This post is a further continuation of the “Saga of Sonnypage”, an Atlanta area real estate broker who posts on my investment board the Motley FOOL.

Previous Sonnypage highlights include:

Lights Out in Georgia on 2006-07-27
Soft Market Debris …. on 2006-08-02
Is the Fed irrelevant? on 2006-08-03
“Scared in Atlanta” ….on 2006-08-06

Sonnypage has this update to share, about “Procrastination”.

Sonypage – 2006-08-21

All of the regulars here know by now that my wife and I are Realtors; a husband and wife team who live and practice real estate north of Atlanta. We have been doing this for almost fourteen years now, but this spring and summer have definitely been the most challenging market we have ever experienced.

Previously I mentioned my third rule of real estate: “In a soft market, marginal listings become flotsam and debris.” Mish asked me for some other Sonnypage rules. With that I introduce Sonnypage’s first rule of real estate: Buyers only buy, and sellers only sell, when procrastination no longer works for them, never before.

That, in a nutshell, explains the mess real estate is in and what it will finally take to get us out of it. Here is what I mean. Margie was a buyer of ours at least ten years ago. My wife and I had been in real estate only a very few years. Margie was maybe in her late 30’s, single, a mid level executive with her company that was moving her from Houston to Atlanta. Her company provided her with a paid for corporate apartment until she could find a home. So look we did, usually one day every weekend, plus occasionally maybe a house or two after work if something new came up. Margie’s favorite expression was that she “didn’t want to have to settle”. I remember one particularly awful winter night, totally dark, showing Margie a house in the rain. We could see nothing of the outside because it was dark, but there we were inside, with her finding something wrong here, something else there. Easily, over six months, we saw well over 100 houses, and that, thankfully, is a record we hope never to break. But you see, Margie did not have to buy. Her apartment was paid for, she had time on her hands, and her hope, belief perhaps, was that the very next house she saw just might be better, or less expensive, or both. My wife and I were at our wits end. By now we had so much time invested in Margie that we could not bear to write her off. What to do?

One cold January Saturday morning I picked Margie up at her apartment. She had some news for me that she really was not all that happy about. It seems that her company was pulling the plug on her corporate apartment effective the last day of February. They would need it for some other transferee. After that, she would be paying for either an apartment or a house. Quite suddenly Margie became very focused on her house hunting. We quickly found a home she miraculously thought was great, went under contract and, you guessed it, closed on February 25th. She used that last weekend to move and handed the keys to the apartment back to her employer on the last day of the month. We have seen similar situations time and again. Perhaps a seller who turns down a perfectly good offer in March, but accepts a lower offer in June because they are suddenly desperate to get their kids into the next home in time for the start of school. Buyers only buy, and sellers only sell, when procrastination no longer works for them, never before.

This brings us to today’s real estate market. The print and broadcast media are both full of stories about the real estate slump. You can’t get away from it. Over the past few years, most buyers were in a hurry to buy before prices only went higher. But today, the fear is that prices will only go lower. Buyers are waiting. Unlike Margie, they are not about to be kicked out of a corporate apartment. What it will take, I believe, is the perception that the price declines are over. Will that happen only after prices have declined further? I do not know. But I do believe that before the market can return to “normal” activity, prices must stabilize for a period of months. When I say “normal” activity, I mean a balance between buyers and sellers. That will only happen when buyers once again don’t think they will lose money as soon as they buy. Most activity takes place in the spring/summer market and that is done for this year. The best we can hope for is that housing will calm down and we can get back to normal next spring. It is absolutely imperative that the Fed makes no further interest rate hikes for that to happen. We will all just need to wait to see, but again, I see no chance of improvement before the spring, if then. Make no mistake. I am not making any predictions about this. I am watching this all unfold along with the rest of you.

We put a buyer under contract July 25th who closed August 16th, very quick. Another large closing coming up August 31st, this will be a new construction buyer we booked last fall. I count them in the year they close so that is this years’ business. So, that will be eleven closings with nothing left pending. Still a little time but the year is winding down. We have eight listings but only three or four might sell in my opinion. This compares with twenty six deals last year and forty four in 2000, which was our best ever year. The feedback we get from other agents with our company and friends in other companies is the same; the market is dead. We are not seeing crashing prices here but rather just nothing happening. This will be the first year in a very long time when we have not “made a living” in real estate. We are still easily in the top 20% of Realtors in this market, possibly still the top 10%. Others are obviously far worse off.



Psychology has changed. Actually I think this is only the first phase of the change. Whereas last year it was “I better buy now before prices go up even more” or “Man this is easy money flipping”, to some sort of caution flag. That caution no doubt centers around carry costs. It is getting damn expensive to be holding declining assets with month after month of rising costs. Still, prices have been somewhat stubborn except for homebuilders who are massively discounting.

I get the feeling the masses still seem to think they can wait this out. That idea leads to procrastination on behalf of buyers and sellers. I have no doubt who blinks first (sellers) but in the meantime Alligators Are Snapping especially for condos, but it is now rapidly spreading to housing.

“Catbert” on Dallas:

“Catbert” wrote an interesting “It is different this time” post on my board on the Motley Fool this past weekend.


It really is different this time. I posted that the local newspaper headlines stated that 3,800 homes in the Dallas/Fort Worth Metroplex were posted for foreclosure. Compare that to the average of 2,000 in 1989 when real estate values took a major decline. I was stunned at that number. Maybe it is an anomaly. So the next day the Texas job numbers came out. While we have clearly had a slowdown in the number of jobs created in Texas, it is most definitely positive. In the 1980’s it fell as a lot of people moved out of state seeking employment.

So my point is if 3,800 homes are posted for foreclosure in a time of economic growth and postive job growth, what the heck is going to happen when net jobs are flat or turn negative? Many national publications call DFW a healthy housing market because we did not have the huge runup in housing prices the coasts had (here is about $87/foot). But in the paper today was an ad for a free pool or $25,000 in accessories for your home.

The reason they gave for the increased foreclosures was also disturbing, “poor financial planning and rising living expenses”. Ominous signs and it is going to get worse. We are having the 9th hottest summer in history so far (30 plus days over 100) and we have had 2 inches of rain since April. My electric bill just arrived and it was $332 vs. last year’s of $208, with 16% of the increase due to usage, rest of it was rate.

Yes, it is different this time.

Thanks Catbert. Yes “everything is beautiful” isn’t it? The economy is booming, the administration is bragging about the unemployment rate, jobs, growth, etc etc etc. Pray tell what happens when we go from “this beautiful environment” to a recession? Bear in mind we have yet to see a huge problem in California (but we will).

Cramer was recently dismissing the idea of a turndown. I guess we will see who is right and who is not. Sonnypage who told me that a recession was “not possible” just months ago will now say that he is in one (or if not now, I believe he will say that at the end of this quarter if things continue on the same pace).

There is really nothing magical about either of Sonnypage’s Rules that he has presented. (No, this is not a slap at Sonnypage. I am thankful for his posts and his rules.) The fact remains that the masses still do not get it. The masses would be well advised to pay attention to his rules, especially those that want to sell in this environment. Many want prices they saw their neighbors get last year or six months ago or perhaps even three months ago. Sorry folks, those prices are gone.

Here is a Mish rule to consider. Whenever there has been panic buying, the market will likely not bottom until there is panic selling. We have witnessed the panic buying. Is there any doubt about that? The alternative of course is that a slump just drags on for something like forever which is what happened in Japan.

Given that prices fell in Japan for 18 years in spite of the fact that interest rates went to zero, an eight year bust should shock no one. But the odds are that if it does happen it will shock nearly everyone (and perhaps even me!).

OK, so “The US is not Japan”. I have heard all the arguments a dozen times. Yes the demographics in Japan were and still are horrid. But US consumer debt is far worse. Also there was very little land in Japan on which to build but there is plenty of land in the US relatively. Japan did not have Global wage arbitrage to worry about (during the crash) and Japan also had an internet boom to look forward to during the decline. All things considered, things look bleaker here than Japan. In the meantime, he who procrastinates longest wins.

Mike Shedlock / Mish/