Monday, June 16, 2008

Real Housing Markets - Less Emotion

It's been my experience over the last 20 years in home building and selling real estate that housing markets are like any other market, supply and demand still matters. So often we spend quite a bit of our time on the emotional side, the frenzied growth spurts and the inevitable market corrections. Even those of us in the business, are far to prone to the emotional and frenzy.

I guess I'll shoot straight, this real estate housing market is not as bad as we appear to want it to be.

Last week I was asked to take a look at a development, one that has not been all that successful for the last couple years. When I met with the developer, the conversation immediately headed into "housing bubble" land. Can I tell you how much I dislike housing bubble land?

The development we were discussing frankly wasn't suffering due to housing bubble, or the debt markets constricting, or even a major market slowdown. The development we were discussing was suffering from three problems:

  1. Sales efforts have been amateurish and prospects who can afford are not even aware of the opportunity. The real estate professionals have done the "sign out front - wait for someone to call" plan.
  2. A few years back the out of town developer thought to use an auction house to sell off some lots. This stigma still hangs over the site. This auction ideas was before the market ever changed, even before the media began telling us it "had" to change. The only lots that sold at the auction sold at a solid price, but the auction tag stuck as a negative.
  3. The community is targeted at an empty nester niche, one that has been very competitive in this market, with too many competing sites and very little creativity in product design.
Here are things that were not a problem, but the media is continuing to tell people to see as concerns:

  1. Mortgage money is plentiful for empty-nesters who have down payments far in excess of 20%, decent credit, and regular incomes.
  2. Foreclosures, especially those relating to investor owned properties and sub-prime lending, have almost nothing to do with this communities target market niche.
  3. Prices in this market rose just 18% over the last five years. There has been and won't be a bubble.
  4. Prices in this market have not dropped, sure some specs got dumped in the market last year, but when analyzing all real estate prices have been level to down less than 5% over all price points.
Over the next couple weeks I will be collecting the real figures for this community, based not on emotions or media bias, but on the facts. There are real population, households, net equities, incomes, jobs, traffic counts, inventories, and competitive factors that matter. Now, I'm no Pollyanna, I understand that the emotional frenzy of the media and even some professionals has affected demand. Where households may have been apt to move every six years, that number may be moving higher due to fear.

But, there are still people getting married, having children, getting divorced ... there are still new households being formed every day. They aren't all renting, or we'd see rents jumping by huge percentages (and they aren't). In many ways people are waiting for "experts" to tell them that it's Ok to go back out and look for a home. They don't want to seem foolish. No one wants to buy and look naive to their friends.

My dad always taught "no one wants to be first in line - but everyone wants to stand in a popular line."

My advice to real estate professionals? Access the real data in your market. I was reading a news article from Indianapolis last week, with a headline emblazened with negative tone, and yet the inventories were reported to have declined from an 9 month supply to an 8 month supply. That frosts me, and proves that bad news sells newspapers.

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