I was reading the news today on the falling home prices in the nation from the Case Schiller Index that reported all 20 cities in the report have dropped in price. It is one of the steepest historical drops in price. That may not seem like good news to most in real estate, but it is. We are now on the sure road to real estate recovery. When homes and real estate start to come down from extraordinary highs, there comes a time when they are again sellable. Lower home prices will start to draw buyers out of hibernation. The time is near when buyers want to buy and hold real estate, not buy and speculate on the future value. For us that make a living in real estate that is a good thing. The recent value of real estate appreciation we saw in recent years was anything but normal, and totally unsustainable. While most persons in real estate denied the possibility of the existence of a real estate bubble that was going to burst, none are denying that event any longer. The Case Schiller index is now predicting this will all come to an end at the end of 2009 bringing a correction of national real estate values another 15% to 20% lower where they stand today. The story goes on to say that the value of real estate will at that time will have corrected 30% to 35% peak to bottom drop. In some ways that seems dramatic, but in some areas where the appreciation was more pronounced the correction may be greater, and in other areas some real estate will not give back all the gains. Lower prices will start bringing out the buyers again!
There is a major lesson here to be learned. In many ways ignorance is not bliss, it is just a no sale! If in real estate we take away the funny money financing, we stop making sub-prime loans that cannot be repaid....then the extraordinary high home prices are now impossible to afford. Home sellers have yet to embrace the idea that the average home owner cannot afford to purchase a home and pay $3500 to $4000 a month mortgage payments. Those buyers, and the financing they once used to do this are no longer available! Rising food costs, runaway inflation, a credit crunch, and increasing foreclosures are bringing home this once unaccepted reality. Those holding high end real estate are still under the false assumption that these rules do not apply to them. They're wrong. They do! It is as bitter a pill to swallow as the cancer patient that finally comes out of a long denial stage. The sooner home sellers realize that they are holding on to a false hope...that their home cannot be purchased and paid for my any consumer - they will have taken the first step to housing recovery, and begin in earnest a strategy to move forward with a real solution. These are conclusions that I can draw based upon my own real estate experience and observations, both business and personal. It is a difficult task trying to explain the current market to a seller that has not accepted the prognosis the physician has offered. For them, the clock ticks away each day, and procrastination and denial are the biggest obstacle to recouping the equity slipping away.
A link to the Article is below:
"Four years of gains in home prices wiped out Case-Shiller: Prices fall in all 20 cities in past year...."
By Rex Nutting, MarketWatch
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Just think. If not for the mortgage mess, with rates for the past two years, buyers could qualify for the homes on the market now following the 20-30% decline in prices. But, due to the mortgage mess and the Fannie Mae mess and the hedge fund messes, and the . . . . .
FICOs have to be higher, fees are higher, qualifying is harder. The consumer is paying through the nose and not qualifying for what they would have qualified for 3 years ago.
Jim: I have commented on your overall negative market opinions before. This report is bogus in that it is being reported in the media in such a way that it leads the listener to believe this horrid drop in prices is in every market in every state.
Thank you for including the link to the full article. In reading it, it states that the Dallas market has fallen 3.4%. That is a long way off from the figures being quoted of 15% to 20% drops in value across the country.
Then you end your post with the link stating that "Four years of gains in home prices wiped out. Case-Shiller:Prices fall in all 20 cities in past year... " In my local market, I have a shortage of listings. In my own neighborhood, I could list just about any home in my fourteen-block sub-market, and I would have multiple offers... and most of these offers would reflect about a 26% increase in home values over what they were sold for as new... in 2003 and 2004.
I just cannot understand all the "blanket negativity." Comments like yours do nobody any good. I am really sorry it sounds like your local market is so bad. You use the word "cancer" in talking about it. I truly hope your local market improves, but please kindly keep all your negativity away from my local market.
Lenn Harley, Homefinders.com, MD & VA Real Estate Lenn I really agree. I think Greed has killed the goose that laid the golden eggs.
Fort Worth Real Estate - Karen Anne Stone (RE/MAX Trinity) The index is an average. In our market ity is 7.8% which falls exactly what our MLS just reported. In the Atlanta newspaper today the head of one real estate company resigned, and there is story about moving companies going out of business because there are no sales particularly in new homes. Everyone like the reports of Case Schiller Index when home prices were rising, but no one want to hear the bad news. The Federal Reserve reports are more of the same.
The head of the home builders being interviewed last week said the new homes information was all wrong, because the government does not report cancellations which are now at 35%. Most of the stories are more positive than they actually are, and I mentioned some ares in the nation are doing better than other. Be grateful you are blessed in TX.
Jim, thanks for pointing us to today's story. If sellers are not realistic with pricing today they may as well uproot that for sale sign in front of the house because nothing good is going to happen for them. But as Karen and your dialogue going back and forth says - real estate is local even within a region. Some pockets of sellers markets and some strong buyers markets even five miles away.
Karen,
So your market area is an anomaly just like pockets in Atlanta that are "desirable", but the overall news for residential real estate is bad and thus that is what is reported. Your shortage of listings maybe reflects sellers knowing they have a hot market and are not willing to pay a 3% listing fee because they don't have to to get their homes sold. New car sales are off like new homes sales, but you don't read much about corolla sales being up because it is such a small segment of the market.
Jim, the unbelieving sellers will learn eventually after having few showings and few if any offers. Just show them the trade in value of a full size pick up today vs. last year and then tell them the mortgage crisis/recession is doing to homes what gas prices have done to trucks!
Gary Woltal - REALTOR® Dallas Ft. Worth (Keller Williams Realty) There are always pockets in every market. Also with in one neighborhood, one home is priced correct o market...gets a contract and sells at almost full price wihtout closing costs. Another identical home in the same subdivision with less extras is priced 150K higher and sits on the market. One sits because it is over priced and may have 100% financing, while another home that was purchased and had one owner that had some equity closes because there is negotiating room. Sellers need to be educated as to what their options are. I refuse to work with a seller that will not listen to reason in this market. Homes that are priced correctly, are clean and updated are still selling at a profit.
Obviously some areas will always be desirable despite the real estate climate- but what good is having a realistic seller and a ready willing and able buyer when the banks just don't want to lend the money?
Phil Everything changes, and it is only a business cycle.
Ellie McIntire (The McIntire Team of Long & Foster) The banks can't make loans because they made so many bad loans.
Thank you very much for the link Jim. Very interesting times right now.
Nice to hear some good news for a change.
Susie Blackmon NC Realtor, Maggie Valley, Waynesville (COLDWELL BANKER) Change has to start somewhere.
Shannon Aldrich ~ NH & Maine Real Estate Seacoast (Keller Williams Coastal Realty) To some it isn't, but before it turns around perceived value has to be in hte bueyrs mind. We cannot do that first without the foreclosures being absorbed, and they are the part right now that are pulling at the median and average price points. Once they are gone, it will level and start to rise.
Real estate can only go up as incomes go up. It was artificially high and had to come down.
Robert Machado, CPM MPM Sacramento Area Property Manager and Property Management (HomePointe Property Management, CRMC) I agree. In Massachusetts...I read an article where it took 52% of the average gross annual salary to qualify for a home. That is insane! For agents that assumed this is BS, they do not know what they are talking about. Salaries never kept pace with the ability to purchase a home at these exorbitant prices