at the head table--that is, until reality hits home and they are cast aside just like any other schmuck. Calvin Trillin once mused about this transformation while watching what he called The Gasbags pontificate on Clinton's impeachment. Turning to his wife, he said, 'this is crap--I wonder what the American People think?' Then a thought struck him: "Wait a minute--we arethe American People!"

Is a misspelling or a fact gone awry in some local fishwrapper somehow fundamentally different than in the New York Times? Of course not. The only difference is that the screwups further up the food chain don't just get the name of the local ping pong champion wrong--they let some jackass pass off made up crap as his own reporting for years...or they let some egomaniac fudge reports on weapons of mass destruction until it drives the nation to war. Bigger is better--if by better you mean more psychotic and homicidal, I guess.

No, the folks at the top don't have anything on the rest of us. Not really. And in bad times people are more inclined to pull back the curtain on the little old man and his whole sorry Oz charade. People know things--they really do--and nowhere is this more apparent than in the much talked about housing crash and so-called recovery.

Real esate is intensely local. Every transaction is about someone making a single enormous purchase, over which they have fretted and futzed for months, perhaps years. Because when you think about it, a house is just a huge thing that people buy. Experts pretend that there is something different and magical about housing, but people won't buy a car or a house or a hair dryer--or even a damn loaf of bread in this economy--without thinking a hell of a lot about it first. 

What I find fascinating on examination is just how much locals know about the local market, and about houses they may--but probably won't--be buying in the near future. Of course there are the stats. Realtors love to hate Zillow--ostensibly because they don't trust the values that Zillow offers. But ordinary people don't really use it for that; and it is this access to research that is helping savvy buyers to drag their feet in a down market. 

Other pundits like to use indicators to convince people that things are getting better. Locals aren't having any of that. Even broad compilations (like Zillow) are just beginning to see that housing prices might not have hit bottom, as 29 major markets are once again on the downward move. But it's not a new revelation to anyone with friends, a computer and a few hours of free time. 

What is astonishing is the level of common knowledge and research shared among potential buyers that would have been unheard of even a few years ago. Again, broad trends are apparent through statistics: the local sale to list ratio--the median sale price divided by the median list price--has slipped below 90%. Average local saless are grinding down toward 90% of assessed value, even with local authorities forced to drastically lower valuations for the current fiscal year. But even this doesn't tell the full picture. Conversations and travels around town reveal a much deeper knowledge that makes even the grim stats look optimistic. Joe the Buyer knows which houses have lowered their asking price, when and by how much; how long the house has been listed, when and why it may have been removed from the market; which houses are being foreclosed on, despite the realtor's story about the young family who has to sell fast because they already bought a bigger house (hint: nobody is upgrading). 

The level of detail such conversations produce and even reduce to shorthand is simply amazing. "Did you see that Valley went for 298?" "Yeah, we looked at that, but that driveway goes straight down into traffic." "Well Charles is down another 10 grand." "I know--I might take another look at that when it gets to 240." "Savoy got an offer of 310," and on and on it goes. Locals rattle off the houses that have been relisted, bought back by the bank, and bought by people in way over their heads. 

The point about it being just another huge thing to buy is not lost on anyone doing the buying. When someone is in a hurry, friends can quickly point out that they needn't worry about losing a house. This happened to friends of mine. They didn't listen, for various reasons, and wound up buying the house anyway. Two weeks later, a very similar house was listed down the street for 10,000 less than they wound up paying. Still, even their reported sales price covered the fact that the seller paid closing costs. All these white lies and statistical sleights-of-hand are instantly known and gobbled up by an increasingly savvy public no longer willing to be suckered by those who "know better."

One can even walk into a local grocery store and overhear chatter--and actually recognize the property being talked about, without it ever being identified. "The basement is like four feet from high tide! What the hell were they thinking? They rejected our offer, and now they tried to sell it for 695 and had to take it off the market." I make a mental note that they must be talking about such-and-such house. I know very well that it was "sold" in may for 695 and was put back on the market for the same amount a month later to no avail.... I just didn't know how many other people knew. 

Everyone knows that the sudden movement (accompanied by a drop in prices, for anyone paying attention) in November was purely because the $8,000 tax credit was about to run out. It didn't, but those sales were already in the pipeline. And then the bottom fell out--I mean, we are just starting to hear about it, but those paying close attention knew. December unemployment numbers, when read correctly, are the worst since the depression began. By amazing coincidence, consumer demand fell. And the simple truth is really no secret: an increase in aggregate demand is the only thing that can turn the inventories replenished by hopeful factories into sales. And houses being the biggest one thing that people buy, they're not going to do it. Certainly not until April 30, when the tax credit is going to run out again.

Inventories have been falsely hidden (from a TV audience, maybe, but not from Joe the Buyer). On a recent weekend, a cursory search revealed that, of 20 listings just come online, no fewer than sixteen were foreclosures. No one has any incentive to act before April. But--and this is the but that should scare the shit out of policymakers--there is a deeper realization, which is easily seen in talking to any local buyer. People are unimpressed by the credit: they realize that any house on the market will magically be worth $8,000 less on May 1. What's another six months living with the in-laws?

In our tiny community of 25 families or so, we seem to have one of everything: an eviction, a couple pending foreclosures, a couple recent layoffs, a few long term layoffs, a short sale, several unemployed self-employed, a few upside down mortgages...in short, the grab bag of the results behind the stats. No one is fooled by assurances that things are getting better. No one takes seriously the government's use of the narrowest unemployment figures (the broader and more realistic U6 is up around 18%, still not counting the uncounted.) To be sure, there is a caste of sellers swayed by the Talking Heads (some of us coined the phrase Idiot Bubble) into trying to push outrageously overvalued homes onto market. One such local fool brought the price down by $25,000 within two weeks of listing. The local picture reveals the disconnect between the rulers and the ruled, and call to mind Randy Newman's old line from his song about the 1927 Louisiana Flood: "Mr. President, have pity on the wooooorking man." British economics writer Ambrose Evans-Pritchard recently extolled those in charge to throw out the textbooks, pronouncing weightily that "the stock market has become a lagging indicator." Microcosm is macrocosm, and no one is buying.

© 2010 Daniel Patrick Welch. Reprint permission granted with credit and link to danielpwelch.com.

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Writer, singer, linguist and activist Daniel Patrick Welch lives and writes in Salem, Massachusetts, with his wife, Julia Nambalirwa-Lugudde. Together they run The Greenhouse School.. Translations of articles are available in over two dozen languages. Links to the website are appreciated.