The tunnel got longer, but there's still light at the end...

An article about the U.S. Real Estate Market in BusinessWeek Magazine this week took the view that we are in for a couple of more years of a depressed market, with a recovery predicted to start in 2012. Wow, that seems like a long time to wait, especially if you are considering selling. Of course, if you are a buyer that might mean more time to wait for just the right house to hit just the right price.

The article predicted another year of falling home values, which the author predicted would result in another 16% loss in values in 2010 and a bit more in 2011, before things level off. If that is to be believed and added to the losses in value already experienced in our local markets, that would put the total loss in home values projected in this recession at about 50%. Wow, again!

The article outlined the 7-year run-up in prices (called the bubble years), which started in 1999, and the following 3 years of decline that we are still in the midst of and which the author predicts will now total 6 years, before the economy turns around enough to cause a turn around in housing prices. Long-time readers of this epistle will recall that I’ve been writing about a similar timetable for some time now. The other thing that the BusinessWeek author also echoed from my earlier writings is the opinion that when the turn around occurs, housing appreciation will return to a more historic rater – likely somewhere in the 3-4% per year range. It will then take at least a decade to recoup much of the loss in value that homes have suffered.

The reasons given for the continued depression in the housing market were explored in BusinessWeek on a region-by-region basis, with a few passing mentions of the Detroit area and the Michigan market in general. Of course the decline of our major industrial base was cited as adding to the already heavy influence of foreclosures in our area. The states unemployment rate is hovering above 14%, which almost certainly puts us in the top 5 states as far as that factor is concerned, maybe in the top two.

So, where is the light at the end of the tunnel? It can seem like the tunnel just got a bit longer, especially if you are trying to sell. To a certain extent that is true. The key to selling these days is pricing aggressively in a market that is driven by foreclosed properties. It is no longer possible to price your home only against other owner-occupied homes that are similar. These days you must look at what the buyer can get for about the same amount of money in the foreclosure market. If you have a home to sell that might have been worth $200,000 a few years ago and today would compare with other owner-occupied homes that are on the market at $160,000, you will be competing with foreclosed homes that used to be valued at $200,000 that are now on the market for $60-100,000, depending upon condition. Wow! How does that work?

Well, the only weapon that you have to fight back with in that kind of market is the condition of your home. Most foreclosed homes have some issues. Many foreclosed homes were stripped by the previous owners, who almost always take out the appliances and who may have stripped out lighting fixtures and some of the plumbing (nice faucets or upscale shower heads for instance). Some of them have been further damaged by vandals and almost all of them have started to deteriorate due to neglect. In most cases the previous owners just left the homes as is when they left or were evicted, so most need painting and updating.

Therein lies your opportunity for a edge in the market hat will justify the added cost of your house. If your home is in move-in-ready condition – freshly painted, updated, maintenance all done – it will appeal to those who aren’t looking to have to do a bunch of work in a house, just to save a little. Most foreclosure homes would require $20-30-50,000 of investment by the new owners right away. Some aren’t even habitable in their “as-is” condition. So, you need to be the “no immediate investment required” option for home shoppers. Before you try to sell, get an opinion from a good Realtor about the things that you should do to get the house ready for the market. The Realtor will tell you all of the things that need to be fixed or painted or updated to be competitive. Some recommended updates may be too expensive to do and that’s OK; just remember that you’ll need to deduct the cost of those deferred updates from the asking price (just as the buyers would).

Can you sell in this market? Absolutely yes! It just takes better and more preparation and the resolve to price you home to the current market and not what it might have been 2-3 years ago.