Sellers Need To Get Their Heads Out Of The Sand

The St. Petersburg Times has just released information from Case-Shiller revealing that real estate values have dropped 17.5-percent for the year ended February, 2008. I've been using 18-percent based on my sources, so the info I've been giving you in this blog for the past year about falling prices has been pretty darn reliable.

This information in the Times is probably about as accurate as it gets, folks. The S&P Case-Shiller Index tracks repeat sales of individual homes in 20 cities. Of the cities they track, only Charlotte, N.C. had a value increase -- and that was only 1.5-percent for the year. If you're going to trust any figures for pricing, you should probably rely on Case-Shiller figures.

The Case-Shiller Index shows that prices peaked in 2006 and today are 89-percent higher than they were in the year 2000 -- so that's good news if you bought property some years ago. Based on this data, however, prices today have fallen back to where they were in the year 2005.

The folks at the Times were kind enough to prepare a chart showing the price rise and fall since the year 2000. Just looking at the chart, it appears to me that prices have dropped about 30 to 35-percent today since reaching their peak in 2006 -- although nobody has bothered to actually calculate the percentage of loss since the beginning of this real estate price correction. What this means is that if you paid top dollar for a house in 2006, it could be argued that you have lost about one-third of your property's market value since then. That's what I call "takin' it on the chin". In order to sell today, you simply have to set your price at today's market level -- which means you have to price it like it's 2005.

Don't get the idea that nobody knows about this informtion. This Case-Shiller information was in the newspaper where every serious buyer can read it. It's also on the Times' website, which is where a lot of buyers get their news. This was the main headline for the Business Section for the day! Everybody knows about this price drop now, and it would be foolish for sellers to put their heads in the sand and ignore this kind of published, public information.

My point is this: buyers set prices in today's market because they control the money. Buyers know prices are falling and now they know how much they've fallen in the last year. If sellers aren't reducing prices to stay up with the latest data, then the property is overpriced. Overpriced property does not sell. In fact, it does not even get offers because buyers simply move on to property that is properly priced and start negotiating with that seller because they feel they have a better chance of success with someone whose asking price is more reasonable.

My advice to sellers? Get those prices down to today's real market value if you seriously want to sell. If you're keeping your prices above today's prices, all you're doing is speculating and hoping to find a sucker. Between the internet and the news media, there are very few suckers in today's market. Besides, smart buyers today are signing written contracts with real estate agents to act as Buyer Brokers. These Buyer Brokers represent the sole interests of the buyer, and they are not going to allow their clients to pay more for property than they should in today's market.

For more information on real estate in the Tampa Bay area, visit my website at http://www.thestpeterealestatesite.com/.

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Sellers: Handwriting Is On The Wall

Let's say, just for a moment, that you're the owner of a lovely single family home that's on the market for $300,000.

Let's further assume that the house has been on the market for six months and you're trying to decide if you want to renew the listing with your present agent or try somebody else. You based your current price on a CMA that your real estate agent prepared for you six months ago. The CMA made use of comparable properties that were sold, in several cases, three to six months prior to that. So, in effect, your $300,000 price is based on a CMA that made use of data that is now nine to twelve months old.

Let's also assume that during the listing period you have not adjusted your asking price downward because you feel $300,000 is the right price for your house ... or you feel you have to sell it for that amount to get the profit you want out of the house ... or because the guy down the street sold his house 18-months ago for $315,000 and it wasn't as nice as yours ... or, whatever.

Well, here's something you should know: real estate prices in the Tampa Bay area have dropped 18-percent during the twelve months ended March, 2008. That's a drop of 1-1/2 percent each month.

On the surface, you could think that the market value of your house has dropped from $300,000 to $273,000 during your six month listing period ($300,000 - 9% = $273,000).

If you think that way, you're likely to be wrong.

Your value has dropped even more. Here's why.

The information used to calculate your home's value was based on comparable sales that are now nine to twelve months old. That old data is skewing your value upward because those old sales are now out of touch with the reality of today's market. It is now nine to twelve month old pricing data! Those old sales were made when market values were higher. You should actually be making an adjustment to value based on the current value of those old comparables, and then re-applying that value to today's market when determining the value of your home.

So, instead of adjusting your home down to $273,000, you really need to get even lower to be competitive in today's marketplace.

Sellers who overprice their homes when first listed often find themselves being advised to reduce their price by their real estate agent. Some sellers make an adjustment, but often it is not enough. Prices are falling faster than many sellers want to admit, so their price adjustments are often too little because they started at much too high a price. As market values continue to fall, sellers are constantly trying to play catch-up to the market -- and that's a really hard task because sellers feel like they are leaving money on the table with each price reduction. As a consequence, once a house is priced too high it often remains priced too high. Hey, it's human nature!

Sellers need to read the handwriting on the wall. First, a CMA needs to be taken with a grain of salt. Since they are prepared using historical sales data, they probably represent values that are several months old. As a consequence, today's CMA's may actually represent the highest price you can ask for your property, not it's real market value. Remember, the latest research for Tampa Bay says that prices here have been falling at an average rate of 9-percent every six months. So, agents and sellers need to factor that in when preparing the initial CMA and opening asking price.

Second, sellers need to get ahead of the price curve. Prices are falling every month. It's hard to catch-up to the fall, so your best bet is to get realistic about your asking price when you first put the property on the market. Then, make adjustments every month until the property is sold. That's how you stay ahead of the market and get your property sold for the highest price the market will bear.

Finally, sellers need to remember this: The selling price of your home is going to be set by the market, not by you and not by your real estate agent. That's the way it has always been and probably it will always be that way. Sellers need to read the handwriting on the wall because it's being written by buyers ... and buyers control the market.

For more information on real estate in the Tampa Bay area, visit my website at http://www.thestpeterealestatesite.com/.

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How Long Until The Real Estate Market Recovers?

People always seem to be asking, "When will real estate bounce back?"

We've heard all kinds of experts predicting a just-around-the-corner recovery for prices. Problem is, all the predictions have been wrong.

Now there's a new view of real estate recovery being advanced by a well-known economist and author from Yale University, Robert Shiller. I thought I'd pass along Shiller's views, as best as I understand them anyway.

Shiller has taken an historic look at real estate prices since the 1890's and charted the price of an average house with adjustments for inflation and the like. He has found some interesting trends.

If you bought an "average" house in 1908 -- exactly 100 years ago -- you would have had to wait until 1946 to recover your money. That's right, it would have taken 38 years of mostly down markets to get your original investment back.

Had you purchased a house in 1953, Shiller's charts show that you would have had to slog your way through a series of rising and falling and rising and falling real estate markets until 1978 to get your original purchase price.

The thing is, people didn't count much on making a killing in real estate back then, so they didn't much care about the price of their house. The house was, first and foremost, shelter. It was something to be used. A place to live and raise the family. It was not really considered a money-making investment.

It is only in the most recent years that real estate has begun to be looked at as an investment for turning a tidy profit. Shiller thinks that is because something basic has changed in America's goals. We have become, according to Shiller, an "investing culture". The family home is not just shelter anymore, it's become a money-making investment. Since it is an investment, it is likely going to be subject to volatility, like a stock purchase. What's more, Shiller thinks this volatility in real estate is likely to remain the way of things for the foreseeable future.

How long?

Shiller can't say. But for the past one hundred years real estate has actually remained pretty flat when you look at the big chart. It dipped badly during the depression and stayed there until after the Second World War. Then it returned to pre-depression prices. It dipped again in the 1950's but went back up in the late 1970's to that same pre-depression level on the 100-year chart.

It has only been in the last eight years that we have seen real estate's value skyrocket and take us to where we are today. What's going to happen next? Shiller isn't sure. This is uncharted ground.

He does point out, however, that Japan may hold an answer. Like the U.S. today, Japan had a huge rise in real estate values a few years ago. Prices shot up like crazy. Then, prices dropped and the real estate market in Japan became depressed. The thing is, the Japanese real estate market stayed depressed for fifteen straight years. Fifteen! It has only been in the past year or so that the Japanese real estate market has started to climb upward -- and that climb has been painfully slow.

So, Shiller isn't giving property owners any good news with all his charts and graphs and articles and predictions. At least he's admitting the truth: this is something new and nobody knows when this "correction" is going to improve. Maybe around 2023?

Oh, here's an investment tip. Since Japan's real estate has been depressed for so long and is just now starting to move up in value, it might be a good time to buy into a REIT specializing in Japanese real estate. You know, buy low sell high. You could use that $600 the IRS is going to send your family so you can help save the entire American economy.

For more information on real estate in the Tampa Bay area, visit my website at http://www.thestpeterealestatesite.com/.

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Do March Figures Show The Emergence Of Price Stability?

If you're a real estate buyer, you might be hoping that prices will continue to drop -- and they might.

On the other hand, you might want to know that the median prices for single family homes in Pinellas County have been pretty stable for the first quarter of 2008, so you might be seeing some price stability coming back into the marketplace with prices starting to level off at or near the current level.

Let's take a look at the figures ...

Absorption Rate

Regular readers of this blog know by now that the absorption rate (AR) is determined by dividing the number of units sold in the month by the total number of listings in the MLS system.

For the month of March, 2008, the AR for single family homes stood at 5.4-percent. That's an increase from February's 4.3-percent. The March 08 figure, however, is a decrease from March '07's AR of 6.1-percent.

The AR for condos during March of '08 was the same as last month, 3.6-percent. In March of '07 the AR was 4.2-percent.

Single Family Homes

The number of listed homes in the MLS decreased a little during March, falling to 8,872 properties as compared to February's 9,005. Of course, this is a big decrease in listings as compared to the same time a year ago when March had 11,226 listed single family homes.

Single family home sales for March increased to 481 properties sold as compared to February's 390 sales. Don't start waving the flag. If you compare the number of sales for this March to March of '07 it was quite a bit better last year with some 687 properties sold then.

The median price for March was just about the same as February, $180,000 for March versus $179,000 for February. January, by the way, had a median of $176,500. That's why I mentioned at the start of this article that buyers might want to think about these prices flattening out just about where they are -- at least that has been the trend for the first quarter of 2008.

Overall, for the first quarter of 2008 versus the first quarter of 2007, sales volume of single family homes is off by 30.4-percent. Not real encouraging.

Condominiums

Condos continue to baffle me. For months I've been wondering if anybody really wanted to buy condos anymore, and suddenly they stage a bit of a comeback.

The number of condos listed in the MLS for March 2008 was 7,915 as compared to 8,117 in February. That's an increase over the number for sale during the same period last year.

The number of condos sold in March 2008 was 282. In February it was 289. So, not much change in the number of condos sold.

The median price for a condo moved up to $160,000 for March, 2008 versus February's median of $155,000.

Overall, condo sales have increased during the first quarter of 2008 versus the same time last year by 6.5-percent. That's a good sign, but exactly why condos have staged this minor increase is beyond me.

I had a conversation recently with a man who thinks real estate prices are going to fall another 40-percentage points in the coming months. When they do, he'll buy something. The figures we've just reviewed would indicate that while prices may continue to fall, the big price drop may be over and the market might be on the road to some much needed price stability -- at least, that's been the trend for the first quarter of this year based on median price analysis. Where this fellow gets his info is anybody's guess, but if you read this article you're better informed than he is.

For more information about real estate in the Tampa Bay area, please visit my website at http://www.thestpeterealestatesite.com/.

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How To Find A Great Real Estate Deal

Quite often, real estate buyers contact me. They describe what they want in the way of a home or investment property. Almost always, their final request is that I keep my eye out for a "really great deal".

I fully understand that everybody these days is looking for a great price on a piece of real estate. The problem is that most buyers don't understand how to get a "really great deal", and asking me to keep my eye out for one is not the way to find and purchase undervalued property.

If you want a really good deal, buyers need to get really aggressive in their offers.

Right now, there are a lot of sellers who are desperate. They need to sell as soon as possible. Buyers need to take advantage of that kind of situation and make offers that they consider to be in the "good deal" category.

Essentially, buyers need to go looking for property they like. When they find it, make an offer that represents what they are willing to pay for the property. If the buyer refuses it, or does not come back with a counter-offer of some kind, be prepared to move on to the next property or increase the amount of your offer. It is as simple as that. In other words, buyers need to create their own "really great deals" -- and in today's real estate climate that's not as difficult as it would have been two or three years ago.

One word of caution to buyers. Don't go around making lots of low-ball offers on various properties. If you do, your real estate agent will quickly determine that you are what we call a "bottom-feeder" -- somebody who is trying purchase property at unconscionably low prices. Once an agent determines that you are a bottom-feeder, the chances are pretty good that the agent will fire you as a client. Making legitimate low offers is one thing. Trying to steal real estate is quite another matter.

For more information on real estate in Pinellas County, visit my website at http://www.thestpeterealestatesite.com/.

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Spotting Mortgage Fraud

I don't want to get too far into James Thorner's recent article entitled "Island of Disenchantment" in the Money section of the St. Petersburg Times for Sunday April 6th, but I do want to say a couple of things designed to help people identify a potential case of mortgage fraud.

In case you missed Thorner's story, he reports that property values in Clearwater's Island Estates soared in recent years primarily as a result of the activities of one realtor, Marty Donovan. (Frankly, I think Thorner gives Donovan too much credit for making the market on Island Estates, but that's another story.) Now, prices have dropped more than 45 percent since 2006, and critics blame Donovan for inflating prices on the island.

Apparently Donovan went on a property buying spree during the spring and summer of 2006. He bought a house at 213 Leeward Island for $1.3-million that was listed for only $998,000. The owner was paid the asking price and the balance went to Donovan's business partners to allegedly make repairs to the fifty year old house.

Well, you guessed it. The repairs never were made. Donovan stopped making payments on the mortgage. The mortgagee foreclosed and has the house on the market for only $451,000, thus driving down property values throughout Island Estates. And nobody can account for the missing money that was supposed to go for repairs. Donovan skipped town in December, moving to Lynchburg, Virginia, and the banks have foreclosed on six of his remaining properties valued at over $7-million.

Now, people who live on Island Estates say Donovan's activities have resulted in property values falling like a rock. They want Donovan tarred and feathered.

Sound suspicious? It should. This is one of the most common scams in the world of real estate. Donovan says he believed his business partners who said the homes would continue to appreciate in value and they would all make a legitimate profit. Donovan claims he was duped by his partners.

Look, I don't know anything about this matter, but I do want to pass along three things about mortgage fraud to every reader, be they a real estate agent or a homeowner.

1. Just because somebody has a real estate license, it does not mean they know anything about real estate. Donovan says he was duped. Maybe he was. This case sounds like a classic case of mortgage fraud to me. Frauds always sound legitimate on the surface, that's why so many people get taken-in by the bad guys. Donovan might have been just a stupid, inexperienced real estate agent who got sucked-in by some crooks looking to make a fast buck using his real estate license. The point is, if he's innocent he should have known better. If he's guilty, well, heat up the tar and pluck a few chickens.

2. Anytime a buyer wants to get a mortgage for more than the asking price, be very suspicious. In a legitimate transaction, buyers want to get the house for the best possible price, and lenders want to make sure of the property's value before they make any kind of loan. There are lots of ways for buyers to fund needed repairs after they have purchased the property in a legitimate matter. This business of faking a higher price with the difference going to the buyer is, as my dear departed father used to say, "crooked as a barrel of snakes".

3. If you don't know much about mortgage fraud, take a class. The Pinellas Realtor Organization offers classes in real estate fraud from time to time, and other organizations and individuals do as well. If you don't know what to look for, take a class, talk to your broker, or call somebody in the mortgage field and get their take on the matter before you proceed.

Thorner's article states that Donovan would like to return here someday and re-establish himself in real estate. If he's guilty of any of this, I'd say getting back into the business here is kind of a long shot for him. After all, somebody might ask him why he's wearing all those feathers.

For more information about real estate in the Tamp Bay area, please visit my website at http://www.thestpeterealestatesite.com/.

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