The Other AB: An Interview with AgentBubble Part 2

When did you first start advising your buyers to hold off on purchases due to a real estate bubble?
It was around the last quarter of 2005. We sold our house in May of 2006 and almost waited too long. I sensed the madness couldn't keep up much longer and began cautioning buyers against buying. One memorable transaction involved a family that had to buy in a newer neighborhood regardless of my advice. They are now in pre-foreclosure and looking a short sale with a difference of about $140,000 that will be written off. About a year and a half ago a former client came to me seeking advice on buying a condo. I told her to wait and gave her some figures supporting my advice. She ended up buying through another agent (100% financing, interest only). The same condo is now $60,000 less. I have one client that calls me every month to check on the market. He also thanks me each time he calls because I was the only person that would tell him to wait on buying.


What is your outlook for the Sacramento Metro area residential real estate market?
I see declines for the rest of this year and probably all of next year. I'd like to say that things will stabilize by the end of 2008, but with the last quarter typically being slow every year, I honestly don't see things at a full stabilization until April of 2009. There's just too much inventory right now and too many upside down sellers for me to think otherwise. I've seen prices in some areas going back to early 2004, so in my opinion we will get back to early 2003 pricing before it all shakes out. Of course, this doesn't mean you'll pick up a home in East Sac for $400,000. Then again, East Sac is only about 2-3% of the market anyway, and I don't make a salary that justifies looking there, so it's a non-issue for me.

What signs should an average buyer look for to know its time to buy (market bottom)?
Make sure it's not a false bottom when you buy. In other words, just because averages and median start up for one month, that doesn't mean the market has turned the corner. A dead cat dropped from a 50 story building will bounce more than once! Personally, I plan on buying again when there's at least a two month increase in the standard statistics that are used to measure the market.

Do you think the sales and inventory statistics accurately capture what is occurring in the market?
I'd say they are pretty close. They're obviously going to be low because of the FSBOs and homes sold at the courthouse steps, but I just don't think the difference is that significant. However, one thing I do wonder about is the volume of foreclosures out there. Our MLS stats for short sales and foreclosures have gone from 1,016 total for the 4 county area in November 06 to 4,031 in July 07. That's a huge jump in such a short period of time. Nearly 1 in every 4 homes listed for sale is either a short sale or bank-owned home.

Is the current real estate business model broken, or do you think 6% commissions will continue to survive?
It's definitely in need of a change. Here's why: Before the explosion in home prices, I could expect to make about $4K or $5K per transaction on average. Then, homes went up in value, and the $100,000 home is now selling for $300,000 in about 3-4 years. Real estate agents didn't provide better service, but they still got that increase in commission since everything is based on sales price. So instead of making $3000 on a house, the agent is now making $9000. Same MLS, same level of service, same advertising (often less because homes sold in days instead of months), same everything. But MORE commission. Doesn't make sense. There's absolutely no reason for someone to pay 6% to sell their home. I've always listed a home for 1% on the listing side and 2.5% for the buying side. If I represent the buyer, it's still only 1%. If there's no listing involved, then I split my commission with a buyer when a home if found. Seems simple enough, but people feel like they have to pay more to get better service. I often tell clients the only difference between my company and the company down the street is the color of our signs.