Tuesday, December 27, 2011

Three Realtors and A Bubble Blog - Part 4: Where's the Bottom in the Charlottesville Area Housing Market? What Impact Do External Factors Have on Home Sales and Prices?

This is the last in a four-part series.


Related:  After this series began, the National Association of Realtors disclosed that they'd inflated home sales by 6.5 million units between 2006-2010.  Lawrence Yun, the trade org's chief economist (who allowed himself to make pronouncements about market health and announce monthly sales that were nothing more than a series of bad guesses) suggested that consumers should rely on local data.  Good advice.  But there's more to the story than that, which is covered in "So the NAR Inflated Sales From 2006-2010.  What Does This Mean For the Charlottesville Area Housing Market?"

THE QUESTIONS:

4.  In your experience, OTHER than economic needs (liens, debt) why don't/won't sellers who CAN lower their prices?  Is there anything you can say/do to convince them of market realities?

GREG SLATER

I feel like I could write a book on this topic.  In short, sellers don't lower prices because they are not motivated enough to take less than they want to get for their home.  In some cases they believe their home is worth more than the data suggests.  There are many scenarios and every seller has their own story.  I work very hard at sharing data and market information to help my clients understand the market to make good decisions.  I am immersed in this information every day.  Sometimes it takes time for a homeowner to come to terms with the reality of their situation.  For some, that means being on the market and getting a feel for the market through showings and offers, or lack thereof.  In some cases, there is nothing I can do or say to convince a seller of market realities.  Sometimes it's not that they don't understand market realities, but more that they are not ready to deal with market realities.  Sometimes, people just disagree on value. 

JIM DUNCAN

Great question. Often those sellers who choose not to lower their prices even though they can, choose not to because they

a) Feel that their house is worth more (feelings are sadly irrelevant in the market(
b) Don't want to believe that they've lost X
c) Don't have to sell; they'd like to sell but there is no compelling reason to sell. Most often they would like to sell so that they can buy/move to do something else and if they can't make x, they can't do y. Unfortunately, buyers and the market care neither about what the seller wants to do or what the seller needs/wants to make.

I can't convince sellers of anything other than if they want to sell, they need to price it here. Sellers don't need to be more patient; if they want to sell they need to price it to sell.


MICHAEL GUTHRIE 

Many sellers think their home is in the best location and in the best condition therefore deserving the best price.  They for the last few years wished upon a shining star that the market would come back allowing them to get a better price.  Folks who have a significant amount of equity including 2nd home owners or folks who are retired thought they could wait this market out.  I think the market has been tough enough for too long and that sellers are finally waking up to the fact that unless they lower their price, they will not be able to sell their home.

 


C'VILLE BUBBLE BLOG
  • What it comes down to is this: Sellers are pricing for what they hope to get in the immediate moment.  See this.
  • Rational, educated Buyers know they are going to live in the place for 7-10 years and that in the near-term, 1-3 years (and that's possibly optimistic) prices are going to decline by 15+% more on average.  Some sectors will be worse.  Think high-end.  Think McMansion.  We don't see any home out in the county, 1,000 acres or less, as worth more than $3 Million.  Buyers are trying to price for tomorrow so they don't make the same mistake as bubble buyers.  This is a prevalent fear, when even 2010 Homebuyer Tax Credit Buyers are now underwater.

5.  Care to speculate on where the PRICE bottom is in this market?  What quarter?  Year?

JIM DUNCAN

The bottom. Well, I was wrong. But hey, I tried. We've been trying to find the bottom of the real estate market for so long, I'm not sure what it even looks like. I have no idea. I've also been saying for years that:
a) We have another 9 to 18 months of decline.
b) Prices are likely to decline an additional 5% to 7%.

I'm sticking by my predictions. Again.
I'll let you know when we've hit bottom when we've had two years of stagnation. 

MICHAEL GUTHRIE 

I believe we are bouncing along the bottom now and that prices won’t decrease much more.    I think we will continue to see uncertainty with little or no appreciation for the next year or so. 


C'VILLE BUBBLE BLOG 

At the moment, we're going with Q4 2015, which is what our blog header states.  This is based on the fact that price peak was in 2007 or 2008 in this area, and the average unwind of a bubble takes 7 years.  It's also based on likely recession in 2012. And that there are no short term buyers and move-up buyers are scarce.   After the price bottom, "appreciation" will be negligible.  Click for larger image in new window.
 


5a.  Care to speculate on when Inventory may be balanced again, neither in favor of buyer or seller? 


JIM DUNCAN 
 
We're going to have a balanced inventory when the distressed sales - short sales and foreclosures - have worked their way through the market. The banks and the government have screwed things up so badly that I really have no idea when that's going to be. Speculating on when incompetence -deliberate or accidental - will accidentally stumble into success is a fool's game. 

MICHAEL GUTHRIE 

Inventory is why we won’t see improvement.  There is nothing to give us any reason that this high level of inventory will be reduced any time soon.  The reason for this is the shadow inventory created by short sales and bank owned properties.  This along with all the property owners who would like to move if the market improves will keep inventory levels in favor of the buyers for some time to come. 

GREG SLATER 

I don't [care to speculate - bb].  Both of these are impossible to answer with any certainty and potentially different segment by segment of the market.

C'VILLE BUBBLE BLOG

In this market, and many others, a decline in inventory does not necessarily lead to a rise in prices. 

6.  Are there any national economics websites or news sources that you direct buyers or sellers to, in order to assist with an asking or offer?

JIM DUNCAN 

Right now my favorite economics sites are:



GREG SLATER

In general, no.  When working with buyers, the process, conversation and the sharing of experience has always lead to a clear offer strategy.  Different clients rely on my advice on different levels.  If you get to the point of making an offer on something, it's my hope you have spend enough time evaluating the market over a period of time to feel confident in one's decision.  I do share information from a variety of sources I peruse on a regular basis that I deem relevant to current and potential client relationships. 

MICHAEL GUTHRIE 

No.  We try to keep the information local and feel the statistics caar.com offers if used properly can educate our clients as to what it means to them buying or selling property.
I will watch the Keeping Current Matters blog, RISMedia, and Inman News to keep up to date as well as staying current with what VAR, NAR, and our relocation broker network (leadingRE.com) are saying about the market.



C'VILLE BUBBLE BLOG

We read/reference the sites on Jim's list on a regular basis.  Also: 

7.  Got any PIIGS/ Euro fears?

Wikipedia on PIIGS 

JIM DUNCAN 

Nothing specific other than the fact that our world's economic situation is tenuously held together by hope and fear of what might happen, and a strong desire for our government to neither get involved nor to loan anyone other than Americans money. Further, every day as I flip between Bloomberg and CNBC I come to realize just how interconnected our collective economies are and how our dependence on cheap, plentiful fuel is dangerous - to the world's economy, our economic stability, our involvement in wars and regions around the world and human settlement patterns … which leads back to the local housing market. Everything affects housing.

That said, these are three relevant (as of today [Nov. 1]) perspectives:

MICHAEL GUTHRIE 

Sure.  Anything that can cause negative economic results for our country have to be of concern.

GREG SLATER

Not really.  When it comes to national and global economics, my concern is what it does to overall confidence. 

C'VILLE BUBBLE BLOG

PIIGS, the collapse of the EuroZone, the wipeout of capital, plunging us into another global recession, Iran's current shenanigans, the ongoing oil crisis, money printing, social unrest, some Black Swan event, etc etc etc,  all are great reasons to buy rural property right now.  A couple acres with a garden plot, sheds for cow and chickens, a well, solar panels and generators, guns and ammo, a place to stockpile food, a pack of dogs, fencing, your HAM radio.  You hope for the best but  prepare for the worst.  If nothing else, you'll be ready for the growing problem of weather emergencies (Cville's microbursts, Hurricane Irene, Louisa Tornado, Snowpocalypse, Snowmageddon, Aug. 23 earthquake).
 
8.  Any comment on new HARP program, or the rumor of principal reduction that could come with the Attorneys General settlement over MERS / robosigning?  Help or hurt the market? 

JIM DUNCAN 

MERS concerns me greatly. Realistically, it may be as big of an issue to the system of real estate ownership as foreclosures. MERS doesn't seem to be in the conversation with many (most) real estate professionals with whom I speak, nor many associates with real estate … it's under the radar unfortunately. I can't even begin to speculate on the scale and scope of this other than to say it's likely to be HUGE. 

MERS (Mortgage Electronic Registration Systems) seems like a nice enough, small business (about 50 full-time employees) located in Reston, Virginia. But MERS has turned into a monster that is wreaking havoc over our foreclosure process.

What is MERS? (read the whole thing)

What is MERS |Background
MERS was founded in 1995 by Freddie and Fannie, Bank of America, and Chase, as a way to upgrade and modernize the country's centuries-old handwritten system of land records. By making this process more efficient, banks were now to make the process of securitization (bundling loans and selling to investors) quicker, cheaper, and easier. As a reward, MERS holds the titles to over 50% of all mortgages, or 60 million loans!

GREG SLATER 

I think the jury is still out on this.  I think most feel past programs were a failure and there is a built-in prejudice regarding this program or any speculation or new proposals until there is real evidence they are working as planned.  I did just see this article today: new HARP refinance statistics, from Oct. 31. 

MICHAEL GUTHRIE 

I find myself concerned when the government is once again spending money they don’t have with no plan as to how to raise what they spend.  It could help the market however short term because it has the ability to keep more homes being foreclosed on and coming on the market at bargain basement prices.  The more this happens, the less chance there is of home prices stabilizing

.

C'VILLE BUBBLE BLOG

What Jim said. Caveat Emptor.


9.  In many parts of the US, well-priced NEW construction is pushing the prices down of "used," existing homes.  But not in City of C'ville, and not in much of Albemarle (even when seller has equity).  What's up with that?

GREG SLATER 

I've always said new construction prices set the market.  Speculative building has subsided and the majority of new sales are "orders" for new homes.  This is valuable data.  This is representative of the leading edge of demand in the market.  I can show evidence of this in segments of our market, but usually in places where over building occurred at the top of the market.  Demand has changed.  The reason this is not more evident in Cville and Albemarle is the lack of supply for buildable lots in some locations.  There are very few new home options in the city right now and not everyone wants to move to Crozet.  Essentially, if the home you're selling is competing with new construction, you need to take this into consideration when pricing your home.  There are a few communities that have been stuck in the pipeline [development process - bb] that could arrive in 2012. These will have an impact on the market.


MICHAEL GUTHRIE 

I have already addressed why some sellers are not willing to reduce the price to a point that it will sell.  Ultimately, well priced NEW or EXISTING  homes will sell and the others will have to follow suit if they want their property to sell.  Case in Point—Much has been made about the increased sales activity in both Belvedere and Old Trail over the past year.  Yes, both communities are now offering the amenities that had always been promised but I believe it was more about price point.  Not until the developers reduced the lot prices so that builders could build homes in the $300K + price range vs. $400-500K did sales begin to take off.  The Home Energy Performance features and the community amenities are nice but I believe price is what is driving the up tick in sales.




C'VILLE BUBBLE BLOG

Click on image for larger version.





JIM DUNCAN 

I'm going to attribute this to the fact that while a large portion of the buyers want new construction, there are more who want existing homes' locations. There's a balance here that is being drive in part by the market segmentation that we are developing. But.
In the City, new construction (right now) does not make up a large segment of the market - right now there are 317 homes on the market or under contract in the City; 35 are marked as being new construction. In the County of Albemarle, those numbers are 1306 and 347 respectively. That said, we have seen one builder in particular who has had a significant impact on the local market - they are selling so inexpensively that for many buyers, buying new is a better option. This impact is seen most dramatically in the town home market. I can't tell you how many times I've heard this year from buyers that they like a particular existing town home, but they can buy a new town home with more square footage and a garage for less. I'll write more on this later, but we have seen that existing home prices have been driven down by new construction. 

10.  Care to speculate on Western Bypass and impact on market?  

Cville Tomorrow has a website devoted to the road, which includes the Dec. 2011 update that 9 firms have been approved to proceed with bid proposals.



JIM DUNCAN

wrote earlier this year that "The Western Bypass isn’t the perfect road, and may not even be a good one, with it northern terminus being south of Forest Lakes. But this area needs transportation improvements." 

I think the Western Bypass may be built. But, like the Meadowcreek Parkway, I doubt that if we were to design a road today to be built tomorrow, we would design the Western Bypass. Our region's epic inability to implement transportation/transit solutions is legendary. I tell my clients that just because a project is being debated, it doesn't mean that it's going to be built. But … never assume anything.
Buyers should do their due diligence when purchasing a property. Look at the property, historic records, adjacent properties, the County sites for planned developments, infrastructure, etc.

MICHAEL GUTHRIE 

I don’t think the Western Bypass or the Meadowcreek Parkway will have any impact on the real estate market.  They are much needed for alternative travel but don’t think their completion will impact pricing except for those properties that actually back to the roads and a few neighborhoods that would benefit from easier access in and out of Charlottesville.  My experience has always been that the fear of what the roads’ impact will be creates more consternation than when the road is finished so folks don’t have to guess what the road will look like.



C'VILLE BUBBLE BLOG 

There are many listings in C'ville and Albemarle that are on or near major roads or highways, the 250 ByPass, and even I-64.  Very often the listing will say something like 'private lot with mature landscaping' and make absolutely no reference to the busy road abutting the property.  Here's a foreclosure as an example.  This is perfectly legal under the 'four corners rule' and agency privileges, but it infuriates buyers.  Due diligence is necessary about (including, but not limited to)  roads, neighbors, schools, vacant lots, cell phone and antenna towers, houses of worship, etc., on the part of the buyer.

1 comment:

Catherine said...

Wow. Thanks for sharing the views of these 3 influential realtors. I can spot one who is extremely well-informed (but zerohedge, really?) and dedicated to sharing his perspective. The others come off as ill-informed and/or industry-hyped.

Caveat emptor when it comes to information providers.

Thanks for putting this together.