Recent convo with an agent who is seeing a problem in the market with new listings right now. Because the first quarter of 2012 was brisk, he thinks maybe prices are goosing up. Quarter One was brisk because buyers and sellers had become more reasonable, not because prices were up. When that excitement is “improperly communicated”, sellers start “overpricing” their homes, because of the perception that the market is busy, he says.
“I think it is seller driven,” he says. “The seller hears chatter in the marketplace that the market is stronger so the SELLER gets a little too optimistic. I have gone into listing presentations where I show all the sales for the last 12 months. Dollars are flat, but transactions are up – I suggest a list price of say $600,000. The SELLER will respond, “But I hear from other people that the market is sooo hot right now, let’s list at $675,000 and see what happens.”
What happens is that you go 60 days with no action, and end up selling for less, say $530,000 and eating up all that time.
I sat through listing presentations last week where the seller just did not want to hear the market value of his home. “But I’d like to get XX,” he said, ” that is my comfortable number.” Well, comfort or not, the truth is the market sets pricing, not your comfort levels, just as it does in the stock market. My comfort level with my AOL stock (please pass the Tums) is $20 or $25 a share, ain’t happening.
But I have to ask: isn’t this just how a bull market begins? I know Robert Shiller keeps beating us with that wet noodle of “home prices falling” and he has an excellent point. Nationally, home sales fell in January to a new cycle low but even Shiller says it is not as bad as he even thought it was. However, it ain’t Miller time. Far from it. We just don’t know what the future could bring. As he says: prices could go up, prices could go down. Don’t expose yourself to too much real estate. Like most of the problems in our business world, the uncertainty out of Washington is killing us. I recently tried to refinance our home: it was a disaster. I can hardly wait to share the story. I will soon be knocking on Richard Fisher’s door to get in on the “Break Up The Big Banks” movement. Federal regulators are stifling lending because, of course, of all the bad lending that took place and got us in this mess. So it’s corporate punishment: a few screwed up, so now we just say no to almost everybody. Fannie and Freddie are a mess and really the only source of home financing for anything under $417,000. Jumbo money is starting to loosen up and there is promise of more on the horizon. Then, as Steve Brown wrote last week (paywall) about home appraisals: even though the market is picking up, the appraisals are not keeping up because often appraisers use sales from three months ago that might be lower. So a buyer comes in, makes an offer, only to have the appraisal come in and blow the deal.
Appraisers, in turn, say don’t stone us, we are just doing our jobs, and if a house can’t be valued at the proposed purchase price, that’s just what the market is telling us. (Who cares about your comfort level.) Lenders for sure don’t want to provide mortgages if properties are overvalued. That was part of the reason for the home market bust. Expect more of this friction in the year ahead as the North Texas housing market recovers.
As home prices rise — and they already are in some neighborhoods, and in San Antonio, see example above — appraisals will trail behind. Like I’ve said, a home may be priced at the greatest price in the world but if you cannot get financing, it’s not selling. And you aren’t going to get financing if the appraisal come in low. Mortgage companies are sticking with tough underwriting standards when it comes to appraisals and standards. The appraisal process is much, much tougher with new requirements, giving the perception that appraisers are holding values in check. In reality, they are taking marching orders from the feds.
Then there are the Z sales… don’t get me started.
So what our writer is saying is take heed. We’ve got a great spring market ahead, we’ve got multiple offers and the big properties are finally starting to turn. But let’s not get “irrationally exuberant”. Price those properties right, else they may get stuck in the constipation of the appraisal/financing system.