Hi to everyone checking out my blog. Just like you, I'm fed up with the current price demands of existing and new homes. While I can understand how some people are forced to sell their homes at a higher price, due to what they paid for their home at the end of the boom, I'm 100% against the people who are still trying to get 2005 prices on a home they bought 5 or more years ago for half of what they're asking...IN A BUYERS MARKET!!!
The housing market is in a recession, yet many in the business won't acknowledge the word "recession". On May 24, 2007, the Commerce Department reported sales of new single-family homes jumped by 16.2% from the previous month. The next day's headlines read: "New Home Sales Soar". What wasn't mentioned was the fact that sales dropped significantly from the previous year's total, which was a bad year as well.
Lawrence Yun, the National Association of Realtors Senior Economist, is one of the people that misleads the public by twisting the numbers around to justify the current state of the housing economy. Yun won't admit to a recession, but states the market is in a "correction" period.
That prompted me to write a letter to Dr. Yun to explain the REAL reasons why people aren't buying existing homes right now:
Dear Dr. Yun,
Thank you for taking the time to read my letter. I would like to present the potential homebuyers view of how WE see the market. I can appreciate your optimism regarding the impending future of home sales by anticipating a rebound in sales by the last quarter of 2007. As a potential home buyer, I also share an optimism that the prices will correct themselves to pre-boom levels. I’m not alone in this belief.
I have been watching the market closely since the housing boom. The NAR seems to justify the housing slump by blaming the tightening of lending standards, the weather, bad press, etc, without considering the possibility that the housing market is severely overpriced.
I recently spoke with a Realtor who tried to justify why houses were still selling higher than Just Market Value (the price that a house should sell in a competitive market). She told me I should compare the selling prices of houses in the areas I'm looking that have sold within the past 6 months to get an idea of what to expect to pay for a house in that neighborhood.I tried comparing a few local areas of interest in the Riverview/Brandon area and there are only a few that are starting to compare at Just Market Value, which is too high to begin with, in my opinion. You’ve also alluded to encouraging factors, such as wide availability of conventional mortgage products and the 4.5 million jobs created over the past 24 months. Similar to trying to “comp” a house within the last 6 months, the 24 month job statistic doesn’t hold water, especially after unemployment benefits rose by 311,000 last week. 24 months ago, there was still a housing boom, yet you used favorable numbers to justify your stance.
As consumers, we notice the little things. The headline for Thursday was “New Home Sales Soar”. Of course, the Commerce Department didn't mention how the sales have dropped 10.9% from a year ago and how the numbers from a year ago were bad to begin with.
It would be interesting to see a demographic regarding the level of education of potential home buyers. My wife and I both have Master’s degrees and are willing to do the infinite research required to determine the right time to buy a house. Now is not that time. Despite our education, we earn less than $100k per year combined and cannot afford to spend over a quarter million on a house. As you know, it’s much cheaper to rent until the existing home sales fall to acceptable levels.
You recently mentioned, "The existing market is generally much more stable, while new homes are a little more pricey," Now that new homes are dropping their prices, existing homes will have to follow suit. I would much rather buy an existing home versus a new home, but the new home prices are beginning to make it very tempting to consider, especially with many new homes having upgrades and warranties.
NEWSFLASH!!! Until the seller’s “greatly inflated perception of what their home is worth” becomes more realistic, the housing slump will continue for a long time and time is on the buyer’s side. You may justify the decline in the housing market any way you’d like to Dr. Yun, but the bottom line in today’s market is price.
I recently read an article that stated, "The under-pricing game is now over. You are free to bid far lower than the asking price. You might be pleasantly surprised to find out how desperate the sellers are.
"In contrast, we were told by our realtor that we should not underbid because it may insult the seller. I'm insulted by the sellers that are still trying to get June 2005 prices on a house when it's supposedly a buyer's market!!!
The rules have changed. One cannot compare prices in an area within the last 6 months, because the most recent month is the most telling statement of what a house is worth in that particular area. And each month, that number continues to drop.
There's no sign in the near future that this will end anytime soon. Economist Gary Shilling forecasts a drop of 40 to 50 percent in home prices in overpriced areas such as CA and FL. While that may not be good news for the realty business, it's wonderful news for us. This downward spiral is predicted to last at least 5 to 10 years, similar to previous housing slumps.
I don’t expect a drop of “40 to 50 percent” but I do anticipate around 30 percent. If you “took 150 steps forward”, how many steps back would a 30% decrease be? (EDITED NOTE: this was a reference to Yun's article "Making a Correction" on the NAR webpage in which Yun stated there was a "150 percent price increase during the boom. Let’s see, that is 150 steps forward and 12 steps backwards (in reference to the small decline in existing home prices)." Yun is minimalizing the price decrease and justifying the post-boom prices. Here's the link: NAR: Research: Real Estate Insights: Chief Economist's Commentary )
My wife and I are in no hurry to buy an over-priced house, especially when prices are continuing to fall while the market is over-flooded with unsold houses. There will be plenty of opportunity to buy a house at a fair price for many years to come.
The NAR must surely realize the grave possibility of a recession, led by slumping home sales. That’s why you HAVE to be an optimist. The NAR doesn’t want to be the reason why the country went into a recession. The hole has been dug by greed, and is getting deeper. They say there’s a sucker in every game. If you don’t know who the sucker is, then it’s you.
It’s not me in the housing game, despite every Realtor trying to tell me, “Now’s the time to buy!!!” This will be their last chance, for a long time, for them to make the hefty commission on an over-priced home. They also have sales quotas and goals to achieve. Of course, in their mind, now is the time to buy. Have you ever heard a Realtor say, “Now ISN”T the time to buy”?
I sincerely respect your optimism, as I am sure you can empathize with my optimism as well. Perhaps each person’s expectations will meet somewhere in the middle, although neither one of us is hoping for that to happen.I’d appreciate your thoughts or comments on this letter.
If Dr. Yun responds to my email, I'll post that as well.
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