“What The Hell Happened To The Value Of My House!"

Revisit the Painful Past and Gaze into
the Foreboding Future
of Home Sales!
Earlier this evening I was reading an old news article I’ve held onto for the last few years. It’s the Real Estate section of the Tacoma Tribune dated October 7th 2006. 

There’s a little article entitled:   
 “Home Prices Still HOT, but Sales Slow.”
Little did we know, huh?
At the time, this article jumped off the pages at me and I saved it because sure enough, I was in the middle of helping a family sell their home and low and behold, it just wasn’t working out the way it was supposed to. I suspected something was up…let’s call it an intuitive sense of impending doom! – That feeling you get when you get a flat tire in a bad neighborhood at 1:00 on a Friday night and it just so happens you left your anti-tank weapon at home! (If you’re a real American you’ll understand that.) (kidding)
When you get this sense as a Realtor – if you have a conscious- it feels like a cold ball of fear in your belly. Like you really hosed the pooch on pricing this home for your customers and now the question is how do you back pedal out of this one?!
Most of us have other pet names for the unsettling period before the Media officially announced that “The Bubble Has Burst!” It was more than just the ‘The calm before the Storm’ but I try not to swear too much in my writing.
Little did we know, the house of cards was all ready tumbling and we were about to go into a free fall into Home Value Hell!
I remember doing all the usual stuff back then for my clients including locating the house that was our direct selling competition and setting our sales price at about $15,000 higher! Definitely a poor strategy these days but at the time it was a – ‘We can get anything we ask for’ world!
I’m sortof kidding but not really – I mean it was ridiculous how we could preview ridiculously priced homes with dirty laundry on the floor and Spaghettio’s all over the kitchen counters and the next day find ourselves in an escalating war between 5 or 6 Realtors!
At any rate, I couldn’t kick start the house sale for my clients and sadly it was the first and only time I’ve ever been fired! Actually I quit because I came to basically hate the house for reasons I’ll share with you if you ask but whatever happened it just wasn’t working out well – We kept adjusting our price down and the market kept adjusting it down lower!
Realtors Caught With Their Pants Down!
You’ll hear a lot of professionals talk about the 2nd quarter  
 
of 2007 as the turning point for home sales, values, Stock decline, economic Armageddon, etc, but out on the street it was obvious in August of ‘06’. A perfect storm of failures was a-brewing! 
I don’t think any of us truly foresaw the scope of what was to come. The total fiasco in the home banking industry back then was something no one knew about. I mean let’s face it – we loved those loans! Low Doc loans, No Doc loans, ‘make it up as you go along’ Loans…
Who knew that only 3 out of 10 people or couples would eventually avoid defaulting or being delinquent on their home loans? A lot of people were looking at NOD’s or Notice of Defaults on their homes.
Did anyone try to follow the good advice of their lender? Did their lenders tell them the truth about the types of loans they were buying? Did their lenders even know and understand the truth?
(Consider this folks – only since 2008 have Washington Loan Originators been required to be licensed. LO’s now actually have to have some training in practice and ethics! What a concept! For years ANYBODY could get fired from their job at McDonalds and be helping you manage a $300,000 home purchase the very next day! Trust me I saw this! Felons, Leper’s, Kid- nappers you name it.)
And if homebuyers and refinancers got the proper advice that their ARM was just a stepping stone – a tool to get to the next level so they best be prepared and follow a specific course of action to avoid repeating the experiences which required the use of ‘creative’ lending for them in the first place, do you think anyone was listening? (Rhetorical)
And how can you blame anybody? House values were doubling every 3-5 years in some places. Faster in others!
Fast forward to 2009 and now those same people who would go on to default on their home loans are now defaulting on their loan modifications. Actually the stats are a bit worse. Easily 50% - 75% of loan modifications are defaulted on within 10 months of the modification!
There’s a pattern developing -
Are People Just Stupid?
The answer is YES and NO. – Yes there are plenty of stupid people out there. Many people that you can ‘Dress up but you just can’t take em’ out!
But that’s not the point – we let stupid people become U.S. Presidents! So that doesn’t tell us anything. (I did not vote for that guy!)
Anyways, when we begin to let ourselves be drawn into fantasy’s that clearly have high risk attached I guess that makes us all a little – less then brilliant, no? (Yours truly included.)
I am a Loan Originator and a Realtor and I had several of those ARM’s – and I still like them for what they do. I also like to swim with the Sharks while others are swimming with the Dolphins so what does that tell you?
I remember PEMD, or Pre Economic Melt Down, telling people that they could just about count on their home doubling in value every 7-11 years or so in King County. That had been going on for some years depending on where you lived and we thought that was pretty damn good! And it was!
Like all good things though this housing Bliss had to end-…
…And so where does this all leave us? Pretty much just trudging the road of recession towards a future that may not be quite as bright as CNN would have us believe.
Here’s the deal – We have seen house sales increase over the past months and that is a good sign, however, we aren’t out of the woods yet. We have 8 or 9 solid months of sales momentum and this is “broad based across many parts of the country” (Ooops! CNN Sept 2009) – but lets temper this optimism with some facts.
Now, there are many plausible reasons for this healthy upswing.
·         Tax Credits (Put as much as $8,000 in your pocket for buying a home!)
·         Bank Confidence (An oxymoron if I ever saw one)
·         Low Rates (4.5% and more! WOW!)
·         Low Home Prices (Reasonable. Finally!)
All of this is good news but wait! There’s more!
The tax credit incentive may go away after this November 30th. There’s a 
 
rumor it will be extended but I wouldn’t bet the farm on it just yet! This means that if you’re not in a mutually accepted transaction right now – well, you’ll probably miss out on that one.
Bank confidence…You know, I’m convinced banks are dishonest. Personally I don’t have confidence in Banking and as a few more recent bank failures occur like California’s San Joaquin Bank this past Friday and Citizens’ Bank of Ontario (That’s California again) this past September…you know it’s not over yet!
Low Rates! We love low rates but let’s face it – they can’t stay low for ever. Do you really think Banks like to sell money to us at a 4.5% rate of return? NO! They are unhappy about this and will find ways to get back at us! Back in 1999 when I started in this industry because I was pissed off at the way my wife Jan and I were ‘handled’ in one of our early home purchases, rates were at about 8.9% or so and we thought that was great! If interest rates found their way up to 8% right now the home buying market would freeze in its tracks or at least hesitate for quite an uncomfortable while.
Low Home Prices – Probably the only factor to remain constant for a while.
Clearly there is a distinct window of opportunity right now to buy and sell a home. In fact that opportunity has been around for a while and we have people just like you and me out there taking advantage! We may lose the Tax rebate but still the opportunity’s are out there –
Consider this though. We’re returning to the ‘days of yor.’ That means where the NAR (National Association of Realtors) was predicting 20% home appreciations back in 2004 in the Seattle & King County area, (36% over 3 years average!), we are now facing the reality of moderate and constrained home appreciation more around the range of 3% - 5% annually. That is, when we actually start to see home values appreciate. That’s right around where inflation rates hang normally, 2009 being the exception.
Could be worse guys – you could be selling a Condo in Florida right now where there are something on the order of 60,000 to 70,000 units available and that doesn’t include the For Sale By Owner market.
If I can leave you with anything of value to take with you here then let’s look at selling your home the proper way.
It used to be that we would ‘look in the rear view mirror’ and gauge a home’s value by comparing to home sales over about the past 4-6 months.
Not now! Even though I still see Agents pricing homes by looking out the rear view window, most are looking out the front window – that is if you really want to sell your home in a reasonable amount of time, let’s say 90 days, then my advice is to find the home that most recently sold – the past 6-8 weeks, and also the current listing that best represents your direct competition and price below the current listing, at or below the ‘sold; comparison.
Common sense dictates that if I’m a home buyer and I find a home that has sold for ‘X’ amount of dollars, why would I be willing to spend more for the same home? Again – gentle reminder- those days are gone!
Not in this market!
Best of luck everyone– Next time we can look at home mortgage loans, how radically they’ve changed and how to shop for them!
See you on the Beach!
http://jch-homes.com (FREE home listings emailed daily – no agents!)
http://GoodSeattleRealEstate.com (General Real Estate Stuff!)

 

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