Monday, July 25, 2011

An Idea to Move the Market

Much thought and discussion went into the enactment and extension of the first-time homebuyer tax credit, and it clearly impacted the market, both while it was in effect, and after it expired. It moved sales for last year into the first half, and the immediate drop in activity and sales beginning last July proved that it motivated people to buy before it ran out.

Although I have my issues with that credit, both in terms of policy and in practice, there is no question that it made a difference while it was in effect, and that the market responded. It is also clear that the jump start that the government must have hoped that it would give to real estate did not occur, as sales fell off as soon as it was over. In retrospect, I think that the government was right in thinking that we needed that kind of stimulus, and I think we need to try again. After all, cash for clunkers helped the auto industry, the TARP money helped the financial industry, and real estate is still lagging. It is hard to imagine any real recovery taking place without our industry improving.

My problem with the first-time homebuyer credit was that it aimed at exactly the people who would buy in any type of market: those forming households; and renters with no homes to sell. One of the main problems with the current market is that it is stopped up, because sellers who can sell refuse to do so, because they feel that they are losing equity, even though that perceived equity may have been phantom gains.

In order to give an incentive for those who can to sell now, and to buy something else, I propose that the government offer a one-time tax credit for sellers who will lose equity when they sell, on the same terms and up to the same amount as the first-time credit. So, for example, someone who paid $200,000 for her house and now is selling for $180,000 could deduct up to $8000 on her tax bill this year. I believe that the market may now be ready for the jump start that such a program could provide, and that it would help even more than the last incentive, since it would both produce a supply of homes for others to buy, and sales for developers and other sellers when those people buy a new place to live. It's time for bold action, and helping the housing industry would be good for everyone.

Monday, July 18, 2011

What's a Compelling Price?

I have often been asked lately about pricing properties to sell quickly. Since things aren't selling quickly, and not much is selling at all, it's hard to know whether price is really the issue, and whether lowering it will change the outcome. We worry sometimes that, in advising people to lower their prices and get out and move on, we are helping to reduce prices across the whole market.

That's a hard question to answer. While we clearly have an influence on prices, ultimately we don't make sellers sell or, more importantly, buyers buy. So what we've come up with to explain the phenomenon is the "compelling" price. That may not be the highest price (most likely not), and isn't arrived at by figuring out what the property is worth. It's determined by figuring out the number needed to get other people to move, and move urgently.

Think about that in your own life. If you see a sale notice, you may glance at the prices in a flyer. Sometimes you look at one and decide to wait until the price goes lower, or the season ends, or something along those lines. Every once in a while, however, you look at an offer and just know that, if you don't act soon, you won't get whatever it is. That company has discovered the compelling price. Not necessarily the lowest price--that might raise doubts about quality or value--but a great incentive to buy.

So think about the real estate you know. Is it priced compellingly?

Tuesday, July 12, 2011

Not the Typical July

The weather surely signals that it's midsummer, but the slow start to the real estate year means that the dog days of summer have a little more life to them. We are still seeing new listings, new offers, and new sales. Our web hits doubled from May to June. There was a downward blip for the Fourth of July, and then they went up again. People are clearly thinking about buying and selling, even if every contract seems a long and tortuous process.

On that note, I was spending the weekend in Vermont last weekend with a friend from North Carolina. She was trying to close the sale of a commercial building, which she had sold already once and it had fallen through. She was in negotiations with the new buyer on the day before what was supposed to be the closing. Her husband was bemoaning her travails. I told him that MOST commercial contracts seem to fall apart at least once, and that it is, unfortunately, very common for the buyer to come back at the last minute and ask for concessions, often due to financing conditions. Even in residential, we have a number of contracts now that seem to have taken on a life of their own. They go on and on, with delays, threats, changes, grandstanding, and probably tears. I'm telling you this so you won't take it personally if it happens to you! Forewarned is forearmed.

Monday, July 4, 2011

Be Patriotic--Buy Some Real Estate

Happy Fourth of July! The front page of last Thursday's New York Times showed the results of a poll of Americans regarding their feelings about real estate. Not surprisingly, it indicated that a big majority of those polled believe that owning real estate is still the American dream, and that it would be their choice, even though those same people were more divided as to the safety of such an investment.

It used to be that almost everyone believed that buying a house was the best and safest thing to do with their money. Their faith in the second half of that statement has been shaken by the recent financial crisis, but the first half is undeniably still true. Even those who do not own homes believe in the mortgage deduction's importance, and hope that the primacy of real estate will remain steady.

That's good news for the future of the economy. While we realize that there is still work to be done in convincing people to put down their deposits and buy, it's clear that they wish to be convinced to act. It also seems true that they would be happy to find reasons to do so. When that's the case, it's important to find ways to get people off the fence. Once those who are not absolutely required to sell begin to do so, others will follow. The consumer confidence necessary for that isn't there right now. It's up to government, unfortunately, to find a way to make that so. Jobs have to be created, and the future needs to look a little brighter. But the underpinnings are there. The beliefs remain.

So this Fourth of July, while you are watching the fireworks and soaking up the sun, make plans to get out there soon and buy some real estate. It's the patriotic thing to do!