The $64,000 question

How's the market? I'm asked this question at least 6 times a week, and I can honestly say that I've yet to give the same answer twice. "How can that be', one might say. Well, it stems from a fact that most people already know, yet readily forget. That is, that all real estate is ultimately local. So when one hears that sales are down, or maybe that prices are slipping, the "gut" reaction may be to decide that it's not a good time to sell a home. An easy decision, right? Yet it may not necessarily be the right one. Market conditions are dictated by what's currently happening in your subdivision, in your neighborhood, even what's happening on your block! The macroeconomic, well-intentioned headlines you may read or hear do not necessarily apply to your situation.

For example, I had a homeowner say to me last week that they would put off selling their home because of the "glut" of homes on the market, as reported by our local newspaper. Through an in-depth analysis of the supply and demand trends in the neighborhood I was able to unequivocally demonstrate not only that homes in their area were selling at 94% of their asking prices, but also that they were selling considerably faster then the rest of the market. Needless to say, we brought the home to market and have had multiple showings since!

In short, when you ask a real estate agent "The $64000 question", take note of how the they answer. It'll give you some insight as to how they work...

1971

In 1971...

• Intel introduced the first microprocessor
• Apollo 14 lands on the moon
• Walt Disney World opens in Orlando, Florida

And for the would-be home buyer.....rates were at 4.69%.

Coincidentally, they just hit 4.69% today: The lowest on record since 1971! So if you're sitting on the fence about buying a home, I suggest you call your lender and lock in your rate today!

Tax credits and first-time buyers

You can imagine the mad rush by first-time buyers on the last week of April trying to get a property under contract in order to cash in on the Government sponsored tax credit. Unfortunately, many of these folks, and their agents, ultimately wound up very disappointed because there were only so many properties available, and a gluttony of buyers bidding on them; a classic example of demand exceeding supply. Not to mention that many of these homes wound up selling more then 100% of their asking prices! That only happened in 2005...right?

So as we fast forward a few weeks. And, can we say that the tax credits helped the real estate market? Yes! Did they spur demand? Noticeably! Would extending them have continued their positive effects? Surely! And now that they're history, has the fierce competition amongst first-time buyers abated? No way!

I diligently continue making the case that if you're a first-time buyer, it is no longer truly a buyer's market. Even in a post tax credit world, entry level properties are still selling quickly, and at or near their asking prices, when they don't sell for more that is...

Mr. Seller, please leave!

There's a reason why I always insist that the home sellers leave the house when I'm showing it to a perspective buyer. More often then not the seller sticks their foot in their mouth, and low and behold, yesterday it happened................again. I was showing a beautifully-kept home that was flawless in every sense of the word. The prospective buyer was sold and was already talking about making an offer while we were still in the house. Then, as the buyer proceeded to comment on the lovely piano the seller says..................here it comes..........are you ready?........"Oh thank you! It belonged to my mother-in-law who passed away, and here's her room. We keep it just like if she were still here with us." This is not completely verbatim, but you get the idea.

Needless to say, the buyer will not be making any offer on this property; not to mention that the seller potentially gave away a bargaining chip by disclosing to the buyer that she already bought and just closed on another home. Now granted this example is on the far end of the foot-in-the-mouth meter, and most infractions are less severe. But what they all have in common is that they ultimately cost you money. So when your agent asks you to leave the house, please don't be offended. Do yourself a favor..........leave!

Why scapegoat the appraisal?

Appraisals are killing real estate deals. This should come of surprise to no one. As a matter of fact, the appraisal has come up short on my last four transactions. It's quite common for appraisals to come in at $25000 below contact prices, or even more. Just this week I had a property appraise at $140,000 below the contract price! Needless to say, all parties are in shell shock. Yes, the listing agent, the seller, the buyer, and myself expected that we would come up short, and would have to then re negotiate. However, this is more then 100% off from any of our wildest estimates. For now, we're in limbo. The buyer still wants it, the seller still wants to sell it, yet the buyer can only buy for the amount that their lender will lend. What to do? "Blast those appraisals!" you say ? I think our industry is barking up the wrong tree. The appraisals are merely a reflection of what properties are currently selling for, and the buyers by and large will pay the appraisal value. Unfortunately, we're just not adequately educating our home sellers. It's a bitter pill to swallow for a home owner, but a reality nonetheless. Lets start off on the right foot by having the home owner order an appraisal before bringing the property to market...

The evolution of the buyer

Buyers are evolving, and for the better. Up until the beginning of 2009, an abundance of inventory, coupled with a 'sky is falling" mentality lead many to believe that the real estate market was theirs for the taking. They were now in the driver's seat! And as a result they were submitting such ridiculously low ball offers that most often didn't stand a chance of being considered. They made these types of offers very often because "a friend of a friend of a friend" got such a phenomenal deal on a home , that it must be possible to do. And they tried it again, and again,........and again; only to ultimately be disgusted, disillusioned, and fed up with the idea of buying altogether.



Fast forward to today. Buyers are stepping up to the plate. They're actually making very competitive offers, yet procuring a property still for many is still challenging. The issue has now become the sellers. Unfortunately, many sellers have yet to undergo an evolution of their own, refusing to come to grips with what the market values of their properties really now are. I am, however, quite optimistic that home sellers will soon come to the table with more realistic expectations. And the end result will be a vibrant, healthier, and more balanced market .

The Velocity of Money

The velocity of money is a term used by economists to describe the speed at which money makes its way through our economy. During boom times money moves quickly through the system as it's spurred on by consumer spending and investment, and in recessionary times it's velocity is diminished.
Why should you care?
Well, if you've been thinking about buying a home, then the "velocity of money" should be of concern to you. The Federal Reserve uses interest rates to control the money supply flowing throughout the system; low rates=more money in the system, and higher rates=less money in the system. In order to encourage borrowing, one tool that the Fed has is to lower the discount rate(the rate at which banks borrow money from the Fed). The net result is more borrowing, subsequently contributing to an increase in the "velocity of money".
Historically speaking, this monetary strategy has been used to encourage the country out of a recessionary cycle. However, over playing this card can be have unintended negative consequences. In the 1970's the increased "velocity of money" netted a 13% increase in the money supply, and interest rates skyrocketed to as high as 20%! Fast forward to 2009. In the hopes of increasing the velocity of money the Federal Reserve has exponentially increased the supply of money compared to the net increase in the 70's; I've heard some estimates as high as a 100% increase in money supply over the past 14 months! Now I'm not an economist or financial guru; I'm simply taking a historical example, looking at what we're doing today, and extrapolating a possible end result.
In short, higher rates mean less buying power, higher mortgage payments, and more difficulty in securing financing. So as you ponder whether to take the plunge or not, remember that the 'velocity of money"can put a real damper on you future plans. :(