What I Learned in Class: Part II

Is real estate a product or a commodity? A product's price can be influenced by marketing and advertising and the seller sets the price. Think products that are advertised during the Super Bowl. A commodity's price is set by the buyer and no amount of marketing or advertising affects the price of a commodity. Think the price of gold, for example.

Realtors and our clients have been treating a home as a product instead of a commodity and unfortunately we are not doing ourselves any favors. Think about it. You bought a stock at $100/share and then 1 year later that stock is at $50/share. So you turn to me to sell it for you for $100/share. But since I have a fee you want me to add that fee on top of the price you want. So even though no one is buying this stock over $50/share you have asked me to sell it for you at $115/share. Does this make any sense? Not really. Even if I advertised your stock on TV during the Super Bowl no one will buy the stock over the market value. Why? Because it is a commodity and not a product.

This is exactly what is happening in our real estate market today. Sellers who bought at the height of the market and have only been in their homes for a year or two are putting their homes on the market at inflated asking prices to recoup their costs. The problem is that buyers are seeing right through this. There is no perception of value. And when there is no perception of value there will be no sales.

Many agents and sellers are saying "There just aren't any buyers out there looking!". This is a myth and here's why. If a home's market value is $500,000 and that home lists for $450,000 how long do you think it will stay on the market? Not long at all. This is because buyers know when a good deal presents itself. The bottom line is that there are just as many buyers out there today as there were in 2005. The only difference is that today's buyers don't see the value in many of the homes on the market because the sellers are asking inflated prices to recoup their costs. And where there is no perception of value there will be no sales.

To wrap up, seller greed is due to being uneducated about the current market conditions which leads to overpriced listings, which means few or little sales, which leads to increased inventory, and when inventory rises, consumers push prices downward. (Supply and demand)

So if someone is thinking of selling their home and they need to ask top dollar to get out of the home without paying money at closing, I would tell them to stay in the home until they can ask a fair price. Otherwise, they will not only be wasting their Realtor's time, they will be wasting their own time and effort showing the home for 6 months or longer.

What I Learned in Class: Part I

The purpose of the class I attended last week was to help agents price their client's listings according to the market they are in using classic economic supply and demand logic. When inventory trends downward, consumers push prices up. Which means the opposite is true or when inventory trends up, consumers push prices down. Eric Celeste over at Frontburner blogged this earlier today by way of the DMN and Steve Brown which is a prime example of real estate "experts" not giving the full picture. Here are a couple graphs taken from Trendgraphix using NTREIS statistics from all North Texas areas to form charts and graphs so people like me can look at pretty pictures and learn at the same time.






So what market are we in here in North Texas? According to these graphs the number of home sales is down from the previous year (6,583 in 11/06 to 5,157 in 11/07) but sales prices are up from $184K in November '06 to $204K in November '07. That is approximately a 10% rate of appreciation. Not too bad. But how can inventory be up AND prices rise? Hmmmm. So what does this mean and where are we headed? How do we interpret the fact that less homes are selling than the previous year, inventory is rising slightly yet home values are increasing?

No, we're not defying the laws of economics. I believe we are at a tipping point of sorts. The laws of economics do apply to our market but we don't fluctuate as much as other states including the outlandish California and Flordia real estate markets. With that said, inventory will continue to increase and prices may drop in certain areas due to overbuilding, short sales, foreclosures in the subprime market, etc. But I believe we will simply see a flattening market meaning prices won't go up, but they won't go down either. Inventory will not reach astronomical levels like the 29 months worth of inventory in some California cities.

In closing, these numbers are for ALL OF NORTH TEXAS AND NOT YOUR NEIGHBORHOOD! Many areas in North Texas will see price appreciation and will always see price appreciation no matter what regional statistics say. So talk with a local Realtor who knows your neighborhood before you start spreading doom and gloom to your friends.

I'm Back in School

Well, not really. But I am currently in the middle of a continuing education class that is actually providing useful information I can share with my clients and the general public. Because I am all about educating the general public in the ways of real estate. So hold on to your hats because I plan on boggling your minds with some mind boggling information once I graduate.

Developing.