Notes on Real Estate

The holiday season is upon us, and we should be of good cheer, although the real estate world seems to be despairing, not of the same good cheer it enjoyed a year ago. The emphasis here, however, is on the word "seems".

Houses are not suddenly coming down with dry rot or termite infestation. Streets are not buckling and crumbling. The soil in our yards is not contaminated.

Nobody in the business is really surprised by the shift from an overzealous seller's market to an adjustment that levels the playing field for buyers. What is surprising, at first, is the general public's reaction to it. This is what is haywire, not the real estate situation. Prices of homes are stabilizing. Increase in home values are normalizing. Interest rates are very, very good. Home sales are about where they were three years ago, and that was great… then.

We are a nation of news junkies. We make massive conclusions based upon information we get from "experts" in the media.

To that topic, if you enjoy being fully informed, you will find this little stocking-stuffer article both informative and enlightening. If you are a potential real estate investor, reading this is a must.

Too Little, Too Late Wall Street Journal Survey Of Economists Say Worst Is Over for Housing
by Blanche Evans

"After scaring homeowners, buyers and sellers witless for the last three years, the financial press and stock analyst economists contributed mightily to the decline of housing in 2006, where homes have lost value recently for the first time since the National Association of Realtors began keeping records back in 1968. Now these same self-serving analysts, who would like to see day-trading home investors pour their money back into stocks, are saying the worst is over, according to a new Wall Street Journal Online survey. But is it too little, too late?"

MORE: Realty Times

    A psychological demon is afoot, and it will make the emergence of a new and more sensibly priced housing market more of a challenge than simple economics would expect. I hope I am wrong.

Perhaps you know someone who had a house on the market for a long time, reduced the price, had it on the market for another long period, then finally took it off with some finality and perhaps unkind words for either the real estate economy or perhaps, sadly, even their agent. There's a strong chance that the reason the home didn't sell was because it was overpriced to begin with. That's possibly the REALTOR'S® fault (in a"who can really blame them?" way)

Even more unfortunately, you probably won't be able to tell this person anything that will make them feel better, as they are likely in a strong denial mode. And, if you can't tell them, imagine how difficult it would be for a REALTOR® to do it. Here's the scenario. A home seller decides to put the house on the market, and due to the previous seller's market and an often ego-driven inflated value estimate, overprices it. The REALTOR®, for a variety of bad reasons, goes along with the pricing. Perhaps the REALTOR® suggested a more realistic price, or bargained with the seller to do a reduction if the house didn't sell in a certain number of days, but like far too many of us succumbs to the need for business and okays the seller's high price to get the listing. Six to nine months ago this might not have been too terrible, but note that overpricing almost always leads to disappointment.

The result? The house doesn't sell, gets reduced, doesn't sell, and is taken off the market just as the normal seasonal downturn occurs, possibly with the idea of putting it back on the market in the glorious springtime - when all houses supposedly sell faster and for more. Will this house go back on the market at a realistic price?

Some will. Some of these sellers will realize that their initial mistake was overpricing, that the buyers are out there with a new attitude, and that they had better price competitively, basing their home on economics rather than emotion. Far too many, I fearfully predict, will not re-list at a reasonable price.

Using one or two of the many denial fallbacks, i.e., "My house is worth it", "It's a great looking house", "I have to get this much or I can't sell", "I've put money into it that I need to get out," and the ever popular, "My neighbor got this much, and our house is a lot nicer than theirs." None of which have anything to do with the marketplace and the competitive price of houses. Worse, there will be ego involved. This is an ego-bruised, jilted suitor. Many of them believe, with an iron-clad mentality, that the market owes them a certain return (which they cannot see has already been given in abundance if they've owned a decent property in a reasonably worthy community for a reasonable time). The psychological demon will blind them to the current reality. A REALTOR® will easily be found who will take on their listing for the price they demand, and agree to do some things the previous scallywag didn't, in the opinion of the seller - twice as many open houses, or such - to make the sale happen. So, this sloggy-footed demon will continue to plod through our economy, feeding off the egos of home sellers and the timidity of their agents. Eventually, a second wave of sellers will emerge and see the battlefield bloodied and littered with the casualties who would not perceive, and they will say, "Please, list my house correctly so that I can move on to our next home and perpetuate the enhancement of equity design, my home owner's dream." The demon will die, economic tranquility will once again prevail, and the sun will shine.

For those who are more academically inclined, consider looking more deeply into: Behavioral Economics
A field of economics that studies how the actual decision-making process influences the decisions that are reached. Notes:
The two most important questions in this field are:
1) Are the assumptions of utility or profit maximization good approximations of real behavior?
2) Do individuals maximize subjective expected utility?

I rather prefer my cartoon demon and speculative analysis, although these two questions above, as regards the current and imminently forthcoming real estate home selling market can, I believe, be expected to yield a resounding "NO".

Do not be surprised if you hear from me about the referral strategy I'm working on. Don't worry. I won't be asking you to say anything overly nice about myself or Shelley, although you may if you want, or even claim you think we are the absolute best REALTORS® on the planet, which you may, if you want. I've something much cleverer and candid in store. After all, this business is all about referrals.

Meanwhile, if you know anybody who is thinking of buying or selling real estate, for personal or investment reasons, please let me know, and don't forget to get their permission to do so.

That’s it for now. Except this:

1. If you have interests or questions, please e-mail me or give me a call.
2. Check out my website HERE

The opinions expressed in this newsletter are solely those of Tom Crone and others being quoted and do not necessarily reflect the opinions of Coldwell Banker Burnet or its affiliates.