The Power of Low Rates

I have a real estate friend in Madison, Wisconsin--where the market seems a lot like ours much of the time--who thinks that the real estate market will not recover unless and until the government aims directly at our industry with programs designed to improve sales. Although the tax credits did that, they expired and left us, arguably, in worse shape than ever (however, people don't realize that, because they look at the fact that housing prices haven't declined much, and in some cases, they have edged up slightly--that's because all the first-time homebuyers have left the market, leaving higher-priced homes as the only ones selling). The government has focused on the banks, using first TARP money and then foreclosure actions to regulate activity. We probably haven't been helped at all by the foreclosure stoppage, since it just lengthens the period of time where the whole housing system is backed up. Until all those homes, which--foreclosed or not--the owners can't afford, get transferred somehow, there won't be a "normal" real estate market. Appraisers can't even use those transfers in computing value, since they aren't arm's-length transactions, but they obviously have an effect on values and on regular sales.

This same friend, although thinking that we need Federal intervention to improve our market, also has the most compelling argument for buying right now. He has made charts that show that a 10% drop in prices actually has less of an effect on monthly payments (the gold standard by which most buyers decide how much they can afford) than a 1% rise in interest rates. Therefore, buying a home now, with the current rates, costs you less than buying it later, even if prices drop by another 10%. If rates go up, that savings in the prices will be more than offset. Whether that obviates the need for governmental action on behalf of the housing industry, I'm not sure. But I am sure that it makes a compelling case for buying a home now.

The Week of Thanksgiving

It seems ironic, in an economic environment when many have less to be thankful for, that Thanksgiving seems to have become a week-long holiday. I was amazed to find, when I was driving home last Friday night, that I95 North looked much as it did on the Friday before a summer long weekend. Then I came to work yesterday, only to find that a lot of folks did not.

If we weren't so desperate in our industry to get things sold and closed by the end of the year, it might be nice to have a week in which to play catch up. We could do all the things that we haven't had time to do since Labor Day, and take a little extra time to get ready for the holidays ahead. However, when you are trying to finish up deals, recruit, collect bills, track down deposits, and negotiate next year's contracts for services, it's disconcerting to learn that many calls go unanswered and emails bounce back.

Yale gets the whole week off, and my running buddy was amazed this morning to see a school bus, since he thought all schools got the same vacation. Hopkins did, but the public schools are still in session. That should mean that some people must still be around! So where are they? And why aren't they answering their phones?

The End of Civility?

I'm going to make a kind assumption, and start with the premise that people don't understand the life of a real estate agent, or how they get paid. We work on commission, which means that we only get paid when something sells or leases. Obviously, that means that there are many instances when we do work for which we are uncompensated. While we have always accepted that fact as a part of our lot in life, it seems lately to have gotten much worse.

Our commercial agents shocked me recently when they told me that at least half of the buyers they go to meet arrive late, and some not at all. Also, they said that they are actually very surprised when a buyer or his agent takes the time to call after a showing with feedback or information. For instance, one agent was pleased that a buyer called him to say that he'd found space closer to his current building, and was no longer interested in the space we had shown him. I found it amazing that an agent would be happy to be told that someone wasn't renting something, but he said that it saved him a lot of time chasing the guy around for an answer.

With that low standard for polite behavior, I have to guess that most buyers don't stop to think that an agent who shows them property is not paid to do so, and in fact uses his or her own car, gas, and time to do so. I've been told that many who do not call back assume that, if you don't hear from them, you are supposed to know that they are not interested. While that may be true, it doesn't help us to do our job for the owner. If you were the owner of the property, and not the prospective buyer or tenant, you would certainly be unhappy with an agent who couldn't give you information or feedback about a showing, and probably wouldn't be satisfied with the answer that they hadn't called with a response. That leaves us caught between a rock and a hard place.

While real estate agents are resilient, and while they are taught to follow up if they don't get a call, it would certainly be nice to be thanked for our time, and treated as professionals. In the current commercial market especially, buyers and tenants often know that they are using us to test the waters, so that they can go back to their current landlords to renegotiate their rent. If we oblige them, and give them what they need at our own expense, is it too much to ask that they get back to us and thank us?

Thinking of Waiting for Spring?

At this time of year, we often hear people say that they are putting their searches for property on hold until the spring. While we understand the appeal of taking an item off the To Do list at this busy season, I want to point out the possible consequences.

Savvy buyers don't talk about the price of the property, they talk about the monthly payment. Current mortgage rates are so low that the cost of risking an increase in rates almost surely outstrips the risk that you might buy now and have prices decline slightly before they rise again. The low rates also trump any idea that you have to bargain for the last nickel. Take the deal, lock in the rate, and gloat later.

Many consumers are acutely aware of the aspects of this housing market that favor buyers. They therefore think that, regardless of what a property is listed for, they should offer 20% less. They seem to believe that sellers are desparate, and that they need to bottom fish in order to purchase now. Since only the well-priced properties in good condition are selling, it's not even really true, as I have pointed out before, that there are so many things to choose from that such a strategy can succeed.

Let me remind any such people that this market is not a zero-sum game. Both the sellers and the buyers can win. The sellers can sell and repurchase at the current lower prices, with the lower interest rates. The buyers can buy and also take advantage of these rates. Everyone can walk away better off. This is an unusual time in that respect. If you figure out what the monthly payment will be, you may discover that it makes far more sense to buy and move than to wait.

Today's Register Article on Home Sales

Today's business section has an article reporting that unit sales are down, but prices are "inching" up. This may surprise people, but it's important to remember how these statistics are compiled, and that's by adding all the sales in one time period and comparing them to all the sales combined in another time period. That's not an apples-to-apples comparison, unless by chance the same house sold in both periods, and you just looked at that sale.

With so many properties on the market, and the lagging state of the real estate industry, only the best homes are selling. By that, I mean the ones that are priced compellingly and are in close to pristine condition. There are some exceptions, especially in areas that are in demand and have less inventory, but in general only the "good" buys are selling.

What does that mean for sellers? Don't assume that your home is worth more than it was last year, and don't assume that you can price it aggressively. One of the most striking changes in the real estate field over the past 25 years is the amount of market knowledge available to, and often absorbed by, buyers. They know what your home is worth, and they aren't--except in the rarest of circumstances--going to pay more. If your house stands out, in price, location, appearance, or condition, you have a better chance of selling it. Those are the home sales showing up in the statistics. Adjust your expectations accordingly!

Home for the Holidays

This is the second of my annual posts. It's another one that is often the same, although this year I might even being writing it a little earlier than usual. It's time to remind those who want to close out the year by finishing a move that we have arrived at the eleventh hour.

By the time a buyer makes an offer, gets it accepted, does his/her inspection, obtains a mortgage and insurance, and closes the property, it will be the end of December. And that's if nothing goes really wrong.

The buying process has always contained some amount of sturm und drang, and there may be a little back and forth negotiation after the inspection results, but it is the mortgage process where the time frames have drastically changed. People who have not financed or refinanced recently will be shocked at the current level of documentation required for getting a mortgage. Often, they even spend time arguing about whether something is necessary--not worth your time, if you try--and it may take some time to produce all that is needed. The appraisal process can also take longer, especially since the low rates mean that there is a great deal of refinancing work being done at the banks now.

Even insurance is more complicated than it used to be. I remember the days when you could call on the day of the closing and get a binder. No more. Flood insurance in particular seems to slow up some transactions, where it is required.

The final point to keep in mind is that the holiday season is often a vacation time and/or a busy time for attorneys. Buyers have to plan ahead a little more to get things closed at the very end of the year.

There's my annual warning, so now it's time to get going!