Hold that line…..

I suppose this will irritate some agents in this area. The market has slowed to a crawl. We do have more houses, townhomes and condos for sale that at anytime most of us can remember. Prices have to come down.

I know those of you that bought in 2003, 2004 and 2005 faced a rediculous market. Many of you are living in a home that was actually your second, third, fourth or maybe more choice. Homes went on the market and if you  placed an offer, many times it would be one of many offers on that property. You sat nervously by the phone hoping you would get the call “you’ve got the house.” Only one person could receive the call, the rest of you returned to the market, hoping to get lucky. Prices were going up. If you got caught up in the groundswell, your target price began to creep up as well.

In those days, financing began to change. You could finance 100% percent of the purchase (in some cases, you could finance more than 100% and cover your closing costs too!). Interest rates bottomed out at around 4.5%. It was possible to get a lower rate on the enticing loan products being offered.

How could you lose? Prices were going up, but that meant you would move in and your home would be more valuble than when you placed the offer on it. It had to be true, your lender had the home appraised before you settled and amazingly enough… it appraised for just a bit more than your loan amount. Fancy that.

Everyone heard rumors of bubbles and froth from the then Chairman Greenspan, but things kept moving at the same frantic pace. Dozens of people at every open house and contracts being written on the hood of cars seemed to be the norm.

Then it stopped.

In the fall of 2005 pace of consumption ran smack dab into actual affordability. Prices had reached a point that put homes out of reach. All of the sudden, it did not matter what sort of fancy loan product was being offered. It cost too much to buy a home and the market came screeching to a halt.

The NAR used whatever manipulation of statistics was necessary to deny there had been any change. Major real estate firms across the country began preaching “everything is ok, it is a wonderful market”. They too denied that there was a fundamental shift in consumer behavior. After several years of riding the runaway train of unwarranted price increases, everyone got off at the same stop. It was easy to miss the mass exodus. It occured about the same time that we as a nation watched the victims of Katrina and their suffering on t.v.. We were becoming more entrenched in the war in Iraq and the media was focused on Valerie Plame and Jack Abramoff.

Very quietly, a nation of buyers stopped reading the classifieds. A nation of buyers stopped visiting open houses. A nation of buyers stopped seeking the counsel of a real estate agent. A nation of buyers sent in their ballots by staying home and refusing to pay the higher prices. Our industry looked in every corner to find the culprit behind lagging sales.

The NAR pointed to the fact that things may be slow, but the average sale price was going up. They failed to elaborate and reveal that the average price going up in a market that is slowing down only indicates that the homes that are selling are higher priced and the lower priced homes are sitting on the market. If the lower priced homes are not selling, that should have been the first big clue that there was a problem. First time homebuyers buy the lower priced homes and they are necessary for the entire system to work.

Then came the sub-prime loan fiasco. When the industry was bustling, many people took advantage of the opportunity to make money. Money was a commodity and it was cheap and with the frenzy of buyers, people could start up mortgage companies and make a lot of money quickly. The system was overwhelmed. Loans were made, sold, bundled, sold and so on. Some of the sub-prime loans went bad. Sub-prime lenders began to go belly up and many people in the industry began to point at these failures as a reason that the market was slower. No one mentioned that sub-prime loans were nothing new. They failed to point out that anyone with a average credit score could still qualify for a conforming loan and buy a property in the mid to lower price range.

Prices were still too high and homes continued to sit on the market.

We have now seen prices in this area drop as much as 10% and the activity is still non-existent. Prices are still too high. Interest rates are around 6% and they will not go much lower regardless of any action by the Fed. The buyers are doing the math. Home prices remain above what they can afford to pay.

It is not about sub-prime loans. It is not about bad media. It is not about interest rates.

There are buyers out there. There are people that have to move. There are people that have to sell. The components of a normal market are in place. The prices are too high. If someone asks me “Is this a good time to buy?”, how can I tell them yes? If you have to buy, you have to buy. If you are asking “should I buy now or wait?”, I would have to say – wait. Prices have not bottomed out yet. All of the indications I see are that home prices will continue to fall…..maybe as much as 5% more.

Now there are those that will say – If you plan on living in the home for more than 5 years, you will be able to absorb the “on paper loss” and over that period of time the value of the home should increase. There may or may not be truth in that statement. Historically it seems to hold up, but, if you wait until spring, you can ease the “on paper loss” by quite possibly paying less for the home. The danger? If you find a home you love and decide to wait… someone else may buy your dream house.  Right now, dreams are more expensive than they will be next spring.

If you are in the process of selling or you think you have to sell, knock 10-20% off what you think your home is worth before you put the first sign in the yard. If you ask for an opinion of your homes worth, make sure that you are given two years of data to analyze. Look at the trends and understand that the last sale is probably more than you can expect right now.

Their is a key word to paste on the refrigerator door  – PATIENCE.

Do not be swayed by stories placing the blame on lenders or types of borrowers or the Fed. Prices went up faster than incomes could accomodate. They will have to return to substainable levels before the “for sale” signs begin disappearing from every third or fourth house in your neighborhood.

As always, I welcome your questions and/or comments. Feel free to write me an email if you have specific issues that you would like me to address.

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