Osman's wisdom in a prior thread actually inspired this post
If everyone wanted out of the stock market at the exact same time, we'd have a crash. 1929. 1987. A good old fashioned crash.
If everyone wanted out of the housing market at the exact same time, well, guess what. We see the inventory spike, but we don't see the sales data until the home sells. If it ever sells. So for all of you asking "where's the price decline? where's the price decline?" - well, hold your horses, these overpriced dogs have to sell first. If they sell.
I think the true test of home prices right now will need to be done by each of you. Go put some low-ball offers on houses - say 30% off - and you'll see what the market will bear, right now, today.
The fuse is lit, we'll just have to wait a few months for the bang.
July 07, 2006
Here's the way it works. Keep this in mind. The delay effect when considering stocks vs. housing
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39 comments:
One negative side effect of having people upside down in their mortgages is that being unable to sell, they will become less mobile. This will have a ripple effect throughout the economy as people will be unable to move to seek employment opportunities, take advantage of better positions, etc etc... The economy will see a headwind from this: our mobility has been a great impetus for economic growth... Build it and they will come: not any longer
The analogy between stocks and houses breaks down rather quickly. It is possible for every stock owner to want out at the same time, and yes, that makes for a spectacular crash.
While it is possible for every speculator home owner to want out at the same time, only a small fraction of home owners are speculators and a homeowner who owns his house to live in it is unlikely to want to sell it just to cash out of an inflated market.
Moreover, some people simply have to buy houses either because there are no suitable rentals in their area or they just are at a point in their life that they would rather not rent.
These reasons add up to a long term withering of housing prices rather than a sudden pullback followed by a healthy market.
Those very few of us able to buy houses would be too scared to offer 30% off. What if they accepted? Seriously, that sounds way to much like volunteering to be the mouse to bell the cat.
how about 50% then?
You put lowball offers of 30% and you'll get laughed at. There no place where it's 30% down yet from last year.
Where do you get this stuff? Remember Y2K and all the panic? What happened.
NOTHING.
You are just lost in a world of banal hurting.
oh, i disagree. go to phoenix, young man, go to phoenix
Actually, It's a savvy strategy because distressed sellers are often ready to capitulate. I don't know about 30% off, but Banks in our area, because of the volume of foreclosures, seem willing to approve short sales (although notoriously difficult to deal with).
I wrote a post about it a few months ago, highlighting the use of Days on Market to sniff out bargains. Because DOM isn't usually public, you'll probably need an agent to help you do the research.
Within certain constraints, I'd gladly write up an offer for a serious buyer who wants to lowball properties that have sat on the market for significant periods of time.
In our local area, I think you'll find the best deals are in Superior and Broomfield. Both areas have seen substantially increased inventory and lower sales/inventory ratios.
You can probably also find some deals on in Boulder on the high end as well, although my experience is that many times those sellers are willing to wait it out because they have the financial resources to keep going. Not always, but generally speaking, they'd rather pull the property off the market than accept a low ball because they don't HAVE to sell.
If you are working with an agent, get them to lay out the market by price point relative to your purchase intent. I just published Boulder's market by price point and the best price point to low ball (should you have the means)is $1.2 to 1.3MM properties where sold property in the last 90 days accounts for only 13% of current inventory. That's like saying for every buyer, there's about 10 houses to check out.
Finally, Keith. I got a shock this afternoon when I did the price range analysis for condos and townhomes in Boulder. Those nice new condos downtown around (similar to One Boulder Plaza)? There are 15 of them currently under contract (none available, at least on the MLS) priced from $1 to 1.5MM.
Can I interest you in something in Martin Acres (my neighborhood) for $325K? It's only a 15 minute bike ride to downtown...
I think most sellers would laugh at a 30% off lowball offer. Even in a market where housing values have recently weakened, I would expect the asking price would still have some bearing on how low the seller was willing to go.
I couldn’t imagine telling a seller "I know you are asking $1M but I am prepared to pay you $700k" If the seller was willing to go down to $700K he would have changed his asking price to $780K.
Also, why would a seller asking $1M accept an offer for $700K without first trying to see if his house would sell at an asking price of $980K, $960K, $940K, $920K, etc.?
He wouldn’t!
That is not to say that a lowball offer has no value, the seller who received a bid for $700K and no viewers at $1M might then decide its time to ask $980K, who knows, but it doesn’t seem logical that a seller would all of a sudden take $700K where he was asking $1M.
Longmont's where the bargains are. Or about to be are.
The thing is, nobody wants to sell. I've checked around places with high inventory and nobody wants to sell.
It appears all the flippers either sold last year or went bankrupt earlier this year and their houses already went through auction.
I'm just not finding people who are willing to entertain more than 105 off. Not in Phoenix and Not in Las Vegas. Check the price reductions if you don't believe me.
If they recently reduced the price by 10%, there's now way they'll consider 30%.
Where are you finding these people willing to consider 30% off? Anyplace?
Everbody I talk to is claiming things will go back up and won't entertain anything more than about 10% off even in Phoenix and Las Vegas.
Sorry ... that should have said 10% off.
In Seattle they won't even entertain that. 10% over they might entertain.
thinker - your place has been on the market for 6 months, you're paying $4000 a month, you paid $200,000 and it's "worth" $800,000, you'd take 30% off or $540,000, and take the $340,000 gain and run
especially if you lost your job, got divorced or wanted to move to bali
Anon, you're right. I should have included Longmont. With the high inventory at the low end and most foreclosures in Boulder County, there are definitely bargains. Plus, companies like Amgen are moving more people to Longmont.
We have alot of clients who start looking in Boulder but end up buying in Longmont because of the price differential.
p.s. Keep in mind there are a few negatives to Longmont that turn people off. The Turkey processing plant downtown, some not so great neighborhoods, and lower education and median incomes in particular.
http://www.rentalsoftware.com/MrLandlord.htm
I think it's too early for 30% off. People need to feel some real pain first, AND be incredibly motivated to sell. (divorce, estate, lost job, forced transfer, etc) But if you wait 1 year when the REO depts of banks start getting some significant inventory...well, then 30% will be doable.
Call your bank, find out who the REO guy is and take him to lunch. Lay the groundwork now.
We are planning on buying in the next year. If a house that is out of our price range sits on the market for quite awhile, we may offer 30% less than asking. They may laugh and turn us down, but I'll leave my # with them just in case our offer is the only one they get. Of course I will also offer 30% less on a house that is within our price range as well - but those usually need a ton of work.
Thinker
A solid offer, no contingencies can give a seller pause. They may laugh at first, but they might also come back to you down the line when times get desperate and they NEED to get out.
My parents current house was purchased that way years ago. My dad offered the sellers 80K when they wanted $120K. They laughed but three months later contacted him with a counter for 90K. He countered again at 89K. They agreed.
If you're serious, do your homework,and are willing to walk away you'll find undervalued assets during a market downturn. It's how serious investors make money.
The best way is to find people who are distressed.
If you can find a place where there are a lot of flippers ...
or if you see the house pictures in the ad doesn't have any furniture in it (meaning no renters and they don't live there), then they might entertain a lower offer.
But summer seems the WORST time to buy a house because everybody wants to move in summer. So it seems like you have more competition.
If you were serious about getting a deal in today's market, I'd say wait until this winter and then make a lowball offer on some flipper in trouble with a lot of days on the market and no or little furniture in the house pictures.
It took me two years to buy and move to Austin. Why? Couldn't find a house for the price I wanted in the area I wanted to live. I wasn't willing to pay top dollar for someone elses dump and I'm sorry but those $160,000 homes they sare are affordable are dumps.
I bid on foreclosed homes that had been on the market for over a year and the bank wouldn't budge on their price. One house needed perhaps $50,000 in repairs and I had discounted the bank price by that and was told, "Offer what the bank wants or it sits." It finally sold for what the bank wanted.
Another house was empty and needed major updating to bring it out of the Dick Van Dyk era and the old couple who lived in Houston were in thier 80s and the home had beem their vacation home in the Hill Country and Turned down what I thought was more than a fair price considering the cost to update and they kept the home on the market for 18 months before they finally sold it, and for $25,000 more than they had it listed for!
I'd have loved for someone to accept a 30% lower bid! Another house I liked has been lowered 10% after sitting on the market since last June! Still not sold and the flippers won't budge below their bottom line!
End of story I bought new. WHy? Because the builders were more hungry and gave me everything I wanted and more all for 30% less than home owners were willing to give. Now the market has turned back into more of a seller's market here in Austin and I couldn't buy the house I'm now in for $100,000 more than I paid.
Not sure where the market will go in bubble markets but if Austin is a prime example then price stagnation is more in order than decline. In 2000 they lost something like 80,000 high end jobs. The economy grew very slowly (mostly low end jobs) until just recently and the only places that saw bargains were in places like Manor and Plugerville that catered to low end homes to begin with and now Californias are thinking them a bargain at $125-160,000. Even in the current market people forget about Location, location, location. That goes with cities too! SF, LA, LaJolla, Santa Barbara, SJ, Seattle, Portland, Austin, Tampa, Miami, to name a few have location, Kansas City, St Louis, New Orleans, Houston, Dallas, Providence, Detroit, etc don't, so all the markets, like stocks, are not equal.
All market are local. . .even within a market. . .
What I am seeing on this blog is what I am seeing in San Diego - some areas are a disaster zone with 10 houses for sale on one block, and other places have almost no inventory. In general it is the new developments in SD county - built from 2000 to 2006 that are in the worst shape - especially inland areas with long drive - like Temecula, Sun City, etc. I was out in Point Loma today, and very few houses on the market, and talked with some locals, and few price reductions. . .why - right on the ocean, older homes, older people who bought 10 years ago or more. . .Downtown SD is a disaster zone because of overbuilding - new condos on every block, and more opening each month. . .but even within that market, some older buildings (those built in the 1990's) are holding up well, because they have good homeowner associations, and few speculators. . .so there you have it. . .
You can't always sell stocks. Ever heard of limit down? Gap? Means they're trying to sell but they stop the market because it's gone down so much. Gap means the price goes from like 50 to like 10 after hours.
"Go offer 30% below list"
I did what you said.
Now I own 12 houses.
so you are saying that housing might go down soon.....maybe in the next couple months? you bubble believers have been saying this since 2001
one of these days you will be right, and you will predictably say "I TOLD YOU SO"
oops....forget, you already said that
Confused I'm in Broward. Prices are coming down in my area. Do a little research on Zip Realty. They tell you how many days a home has been on the market as well as when the prices has been reduced and by how much. I have seen several high end homes on the market over 100 days and prices reduced by 100k. Of course, we are still talking about $600-$700 price range and still very overpriced. But they aren't selling. I'm giving the market another 6 months. I personally know of a few people just now starting to struggle. My inlaws have had their place further north up for sale for 8 month. Not ONE call.
I also recommend Zillow who will give you all sorts of comp information as well as appraised value (reality!) and what the property sold for when. Even if you don't trust their "Zestimates," you still get a good deal of information on a home or a neighborhood.
While it may be true that some areas are having a soft landing, it is also true some areas are on the brink of a huge fall, especially in South Florida where taxes are about to go triple and insurance is set by one company who is asking enourmous amounts for coverage due to hurricanes.
I expect many deals here soon. This is not mentioning the incredible inventory levels.
Thanks Osman - I don't want to offend sellers with my lower offers...it is all I have.
I have children with medical, dental and college expenses in the near future.
If a seller has owned a home for awhile, they should be more flexible in any profit they can get in the near future, with the questionable market future.
I would like to buy, but honestly have only seen 1 house this past year worthy of a bid.
All feedback is appreciated. With the RE market and NAR under such attack - you could come of this the Super Hero. Sell tons of homes priced fairly helping both the buyers and sellers.
Osman said...
"Within certain constraints, I'd gladly write up an offer for a serious buyer who wants to lowball properties that have sat on the market for significant periods of time."
What type of constraints?
Make an offer @ 30% off? What are you, nuts?? I am waiting until they pay me to take it off their hands. They all got paid on the way up so I want to be paid on the way down. What comes around, goes around. All those stupid buyers who outbid the real buyers and the realtors who own six houses can just all get in line and kiss my a$$. Pucker up sellers.
I now have to buy Aaron Spellings old house. Got a deal.
Thanks Keith you scumbag...
We moved to Boulder County last October. We have owned houses in various parts of the country for 23 years. We are renting. I am waiting for the 50% drop. There are an abnormally high amount of homes for sale...most dumps OVER 800K. You would have to be crazy!
You people who are afraid of making low ball offers - GET SOME BALLS!
In 1995, I made 30 offers and pissed off a dozen agents. Most ignored any offers I made thereafter on their other listings but I didn't give a crap. In fact, on a few I contacted the sellers myself to make sure my offer was conveyed. I had no down payment and 100% financing wasn't available back then. The market at that time was bad, so since I have a broker license, I went around making low-ball offers AND wrote into the offer that the seller had to pay me a 10% buyer's broker commission since I was representing myself as the buyer, which I was going to use as the down payment, something banks accept.
I made a similar offer on a 1-BR condo with an Ocean view off the balcony in La Jolla and the broker bit, but countered saying there wasn't enough equity to pay the listing commission and the 10% buyer's broker commission, so the listing broker cut his commission by 50% and I paid just over what the seller owed and paid $104,500 for that condo that I sold in August of 2002 for just under $300K.
The funny part of this story is that the broker was well known in La Jolla because at the time he was California's only blind realtor (Klatt Realty in La Jolla).
Since he couldn't see the peak ocean view off the balcony, it was never entered into the MLS description and the listing therefore did not get alot of attention.
This is a true story and I can easily prove ALL of it. It just proves you have to be diligent.
If you're too bashful to make a lowball offer, you don't deserve to make any money in real estate or anything else for that matter.
You folks are forgetting something.
Most sellers will laugh at 30% off offers.
But not all of them.
If you make enough, you'll find the one person who has to sell.
And that sale will get you a nice house, and set lower comps for the entire neighborhood.
Do it.
the thinker: "That is not to say that a lowball offer has no value, the seller who received a bid for $700K and no viewers at $1M might then decide its time to ask $980K, who knows, but it doesn’t seem logical that a seller would all of a sudden take $700K where he was asking $1M."
think again: Reducing the price from $1M to $980 is a 2% price decrease. Do you by something because it is on sell for 2%??? If you have no offers or potential buyers why reduce it by 2%?? Do you really think you'll get a buyer then, why not at least 5% or 10%??? If you get more than one offer then you can ask for more and negotiate (at least you would know what the reasonable price for your home and you’ll have someone to talk to).
I don't want to offend sellers with my lower offers
I wouldn't worry about offending a seller or a listing agent. Sure, some may act offended but don't let it discourage or even affect you. It's business, not personal.
What type of constraints?
It boils down to communication. If a buyer isn't willing to communicate honestly with me as their buyers agent, I'd rather not have their business. I actually prefer working with savvy investors, but with a healthy and growing client list, savvy or not, I need to devote my time to serious clients. It's the 80/20 rule.
Here's an example. I recently had a buyer who didn't tell me of their low ball strategy and for whom I spent considerable time with. I eventually showed them a house they really loved. It was new on the market, but very well priced.
They asked me to write up a lowball, which was a huge surprise, and completely unrealistic for this particular property. The offer was promptly rejected and it went under contract a week later at the asking price. My clients were quite unhappy because they really wanted that house. I only wish they told me what their strategy was before we spent several weekends driving all over the front range.
Setting up showings and writing up low ball offers for just listed properties is almost always a huge waste of everyone's time. And if you're going to lowball, don't fall in love with the house.
Osman, I think a number of free site (ziprealty, etc) provide days on market numbers, price reductions, etc.
I haven't found one for Boulder, CO yet. If you've found one, please let me know.
And even if there were one, the usefulness of these sites is limited. The interface makes it difficult to get the data you need (can you search for non-owner occupied, for example?). If you do find a home you want to put an offer on, you then have to work with the listing agent who will fight to double end the deal. If it's a FSBO, you'll probably be dealing with someone who wants that 6% for themselves and usually has an inflated sense of value to begin with. YMMV
If you're serious, here in Boulder or elsewhere, you'll probably do better with an experienced buyers agent than on your own. And if you're a real investor, you're probably buying/selling more than one house a year. p.s. I'd gladly cut my commission for a serious, multi-property per year client. Real investors are much easier to work with.
Here's the reality. The self made wealthy rely on professionals for expertise. For the most part, they are not "do-it-yourselfers". In everything from plumbing to taxes to investment advice, they seek out qualified advisors and spend their personal time focused on building their own area of expertise. Sure, they're smart enough to do it themself. But it seldom makes economic sense to devote the time and energy necessary.
So if you want to be wealthy yourself, assemble a team professional advisors you can trust and focus your free time on your own profession. Of course, as an agent, I'm biased, so don't take my word for it. Read the Millionaire Mind by Thomas J. Stanley.
Oh, and don't buy it. Get it at the library and save yourself the $6. :)
think again: Reducing the price from $1M to $980 is a 2% price decrease. Do you by something because it is on sell for 2%???
Don't forget there are psychological price points. $9.99 sounds a lot better to most people than $10. A car with 29,000 miles sounds a lot less used than a car with 35,000 miles. From a pricing perspective, it pays to know how the market is within your psychological price bracket and consider setting your initial offer price accordingly.
With respect to low balls, if the offer is strong from a financial point of view (no loan contingency for example), and perhaps is willing to waive other contingencies, I'd strongly advise my client to at least consider countering.
In markets that saw double digit appreciation in the past few years, low balls stand a chance.
Here's an example. Say you bought an investment property in 1997 for 200K and it appreciated at 5% until 2002. Then in bubblicious fashion in 03,'04,and '05 it appreciated 15,18,and 18% respectively. Your house is now at 425,000.
Today, nothing is selling in your neighborhood and you NEED to liquidate. A buyer makes a contingency free offer for $300K (29.4%) off the asking price. It's an annoying lowball, but it still represents a 4.5% appreciation rate over your holding period. In addition to the tax benefits you accrued and the cash flow you generated for 9 years, you are still making a tidy profit. If you NEED to sell, you might consider it.
Time to counter.
If you're a little less hurried, in this area I'd recommend the seller drop the price $10 to 15K below the next nearest on market comparable instead of taking the low ball. We aren't seeing a stalled market, we're seeing a market where the best priced, nicest homes are selling very quickly. Many others are simply not even getting showings.
Don't forget, as interest rates rise on ARMs and Credit Cards, more and more people will NEED to sell.
Good luck.
I read a post that shows that prices usually fall about 4 quarters following peak investment, which took place Nov2005. If true then prices will begin to decline starting this fall. Next spring will be a national bloodbath. Regardless of where you live.
In one particular zip code in the Northern VA area, MLS the other day listed 20 detached houses (whereas before you might have found one or two either highly-overpriced or rundown houses, as individual RE firms were able to sell other homes just by having open houses). If I recall correctly, 17 of them were priced around the $750K level or higher. There are a few sellers in that area over the past year that have faced reality (including one that crawled down all the way from $749K to relist at $649K and eventually sold the place), but most sellers are still trying to sell at the tops of two years ago.
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