Price your house right for the spring market.
My grandmother always said, and she said a lot of interesting things, "If wishes were horses, beggars would ride." Wishing your house would sell for more money will not make it happen. No amount of advertising or marketing will make a difference if your home is not priced realistically and buyers cannot see the value in your home. Everyone likes to think they got a deal. The trick is to find the sweet spot where a likely buyer for your home's ability to pay, hopes and aspirations intersect with your acceptable price. The market is much improved, but only for those with realistic expectations and who exhibit a willingness to act quickly and to compromise to reach their goals.
It's been a long time coming that we could even imagine sales picking up, buyer confidence returning, or prices returning to "normal", whatever that means. It seems that at last, even in the absence of effective government policies, buyer confidence has returned. More likely, people just can't wait any longer. It is impossible to maintain a consistently gloomy outlook forever, it is contrary to human nature. We want a place to live that is reliably ours, a context for our lives that can reflect our creativity and provide shelter and comfort for our families. Rates are really low. There seem to be more jobs in certain sectors of the economy.
But have prices really risen? It doesn't look like it here, in our car-dependent boonies. We love to share stories of multiple offers, and price increases in certain segments of the market (read downtown Chicago condos), but the suburban single family home is still challenged pricewise. People can still buy nearly new homes for less than they would cost today to build. The one thing that makes a difference, that translates to higher prices, is access to public transportation.
I was at a transportation meeting last night, a group of parents looking to create access to transit for their adult children with disabilities. I thought of seniors, and the poor, other groups that need transit to survive, to get to jobs, to access health care, to do shopping. We may have crossed a threshhold in suburbia, where the desirability of our green lawns and relatively safe neighborhoods and good public schools are a poor tradeoff for isolation and dependence on cars, with the attendant traffic jams, long commutes, expensive gasoline and time wasted away from our families. The extravagance of big lawns and large homes holds a terrific appeal, but comes at a tremendous cost. Right now, in this market, it seems that fewer people are willing or able to bear that expense.
One solution to the suburban problem would be a comprehensive mass transit system. This is the kind of issue, unlike education, that lends itself to big, regional, sweeping government action. It has a concrete, measurable result. It's something we can't do better individually. Come on, people now. Everybody get together.Â
It seems we have officially switched over (though some may say we were
always doing things this way...and it is true). I refer to an article in
"The Economist" that describes a way to use social media to predict the
movements of the stock market. Apparently it isn't always perfect, but
developers are selling this service for $1,000/month and up, and it
collates tweets and posts to gauge the mood of the market, and therefore
predict stock prices.Â You can check it out here:
if you want to. I guess it is better than using a Ouija board, tea
leaves, a dousing rod, or any other methods people have relied on
lately. (Personally, I loved the Eight Ball. Do they still make those?
"Outlook not so good".)
This is exactly what has happened to housing, where market sentiment has
substituted for the cost of labor, materials, and soft costs in coming
up with a price for a home. To quote Barbara Corcoran, "Everybody wants
what everybody wants," and the converse has been true as well. Everybody
hasn't wanted what everybody hasn't wanted...though those sentiments
are muddled with credit scores, the availability of financing, and the
inexorable downward spiral of real estate prices, which (please, dear
Goddess of Real Estate) seems to finally have hit a bottom.Â
I don't understand how we got here. Of course feelings and expectations
have always played a part in people's economic decisions, but at some
point, the cost of materials had some bearing on a product's price. If
anyone has an opinion to share, please respond to this post.
While spinning at Joy Ride in Highwood yesterday, (Eva's class, 45 minutes of spin and a few minutes of weights and stretches) I had a wonderful "Aha" moment, of course when I wasn't trying to, about my new car. Â For those of you who don't know me personally, you won't know that I've been trying to choose a car for the last year and a half. Â I kept waiting for the ideal vehicle to be designed, manufactured, announced, anything. Â It would get phenomenal gas mileage, be very comfortable, roomy, dog-friendly, and aesthetically pleasing. It would have a sun-roof, and a decent sound system. It would also have to cost $15,000 or less. As you might imagine, this car was difficult to find.
I spent an awful lot of time talking to car salesmen (emphasize awful). Â Being in sales myself, I actually enjoy this, which is a good thing, because otherwise the search would have been unbearable. Watching a good salesman is like reading a good book, it's always interesting and you probably learn something. Also, salespeople generally like people, so most of them are nice to you. This didn't help me find a car, though. I considered so many factors: resale value, gas mileage, interior cubic footage, front-wheel drive, all-wheel drive, visibility, safety ratings...the list goes on and on. I can't even imagine how many different factors I tried to analyze. And there were so many cars! Fords, Subarus, Mazdas, Kias, Hyundais, VW's, Minis, Toyotas, Hondas, Chevys...all pretty nice for some reason or another, all ultimately not the right car. It was exhausting. Meanwhile, my daughter got tired of my constant "borrowing" of her Toyota Corolla, and with almost 200,000 miles on it, and a missing hubcap, it did not present the image I really wanted. I desperately needed to make up my mind.
So, one day, after test driving another Hyundai Elantra, which was okay but not really "nice", I'm sure you know what I mean, and that cost over $20,000 and that DIDN'T HAVE A SUNROOF, I wandered over to the Mercedes lot at Knauz and, lo and behold, found something. The thing was, the car was really old, over 5, and had some mileage on it, over 40,000. It requires premium fuel, and gets "okay" mileage, read: Better than my old Land Rover. It is not a hatchback, or a station wagon, so it doesn't work so well for our dogs. But it was the right price, it HAS A SUNROOF, and it made me feel great when I took it for a spin. I knew, right away, that this was the vehicle for me.Â
All this might seem like too much information...about me, my car, and my purchase decision, but it all relates back to the Jonah Lehrer book, "How We Decide", which is probably the best business book EVER, right up there with "Good to Great". It also relates to making a buying decision about any expensive thing that is supposed to serve you well, and that you will probably be stuck with for several years, like, say, a house.
The neuroscience of how we decide, proposes Mr. Lehrer, is that we need to trust our emotional decisionmaking system. The exercise of rational thought processes in making choices is somewhat illusory. Our rational brains can hold only maybe at most seven variables at a time. "Getting all the facts", especially in this age when so much information is literally at our fingertips, can hinder getting to the truth of what we want, what will make us happiest, and what is ultimately the best deal.
Lehrer told a story as an example, about a sailor whose job it was to watch the radar screen in the first days of ground fighting in the Iraq war. His job was to detect and shoot down silkworm missles that were being fired at Navy ships in the Gulf. At the same time, US pilots coming in from missions would cross his screen, too, at about the same place on the radar. He had to decide whether what he was seeing was two Navy pilots returning from a mission, or a couple of silkworm missles being fired at one of our ships. He had 45 seconds to consider whether to let it go, and possibly risk the lives of hundreds of sailors on the USS Missouri, or pull the trigger, and possibly kill two US Navy pilots. There was something about what he saw this one time that made him feel fearful of those two blips on the screen, and he shot them down. He couldn't say why, but his decision ended up being right. Later the data was analyzed over and over and it was found that there was a tiny discrepancy between the signature of the missles and the trail on the screen left by the pilots. It was almost imperceptible, but his brain picked it up. He trusted his gut feeling, and things worked out.
All this reminds me of our housing market. For the last four years, there have been innumerable choices, at really great prices, all layered over the same usual choices homebuyers need to make about location and condition. It's confusing, and the uncertainty about where the market is headed is another buzz kill when considering the all the options. Of course, buyers need to inform themselves about the market. They need to understand themselves, their families, and their present and future needs. They need to know what they like, what is really important, and what they are willing to trade. But getting "all the facts" is no guarantee of being happy with your final choice. Ultimately, if you really do want to buy a house, get as much information as you can, listen to your realtor's advice, and then, by all means, please trust your feelings. They are probably smarter than any conscious analysis, anyway.Â
Spencer Jakab's article in today's WSJ, "Ahead of the Tape: Housing Bulls Aren't So Far Out on a Limb", gives hope to those of us who have been saying for the past six months or so that home prices have bottomed and are on the rise.Â
Focusing on new construction, Mr. Jakab cites a home builders' index tracked by Standard & Poors that is up more than 25% year-to-date.Â Toll Brothers is up 21 points, and KB Home's index has almost doubled.Â The Housing Market Index from the National Association of Home Builders may top 30 for the first time since May 2007.Â This number was at NINE three years ago, and just six months ago stood at 14.
Supply- and demand-wise, the picture going forward rocks as well.Â We've been building about one-third the number of homes since the crisis began in 2008 as were built annually in the six years running up to 2006...470,000 annually now, versus 1.49 million prior.Â Almost one million homes are lost annually to fire, destruction by storms, neglect, and other forces.Â Finally, demographics and pent up demand are trumping doom, gloom and financial uncertainty.Â
It is lovely to begin a week with such great news for new homes.Â It seems inevitable that this increase in demand will bode well for existing homes as well. Â Â
Just in time to confirm what we already ironically suspected...money does not buy happiness.Â A recent article in the Economist revealed results of a study that shows that people's current self-reported happiness levels are actually higher than they were in 2007. Go to http://www.economist.com/node/21548213 to read the story.Â Good news! Apparently there is more to self fulfillment than material success!Â
While the media has for the past five years hammered depressingly on statistics showing a loss of equity, oversupply of housing, and soft or fearful or not-qualified demand, there has been a wonderful uptick in creativity that is driving all kinds of new ideas about housing, community, transportation, retail, manufacturing, just about every economic and political activity has been re-examined, and in many cases reinvented and adapted to our current situation.
This is not just a housing crisis, or an economic debacle of monumental proportions, or a financial crisis.Â While it is convenient to have one scapegoat, the housing bubble is not the cause of all of our issues.Â It seems to me that a number of things are going on here, in response to changes that have been evolving since at least the 1960's.Â
1.Â Okay, granted, there has been an epic failure of our institutions to regulate themselves, inspire confidence and maintain relevance.Â The failure of some corporations to regulate themselves, the failure of Wall Street, the failure of the Church, the failure of government, the failure of the media...all trusted institutions that have shown themselves to be less than the inspiring models we all hoped they would be, and believed them to be in the past.
2.Â The loss of manufacturing to global competition, outsourcing and the rise of Internet-based commerce has challenged our existing ways of doing business and created stresses and a need for a big retooling of labor.Â Human capital has never been more important, and more in need of support.
3.Â Demographic and social trends are challenging us.Â An aging population, changing family structures, lower birth rates in developed countries, an increasing chasm between rich and poor and the erosion of the so-called "middle class" are all changes that require adaptation. The cost of health care and higher education are impediments to successfully navigating these changes.
4.Â Environmental issues, while we try to ignore them, are still looming large as issues that affect quality of life, health, food production and distribution, energy costs and use of the earth's resources.
This seems like a lot to put on the housing bubble, or even Wall Street.Â
Anyway, meanwhile there is a wonderful upsurge in creative solutions to housing, agriculture, manufacturing, transportation and the environment.Â People are having great ideas every day, and the courage to risk trying them out. Change happens. While it may sound trite, with every problem comes a great opportunity. We all just have to get on the bus, and enjoy the ride.
Things are finally lightening up.Â Month after month, by many different measures, the real estate market is improving. A constant question, "is this the bottom?" seems to be finally resolving itself. What does this mean for pricing new listings going forward into the spring market?
Now more than ever, I think it is important to look at the competition...other homes currently on the market...in pricing new listings.Â While appraisers will use sold properties to justify price, looking at only the distressed prices of the recent past will skew prices downward. I think we've all had enough of that.
Having said that, the "shadow inventory" of foreclosures to come may wreak more reductions going into the summer. So to take advantage of the sweet spot of the spring market, and to potentially sell before the foreclosures come along, pricing a listing correctly is more important than ever. Sellers might benefit by putting themselves in the buyer's place.Â Pretend you have a certain amount of money to spend (say, whatever you think your home is worth). Look at the competition in your market to see what that bundle of cash will buy. This is what buyers do everyday. It will definitely serve you well to be the best deal that buyers can find in your market.
If you choose to believe that prices are going up in the short term, and price your home to reflect that idea, you can find yourself chasing the market down all summer, ending up at the price your agent recommended long after that opportunity has gone by.