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Saturday, April 21, 2012

What to make of what you see, read and hear about the real estate market

We all see, hear and read stuff almost every day about the real estate market. You can't go to a party without encountering conversations about it and you almost can't pick up a paper or tune into a newscast without something being said - almost all of it different. What are you to make of that?

Well, for one you really need to pay attention to the source of what you are seeing, hearing or reading. Many news organizations tend to focus on the negative stories, because they seem to have more drama than the good news. There's nothing like a good tear-jerking story about yet another family being foreclosed and thrown out of their house to fill time on a slow news day. Then again some stories keep trumpeting the good news of the housing recovery - "home values raise again!" Of course, buried deep within that story is the "news" that the number home sale were also down again because of the lack of inventory on the market.

So what’s the truth? All of it. Average home values for sales in Michigan have been going up in this area for months, driven mostly by the fact that, with few houses on the market, sale prices have been bid up by multiple bid situations. Is that good or bad? Again the answer is, Yes. It's good for the sellers who are getting more for their homes (I've recently seen headlines that average home sale prices are up 19%); however, if you're a buyer there are fewer homes to choose from on the market. Rising average sale prices also do not reflect true positive appreciation in the market in general, although that too is occurring in some markets.

If you are at a party or gathering and happen upon a Realtor and ask "How's the market?", expect a positive answer - "It's great. We just need more houses to sell." That's also true. There are fewer Realtors left in the business these days and the ones that are left are quite busy. You may hear some grumblings from real estate people about the short sale process or foreclosure sales, but in general they will pitch a positive view of the market. And why not? Good Realtors can make money no matter what the market, if they can adapt to the needs of the market.

A good, honest Realtor would likely ask whether the questioner s a buyer or seller and adjust what they say accordingly. It's still a great time to be a buyer, in terms of the mortgage rates and lower costs of houses. Buyers can still find real bargains in the debris of the short sale and foreclosure market. The challenge for buyers right now is finding the right house in a very tight supply-side market. For sellers there is no magic bullet that will restore the value lost in this recession. Even if they get multiple bidders for their market-priced house they aren’t going to be made whole by the sale. Today’s market price is greatly impacted by foreclosures and short sales and then the sale must pass the appraisal test, too. Appraisals are running behind market pricing in most markets, which is a reflection of the overly conservative approach to risk that most banks have adopted since the housing meltdown.

So, “how’s the real estate market these days?” My answer would be – “It’s much better than it has been and seems to be headed in the direction of a recovery.” How long will it take to recover? If, by that you are asking how long will I have to wait to recoup my lost home equity; I’d advise you that it’s likely to take a decade or more to get back to the 2005/6 levels in our local markets. If you’re asking as a potential buyer; I’d say jump in now, before prices rise too much, but be prepared to be patient in your search.

So like Charles Dickens opened the Tale of Two Cities:

“ It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to heaven, we were all going direct the other way - in short, the period was so far like the present period, that some of its noisiest authorities insisted on its being received, for good or for evil, in the superlative degree of comparison only.”

Dickens had likely been to a bar and encountered a Realtor there.

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