Baron Briefs

The housing boom has been wildly profitable for those involved in the real estate sales transaction–builders, lenders, title companies, and agents. If profits appear too big, however, the phrase “price gouging” is soon to follow. But investment advisor Jeffrey R. Scharf says the conspiracy doesn’t end there:

Finally, let’s not forget home sellers. These folks are worse than OPEC, the Organization of Petroleum Exporting Countries. They deliberately manipulate the market by pulling their listings and otherwise refusing to sell when prices are low.

Sellers as profiteers and market manipulators? Surely, you jest.

…price gouging in real estate [Santa Cruz Sentinel]

While considering a slowing real estate market and the effect it has on the number of listings held by brokers, The New York Times explains why real estate listings are so highly coveted:

The listing broker is the gatekeeper for the property, able to control viewings and, more important, get a cut of the commission even if another broker brings in the buyer. A listing has marketing and promotional benefits too. The name of the listing broker goes in the ad or on the Web site with the property, meaning potential buyers will start phoning and clicking, making contact with that broker.

Consumers rarely consider the hidden value of a broker’s sign in their front yard. Every time an inquiry is made on the house, the potential buyer will eventually need a listing broker or agent to sell their own home. Additionally, the broker’s yard sign may influence your neighbors when it comes time for them to find a listing broker or agent. That’s a lot of business generated for your broker or agent at an unbeatable price–free!

So Few Properties, So Many Brokers [NY Times]

The Pending Home Sales Index, based on contracts signed in August, rose 3.2% to 129.5 and beat the previous all-time record of 128.1 set in October 2004. The index was 4.7% higher than a year ago. NAR’s Chief Economist, David Lereah:

“Home sales remain at remarkable levels, but there is ambiguity regarding pending home sales in parts of the South since many transactions in the disaster zone will be postponed. It’s unclear how much of that disruption may be offset by spiking sales in surrounding areas,” he said. “Even so, national sales should stay close to record levels over the next two months and housing will continue to support the economy.”

This, frankly, leaves us scratching our heads. Media reports are screaming ’slowdown’, but the data indicates otherwise. Is this the case of overly eager reporters calling a market top based on anecdotal evidence or did fence-sitting buyers finally capitulate in August?

Pending Home Sales Index Hits Record [NAR]

Don’t look now, but a slowdown is upon us. The New York Times is reporting falling prices in “almost every hot housing market in the country”. Five reasons the Times gives as proof of a slowdown:

1. In Manhattan, the average sales price fell almost 13 percent in the third quarter from the second quarter.
2. Executives at big home builders have sold almost $1 billion worth of company stock this year.
3. Outside Washington, in Fairfax County, Va., the number of homes on the market in August rose nearly 50 percent from August 2004.
4. In the Boston suburb of Brookline, Mass., where many three-bedroom houses cost $1 million or more, the inventory of homes for sale has increased in just the last few weeks.
5. For-sale listings have also swelled throughout California, according to the California Association of Realtors. In the San Francisco Bay area, they have increased 16 percent in the last year.

The Fed chairman’s comments last week about “sizable equity cushion” now appear calming rather than favorable as we first thought. Silly us.

Slowing Seen in Hot Markets [NY Times]

“The vast majority of homeowners have a sizable equity cushion with which to absorb a potential decline in house prices” — Alan Greenspan

Wow…record sales and favorable Greenspan comments in one day? All is right in the world of real estate.

Greenspan sees house price cushion [Reuters]

After declining in July and left to smolder, Existing-home sales again caught fire in August. The National Association of REALTORS® reported sales increased 2% in August to a seasonally adjusted annual rate of 7.29 million…up from 7.15 million in July:

David Lereah, NAR’s chief economist, said the fundamental factors for housing remain positive. “With a general background of growing population and favorable affordability conditions, home sales are staying at very healthy levels,” he said. “Housing inventory improved in August but remains tight, and we have some way to go before we get into a range of balance between home buyers and sellers. As a result, we’ll continue to see above-normal home price appreciation for the foreseeable future.”

Existing-Home Sales Rise [NAR]

Last week’s New York Times’ article suggesting you dump your real estate agent referred to the best-seller Freakonomics and its conclusion that agents have an incentive to sell your home quick and cheap because a few extra dollars won’t mean squat to them. One way to dissuade brokers and agents from shortchanging sellers, Brooklyn-based Brownstoner suggests, is to overhaul the sales commission:

…create a sliding commission scale (with quite a steep rate slope) based on how close they come to achieving that price. This would encourage brokers not to throw out inflated numbers in hopes of winning a listing–and would align their interests better with the seller.

Don’t miss the discussion that follows and see how the industry standard 6% magically transforms into 7% before your very eyes. Looks as if brokers are sliding the sales commission already, B’Stoner.

Brokers’ Misalignment of Interest [Brownstoner]

A new study from researchers at Columbia University and the University of Pennsylvania’s Wharton School does not include San Francisco on its list of overvalued markets:

The recent, rapid price increases stem not from a speculative frenzy but from basic economic factors, including low interest rates, strong income growth and abnormally low prices in the mid-1990s, said researchers at Columbia University and the University of Pennsylvania’s Wharton School.

In fact, (the researchers) found that the annual cost of owning a home relative to renting in San Francisco and other expensive cities — including Boston, Los Angeles and New York — is lower than it was in the late 1980s, just before the last major downturn in housing prices. The ratio of housing costs to income is also more favorable than at other times during the past 24 years in these cities, the survey said.

Bubble won’t burst [SF Chronicle]

First, the Justice Department drops an anti-trust lawsuit at their front door and, now, The New York Times prints a how-to on cutting real estate agents out of the picture:

Anyone who wants to know how to outfox (Realtors) first has to understand where they derive their power: information. They know the market - or presume to know it - and help set the price of your house. They serve as the go-between and, again presumably, know how far you can push the other side.

Property Grunt, a New York broker and blogger, concurs saying this trend will “become the norm” in Manhattan. Hey, he’s a soldier in the trenches of the Manhattan real estate war and we support the troops–so we won’t dispute his view. But we can’t help but consider what selling a home might be like once hot markets turn chilly. Won’t that be a time when Realtors are needed most? Yes, we know…every Realtor makes the same argument. But we have to agree until the market does turn ugly and we see otherwise.

The 6% Solution: Skip Real Estate Agents [NY Times via Curbed]

Looks like Americans have more than a housing bubble keeping them awake at night. In fact, a housing meltdown comes in last although some would argue that economic collapse and the demise of the real estate market go hand and hand. Incidentally, dying young tied for 3rd and would appear to be much more than a money problem.

What’s your biggest money fear? [CNN/Money]