Day Trading Real Estate

For months I have been writing about the recovery of the real estate market in Palo Alto and surrounding areas.  The recovery of the technology sector and the resulting steep jump in demand for housing triggered a wild buyers' stampede.  April’s median price for a single family home in Palo Alto hit an all-time record of $2.062M.

But the mood on the street may be changing.  While information on sold homes consistently shows the sale price significantly higher than the asking price, the number of multiple offer situations seems to be decreasing.  One of the indicators is inventory growth.  There were 81 single family homes and condos for sale in Palo Alto last week, the highest number since the week of 8/12/2011.

About 5 weeks ago, we signed a listing contract for a house here in the Valley.  At the time, the inventory level was much lower and it seemed that every house would be sold with at least a dozen offers.  The owners of the house we listed were ready to put it on the market without any preparations - no staging, no landscaping, not even a fresh coat of paint.  After all, they owned the house for more than 30 years and they still would make money on the sale.

But after showing them the homes on the market at the time, we were able to convince them that preparing house for sale will benefit them dramatically, however strong the market might be.  The owners decided to renovate the kitchen, put in new floors, paint the house and landscape the front and back yards.  Three weeks of construction work and the house was ready to be shown to the world in a newfound light.

The timing worked in such a way that we put the house on the market the day before Facebook went public.  And to the surprise of many, the Facebook IPO fizzled.  Every agent coming to the house during our Friday brokers' tour was discussing Facebook share prices and if they ever will go above the IPO level.  These conversations signaled a change in the current perception of the real estate market – it was shifting right in front of our eyes.

The weekend’s open houses were not too busy, with people coming in but not getting interested enough to start asking serious questions about the property.  It felt like the market had stalled together with Facebook shares.  The listing price we agreed on just a few days ago seemed way too high and out of reach for the abruptly changed market conditions.

On Tuesday, just five days after putting the house on the market, we received a strong offer that the owners were happy to accept.  Later the same day, we learned about the class action lawsuit that was filed against Facebook and Morgan Stanley on behalf of the shareholders who incurred losses over the first days of trading. Would this even influence the outcome of other near term transactions?

It used to be difficult to discern anything but long-term trends in real estate.  In the current fast changing and uncertain economic environment, we sometimes notice behaviors and expectations changing overnight.

While interest rates have stayed at record low levels for the last two weeks, the performance of a single company or a political crisis in Greece may trigger a buyers’ flight away from the real estate market, just like a seemingly minor news release may cause day traders to dump the company stock.

Michael Talis is co-owner of Talis Real Estate