Coming Together
If the gulf coast was a store then you would see SALE! signs in every department. In fact the signs would be prevalent all over the country. When a store advertises sales the purpose is to attract buyers. If the advertisement says “20% Off” people flock to the store. Why? To save money! Granted buying property is on a much larger scale but the same principle applies. If a For Sale sign said “Condominium 20% Off” would that spark any interest? If a For Sale sign said “Buy at Cost” would that spark any interest? What we are seeing is “Bank Owned”, “Pre-Foreclosure” and “Foreclosure” signs.
So with the Sale! signs in the windows of real estate why are there so few buyers? I think that it is the same reasons that the entire country is immersed in a housing fiasco. Money was easy and people that could over extended for whatever reason, to upgrade their primary home, buy a second home or vacation property. Speculation was high and with the “runaway appreciation” many people were refinancing at current market prices and pulling equity out of their property. When the bubble burst the market spiraled downward and balloon payments spiraled upwards and all of a sudden the property is not worth the mortgaged amount. And why? Well I think the simple answer is everyone took at advantage of a good thing. How does it right itself? Again the answer is simple, everyone. The FEDS are lowering interest rates in an effort to help the troubled housing market and head off a recession. But it really boils down to sellers and buyers; they are in control of the market. They are the players. Until they come together the market will be what it is today. I am going to be forthright and upfront. There is way too much inventory! So here are my thoughts.
Seller’s – Know the comps and last sales. Remember that properties are on the market much longer and most are not selling at the current list prices. If you cannot be competitive in price don’t list. If your mortgage is more than the average price of comparables don’t list. If you have listed a property and you fall into one of these categories please take it off the market. Property is only worth what a buyer will pay. If you were fortunate to buy years ago and must sell today and can make a profit – take it, consider the carrying cost if you don’t sell. Calculate your yearly percentage increase and if you are in the 5% - 8% range you have not done to bad with your investment. Where else can you get that kind of return? The market is not going to rebound anytime soon to the point where appreciation is going to catch up with were it was 4 years ago.
Buyer’s – Believe it or not there will not be a proverbial “Bottom”. Every property for sale has a bottom! Is the seller negotiable? Usually the first question from a buyer. As my teenage son always reminds me “everything is negotiable”. Yes the seller is probably negotiable. How much depends on several factors; purchase price, furnishings, mortgage, carrying costs, and length of ownership. But don’t expect to find a 50% Off sale. If a seller is already taking a loss then don’t expect them to accept an offer that is 20% - 30% lower. Check the Market Update – the average sold price change percentage is around -11.00%. This is not bargain basement shopping. Properties are listed to sell at losses, break even, less than mortgage, appropriately priced and yes, some over priced. It is what it is, so if you are waiting for the “Bottom” you will probably be waiting a long time.
My father, a wise and very conservative man once told me two things that I will never forget.
“Never buy anything you cannot afford”.
“Don’t invest if you cannot afford to lose”.
If we all lived by those two statements I believe that we would not be where we are today. I’m Just Saying…
Jim Sullivan
Origin of "I'm Just Saying..."
Although the saying has been around for a long time I give credit for my understanding and use of it to my sister-in-law. During many discussions we fail to agree with each other on many points. We would come to an impasse where she was not going to convince me of her opinion and I was not going to convince her of mine. At that point she would utter the words “I’m Just Saying…” and neutralize the discussion. She recognized that she was not going to change my opinion and I was not going to change hers. It’s not that she was right or that I was right, but that we both respected what the other was saying even though we didn’t agree.
I use it in everyday life. Listen and you will probably hear someone else use it. Try it yourself and see if it doesn’t make a difference. I’m Just Saying…
Real Estate Market Statistics – Foreclosures
"Statistics are like a bikini. What they reveal is suggestive, but what they conceal is vital" -- Aaron Levenstein
Breaking news streamed over the internet, in print and on TV around the middle of November. “Foreclosures up 30%”. That’s disturbing news. We all knew that the real estate market was in bad shape but 30%!! Wow! What does that really mean? 30% of what? Do realize that 30% of 10 is 3 and 30% of 10,000 is 3,000. In reality the statement was a comparison between September 2007 and October 2007. Foreclosures were up almost 30% from September to October. But it does raise curiosity and give people something to talk about.
“Did you hear that foreclosures are up 30%?”
“Yea, I did and I’m glad I am not in that situation”.
“The real estate market is in really bad shape, I’m going to wait until the dust settles and the market bottoms out before I consider buying.
“Yea, me too, I’m going to wait until prices come down – a lot”.
“How will you know when it’s the right time to buy?”
“I don’t know but I’ll know it when I see it”.
“Maybe there will be some indication that it’s OK to buy again”.
“Maybe, or there might be some kind of announcement”.
The fact that the mid November announcement can out at all was nonsense in it self, must have been a slow news day. Look under the bikini. It is not the first time this year that the percentage of foreclosures had increased almost 30% over previous months. In fact there were actually months were the percentage of foreclosures decreased from one month to the next.
Fact is that compared to this time last year foreclosures are up over 100% by the numbers alone. But take into consideration that there are more households than there were in 2006 just as there were more households in 2006 than there were in 2005. By arithmetic alone that increases the possibility that there may be more foreclosures. So in that respect foreclosure numbers should be looked at in a per capita basis, number of foreclosures as a percentage of households. According to Foreclosures.com in 2006 there were approximately 58,705,830 households and the foreclosure percentage was 1.03% per 100 households for the year. In 2007 there are approximately 76,457,033 households and the foreclosure percentage to date is 1.43% per 100 households. Granted there are many other companies tracking foreclosures and there is great debate as to the accuracy of any of them but for this exercise I have chosen to use their figures to calculate the % Change in the following table. Notice that in 2006 there were three months where the foreclosure percentage was over 20%.
| Months |
2007 % Change |
2006 % Change |
| Jamuary to February |
Up 5.24% |
Down 4.66% |
| February to March |
Up 29.46% |
Up 29.94% |
| March to April |
Down 9.95% |
Down 21.87% |
| April to May |
Up 22.71% |
Up 10.28% |
| May to June |
Down 27.31% |
Up 2.37% |
| June to July |
Up 29.08% |
Up 0.36% |
| July to August |
Up 17.66% |
Up 26.35% |
| August to September |
Down 16.64% |
Down 9.94% |
| September to October |
Up 29.51% |
Up 21.18% |
| October to November |
Up 7.45% |
Down 0.29% |
| November to December |
? |
Up 2.32% |
Yes there were other contributing factors like looser lending practices that allowed people to buy properties that they could not afford and the flippers that over extended themselves. But for some it was worth the gamble. Some got in and got out, some got in to deep and some got in at the wrong time. Kind of reminiscent of the .com era when companies stocks were soaring with no P&L to back it up and outrageous P/E Ratios. The point of this exercise is to understand what is under the bikini when general statements are made about the real estate market. My advice is to take everything with a grain of salt, know and understand the details behind the statement.
And what has it done to the real estate market? It has raised the bar. Lenders are more cautious and the price of property has increased because many of them were bought during the “Buying Frenzy” and mortgaged to the hilt. If your waiting for the condo priced at $1,000,000 to come down to $700,000 or even $800,000 don’t hold your breath. It isn’t gonna happen and here is why. Foreclosure! The condo was purchased in 2004 for $1,250,000 and refinanced sometime after. The foreclosure judgment amount is over $1,600,000. The lender may take $900,000. Considering that there are four other comparable units for sale ranging from $1,100,000 - $1,495,000 the $900,000 price is a bargain. Everything is relative. Once upon a time the price of gas was under $1.00 a gallon.
Short sales and foreclosures present buying opportunities. Those are the facts. Hear me now and listen to me later! I’m just saying…
Jim Sullivan
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Real Estate Market Statistics
The status of the real estate market is always reported to and by the media nationally. It is all based on statistics and having taken one statistics class in my college days I realized that you can use statistics to support just about any statement or theory. By its own definition it encompasses the collection, analysis and interpretation of data. Home sales statistics are usually regionalized and depending on who is reporting they can vary, whether it is the National Association of Realtors, Freddie Mac or someone else. The problem with statistics is just that, they are statistics, techniques for collecting and interpreting information. Harvard President Lawrence Lowell wrote in 1909 that statistics, “like veal pies, are good if you know the person that made them, and are sure of the ingredients." Don’t get me wrong, statistics are valuable when they are based on a specific set of data, but they still do not allow you to see the full picture.
When it is reported that the housing market is down X% that’s a fair statement based on the overall statistics. But the statistics don’t show where the market is down and where the market is up. I know several Realtors in other states and believe it or not there are areas where the real estate market is up. When I say up I mean that there are sales and the price is reasonable both from the seller and the buyer perspective. Everything is relative and a good market today does not mean it is as good as previous years but it is good by today’s standards. The market in general is down but there are properties selling and yes the median is down but if you are an investor or looking to buy then that’s when you want to buy, in a down market.
Where I am going with this is to expand on the statistics in my Market Update regarding the single family home market in Santa Rosa Beach. Taking the October sales statistics there were 28 closed sales of which 22 were sold lower than list price. The sold price change percentage ranges from -0.65% to -26.26% with the average being -8.24%. So a good assumption would be that 8.24% plus or minus 2% less than list price would be a reasonable offer. That would set your offer between 6.24% and 10.24% less than list price. Taking actual sales here is how the math looks. A home listed at $799,900 and sold for 6.24% less than list price for $750,000, a $49,900 reduction. On the other side a home listed for $795,000 sold for 7.55% less than list price for $735,000, a $60,000 reduction.
Here is what the range and average statistics don’t show. Of the 22 homes sold 7 of them sold between 0% and 5.0% less than list, 6 of them sold between 5.0% and 8.24% less than list for a total of 13 sold less than or equal to the average of -8.24%. There were 3 that sold between 8.24% and 10.0% less than list price, 4 sold between 10.0% and 15.0% less than list price, 1 sold between 20.0% and 25.0% less than list price and 1 sold between 25.0% and 30.0% less than list price for a total of 9 sold greater than the average of -8.24%.
Taking the adjusted averages of -6.24% and -10.24% into account, 10 of the 22 homes sold for less than or equal to 6.24% less than list price and a total of 16 homes sold for less than or equal to 10.24% less than list price. Using the average of -8.24% of the 22 homes sold 59.1% were less than or equal to the average and 40.9% were greater than or equal to the average. Using the adjusted average of -10.24% of the 22 homes sold 72.7% were less than or equal to the adjusted average and 27.3% were greater than or equal to the adjusted average.
Now there are some statistics! I think I actually like statistics and I could probably go on and on, but here is the bottom line just as I stated in my Market Update, for reasonable priced properties don’t expect drastic price reductions and for the most part don’t expect to buy a property for 25% less than list price. I’m just saying…
Jim Sullivan
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Bottom, Bottom... Where is the bottom? Does anybody know?
Everyone talks about the bottom. The bottom of the stock market, the bottom of the real estate market and how about the bottom of the barrel. Does anyone really know when we are at the bottom? And who is it that controls the bottom? We usually know who controls the top but the bottom alludes us. Is it the Feds, or the banks or the media? Hmm... Let’s explore a little bit. The bottom of the barrel is pretty easy, you can actually see when you are reaching the bottom and when you see that the barrel is empty, well then, you are at the bottom and everyone can exclaim “We are at the bottom of the barrel”!
Herein lies the problem for the stock market and the real estate market, you cannot see the bottom. The bottom sneaks up on you and surprises you when it arrives. Why? Because even though you were looking you did not recognize it when it appeared. Everyone starts running around announcing "We are at the bottom of the market"! You will see it in the newspapers, on TV and everyone will be talking about it. Frantically they are calling their stock brokers and real estate agents trying to get in on the bottom before the bottom rises. They want to be part of the elite that can claim "I bought at the bottom of the market"! So, how many of those people do you know? You can probably count them on one hand. Not many people actually get in on the bottom. It's kind of like a secret society. Why? Because they are the ones that know who controls the bottom.
Who is it that has the power to say "The market has bottomed out" and everyone believes them? Granted there are many factors that affect the market but someone has to take all of that into consideration and make the statement. But the problem is that the statement is usually made in the past tense, because as a stock broker friend of mine told me, "you don't really know when the bottom is until you can look back and say "Yep, that was the bottom". So once the statement has been made it has already happened. What brought the bottom on? Buying! Yes, we control the bottom! When the buying starts back then we have reached the bottom, but someone still has to make the announcement, and once that is made it is too late because the ones that recognized the bottom and bought before the announcement can say "I bought at the bottom of the market". And the bottom of the market is not like the bottom of the barrel. It is not empty and you cannot see the bottom.
So take everything into perspective. When you can buy a condo for $150,000 less than the original purchase price of two years ago, then they are at the bottom. When you could have bought a condo for $49,000 less than the original purchase price of three years ago, then they are at the bottom. Does that mean everything is at the bottom? No, but the bottom is here, you just need to look in the barrel and see past the surface. I'm just saying...
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