Home Sales Heating Up: The Restaurant Theory

Two weeks ago I wrote about Home Sales heating up. As a Buyer's Agent, I was noticing a number of showings happening at the same time I was showing. I also noticed an increase in showings at my listings. The other indicator was the number of In Contract or Acceptable Offer status changes. Yet how many of you saw this reported in the news or in the papers?

There was a blip on the news a few days ago about New Home sales and I finally saw a Front Page report in a newspaper. However, that was only after I heard some guy on CNBC talking about Ground Zero for this Financial Mess being Wall Street. He made me so upset that I had to fire off an e-mail to him. Of course there was no response. Never is. They just go on TV and say what ever they feel, not backed by any data. Well I hate to tell all the Wall Street Economists, but this problem was created by Wall Street, it did not start there. In fact we started to see the problem in the Housing Market a full year before the collapse. The Wall St collapse was a direct result in a slow down of housing sales. Thats when the aptly named, House of Cards blew down. Wall St. was left holding a bag of worthless Mortgage Backed Securities they created and insurers had no financial means of paying out for all the insurance certificates they sold on these worthless mortgages.

So here we are; Spring 2009 and buyer activity is Hot. Multiple Offers are back and a record number of homes are going In Contract. Prices are not rebounding because we have almost Two Years of inventory which is still well above or record lows of 6 months back in 2004 / 2005. So does this mean we are recovering? Of Course....NOT. History will tell us that we will continue to have Blips in this recovery. It will heat up and cool down, Heat Up and Cool Down. This will happen a number of times as Buyer chip away at inventory. This is a Good Thing. Peaks and Valleys are where people get hurt, businesses get hurt, the economy gets hurt. It is much better to have a slow, steady and manageable growth than a sharp gain or drop. There is no better example of this that the restaurant industry.

A restaurant must order food and staff the facility based on a specific number of guests to serve. They need to figure out how many people will order the fish and how many will order the steak. How many people will they need to cook for all at once. What time will it be busiest and what time will it be slow. Now this restaurant is a success and day after day they manage. One day a magazine write visits the restaurant and loves it. He goes to work the next day and brags about this "unknown" restaurant that seemed to be know by most of the local people.

Without the restaurant knowing about it, the article hits the newsstands and overnight people flock to it. Now understaffed, under supplied and overworked, the once great service begins to slip as twice the number of people want to be served. An "overnight success" another writer writes as she is in amazement as to the number of people now waiting an hour to get in. Management quickly hires more staff, orders more food and for a while things are rough as there is no time to train additional staff or properly order more food so there is a big learning curve. Service slips and people stop coming.

Just as quickly as they became a hit, they become forgotten and now there is now too much food and too many staff. The management acts quickly and fires staff and stops ordering food. People talk, and word on the street is that business is bad. Hard times are falling on this restaurant. The management fight to hold on and soon all the locals that once enjoyed this little restaurant begin to return because there are no more lines and the management once again has the time to properly attend to their prized customers and life goes back to normal...

...untilt he next writer shows up to write about it.

Having worked the restaurant industry,  I saw this repeated over and over. Sometimes it would result in the restaurant going out of business and others times they were able to regroup and survive. Every restaurateur knows that Peaks and Valleys are very costly. That is where the most mistakes are made and where the restaurant is most likely to go out of business. Now some peaks and valleys can be predicted and we can accommodate for them. New Years Eve, Easter, Thanksgiving, July 4th. It is the unknown uncontrollable Peaks and Valleys that always prove to be the most challenging and the most damaging.

So back to housing. we are again seeing our Regular Customers, The Locals aka First Time Home Buyers, Empty Nester's and Expanding Families coming back into the market and buying Properly Priced Homes with  Properly Structured Mortgages. They will not need to rely on a doubling of their home value so they can cash out and keep it another 5 years. These buyers will be in a position of stability. Gone are the customers who read the magazine article of the hot new restaurant aka; Investors, they have moved onto some other scheme and in their wake, we are all picking up the pieces. The restaurant owners aka Home Sellers need to restaff, adjust their orders aka readjust their asking prices, in order to re-attract the regulars. Under New Management: (Price Reduced) New Menu (Remodeled or Staged homes) Some will loose and some will survive.

Peaks and Valleys are BAD and a nice steady incline is good. And as in any incline, there will be some flat spots and will be some dips. Unfortunately it is human nature and we will again, like we have many times before, experience and BOOM and BUST housing market. It is always best to stay away from those and keep things nice and steady in our life.

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