Your Personal Real Estate Consultant
The National Association of Realtors® is reporting that October sales of existing homes rose a meager .5% as the median selling price of an existing home fell by a stunning 3.5%.
The median selling price of an existing home in the U.S. is now $221,000.
The year-over-year price decline is the largest ever recorded and is the 3rd consecutive monthly decline, resulting in the longest series of price declines on record.
Consumers often believe that appraisals are the absolute gospel truth about a property’s value.
If the appraiser says it’s worth X, then it surely must be worth X.
Those of us in real estate know that appraisals are subjective and that they are simply one person’s opinion of a property’s value.
Skilled, experienced appraisers know many subtle ways to “adjust” to comparable sales to come in with a value equal to the sales price.
And, appraisers are under enormous pressure to “bring in the number” on appraisals because they know they won’t see any more appraisal business if they start screwing up loans for the lender giving them their appraisal assignments.
Some lenders are now trying new “AV” (automated value) appraisals in an effort to speed up loan processing and remove the human variable from the appraisal process, but automated value appraisals are also subject to inherent inaccuracies.
The best indicator of a property’s value remains what we all learned in Real Estate:101 ~ it’s worth what a willing buyer will pay for it.
Seller-paid incentives for buyers and buyer agents are masking the actual sales prices in our current market slowdown.
At first glance, it appears as though average sales prices are holding up pretty well.
A closer look, though, reveals that the numbers are being fudged with often-huge incentives for both buyers and buyer agents.
Here’s an example:
Let’s say you want to sell your home, and your neighbor Bob tells you he just sold his home (just like yours) for $450,000.
Your listing agent checks the comps in MLS and confirms that Bob’s home did indeed sell for $450,000.
Now, we both know that your home is way superior to Bob’s because you have beige toilets and Bob’s were that ghostly white, right?
You are feeling really, really smug about now because you know that your home is worth at least $460,000 (because people prefer beige toilets).
Well, it may not be that simple and here’s why:
Your neighbor Bob, after concluding that he was as lonely as the Maytag repairman and not getting any showings, offered to pay a $10,000 bonus commission, in addition to a regular selling commission, to buyer agents.
Further, Bob also agreed to pay $5,000 of the buyer’s closing costs in order to make the deal work.
So, did Bob’s home really sell for $450,000?
Perhaps on paper, but those who know the real story know it sold for the equivalent of $435,000.
And, if you think no one will ever know, you’re mistaken because appraisers routinely call Realtors® and ask if the seller granted any concessions to the buyer, and also if any bonus commissions were paid.
Then, they adjust their comparables accordingly.
The bottom line?
Even if you are lucky enough to get the same $450,000 price as Bob, your home may not appraise after the appraiser nets out the concessions paid by your neighbor.
It’s apparent that local builders are hesitant to start more homes until they sell their existing inventory, according to the number of building permits issued in September.
Meridian, formerly a hotbed of residential construction, issued only 76 single-family building permits in September vs. 280 permits in September 2005.
Boise issued only 20 building permits this past month, down from 77 in September 2005.
September sales activity (closed units) for Ada County single-family homes on lots/acreage was off more than 42% from a year earlier.
A year ago, developable land in North Meridian was going for as much as $140,000/acre, but now that same land goes for $80,000/acre and builders are trying to sell their lots because they no longer have buyers lined up to buy their homes.
I am hearing comments that some of our larger builders are sitting on hundreds of unsold homes, a fact borne out by daily e-mails from desperate listing agents offering as much as $10,000 bonus commission (in addition to a 3% selling commission) if I will sell one of their homes.
And, I am seeing huge price reductions as builders try to unload their spec home inventory before our slower winter market arrives.
If you are a buyer, looking for a deal on a new home, now’s the time to make your move!
Those motivated builders are creating stiff competition for resale home sellers who are still trying to get last year’s price for their home.
Current builder incentives include bonus commissions to selling agents, mortgage buydowns, $5,000 for buyers to use however they want, etc.
Holland Realty is even offering a new car to homebuyers in one of their subdivisions!
Only problem with that is who wants a Kia Sephia parked in the driveway of their new home?
Doesn’t anyone get it?
It’s the price (insert the word of your choice here)!
When “The Fed” dropped short-term rates to an unprecedented 1%, it precipitated the cheapest mortgage money of the past 40 years.
That led to creative, new lending practices (interest-only, option ARMs, etc.) which made it easy for borrowers to get into financial trouble.
And that’s precisely what is starting to happen with foreclosures surging across the country.
Now, it’s up to the key players to avoid an avalanche of foreclosures that threatens to bury lenders with lender-owned foreclosed properties.
Who’s to blame?
Eager consumers who bought too much house, lenders who aggressively pushed the money out the door, builders who kept on building despite slowing demand?
Consumers are the ones on the hook and they will pay the highest price, but all of the players share in the blame of consumers becoming over-extended.
Here are some interesting facts:
It is somewhat surprising to see the spike in foreclosures without a downturn in the economy.
That seems to signal that we have a housing bubble that was caused by a lending bubble, but we must remember that the borrowers wouldn’t have borrowed if they hadn’t gotten caught up in the speculative real estate fever of the last few years.
Wonder if we could see a repeat of the S & L crisis of the early 80s?