What Locals Know About Real Estate--and what the Big Guys could learn (but won't)
by Daniel Patrick Welch | February 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 human impact 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 calls 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 exhorted 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
http://danielpwelch.com.
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 and run workshops and seminars on music and history. Translations
of articles are available in up to 30 languages. Links to the website are
appreciated at http://danielpwelch.com.
