FSBO Mentality

"What Have I Got to Lose?"*

It could just be my imagination, but it sure seems like there's an uptick in FSBO ("For Sale by Owner") activity recently.

At least through my Realtor eyes, it seems like that happens at market extremes.

When the market is overheated and everything seems to be selling in a day, more would-be Sellers figure that there's nothing to it, and throw their hat in the ring (so to speak).

When the market is slow (like now), and even properties that are professionally represented can take a long time to sell, the same people figure, "What the Hell, what have I got to lose?"

*The answer to "what have I got to lose?"

About 15%.

That's how much less the average FSBO home sells for compared to a home listed with a Realtor.

Real Estate's "Quiet Period" (You Hope)

"No News is Good News"

In an initial public offering ("IPO"), the interval between when a company files its paperwork with the SEC and the SEC approves it, is known as a "quiet period."

What's the equivalent in residential real estate?

The interval between when the lender's appraiser submits their report, and the lender completes their underwriting process (typically evidenced by something called a "written statement").

Domino Effect

No news on this front is decidedly good news; a phone call from the lender to the Buyer's agent regarding the appraisal can only mean one thing: the appraiser is having trouble establishing the home's value.

That means that the lender doesn't have sufficient collateral, which can cause it to reject the Buyer's loan, which can cause the Buyer's Financing Contingency to fail (alternatively, the parties can renegotiate the purchase price).

As I said, no news is good news!

Time to Get Off the Stimulus/Incentives Roller Coaster?

"Deja Vu All Over Again?"*

The number of buyers who signed contracts to purchase homes dropped in May to the lowest level on record, a sign the housing recovery can’t survive without government incentives.

The National Association of Realtors said Thursday that its seasonally adjusted index of sales agreements for previously occupied homes tumbled 30 percent in May. The index fell to 77.6 in May from 110.9 in April. May’s reading was the lowest dating back to 2001.

--"U.S. Pending Home Sales Fell to a New Low in May"; The New York Times (7/1/2010)

The above is hardly a shock to any Realtor doing business the last two months; showings, Pending sales, and virtually all other real estate activity are down markedly since the last batch of tax credits expired April 30.

So now what?

Diminishing Returns

Personally, I think it's time to change course.

Instead of another batch of incentives, which create another burst of buying (although less than last time, which in turn was less than the time before), how about doing what should have been done two years ago:

--Reform Wall Street, and specifically dismantle the mega-banks that are too big to fail.
--Charge Wall Street's leadership with the criminal activity it clearly committed, and put a couple dozen people in prison (while we're at it, confiscate their ill-gotten gains, and apply it to the exploding deficit that the bailouts exacerbated).
--Strip corporations of their status as "legal persons," which a supine Supreme Court has (incredibly) conferred upon them, and which allows for -- amongst other things -- unlimited campaign contributions.

That's what previous generations would have done -- and in fact, did -- when confronted with unbridled greed and systemic corruption.

Do all that, and just watch what happens to consumer confidence, people's faith in the system generally, and their sense that someone guarding their interests is really in charge.

Do all that . . . and home sales will take care of themselves . . .

*Courtesy of Yogi Berra

Why Gold is Making Record Highs

The Link Between 0% Interest Rates, Spiking Gold

When "risk-free" cash keeps paying a guaranteed loss, then a growing number of people will, in due course, start seeking shelter elsewhere.

--"What The Economist Doesn't Know About Gold"; Seeking Alpha (6/29/2010)

The above quote is from the best piece I've seen yet explaining why gold is setting record highs.

The executive summary?

When cash can be deployed profitably -- think, bonds, CD's, stocks, anything -- the opportunity cost of holding gold is high.

However, when holding cash yields .0001% -- thanks, Federal Reserve -- the opportunity cost of holding gold disappears.

In fact, after taking account of inflation, the cost of holding cash is actually negative (and has been, for much of the last decade).

Make it painful to hold cash . . . and people won't.

Gold has emerged as the alternative for an increasing number of savers (not to mention various Central Banks).

P.S.: the best definition of opportunity cost I know is an anecdote about Cornelius Vanderbilt and real estate investing.

In the early 19th century, Vanderbilt bought a plot of land on Wall Street for $4,000, then re-sold it two years later for $8,000. His perplexed Buyer asked him (after the closing) why he sold a piece of land sure to continue appreciating.

Vanderbilt replied that, in another two years, the Wall Street land was likely to be worth $16,000.

Meanwhile, the 100 lots that he had just purchased in Greenwich Village (north of Wall Street, and then raw land) with his Wall Street proceeds for $80 apiece were then likely to be worth $80,000.

And he was right!