Good Advice For Sellers From Wachovia Bank
The folks at the economic forecast team at Wachovia Bank have some sage advice for people who want to sell their real estate: Cut The Price.
According to Wachovia's "Housing Chartbook", just issued this month, real estate speculators created so much demand for homes in recent years that it created unrealistically high prices. These high prices have left buyers financially unable to purchase.
The Wachovia forecast said that what needs to happen now is for prices of new and existing homes to adjust downward so that families earning the median household income can once again afford to buy a wide assortment of homes, particularly in such states as Florida, Nevada and California.
In Pinellas County, the latest figure I've seen for "median" household income is about $45,000 per year. "Median" means that half the people fall above that level and half below it. The St. Petersburg Times has reported that the "average" household income is $41,000 per year. Those two figures are pretty close.
The questions then becomes one of how much home can the so-called average Pinellas resident afford to buy based on his income? Let's assume that the person uses 40% of his annual income for housing, and that he obtains a fixed rate mortgage of 6.5% for 30 years. For this example, we'll assume the median annual income of $45,000.
Essentially, the buyer can afford to spend $1,500 monthly for housing expenses. Housing expenses include payments for principal, interest, taxes and insurance (PITI). According to my mortgage amortization guidebook, that person could qualify for a house costing in the neighborhood of $230,000 based on the mortgage outlined above. In Pinellas County, the median price for a single family home has been in the $220,000 range for some time now. So, theoretically, the "average" homebuyer can afford an "average" house.
Ah, but not so fast. To be financially responsible, you have to deduct from that $1,500 monthly housing expense the costs associated with taxes and insurance. Those are the expense items that are causing all the debates from Main Street to Tallahassee. When you factor those expenses into the equation, our average wage earner falls short of being able to afford a median priced property.
When this happens, buyers have to look at less expensive homes in less costly neighborhoods that may not be as appealing. That has many buyers shaking their heads in disbelief about how little home their money actually buys in Pinellas County. So, many buyers today are sitting on the sidelines waiting for sellers to voluntarily lower prices. Some sellers are getting that message, many others apparently are not.
Good real estate professionals and other financial advisors are urging sellers to lower their prices. Some sellers are, some are not. If a property is going to be sold in today's oversupplied market, there is a basic rule of economics and marketing that absolutely must be believed as if it were the gospel truth. That is simply this: Whenever there is an oversupply of anything, only those items deemed to be the best value will be purchased.
Understanding this basic rule is the place to start when thinking about reducing the price of a home, as suggested by Wachovia Bank. If you are going to sell a house in today's oversaturated market, sellers must first make their house the best value in the neighborhood. If not, most people won't be able to afford it and the house will sit unsold for months and months and months. Simple as that.
For more information on real estate in Pinellas County, visit my website at http://www.thestpeterealestatesite.com/.
According to Wachovia's "Housing Chartbook", just issued this month, real estate speculators created so much demand for homes in recent years that it created unrealistically high prices. These high prices have left buyers financially unable to purchase.
The Wachovia forecast said that what needs to happen now is for prices of new and existing homes to adjust downward so that families earning the median household income can once again afford to buy a wide assortment of homes, particularly in such states as Florida, Nevada and California.
In Pinellas County, the latest figure I've seen for "median" household income is about $45,000 per year. "Median" means that half the people fall above that level and half below it. The St. Petersburg Times has reported that the "average" household income is $41,000 per year. Those two figures are pretty close.
The questions then becomes one of how much home can the so-called average Pinellas resident afford to buy based on his income? Let's assume that the person uses 40% of his annual income for housing, and that he obtains a fixed rate mortgage of 6.5% for 30 years. For this example, we'll assume the median annual income of $45,000.
Essentially, the buyer can afford to spend $1,500 monthly for housing expenses. Housing expenses include payments for principal, interest, taxes and insurance (PITI). According to my mortgage amortization guidebook, that person could qualify for a house costing in the neighborhood of $230,000 based on the mortgage outlined above. In Pinellas County, the median price for a single family home has been in the $220,000 range for some time now. So, theoretically, the "average" homebuyer can afford an "average" house.
Ah, but not so fast. To be financially responsible, you have to deduct from that $1,500 monthly housing expense the costs associated with taxes and insurance. Those are the expense items that are causing all the debates from Main Street to Tallahassee. When you factor those expenses into the equation, our average wage earner falls short of being able to afford a median priced property.
When this happens, buyers have to look at less expensive homes in less costly neighborhoods that may not be as appealing. That has many buyers shaking their heads in disbelief about how little home their money actually buys in Pinellas County. So, many buyers today are sitting on the sidelines waiting for sellers to voluntarily lower prices. Some sellers are getting that message, many others apparently are not.
Good real estate professionals and other financial advisors are urging sellers to lower their prices. Some sellers are, some are not. If a property is going to be sold in today's oversupplied market, there is a basic rule of economics and marketing that absolutely must be believed as if it were the gospel truth. That is simply this: Whenever there is an oversupply of anything, only those items deemed to be the best value will be purchased.
Understanding this basic rule is the place to start when thinking about reducing the price of a home, as suggested by Wachovia Bank. If you are going to sell a house in today's oversaturated market, sellers must first make their house the best value in the neighborhood. If not, most people won't be able to afford it and the house will sit unsold for months and months and months. Simple as that.
For more information on real estate in Pinellas County, visit my website at http://www.thestpeterealestatesite.com/.
posted by Terry Ward at 3:06 AM
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