To Sell or Not To Sell, That is the Question

One of the realities we deal with when talking with owners who are considering selling their homes in the current market is that the price they will get for their home is substantially less than what they had expected. Not that this is anything new. In my 30 years of experience, homeowners often want more for their homes than what the broker thinks the home will bring in the market.

The difference now is that the number is so much below expectations that it causes the owners to pause and rethink the whole idea of moving at the present time. We often hear, "this is a terrible time to sell, maybe we should wait until next year when the market is different". There is little doubt that the market will be different, but what makes us think it will be better?

My hope is that perhaps some light can be shed on the whole idea of waiting to sell rather than dealing with the current market and what is sure to be a disappointing price for a home. If the plan is to postpone the sale for a year or two, waiting will likely prove costly. Thus far, there is no evidence that that sales are improving. Without improving sales, prices can't firm up. The odds are overwhelming that prices will continue to fall as we go through the year. How much nobody knows, but it wouldn't be surprising at all if prices were 10% lower at the end of the year. So if you postpone the sale for a year, the price you don't like this year could well be 10% less appealing next year. From my experience, the earliest we can expect prices to bottom out is probably 2011, and the general prices could well be 20% or more below where they are now.

Is it possible that we can solve all the problems that confront us and the market is a happy place again and prices are moving up? Sure it's possible, but for that to happen it would require an almost miraculous chain of events to get us from where we are to where we need to be. And although I have witnessed many interesting things in 30 years in this business, I don't recall any miracles.

Another common conversational thread is that owners wished that they had sold last year or the year before when the market was stronger and prices were higher. I guess what they are suggesting is that, if they could get those prices, they would go ahead and sell. So the question now becomes, when can a person realistically expect to get those prices?

The last time we experienced a market like this was in the late 1980's to early 1990's. Prices peaked in 1987 and then declined by about 30% before bottoming out in the early 1990's. But here is what most people don't realize, it wasn't until 1997, a full ten years, that we got back to the price levels of 1987.

So if history repeats itself, to get 2006, 2007 or even 2008 prices would mean postponing the sale, putting your life on hold, until 2016 to 2018. That's if we follow the same pattern as last time. But will we. The prices went up much more during this bubble than that one, which means they could fall farther than they did last time. If that were to happen, it could take even longer to get back to those peak prices. If prices were to fall 40-45% this time, which is not inconceivable since we are almost half way there and the market continues to weaken, it could take more than 10 years to get back to the top.

Nobody can predict with certainty how long market cycles will last or how much prices will change during the cycle. A couple of things I have learned over the years is that, cycles run longer than people think and prices change more than people think they will change.

I have no doubt prices in 2009 will be disappointing. However, if you postpone a sale for a year or two in the hope of realizing more money, you will likely find that a decision you will wish you hadn't made. To realize even 10% more than what this market will bring will likely mean you will have to put your life on hold for at least 5 years and, quite frankly, it could be 10 years or more.

Real Estate Market Continues to Lag as we Move to Spring

The first two months of the year are behind us and the hoped for improvement in the Monmouth County real estate market has yet to materialize. The sales of both single family homes and condominiums are running significantly behind the figures for the same period last year and the inventory levels relative to demand, for both single family homes and condominiums are at staggering levels.

As bad as last year was, this year is shaping up to be worse. Through February the number of closed sales of single family homes was more than 30% behind 2008. Keep in mind that 2008 sales were more than 20% less than the 2007 figures. The news for condos is even worse. So far this year, sales figures for condos are more than 50% behind the figures of just one year ago.

As if this new wasn't grim enough, the Months of Inventory for both single family homes and for condominiums were averaging about 25 months in through February. Keep in mind that 6 months of inventory relative to sales is considered a price stable marketplace.

What can we expect as we move forward. Although California, Arizona, Nevada and Florida are the worst markets in the country, it looks like we are trying to catch up with them. So far all efforts made by the Government to stabilize the housing market have not had any measurable results. Expect prices to drop significantly as we move through the year. A figure of 1% per month would make sense, but it wouldn't be surprising if it were more.

When will the market bottom out and prices start to stabilize. Nobody knows the answer to that, but the guess here is that 2011 is the earliest we can expect that to happen. If you are thinking of selling and postpone the sale because you don't like today's prices, be prepared to wait at least 5 years, and quite possibly more, to realize a price significantly higher than today will bring you.

I know the news isn't good, but houses are being bought and sold. There is always value in the present and gambling on the future may prove to be a costly mistake.

The Lunatics Have Taken Over the Asylum

I understand that the country voted for change in November, but is this really what we had in mind? It's seems like we now have a government that has completely lost it's mind and is running amok, spending hundreds billions, probably trillions, of dollars with no real idea of whether any of this spending will make a dime's worth of difference to solve our current economic woes.

We get corporate bailouts followed by "stimulus" plans that nobody read, followed by mortgage bailouts, and every time one is announced the stock market plummets, 401Ks get smaller and the public confidence goes down.

As this because we feel the government needs to "do something" even if that something makes the situation worse not better. Has anyone ever considered that sometimes there are events in our lives that are just too big for the government to stop?

If a hurricane were heading toward us, would we start clamoring for the government to "do something" to stop the hurricane? Of course not. Why? The hurricane is something too large for the government to do anything about. If it were to try all the resources used to try and stop it would be wasted. The government can warn us it is coming, tell us to get out of the way, help clean up the mess after it has passed and even help us rebuild. But stop it? Impossible.

Has anyone ever considered that we may be in the midst of an economic and financial hurricane that is simply too big and too powerful for the government to stop? Has anyone considered that all the money (debt) being used to try to stop it is simply being wasted and we will have nothing to show for it but the debt payments?

As a real estate broker, times are tough and we all hope things improve soon. But it's hard to see that doubling down on the irresponsible policies of the previous administration is the way out. I am personally tired of listening to all the chatter about what the economists say. In my opinion, economists are nothing more that a modern version of the court astrologist.

What would seem to work is common sense. If too much risk, too much debt an too much spending got us into this mess, then less risk, less debt and less spending would get us out. Since the lunatics in the government are doing the exact opposite, it's hard to be confident. God help us all.

2009 Starts Where 2008 Left Off

With a new year comes the hope of some good news, especially when it comes to the Monmouth County housing market. Sadly, this year has picked up where last year left off.

I would like to report that the January sales figures showed improvement from a year ago, but sadly, that is not the case. Hard is it is to believe the market continues to grow weaker, sales continue to decline and prices continue to fall.

There is a bit of a new wrinkle to January's sales figures. Last year the condo market some more strength, although you could hardly describe it as strong, than the single family market. The reverse now seems to be the case. In December 2008 and now in January 2009, the closings for condominiums plummeted. Condo closing in January 2009 were almost 60% fewer than for January 2008. The end result of this is that January ended with almost 27 months of standing condominium inventory. Remember, six months of inventory is considered a level that leads to stable prices. Twenty seven months can only mean one thing, look for condo prices to get hit hard in the the early part of the year.

The single family market continues to weaken, just not a dramatically. Closings reported for single family homes were off about 23% in January this year when compared against January last year. Keep in mind, sales of single family homes were off about 22% in 2008, so the latest figures give no indication that the market is bottoming out. Standing inventory for single family homes in January was just over 22 months. You know what that means for prices, down they go.

So far the incredible amounts of money that the government has thrown at the problem has had not visible effect. The focus continues to be on the supply side of the equation, but that would not appear to be where the problem lies. Right now there are only slightly more homes for sale around the county than there were in 2006. So why is there so much pressure on prices? Sales have plummeted.

If our government wants to approve things, they needs to focus on the demand side of the problem. Until there is a greater appetite for real estate, the situation will continue to be bad. I have to admit, as a veteran of 30 years in this business, I am getting tired of reporting the same distressing news month after month. I would like to be able to say there is a light at the end of the tunnel, even if it is a freight train coming straight at us. But there is no light, in fact we may not even be in a tunnel.

Hopefully things will improve soon. The government is about to pass the largest single expenditure legislation in the history of the world. Perhaps that will help. If it doesn't, watch out!

2008 Is Behind Us, Thank Goodness!

Now that the year is done, it is a good time to reflect back and also look forward. 2008 will go down as one of the toughest years in the Monmouth County real estate market since the late 1980's. The sale of single family homes was off about 22% from 2007 and prices declined as well.

Not all communities and not all types of homes felt the impact of the market equally. Those properties that fared the best were those with strong locations and those that were the newest or recently renovated. The condominium market showed more strength than the single family market, but the multi-family homes were hit hardest of all. We finished the year with the highest imbalance between supply and demand in the decade.

Where do we go from here? One thing seems certain, prices are going to continue to decline at least for the first half of 2009, possibly longer. There is just too much supply relative to demand to expect anything else to happen. So far the attempts by the government to stabilize the market have had little impact. Until such time as the demand for real estate improves, we will continue to have an oversupply of housing and declining prices. The demand for homes has declined about 40% from the levels of 205-2006.

We do have lower interest rates, about 5% on a 30 year fixed rate mortgage, and the lower rates will draw some into the market. However, the overhang of a weak economy will likely offset some of the upside of lower interest rates, leaving the impact of the rates to be marginal at best.

If you are buying, there are some tremendous values in the market, especially for first time buyers. If you are selling, the sooner you find a buyer the more money you are likely to see. No doubt you will be disappointed by the prices, but waiting will likely cost you more money.

This too shall pass, hopefully sooner rather than later. But for now, the market remains challenging and there is a chance we haven't seen the worst of it yet. Happy New Year!

Zero Percent Fed Funds Rate? You've Got To Be Kidding! What's Next?

There is no doubt that we are living in very interesting times. Earlier this week the Federal Reserve lowered the Fed Funds rate to zero, which means they are basically giving money away. Good grief! And that's not the end of it. The Fed also said they will buy up every crappy financial asset anyone wants to sell them. I guess they are also the financial junkyard of last resort as well.

What this means is that our government is doing everything possible to encourage Americans to run up even more debt than we have now. Is there anyone out there who can explain to me why this is a good idea? It seems that a major reason why we are in the economic mess we find ourselves in is a result of our borrowing from tomorrow to spend on today. How can even more borrowing solve the problem that too much borrowing caused? What am I missing? If you find yourself in a hole, isn't it better to put down the shovel and have someone get you a ladder, instead of getting a bigger shovel?

I know that our "leaders" are hoping this will stimulate economic activity, but why do I have a nagging feeling we will not get the result they are hoping for, but end up with someone much worse than recession, like massive inflation? I don't pretend to be a genius on economic matters, but I have a hard time figuring out how the bad habits that created a problem can be solved by more of the same bad habits. Will someone please explain it to me?

As a real estate broker I do see some upside to this in the short run. Interest rates on mortgages have come down and are around 5% and the rates on home equity loans are ridiculously low. There are already stories that the applications for refinances have gone through the roof. The downside of this is that the people who are in a position to refinance are, for the most part, the people who don't have their homes. Those people who have their homes for sale because they are upside down with their equity or are behind on their current mortgages can't refinance, so the lower rates will do them no good.

The government has been trying to figure out a way to support the real estate market to prevent further declines in real estate prices. So far, their efforts have failed. I suspect this latest move will fail also. No doubt that some buyers will come into the market to take advantage of the lower interest rates, but probably not enough to have an impact.

My experience over the years has taught me that people come into the market and buy houses when they feel secure and are optimistic about the future. There isn't a lot of that out there right now. If someone thinks they may lose their job, or if they are concerned about their future, they don't buy houses, even if the interest rates are very low.

And so the beat goes on. What can we likely expect over the next few months? The number of sales will likely be too low to firm up the prices, which means we will likely see prices continue to fall and with that will come a new crop of homeowners who will find themselves upside down with their equity.

Merry Christmas.

Yes Virginia, There Is Still Mortgage Money Available

One of the misconceptions that has resulted from the current credit crisis is the perception that there are no mortgages available to people who need them to buy houses. Nothing could be farther from the truth. Mortgage money is abundant and lenders are willing to lend to qualified applicants.

What has changed is what the profile of a qualified applicant looks like. Gone are the no documentation loans and most of the sub prime loans. Those are the loans you may have read about that are partly responsible for the soup we find ourselves in. Today a qualified applicant is someone who can verify that they have a job, can verify how much income they earn, have at least 10% of their own money to put toward a down payment and can prove it's their money and have credit scores at least in the upper 600's. If you fit that profile, you are likely to be a qualified applicant and mortgage money is available to you.

We do have a problem with loans to people who own their own businesses and their income is hard to verify. In the case of a business owner who isn't on a salary, the lender will rely on the tax returns of the applicant. If the business owner doesn't report all their income, they will not get as much of a mortgage as was the case when the funny money loans were widely available.

What has happened is that we have returned to the lending standards that served us so well before this decade. It's true that those standards do take a number of would be buyers out of the market, but in the long run, we will probably be the better for it.