End of the world, or just another lousy August?

End of the world, or just another lousy August?

It seems like every other day I hear some agent complain about how spooky slow the market is lately—cue the theme from Jaws—"lately" never being precisely defined but one can, indeed, one must, assume it to mean the dog days of August.

Because August is a tough month in real estate, or at least it would be if more agents hung around long enough to feel its full effect. But the fact is, most agents are like most buyers: long gone in August, to Italy when they're flush and, these days, parking their rented RVs at a Kampgrounds Of America in Needles, Calif.

Just kidding.

A little.

Yes, the gloom is palpable, which means you could cut it with a knife. A few days ago an agent in my office came back from a power lunch with nine other mega-producers (my invitation must have gotten lost in the mail) and grumbled, "I was the only one there with anything positive to say". A few more motivating lunches like that and we'll see a rash of early retirements.

So, fer cryin' out loud, just how bad is it out there? Is it worse than usual, or just worse as usual? In the naive belief that "data don't lie", let's compare the last three Augusts in terms of these market indicators: absorption, days on market and sales.

First absorption. "Absorption" is exactly what it sounds like: the percentage of inventory absorbed by the market in any particular period, in this case, the months of August 2010, 2009 and 2008. Absorption is the absolute best indicator for telling us whether we're in a buyer's market or seller's market—in other words, whether the market is slow, fast, or in between. We'll look at the eleven local sub-markets I follow in my monthly newsletter, moving from most- to least-expensive left to right on the chart below.

What's remarkable here is that the top half of the market did about as well—or better—in August 2010 than it did in August 2009 and 2008. And if you're a mega-producer, the top half is where you sell—with one or two exceptions, you don't put up the big numbers selling $400k condos. So where's the pain? Granted, no market boomed this August, but did any of you big hitters really expect the market to sing you a rousing rendition of "Happy days are here again"? The bottom half of the local market is a mixed bag, but most of it had a far more pleasant August 2010 than August 2008, an indisputably crummy month for affordable housing. But it's also apparent that the spring tax credit robbed many entry-level markets of a good part of their summer sales.

Next, let's look at days on market (DOM), which measures how long it takes the average home to find a buyer. DOM isn't a foolproof indicator, but when homes are on the market longer than usual, it means that buyers are slow to pull the trigger, which means the news is making them more cautious.

DOM was up in over half of local markets, although significantly up in only about a quarter—and an equal number saw days on market decline from last year. Granted, we're not looking at boom-time DOMs here, but thirty to forty days to sell a home ain't bad compared to many parts of the country.

Finally, we'll look at one of the most quoted, but least reliable, market indicators: sales. Sales is only partly a function of demand; it's also a function of supply. Because if there aren't many homes on the market for sale, sales won't be setting records. On the other hand, low sales usually equals low agent morale, for an obvious reason: fewer commission checks to go around.

Not too much for the mega-producers to complain about here. Sales are down at the extreme low end, but either marginally up or only marginally down from last year at the midpoint and top end, and way up from 2008. And, again, you don't get a corner office around here by selling affordable homes.

So what's up with all the unhappiness? I'm fully prepared to admit that maybe I'm missing something, and I'm also fully prepared to admit that I don't have two full-time assistants on payroll and a massive publicity budget with one hand deep in my pocket. But any agent can see that the broker's tours are generally busy—even the Friday before Labor Day—which means lots of agents think they have buyers for homes. And anyone, agent or buyer, can see that the open houses are generally busy—even the Saturday before Labor Day—which means buyers are out there, even if they're not chomping at the bit to buy a home right now, today, this very instant. But they will buy the right home at the right price. Considering the economic news we're getting, and the bad press real estate is getting, we have a remarkably active market nowadays, even in the dog days of August.

Which brings me to the word I'm embarrassed to use in polite company, yes, the ugly "e" word: emotion. After thirteen years in real estate sales and at least three market downturns, I'm reasonably sure of two things, and only two things. First, agents are generally the last to know where the market is going. Because, by and large, agents are just as convinced as economists and the public at large that tomorrow will be like today, only more so. Which is pretty remarkable, given all the market shifts any veteran agent sees over the course of his or her career. Not to mention all the seasonal shifts he or she sees: the spring surges, the summer slowdowns, the fall comebacks, the winter freezes. The real estate market doesn't operate at full throttle twelve months a year, nor does it often grind to a complete halt.

The second pertinent conviction I have is related to the first: agents are emotional, and they run in herds. Which is to say, agents are human, despite assertions to the contrary. Most of us have seen the market under assault for two years or more, depending on where we sell. By now, it may getting old. By now, many of us may be nearing our limit for uncertainty. By now, some of us might be easily spooked.