Just how much has the real estate market cooled off?
Well, now that mortgages are at 4 year highs, we see Real Estate Agents are giving big chunks of their commissions to motivate buyers.
Today, I discovered just how uncomfortably quiet the agencies have become: They are rolling out a new promotional device: Real Estate discounts — your home, now on sale!
Its detailed in a fascinating letter from a major national Residential Brokerage chain:
Price Improvement Event
"In our continued efforts to expose your home to as many potential buyers possible and get your home sold in the shortest amount of time, we are wrtapping up International Open House Month with our Price Improvement Event.
This 10 Day Sale Event will include mailings, website marketing , open houses, raffles, mortgage pre-qualifications abd exciting newspaper, television and radio advertisements.
You can be part of this exciting event by improving (reducing) the current asking price of your home by a minimum of 2% beginning April 26, 2006 (you will have the option to bring the price back up at the conclusion of the sale on May 8) . . ."
Consider these factoids:
- Mortgage rates are now hitting 4-year highs;
- 10 year now yielding about ~5%;
- The Fed is not showing any signs of slowing;
If a house won’t sell after a two percent "temporary" price cut, do ya really think they will be bringing prices back up?
Expect to see ALOT more than 2% come off the asking prices of homes — especially as rates continue to tighten.
“I expect to see ALOT more than 2% come off the asking prices of homes — especially as rates continue to tighten.”
It will Barry, but not yet. There is about a 6 month lag where sellers try to stick to their price and buyers kind of wait. Realty takes time to sink in for sellers and with absolutely no help from their realtors.
My best friend recently listed his house for $935,000. I knew it was late and was too high. (my numbers were at about $850,000). So, at that price, he had two open houses, the world saw it and then they lowered the price to $895,000. Still high and after the one shot at the first open house. I couldn’t take the listing because I don’t do houses, but, I did advise them.
It already seems to be bad (more than 2% down) in some rural areas already:
“Then Katrina hit in 2005. Gasoline prices skyrocketed. Most of the people in the area commute to the city for work. The cost of gasoline made that commute much more expensive. When I moved here gasoline cost about $1.20 a gallon. Recently I filled up at $2.69. When I moved here, $400 a month was my budget for gasoline. The same amount of fuel would cost me close to $900 a month. Just to commute. Because of the added commuting cost, people are not buying property out this far anymore. Real estate sales slowed to near nothing.
“Soon after, the house of cards really started to fall. One local builder went bankrupt, unable to sell over 20 homes he built in a development. Those 20 houses in foreclosure fed the buyer’s market, driving prices of other homes for sale down farther. Then another builder went bankrupt, then another. In the past three months, six builders have filed in the area. The number of houses in foreclosure is staggering. They can be had for next to nothing. Banks are jumping through hoops trying to find people to buy them. The local newspapers all have classified ads reading “Builder’s inventory Reduction Sale.” Land prices started to fall. What had sold a few months ago for $10,000 an acre is now sitting dead on the market at $2,500 an acre.”
http://www.theoildrum.com/story/2006/4/8/13040/76705
With approx. 6 months inventory and rising not falling, the 2% drop in prices seems miniscule to me, especially when you consider the rises over the past few years. Some people can still make a killing even if prices drop 10%. It looks like the flock is soon to be thinned of the Johnny come latelies.
I find the relationship between RE agent and seller interesting…
1) Seller shops for RE agent…agents promise moon pie
2) Seller picks agent offering the biggest moon pie
3) House is listed, gets many looks, but most buyers think seller’s offer is Pie in the Sky
4) RE agent lets seller stew – many do since they have 6 month or more contracts…
5) After no real interest, RE agent comes back to seller and says the market’s just not there…suggests a modest markdown…
6)Seller’s frustration grows…(not to mention the opportunity cost of selling the house previously IF the asking price was realistic)
7) RE agent suggests a bigger mark down (chasing the market?)
the process concludes with either the seller having a serious markdown on his house, or getting another RE agent AFTER the contract expires (opportunity costs again)
The relationship between seller & RE agent throughout this entire process strikes me as somewhat mis-aligned…if not a little adverserial….
RE agents should get paid their percentage according to how QUICKLY and CLOSELY they move a house from it’s initial offering date and price…if the house becomes marked down, well the agent shouldn’t have been promising Moon Pie…if the house takes too long to sell then the market wasn’t adequately researched…
a sliding scale adjusting that FAT 6% commission in both TIME & PRICE would bring a little realism to that job not to mention a little market risk to the RE agent…stop promising Moon Pies and get a little skin in the game…
The sweet spot – the place where the house will instantly sell is 5% off the 6 month average for the area. Two years ago the sweet spot was 5% above the average. If you have time stay at or just above average (remembering that the average moves on a month to month basis and is currently moving down). If you really think you have the sweetest property on the block keep it above average – eventually someone is going to be needy enough to buy it. But you should still be moving with the average.
Now given the booming economy as shown by the booming BLS job numbers and the booming wage inflation just where the hell are the buyers?
Something in this picture just isn’t right.
If your house doesn’t sell within two weeks of listing, and you’ve had at least decent traffic from an open house or two, then the house is mispriced…end of story. This is straight from the mouth of real estate professionals.
Have a nice housing crash.
True John V. I call it “the market has spoken”. Are you wishing for a “housing crash”? That’s dumb, but, be careful what you wish for. (Said many times by Yankee fans to Red Sox fans in the fall of 2004)
Mr. Market: “The relationship between seller & RE agent throughout this entire process strikes me as somewhat mis-aligned…if not a little adverserial….”
YOU HAVE NO IDEA WHAT THE HELL YOU ARE TALKING ABOUT. *and, he completely forgot that there’s a buyer’s agent as well*
Larry Nusbaum: “YOU HAVE NO IDEA WHAT THE HELL YOU ARE TALKING ABOUT”
While that might certainly be the case (and I have been accused of worse :) ) YOU might want to check out a Phd thesis put forward by Steven Levitt & Chad Syverson
http://home.uchicago.edu/~syverson/realestate.pdf
“Agents are often better informed than the clients who hire them and may exploit this informational advantage. Real-estate agents, who know much more about the housing market than the typical homeowner, are one example. Because real estate agents receive only a small share of the incremental profit when a house sells for a higher value, there is an incentive for them to convince their clients to sell their houses too cheaply and too quickly.”
the paper finds STATISTICALLY SIGNIFICANT evidence that corroborate the thesis…
is this the final word?
Probably not, but it is a bit more illuminating than my previous blather (and yours might i add)…but what the hell do i know anyway :)
cheers,
PS: are you an agent?
Yeah, he’s an agent. Don’t bother spending a lot of time replying to his rants. Larry is the resident real estate expert that’s been infesting this blog for a few months. Anything he says should be taken with a grain of salt, even when typed in caps. For example, in the first post, larry claims that he’s advised his best friend to cut his listing price, and couldn’t take the listing because he’s a commercial agent. I doubt he has any friends, or that he could afford to give up a commission on an 800K deal. A quick scan of the public records in Maricopa County Arizona for Lawrence Nusbaum also indicates this. You know what I’m talking about Lawrence.
MrMarket, did the study indicate that agents will try to buy before trying to list, i.e. self serving-self dealing? Larry was doing a lot of real estate deals for himself last year. I think he’s legitimately concerned (scared to death) that real estate values could drop 60% or more from their peak of 2005. WAMU has him by the gonads.
Fred,
the study didn’t address self-dealing, although I’d be surprised if it didn’t exist…
look at the (overly)-regulated securities industry…every year people are nailed for self-dealing in various forms…ethics classes and legal statutes have been a big deterrent there (/sarcasm)
why would real-estate be different is the question i ask myself…
Generally, markets may change, but people don’t (won’t)
I’m sure that self-dealing is rampant. In Arizona, complaints against agents are skyrocketing, and mortgage fraud is one of the fastest growing white collar crimes:
http://www.marketwatch.com/News/Story/FFVL7nlHB19MqVjgrMnzHMX?siteid=mktw&dist=RNPullDown
“It’s hard to perpetrate fraud-for-profit without some kind of third- party professional being involved, whether an appraiser, loan officer, real estate broker — someone to extract the money from the lending channel,” said Mark Fleming, chief economist with CoreLogic, a firm in Sacramento, Calif., which makes tools for lenders to assess fraud risk.
Everything we all say on this blog should be “taken with a grain of salt”, Fred.
Thank God for WAMU and their cheap money. And, I haven’t lost an once of sleep over the real estate market. Not a one.
And, there are twice as many transactions now vs one year ago in the residential market.
If you mean experienced by your use of the term “expert”, then no problem.
Let’s not blame real estate agents (my cousins over in residential) for market conditions……..
Barry – we’re seeing the Northern California and Seattle area markets hold prices relatively steady (even climbing a bit this spring), while underlying demand is on a long, slow slide from crazy levels of a year ago, to maybe merely sane.
At this point, demand is still reasonably strong (and mortgage rates reasonably low) – except at the top quartile (over $1mil in the Bay Area.) But you can extend the demand curve and easily see where we transition into Buyer’s territory (and prices get shaky).
got a couple of blog posts on the topic. give me a buzz if you’d like to get some of this analysis in real-time (so you don’t have to wait to read it in the paper).
I am in Scottsdale, too…been here 2 years, we are from LA. We were going to buy in November 2006. We have plenty of money, excellent credit, good jobs…but I am getting cold feet. I can see that if I buy now and either #1 the housing market/bubble/souffle whatever crashes then I am out a lot of money…#2 even if I bought a distress sale and then interest rates rise to a higher level no-one will be able to afford my home for a very long time if I need or want to sell at some place down the road.
If I continue renting for a FRACTION of the price of purchasing, then I can continue to sock away 3-4000 dollars in other investments a month until I am positive what the market is doing. Either way the market turns, I will be in a better position if I do nothing right now because I can continue to save. Then, if the market stays level (I will be in a better position than I am now in terms of purchasing power) and if the market does crash, my money is safe in other investments and someone else can take the fall (maybe harsh, but its also harsh to gouge people and try to squeeze blood from stones like sellers/lenders have been doing to us for years now).
We (the buyers) are here…but we can’t get a feel for what is happening with the economy right now…its a little like being in the haunted house during the scary movie and feeling compelled to open the rattling door…who knows WHAT is behind door #1…I just don’t feel like I want to be the one to find out…
Keep in mind that I am fiscally fundamentally conservative (so perhaps I am not the average American)…prefering to qualify on one income instead of the two available…saving, saving, saving…we try to save 40% of our available income for tough times, etc. I am gen-x…to give you the age range…and despite being encouraged (rather heavily I might add by a number of different sources that I need to “just pull the trigger” I am content to hold back until more information is available).
The hardest part for me, and I go to almost every open home in my zip code, is that I get to the home, I could probably qualify for most of the homes I see through one crazy financing program scheme or another (the only thing there are more of than homes on the market right now, are loans “on the market”)…and I look at the home and I think…that home is nice…BUT it is just not WORTH that price…and believe me I WANT desperately to own a home…but I can’t stop the feeling that none of them are worth the asking price…
Lately, I began asking myself…”how much would I be willing to pay for that place?” and I always end up thinking $200,000-$300,000 (around 30-35%) less than the asking price. Since I KNOW that this would be completely un-acceptable to the seller…I don’t bother to make an offer…I talk to other people in my same position and I know that is what many of us are thinking…we don’t feel pressured or rushed…we are just waiting for the right time for US to buy…
If I “pull the trigger” now what am I going to hit?
I know that the fur is flying and I regret that there is blood in the water right now (it is almost palpable here). People like me were accused in last Friday’s paper by a Realtor as “bottom feeders”…which also beggs the question…why am I a bottom feeder when I am doing what is right for me, while you weren’t “bottom feeders” when you were gouging us on pricing? You had a good run…I hope you saved some of that so that you could survive the next few years…
BTW I KNOW that this is short sighted because housing is the last crutch of our economy…but I sacrificed a lot to get into a secure position and I am feeling a little like the ant right now.