How a hot market really sucks

As I was driving home today after a closing, I got to thinking about how the market is always  changing.

When I got into this, it was much like today.  Buyers felt lucky just to get a house and sellers were drunk with power.

Then there was the looming threat of a nationwide crisis.  We were convinced it wouldn’t  make it to Kentucky.  We all said things like “We didn’t see the crazy appreciation like California, Arizona or Florida did, so we won’t see any changes.”  Only we said that with the same fear in our voices as the kids from that Stephen King movie when they talked about Pennywise the clown.

Then “IT” happened. (See what I did there?)

It slowly went from being a seller’s market to a buyer’s market.

Nobody was happy.

Seller’s were bringing cash to the closing to payoff their houses.  Buyers were afraid their new house would continue to depreciate.  Buyers were hitting sellers up with big repair lists.  They felt the seller should just appreciate that they picked their house among the other 50 houses in the neighborhood for sale.

Then in late 2012/early 2013 we had this euphoric time.  Sellers were happy because their houses were selling in less than 6 to 12 months.  Buyers were happy because prices had stabilized.  Sellers were okay to do whatever repairs were requested since they were happy to have sold their house.  Buyers weren’t asking for as many repairs since they were happy too.  They knew the house wouldn’t be worth less by the time of the closing.  It was great!

Only it didn’t last.

Prices started going up.  Fewer houses were on the market.

Prices kept going up.  Even fewer houses were on the market.

Prices went up even more.  And even fewer houses were on the market.

And now we are back to where we were when I started, only a little worse.  Prices are sky high.  Buyers resent it but know they have to pay the price.  So, they are hitting up the sellers with big repair lists.  Sellers feel like they are doing a favor to the buyer just by accepting their offer.  They don’t want to do repairs.

Basically, nobody is happy right now.

The happiest 2 days of homeownership

Two of the best days of owning a house are these:

1.  The day I call you to tell you that the seller has accepted your offer.

2.  The day I call you to tell you that we just got a really good offer.

When you hire me to be your realtor, I am thinking about both days.  You may not be, and that is okay.  That is what I am here to do for you.

We are currently in a market where everything sells.  You can have two identical houses across the street from each other.  Both exactly the same.  One backs to green space.  The other backs to the loading dock of a strip mall.  Both sell fast and for the same price.  Why?  Because there are three buyers for those two properties.  It was like this too back in the early 2000s.

But what do you think will happen when the market slows down.  Maybe there is only one buyer and both of those identical houses are for sale again?

The seller backing to the green space sells their house for top dollar in record time because even in a bad market, the best houses still sell.

The seller backing to the loading dock watches the SOLD sign go up across the street.  Then they watch the new neighbors move in.  Their house is still on the market, even after reducing the price several times.  They really need to sell because one of them starts their new out of state job next month and they can’t afford two mortgages.   Then they wake up listening to an idling diesel truck at that loading dock.  They remember how lucky they felt to get their house.  How they beat out that other buyer in multiple offers by bidding as much as the green space house cost.

It is only now they realize that they made a bad decision all those years ago.  That is how real estate works.  You never know whether you made a mistake or not until you go to sell your house.

When you look at houses with me, I will always point out the negatives so you know what you are getting into.  I’ve been doing this for a long time.  I know what things buyers like and don’t like.  I don’t want anything to be a surprise to you when you go to sell your home.  What you do with that info is totally up to you, but I will always let you know because one day, you will be the seller and not the buyer.

 

Reading the real estate market in real time

One day this summer, I looked out across my backyard.  I do that every day.  All the time.  I love my backyard.

This time I noticed one of the pine trees in the corner had a bunch of brown needles on it.

I immediately reached out to my buddy Phil who knows just about everything there is to know about every plant there is.

He told me that usually once you see the needles turn brown, the tree is already dead.

I knew he knew what he was talking about, but just to be sure, I waited to cut it down until every needle had turned brown, fallen to the ground, and the branches snapped as crisply as the first Saltine cracker in the box.

That experience reminds me of the real estate market.  You never know exactly where the market is at the moment.  You just see the signs after the change occurred.

I got into real estate during the spring of 2005.  My first listing was in May.  I was so excited.  Houses had been selling for top dollar immediately.  I wanted to be a part of that.  The house took several months to sell.  I remember thinking, even as a newbie, that the house was priced right, had a good location, and statistically should have sold already.

Nobody knew it at that time, but the market was slowing down and was about to become the worst market in recent history.

After weathering that storm, I got to witness another change.  Early in 2013.  It felt like that first decent day in spring.  The one where you notice the sun stays up a little longer, you didn’t feel as cold as the day before.  Like that scene in Bambie where all the animals come out for the first time.

I was working with a really cool buyer named John.  He traded cars as often as I do.  He wanted the south end of town in an affordable price range.  We made a few offers on houses and lost them.  The offers we made were spot on within the recent comparable sales.  After the 3rd time, I told him that I felt like the market was improving, so all the sale prices for the recent comparable sales were going to be lower than what the value would be now.  We would have to made an adjustment.  Sure enough, as the ones we had made offers on closed, the prices were about 2% higher than the comps I had been using.  Meanwhile,  we had a backup offer on a foreclosure that he ended up getting.  He put very little money in that house and less than 6 months later we sold it for $41k more than he had paid for it.  By the time he sold it, everybody knew the market had changed.  The market had changed so much that even after the house sold, people were walking up and looking in the windows while he was home.  I told him to pull my for sale sign out of the yard and keep it in the garage until we closed.

So, where are we right now?  After such a hot hot hot market earlier this year, the market is really slow.  I don’t think it is in trouble or anything.  I just suspect that everybody who was going to buy this year did so in the first 10 months.  It has been a frustrating year for buyers.  I think a lot of them have given up on buying this year and are waiting until spring.  Sellers aren’t too happy right now either.  They have watched all their neighbors get multiple offers the first day on the market, but now they aren’t seeing the same thing happen with their house.

So, right now is a great time to get out and buy a house if you can find one you like.  We still don’t have a lot of choices, but you’re going to have more of a chance to negotiate and probably be the only offer the seller has on the table.  Historically, buyers come out of hibernation late spring and sellers start putting their houses on the market about a month later.  So you’ve only got about 8 weeks to enjoy this slow period.

The more of these changes I live through, the easier it becomes to notice them more quickly.

And now the same holds true for the trees in my backyard.

 

What neighborhood is the winner in this market?

Masterson.  Formally know by it’s full name, Masterson Station.  While the whole neighborhood has seen values really go up, I think the true winners are the single story homes in the 1000-1350 square foot range.

Many many years ago, half of Masterson was in foreclosure.  That happened to a lot of the newer neighborhoods where the first owners bought at the top of the previous hot market with sketchy no money down loans.

I remember I would often spend ALL day with first time buyers just in Masterson when the market collapsed.  I would schedule 8-10 houses, all just blocks apart.  It would get confusing after a few.  I would find myself saying stuff like “This is the Roxbury plan by Schneider Homes.  It is the same floor plan as the 2nd, 3rd and 6th house we saw earlier, only this one has blue vinyl in the kitchen instead of tan, and it has a deck instead of a patio…..oh, and this one has a fenced back yard too.”  Then my client would say something like “I thought the 2nd and 6th house were the two story houses?”  Then I was like “No, it was the 4th house that was the two story.  It was a Ball Home plan.  The Fairfax is the name I think…..yes, that is it.  The Fairfax is the one I told you about that sometimes has an open loft instead of the 3rd bedroom, and realtors often call that a 3rd bedroom because they know nobody will come see it if they said it was REALLY a 2 bedroom house.”  Then my client would ask “What was the 5th house?  I don’t even remember it!”  I’d reply “The 5th house was the only occupied house we saw today.  The water was on and we both used the restroom.”  Client be like “Oh, I remember now. How do you keep all this straight?”  And I’d be like “It is taking every bit of concentration I have.”

Back then, $125k was like $155k is today.

Then the market improved.  I was amazed these houses were selling around $130k.

Then it got better.  I started seeing a lot of $140k houses a year ago.

Now a decent one is $150k, some are even higher!

That is a huge turn around from half the neighborhood being vacant houses that took 6 months to sell.

 

Why NOW is the scariest market ever

I think right now is the scariest real estate market we have seen in a long time, for buyer’s at least.

I know, it seems crazy when prices are going up and there is a frenzy to buy any house as soon as it comes on the market……but that is what makes it scary.

When the market was so bad years ago, a buyer had their pick of dozens of houses.  They were able to make a good choice.  If the market dropped even further, you knew it would eventually come up.  You don’t have that luxury when you are at the top of the market.  You just hope it continues to go up more and more and more.  You never know where the peak is until it starts going down the other side of the hill.

I cut my teeth in real estate in the bad market.  Many people who did not use me as their buyer’s agent contacted me to sell their homes when times were tough.  Many of them had bought in the early 2000s when the market was hot.  They would tell me how they had lost several houses and they didn’t want to lose again so they bought the house they now wanted me to sell.  They’d say the market was booming so they didn’t think they could go wrong with a full price offer because that was the only way to get a house.  They were thankful to have even gotten their house.  The very house that at the time they were saying all this, had become a noose around their neck, preventing them from relocating for a better job, dividing families because one spouse had to start a new job while the other stayed behind praying the house would eventually sell.

The market they bought in was just like it is today.

While I don’t think we will ever see the market crash again any time soon, you know the market will go back and forth from being a seller’s market to a buyer’s market.

That is why I think being a buyer in today’s market must really make a wise decision.

Many buyers today, again, feel lucky to have gotten their house that backs to a business, is on a busy road, has a terrible lot.  They just feel lucky to have even gotten a house.  Period.  Many of them will call me when it isn’t as easy to sell because the agent that sold them the house is no longer in real estate.

I wish they’d call me now instead of using their uncle’s neighbor’s cousin’s babysitter who just got into real estate last month.

Here is what I would tell them:

“This market is tough.  There is no easy way to get a good house.  Yes, you will pay top dollar.  Yes, you may lose some houses.  Yes, you may even have to find temporary housing while we wait for a house that will be a good investment.  This market will cost you something-you can be burdened now and end up with a great house, or you can be burdened when you go to sell.  Whatever house you buy should set you up for your next bigger and better house.  You want to build equity to use as your next down payment.  You don’t want to have this house ruin your life should you have to sell in a buyer’s market.  So, let’s pick a winner that you will enjoy and that will be a solid investment for your future.  It isn’t going to be easy, but I am committed to making this happen for you.”