100 Real Estate and Relocation Tips in 100 Days (Day 97)
By now, most Americans with a pulse have figured out that the housing market crashed. There are plenty of experts to tell you why, but the real simple reason is too many high risk loans made on too much overvalued property. Most people also understand that the media is no longer very competent at describing and explaining anything more complicated than a cat in a tree. Since predicating the future is a fool’s game we aren’t going to play, we will provide a few simple explanations on what is happening, right now. It is also important to understand that the housing market did not crash everywhere, and is improving in some cities.
Housing is not a commodity. A commodity is a product in great quantity with no distinguishable differences, like corn or wheat. While many houses in a micro market may be similar, there are no two alike. Because of “easy money” financing available in the past decade, some people began to think of houses as commodities, but it was really the seemingly endless supply of money that was a commodity. Because money is very hard to obtain today, houses are again becoming very singular in nature.
In any given micro market, you cannot tell when that market’s low point occurred (bottomed) until 6 months after the occurrence. There must be a steady rise in statistical measurements to determine where the low point was, and at least six months of improvement is necessary to have confidence of a trend. By the way, a micro market is best defined as a small geographic area, such a subdivision or towns, and a price range, say $300,000 to $350,000. An example would be all of the homes in Happy Valley Acres priced between $250,000 and $300,000. Homes in that price range in Happy Valley may be selling like hot cakes, while homes in the same area price between $400,000 and $450,000 may not be selling at all.
A short sale happens when the holder of a mortgage loan (investor) is willing to accept a payoff of that loan for less than present value. There is no reason why the investor should accept less than the present payoff unless that investor thinks a foreclosure action will net them less money. The seller of the property, any potential buyer, nor any real estate agents involved have any influence or power over the investors ultimate decision to accept a short sale offer, and there is no obligation on the investors part to act in a timely or efficient way. The buyer of a short sale must be extremely patient, and understand that only 30 to 35% of short sale offers lead to a property transfer (closing).
Foreclosed houses are owned by the investor (bank). As such, and like any owner, they have the power to set a price, negotiate a contract offer, and sell the property in as efficient and timely manner as possible. The only real difference between a foreclosure sale and a “normal” sale is the general lack of emotion involved on the part of the seller, and the potential for serious deferred maintenance or damage to the property.
The media reports the information they can obtain from the most convenient and usually loudest sources. There is little or no vetting of information sources in today’s media environment. To a large degree that is because of the speed in which “news” must be broadcast. The internet has devalued yesterday’s news, which is why newspapers are going out of business. Every housing story presented to the public today is based on old data, old being last month, last quarter, or even last year.
As a consumer, ask your Realtor® to provide the most recent statistics available on the area you are considering. You have a self-obligation to understand the small slice of the market that affects you. We really cannot predict the future, but there is no excuse not to understand today.