There they go again.
It's not only ironic but instructive that on the same day I posted what I like to think of as a nuanced and thoughtful insider's look at the San Mateo County real estate market, another article on much the same topic, written by someone ostensibly qualified to comment on San Mateo County real estate, for an ostensible San Mateo County newspaper, quoting someone ostensibly qualified to comment on San Mateo County real estate, was also posted—and that the article could best be summed up in these four eensy-teensy words:
"We're all gonna DIE!"
I exaggerate, but not by much.
The gist of the article can be derived from its headline: Home prices plunge, sales still slow.
No, let me rephrase that:
Home prices plunge, sales still slow.
Just in case you missed the dire import.
As last week's article showed, I'm not one to claim that the overall San Mateo County real estate market is hale and hearty. In fact, I've been predicting since 2005 that the market would have to cool, and soon. The fact that real estate is still as strong as it is, in most of the areas in which I work, never ceases to amaze me. On the other hand, my article also showed that it would be completely wrong to state, as San Mateo County Times staff writer Barbara Hernandez did in her April 17, 2008 article, that the entire Bay Area including, by implication, San Mateo County, has plunged into a real estate abyss.
How can one ostensible real estate expert, writing for an ostensible local newspaper, quoting another ostensible real estate expert, get it so wrong?
There they go again. It's the mass media's classic—and apparently only—recipe for real estate reporting, and it's finger-lickin' good if all you want on your plate is a good scare. But if for some unfathomable reason you want, not journalism's version of junk food, but a wholesome serving of balanced analysis, then dump this reporting down the sink and hope it doesn't break the disposer.
What's the secret recipe? Start with the up-to-date real estate reporter's favorite substitute for old-fashioned shoe leather, the quote from a handy press release, in this case from another 21st century mass media favorite, real estate information aggregator DataQuick. Well, gosh, what else would I expect a real estate reporter and ostensible real estate expert to do? Actually talk to the people in the front lines of the marketplace, real estate agents? No, they'd just lie (but maybe not; I've found that agents, emotional creatures that they are, are far more pessimistic about real estate in a down market, at least when talking to people they know, than anyone except bubbleheads, emotional creatures that they are). Would I expect a real estate reporter and ostensible real estate expert to get up from her computer and actually go to open houses in a variety of neighborhoods and price ranges and talk to whoever walks through the door? Gee, that's so 1999. Do reporters still have to do that?
No, I'd expect them to just call another ostensible real estate expert who's always good for a tasty quote, the kind of ostensible real estate expert who knows that tasty quotes get you that yummy free publicity. This particular ostensible expert is former academic real estate economist and freshly-baked real estate consultant, flavor of the month Christopher Thornberg. Thornberg's pithy contribution to the recipe (and, come to think of it, all Thornberg's contributions are pithy): "You can't have plummeting prices in San Joaquin and East Contra Costa counties that don't affect Western Contra Costa and Alameda counties. And you can't have plummeting prices in Alameda and Contra Costa counties that don't affect San Mateo and Marin".
Why can't you? I guess the truth of this assertion is so obvious to ostensible experts Thornberg and Hernandez that they don't feel the need to tell us why the fortunes of highly sought-after neighborhoods on the mid-Peninsula, favored by the tech elite and its well-paid camp followers, are closely bound to the fortunes of second- and third-choice neighborhoods two or three hours away in the hinterland of Brentwood and Modesto, bought by homebuyers who were often the second and third choices of the mortgage industry. "It just stands to reason". I guess that's why you go to grad school: so you can say things that just stand to reason.
Here's another Thornberg gem: "It's not only Marin and San Mateo counties having this illusion that [price declines] won't happen to them, it's also Newport Beach". I can't and won't comment on markets fifty or five hundred miles away (which distinguishes me from at least one ostensible real estate expert) but I will comment on whatever illusions the typical San Mateo County home seller may have. First of all, the idea that a typical San Mateo County home seller exists is itself an illusion, as any expert on San Mateo County real estate would know. The seller in ultra-affordable East Palo Alto who can't sell except at a 40 percent discount to what he paid two years ago is probably under fewer illusions about real estate's reality than one or two ostensible real estate experts I could name, while the seller in nearby Menlo Park's multi-million-dollar Central Menlo labors under the illusion that his home's value is stable because buyers continue to support that "illusion" with their checkbooks.
Here's another pearl: "Unfortunately, that area [the coastal Bay Area] has been most resistant to the idea that their values may drop". Huh? Hard-hit East Palo Alto is just as coastal Bay Area as Central Menlo Park. So is North Sunnyvale, Northside Santa Clara, Central and East San Jose and all the other local real estate markets where home prices have dropped like a rock. Now, I won't dispute that sellers can be in denial, but it's ludicrous to suggest that prices are holding in many coastal markets simply because sellers have their heads in the sand. For prices to hold, sellers need cooperation from, uh...who's the other party in the real estate transaction? Agents? Yes, agents who magically leverage prices up and up and...no, no, not them. Buyers? Yes, buyers! So maybe sellers in high-demand coastal markets should just say to buyers, "Look, I know you'd like to give me full price and more for my home, but someone's got to face reality and it looks like it's going to have to be me. So here's a forty percent discount. No, really. I insist."
In another article, I offer a number of reasons why what happens in the entry-level neighborhoods of eastern Contra Costa County or, closer to home, East Palo Alto, doesn't absolutely positively have to affect what happens in the middle-class and top-end neighborhoods of San Mateo County. These reasons focus on the affluent and discriminating homebuyer called the "move-up buyer", the buyer not directly affected by plunging prices in entry-level neighborhoods because they're unlikely to cross-shop those neighborhoods, the buyer who holds out for the mid-Peninsula's more expensive neighborhoods:
In other words, the move-up buyer is a completely different animal than the entry-level buyer, operating in a different financial environment and with a completely different shopping list. Or, to be more accurate, the move-up and entry-level buyer each have much the same list but, in this area, the move-up buyer can afford what's on that list and the entry-level buyer can't.
In addition to the above I'd like to submit a few more reasons for your consideration.
It certainly "stands to reason" that if homeowners in entry-level neighborhoods can't sell their homes, they can't be buyers of homes in the next price range up, and so on and so on up the range. But this bit of common wisdom has potential flaws, as common wisdom invariably does.
First, it isn't the owners of $600k homes, which in San Mateo County aren't selling these days except at steep discounts, who move up to $1.5M or $2M homes. They move up to $900k homes, which aren't exactly selling like hotcakes either, but are selling more quickly and at smaller discounts than $600k homes. Which may explain why the move-up homes of the $900k homeowners, $1.2M homes, still sell at little or no discount. And so on and so on up the range.
The other reason $1.2M properties still sell on the mid-Peninsula is that here the $1.2M home is pretty much the bare minimum the average middle-class buyer will accept. $1.2M will, depending on the city, get you three bedrooms and two baths in a good location in a neighborhood widely perceived as offering safety, great schools, good shopping and other amenities. Get much below this price and you start giving up things that many buyers here aren't willing to give up.
By itself, this wouldn't be enough to prop up home prices. It hasn't been in the past. But there's a large segment of homebuyers for the plus-or-minus-$1.2M market who are completely unaffected by whatever calamities befall the Brentwood and Modesto housing markets. This segment has two parts.
One is first-time buyers who, by definition, aren't constrained by what's happening further down the real estate food chain because they don't own a $600k or $900k house they have to sell before they buy. Do first-time buyers really buy million-dollar-plus properties? In this area of high home prices and high wages, it's not uncommon. I continually run across first-time buyers, often young professionals, who sat out the recent run-up because they absolutely positively knew prices would go down. But they haven't, at least not in neighborhoods they want, and life has a way of moving on, at least for people going places, and now these buyers need to get on with their lives, and now they're back in the market.
The second group is homeowners moving into this area. Yes, they may well be affected by slowdowns in neighborhoods back home. But apparently it's not uncommon for transferees to have this detail ironed out in their relocation package. Or be well-heeled enough to ride out the downturn.
Again, I'm not denying that prices may fall in the mid-Peninsula's most sought-after neighborhoods. What I am denying is that the real estate market, like any market, is as simple and monolithic as ostensible experts would like it to be—or need it to be, to make a career following it from the sidelines. Middle-class neighborhoods in this area have certainly seen hard times, most recently during the dot-bust of 2001, but that downturn may give us some insight into the possible outcome of this market. As dot-com collapsed, middle-class neighborhoods lost 10 to 15 percent in value, but it was dot-com money that had pumped up these neighborhoods in the first place. Blue-collar neighborhoods also gained in value during dot-com, but not nearly as dramatically, and during the bust home prices in these neighborhoods actually continued to climb, albeit slowly. Substitute "subprime lending" for "dot-com money" and "blue-collar" for "middle class" and you can see how a temporary stimulus, applied to one marketplace and then abruptly withdrawn, can disrupt that marketplace but not necessarily others in the same area but in different price ranges.
Early in this article I described both a real estate reporter and the economist she quotes as "ostensible experts" on San Mateo County real estate. Why?
To contact Barbara Hernandez you either call her at her 925 area code phone number, or you reach her at her blog, Property Lines, "a look at East Bay real estate". But San Mateo County is in the 650 area code, and it's on the San Francisco Peninsula, not in the East Bay. I've lived in both and will insist that there's a difference, in location and much else. Economist Thornberg is described as "founder and principal of Los Angeles- and San Rafael-based Beacon Economics". Los Angeles, as you may know, is in Southern California, while San Mateo County has since 1856 been located in Northern California. Yes, San Rafael is also located in Northern California, but it's in Marin County, which is not San Mateo County.
So what's the big deal? Real estate is just real estate, right?
If I as a real estate agent either say or imply that I'm an authority on San Mateo County real estate, yet my phone number has a 925 prefix, and my blog has an East Bay focus, how much credibility do you think I'll have with San Mateo County buyers and sellers? And if I as a real estate agent hold myself out as an expert on all Bay Area real estate (an impossibility in an area this diverse) including San Mateo County, yet I work out of Los Angeles and Marin County, again, how much credibility do you think I'll have with San Mateo County buyers and sellers?
Zip. Zilch.
But put me in the San Mateo County Times, "San Mateo County's hometown newspaper", and I'm a leading authority on San Mateo County real estate. But you know what's weird? If you want to reach "San Mateo County's hometown newspaper", you don't call a San Mateo County 650 number. You call an East Bay 925 number.
Apparently in this age of globalization the word "hometown" has become elastic and inclusive. In today's global village your hometown is my hometown is anyone's hometown is everyone's hometown. Now local knowledge doesn't matter, becomes quaint and parochial, is less than nothing.
Except that when homes stop selling in one San Mateo County neighborhood while continuing to sell briskly in another five minutes away, maybe local knowledge does matter.
Could first-hand experience with San Mateo County real estate—helping San Mateo County buyers buy, helping San Mateo County sellers sell—still matter? Could genuine insight into San Mateo County real estate still come only from marketplace experience? Could San Mateo County real estate still be local, right down to the neighborhood level?
Can't anyone be a San Mateo County real estate expert from five or fifty or five-hundred miles away? Just because they hang out a shingle that says they are?
No? Then call it an inconvenient truth, inconvenient for ostensible experts.