There are a number of news reports out today that housing sales have declined across the US. Reports say that in a few states sales have declined by over 20% (a). The NAR has come out with the most optimistic report. In the opinion of NAR Chief Economist David Lereah the market has bottomed out and that we can expect to see a "a discernible improvement in both sales and prices."(1)
My local Seattle Times plays on the upside as well. Fourth quarter prices around here were up over 11% from a year prior. Those are some pretty good gains if you ask me.
Those of you with a strong sphere are inevitably going to be asked questions about this. I know I get them. I don't believe that anyone can definitively forecast the future. How often is anybody able to correctly predict future markets? Economist aren't able to make accurate predictions much of the time.
That being said, I believe a lot of clients are looking for input on these things. I know for myself when I am asked by a client about the market and where things are going, I lay out the facts as I see them, and conclude by telling them, that is only my perspective, and we can only have general ideas about where things are going to be 10 years from now. Some of my responses have been positive, some have been negative depending upon what I knew at the time. The truth is it's not always what the market is doing that is going encourage or discourage my clients.
My last sale was a situation in which my client wanted a bigger more long term home to raise their kid in. They asked me what the market was going to do I gave them my thoughts. But really they were looking for a property that met certain specific needs, this wasn't about investment, and I reminded them of that. In this situation Investment was a bonus, but not the priority.
How are you going to answer the questions of your clients?
Here are some related thoughts.
Is there really a Crystal Ball in Real Estate? By Colleen Kulikowski
Help- My Crystal Ball is Cloudy By Colleen Kulikowski
What To Do With a Cloudy Crystal Ball-Buyers Demands Falling on Deaf Ears By Allison Stewart
Why Buy? By Me (see the comments posted there)
(1) NAR Chief Economist David Lereah as Quoted in "Fourth Quarter Metro Home Prices & State Sales Likely Have Hit Bottom" By Walt Molony February 15, 2007
Edits:
(a). The "decliing number is based upon comparissons of sales for the fourth quarters of 2005 and 2006 according to the NAR. (Thanks for correcting me Jim Lee)
I don't think anyone can predict what's going to happen, even the NAR economist David Lereah. Do a Google search on David Lereah and you'll find a lot of sites that point out all of the incorrect predictions that he has made in the last few years. I would consider what an economist's specific agenda is before putting too much in their advice.
Texas Residential MLS Activity
Number of Homes Sold
2006
2006
2005
Dec 05
% Chg
Year Ago
Tim, you are right. That's part of what I was trying to say. Economists have poor track records, and of course MR. Lereah is biased.
Clients are going to ask however, and we must have answers. I believe those answers must be honest, educated, and open ended. I believe it we must help the client to make their own decisions. Not by our words or that of an economist.
For sure, housing prices have declined in Rhode Island, and many homes were removed from market, which would, in ouropinion, have reduced housing price averages further had they sold. Also, for our region, which has many high end homes, the data is skewed by the fact that those homes appreciated some small percentage.
I just now posted a blog on Active Rain showing some of the median housing price data...
Never the less, while transactions continue, the total number is down, at least in our market...
Of course, the NAR has a bias, and attempts to make the market optimistic. Thus the erroneous predictions.
Looks like a buyers market to me.
Declined realtive to what?
You can only compare apples to apples to draw any sort of valid conclusions and you can only do that with historical data, i.e. 2006 versus 2005, 3rd quarter 2006 vs. 3rd quarter 2005.
Anything from today forward is an estimate or a guess.
Some guessers are better than others.
Caleb,
We concur that the Spring market is going to surprise the Buyers. We've already had Buyers think they had all the time in world to make an offer only to find that the buyers that saw the home before them didn't wait. I think as the Spring comes into full swing, the market will begin to become active again.
In the bubble markets, I think one needs to study what has happened during other speculative bubbles in the past. I would look at the tech stocks in 2000, the Japanese stocks in the 1990's and the Dow stocks in the early 30's. I realize real estate is different, but the psychology of markets I think is pretty much the same.
After each of those bubbles had popped, it took many years for prices to recover back to where they topped out at. The prices didn't stop dropping for about 3 years in these cases. If I were in these bubble market areas and I had a choice, I wouldn't buy until after 3 years after the top. Does anyone know if there's a general consensus of when the top was reached?
Read some financial magazines back in 2001. Many stories came out that the worst was over for the tech stocks and now was the time to buy. It dropped much further and didn't turn back up until early 2003. It usually takes some real pain to be realized before the bottom is reached.
I wouldn't advise clients one way or the other. I don't think that's my place.
Caleb -- thanks for the mention. The question at hand is one that is very difficult to answer outright. One that I have been struggling with here. I see that the past two years we have been correcting from what happened with all the investors that were moving away from the stock market and into Real Estate for the perceived "quick buck" in flipping properties. I am not the only Realtor having great difficulty in getting buyers off the fence. Buyers are stuck in analysis paralysis, waiting for the absolutely perfect time. There will be a few that will be that lucky, then the market will take off and I will hear a series of "I wish I had listened to you."
Marco Island is in a correction period, a period that I think we are near to the end of the downswing and ready to head back upwards. What we saw in 2004-2005 won't happen again. It will be a slow growth. Like most of us have said, Real Estate is an excellent long term investment. For the general consumer who is purchasing for their personal use, this is really an excellent opportunity. Those willing to hold the property longer than 3 years.
All those that purchased proprieties with 100% financing with 3-year ARM by those that speculated that the market was going to continue to increase are now in trouble. Coupled with the insurance rate and tax increases are forcing some investors to sell. The flooded market creates competition and drives these prices down further. All those bad reports in the media have made buyers afraid. I have not seen prices this low in a very long time. There are some absolutely wonderful opportunities here on Marco Island - it is just a matter of someone having a vision and solid long term plan.
Colleen, Thank you. You seem to understand what I was getting at.
I'm not trying to say anything about the market's in particular here. What I am attempting to look at is how we talk to our clients. Tim, you said "I wouldn't advise clients one way or the other." That's good, and I agree with that. I'm not an economist, and furthermore as Steve so eloquently points out, economists themselves have poor track records.
Regardless of what markets are doing the perceived value proposition for buying has changed. It will be different depending upon client needs and market, however, it is still our job to help define client needs and help them find solutions that meet those needs.
Clients are asking, at least everyone I run into does. I agree with Lisa and Robert Hammerstein that seasonal pressures will push the market back up this spring, however as compared to the year prior numbers i have no idea. I'm not exactly worried about it either.
Clients have varying reasons for moving. A big part of the equation is that investment opportunity. This is one however, at least right now, that is harder for us to define, so with the value of that proposition declining my question is how do you help your clients make the move when they are as Colleen puts it "stuck in analysis paralysis?"
I like how Colleen put together her answer. She gives an understanding that isn't overly optimistic, yet isn't discouraging either. The reasons people move are rooted in their specific needs, and how we talk to these needs to help a client make a decision either way accounts for how successful we will be in helping them to acheive what it is they are looking for.
If we do not help our clients they will continue searching for answers longer, or they will move on to the next person who can help them understand why or why not they would make a change.
I hope I'm making sense here.
Added:
That is to say we cannot predict the future, the reasons for buying are less financial in nature and more related to other things. Are we adressing those things? If so how? And how are we addressing those questions that do ask of us to predict the markets?
Caleb -- You inspired me to look at the month of January sales from 2001 to 2007 of Single Family Sales on Marco Island which I believe confirms what I have been saying all along, the market seems to be rebounding here on Marco Island...
Average Sales
We as Realtors(mortgage brokers and financial planners too), have to give our clients the information they need to make decisions. We also have to be good at weeding through the massive amount of information and give them information relevant to their decisions and be able to explain what isn't. Real Estate is cyclical in nature, to predict the future you need to look to the past....
I would write more here, but I believe there is a post I need to write for Localism - Marco Island. I will also share there lots and condos on Marco Island. Should be helpful with those who are having a difficult time making a decision.
Real estate is still local and the numbers here look good for 2007
In Manhattan sales are up and inventory dropped. The 4th Quarter is historically a slow period it was very busy this year.
In Manhattan 4Q 2006 had 2,441 sales - up 55.1% from the 1,574 recorded sales of 4Q 2005
Average sale price: +3.2%
Average price per sq ft: - 0.4%
Median sales price + 5.1%
Days on market +8.8%
Listing Inventory - 0.5%
In 2006 most properties weren't selling because they were overpriced. Sellers were unrealistic and many finally got real in the last quarter so they sold.
I have found with the changing market in NH, that if a home is priced right -- it will sell in no time! It has taken a while for sellers come to terms with reality. I have heard from a couple of lenders, however, that their economists have identified "declining markets" throughout the US. This is going to have an impact on sub-prime borrows -- who no cannot qualify. Also, appraisals will be affected. Do any of our lender friends have some insight on how the identification of "declining markets" will impact real estate in 2007?
In my market(Poinciana Fl) right now, values are down 10-15% from last year same time. My prediction is we have another 10% to go. BUT values doubled from late 2004 to late 2005. So in reality if you bought a house in mid 2004 for $100,000 by the end of 2005 it was worth $200,000 and now it's worth $175,000. That's a 75% INCREASE in 2.5 years. Pretty darn good. A very good investment.
I can drive 15 miles and the numbers would be completely different. RE is very very local.
It is very localised. There are some markets that have always been "slow" as compared to other markets and hence they could be called stable markets for that area.
Judi Barrett
Our switchboard operators say they set up 147 showing appointments today.
That doesn't sound too slow.
According to Mark Twain there are three kinds of lies: lies, darn lies and statistics...
G
Caleb, I guess a crystal ball won't help? lol. The buyers are coming out of the woodwork here in Cleveland. The unknown for me is whether Spring will once again bring a slew of new sellers. The traditional patterns could be out of whack, not sure but I guess I will find out. I agree with Leigh regarding who is moving. I'm convinced the first time homebuyer market will be strong. Short of that it's a crapshoot lol
What will I tell potential sellers? If you have to move, price it right and it will still sell. That may mean for less than you'd like but it will sell. For buyers? If you want a house there is great selection and you don't have to overpay. And if I am at a party and someone asks when is the market going to stop crashing? I'll go into all the details about why our market is slower but not dead.
The market is rebounding
At least here in NYC it is.
Yes, Caleb, consumers ARE looking for answers. That may be why there is increasing value in a Counsellor rather than a Broker.
It's areally about asking questions, as you've pointed out. Is the purchase a home for them to live in? An improvement in their lifestyle? A base that will make them happier and more successful in everything else that they do? It's not all about Return On Investment; it's not like buying in the stock market. I feel real estate is a good investment long term, especially here in Florida. If "life" happens and you need to sell at a particular time, then your investment may not be good; if you can wait for "better" times, it may be a good investment after all.
Caleb
Thank you do much for inclusing my post in yours. I am very flattered.