Realtors are perennially optimistic, even in the worst of times. You pretty much have to be an optimist (even to the point of self-delusion) to sell things. Especially real estate, these days.
Over the past few months, friends who sell, finance, and renovate real estate have been saying the low-end market is extremely hot. At the weekly business group meeting, our former developer (reduced to handyman status by the depression) reported that he picked up a customer who bought six houses in Sun City—in cash!—to fix up and rent or flip. And the Realtor in our group echoed the same story the Realtor who sits near me in the alto section in choir tells: they can’t keep up with the business. They’re closing on so many houses they’re working six or seven days a week. Almost all these sales are short sales, but the level of foreclosures is dropping drastically. They say that the inventory of homes for sale has dropped below the historically “normal” three-month supply.
The mortgage broker remarked that it is simply not true the banks are, as the myth goes, sitting on a huge inventory of foreclosed houses. He says banks are not in the real estate business. They do not want to sell houses, and in fact, they can’t. He says there is no giant pool of foreclosures waiting to be dumped on the market.
Now comes a newsletter from the Realtors who work our neighborhood and who live here. Bill Goodheart built a fair section of the infill here, having been a builder of upscale homes before he retired and joined his wife in the real estate business. “The weather is finally turning in our favor,” he says. “Believe it or not, we actually are short of houses to sell below $400,000.” A chart from the greater Phoenix Arizona Residential Multiple Listing Service shows the inventory of all homes is well below the normal three- to six-month supply, and in the range below $200,000, the inventory is well under three months.
They report that for houses with sale prices between $25,000 and $200,000, we’re in a seller’s market. The market is “neutral” for homes between $200,000 and $600,000, and it’s still a buyer’s market in the $600,000+ range.
I give this pair a lot more credence than I do friends who report anecdotally that their business is getting better. Why?
The Goodhearts predicted the crash of the real estate market well before it happened. About ten months or a year before the crash, they published a newsletter that made one point and only one point: people who were in a position to to sell their homes should do so, and fast. They suggested that even if you were not considering a move, you should sell; then rent and plan on renting for several years. They urged people who even thought they might want to sell in the near future to do it quickly.
They saw the crash coming, so I figure they’re pretty savvy.
Says Goodheart: “If this trend continues, and I think it will, we should have stable prices for the next four to six months. Then, gradually, the prices will increase. . . . Repos are not a problem. . . . Current repo inventory is under a one-month supply.”
If they’re right again this time, it’s good news for M’hijito and me. Our Realtor thinks the house is worth about $150,000 (vs. the $235,000 we paid for it). In that case, it won’t have to go up much for us to be close enough to even when the 40/15 balloon comes up that we can either get out of the place or refinance the full amount. It’s too bad we can’t refinance now with the rates so low, but I’ll be happy if we can just get enough water bailed out that we won’t sink beneath the bounding main.
Now all we need is some decent jobs.
Image: Sötétkapu, or “Dark gate” in Esztergom, Hungary. Public domain.
That certainly is good news. Funny, you made my day.
Why can’t you refi now? If it’s b/c you are underwater, could you do a cashout refi on your own house? Oh no! i’m sounding like the realtors during the bubble!!!
Anyway-it is good news.
@ frugalscholar: You can’t refinance an underwater house unless you can bring money to the table. We would have to pay the difference between what the house is worth and what we owe. Right now that’s about $60,000. Optimistically speaking…
@ George: Well, I’d say you were doing better than we are, since we’re about twenty grand deeper under the billowy waves than you are. However, we bought a lot later; compared to 1997, I’d guess we’re about…oh, maybe $30,000 under what the house would have cost then.
If you buy what Zillow says, my own house — the one I’m living in — has fallen back to its market value as of about 18 years ago. However, you can’t buy Zillow: appraisers and buyers tell a whole ’nother story. La Maya and La Bethulia had their place appraised, and it came back much higher than the “Zestimate”: a little more than they paid for it ten or twelve years ago. Because of that appraisal, they were able to refinance for a better interest rate.
I have a couple friends who are Realtors and they were saying the same thing back in 2007.
Don’t buy now , just rent.
We bought in 1997 for about $100,000. Now the property has a market value of $60,000.
I hope you don’t think I’m a perma-bear on real estate because of my article, haha. I actually noticed while writing it that some of the correlations I wrote about have unwound in the last few years.
When I was looking in the Bay Area, (to extend your train metaphor) the price range I was operating in was coming off the rails with cash buyers, flippers, and all sorts of other fun (and sometimes unsavory) characters. Even though I was quite willing to part with my money, it seemed for a while that no one would let me. I eventually got a slightly distressed property I was able to (ahem, still in the process of…) fix up and live in.
On a side note, if you can gather enough money to get to 5% equity you might be able to do a FHA refinance. You’ll be paying the FHA equivalent of PMI, but even so, it might be less than the rate you’ve got.
@PKamp3: I think your points are very well taken. People — myself included — tend to be naive about real estate as investment. Even professionals who invest in real estate for profit get led astray easily, as we saw in the late, great bubble.
Our two biggest failures are that we assume the property will appreciate and that we fail to take into account how much money swirls down the drain in the form of interest payments. The assumption can be wrong even in a strong market, and the illusion that the tax break somehow ameliorates the loss on interest is exactly that: an illusion. Some flippers do well…for a while. But IMHO fix-&-flip is akin to throwing your money on the craps table. If you’re going to come away with your shirt on, you’ve gotta know when to fold ’em…know when to walk away, and know when to run.