sellers market

Worried about the real estate market crashing? This will help

by John Rice

We are living in the first tough economy since the Great Recession. Naturally there are people that worry about the real estate market crashing again. The memory of half the houses on any street being for sale and owing more on your house than it is worth is all too fresh.

While I don’t see any need to be concerned about that happening again, I got to thinking about what that would look like if it were to happen.

Let’s look at a huge difference between 2005 and today. Both are times when the real estate market was on fire.

Back in 2005, the interest rates I was seeing were around 5.5%. The market was good. Values were high. Then when the 2006 season kicked off, it wasn’t as good. The following years until 2012 got worse and worse. Fewer buyers. More sellers. More foreclosures. Unlike stocks, real estate values usually rise gradually and fall even more gradually. Short of a landfill being built behind your house, you are not going to wake up one day and find your house is worth 20% less than it was the day prior. Remember this because I will bring it up later.

That person who paid $300k for a house in 2005. Let’s say they did a 30 year mortgage at 5.5%. One year into their mortgage, they owed about $296k still. After five years, they still owed about $277,500. This is why many of them had to BRING money to a closing when they needed to move in 2010. Back then, one of the first things you would ask a potential seller was “How much do you owe on it?” Many were upside down on their houses, which is why many chose to walk away and let the house get foreclosed.

Today, a buyer can get a 2.875% interest rate for the same $300k house. That is just over half what it was 15 years ago. After one year, they owe about $293,500. After five years, they owe around $266k.

Okay, now it’s time to remember I said real estate values, when they drop, don’t drop fast. It took about 5 years for values in the Lexington area to drop about 15% from the 2005 peak values. Some houses didn’t even loose that much. Picking a good house with a good floor plan, on a good lot, in a desirable neighborhood for the price range and with average or better performing schools is the best way to protect yourself from a bad market. If you look at the math on today’s buyer getting a super low interest rate, you will see that in five years, they have paid off about 12% of their balance. If they get a couple years of appreciation before a decline, the numbers are even better!

I know I got a little nerdy there with the math. Sorry. In the end, my point is that should the market crash again, today’s buyer is going to be in much much much better shape due to low interest rates. If the value of your house drops at the same rate that you are paying down your mortgage, then the worst thing that can happen is you just aren’t building equity in the house. It’s effectively like you’ve been renting where you pay to live there and walk away with nothing when you sell…..and this is the worst case scenario. The best case scenario is that the market stays good and you build a ton of equity. I just don’t see much risk in buying a house right now thanks to low rates.

The one thing this agent did that got his buyer my listing

by John Rice

He called me.

That’s all it took.

I put a listing on the market yesterday that I knew would get a ton of showings. It was priced at $155k and there just isn’t much for sale in that price range.

The agent called me before his showing and asked what type of terms my seller was looking to have. He also told me that his buyer had tried unsuccessfully two times to buy a house in this particular neighborhood. He has friends/family in the neighborhood and really wants to be there. I really wanted to hear that because I knew that his buyer would not walk away after a home inspection since he not only needs a house in a tight market but really wants to be in that neighborhood. His only option would be to wait for the next house to come up in that neighborhood. This buyer was committed. I asked who the buyer was using for his mortgage. It was a local company that is well respected. Icing on the cake to me.

Some of you might wonder why an agent would tell me this? Isn’t it compromising his buyer’s position? In today’s market, everybody assumes they will have to pay full price. Everybody is electing to do the inspection type where you will have an inspection but not ask for any repairs. Since everybody is doing pretty much the same thing, the decision on who gets the house often comes down to minor things such as what type of financing the buyer is doing, if they are using a local lender who can be trusted to get the loan to a closing…..and even to little things like letting the listing agent know the buyer really wants to be in the neighborhood.

Being a buyer’s agent today is not about negotiating since buyer’s have no power right now. It is about advocating for your clients. It is about finding out what is appealing to a seller and what will make them pick your client. That is exactly what this agent did. In an era where you get a random text from an agent that they are sending you an offer, making a quick phone call can really make a buyer stand out. The actions of this agent is what got his client the house.

7 houses sold in 6 days!

by John Rice

It’s been a busy few weeks. After sitting on the couch for most of March and April, the market really came back strong. I knew it would happen, I just didn’t think it would happen so fast. I now have 14 pending sales. I sold 7 houses in 6 days last week…..which is why I haven’t blogged in a while. LOL, I went from having nothing to blog about to having no time to blog.

As expected, most of those sales were in multiple offer situations so I thought I would tell you how I won some of them for my clients.

These buyers were friends of mine who had been living out of the country for several years and were coming back home. Typical thing where the house had just come on the market. I knew the listing agent well. We have worked together multiple times. My buyer was preapproved with a local lender that the listing agent also knew. I was familiar with the house since I own one that is the exact same model. I don’t claim to be a home inspector, but I have been on probably 400+ home inspections and own enough houses that I can usually spot any deal breakers. I told my buyers, who REALLY wanted this house, that I was sure a home inspector would find the usual laundry list of items found in any house. I also told them that most sellers these days will only spend $500-1000 for repairs. I suggested we buy the house totally “AS-IS” without a home inspection. I know that can be scary for a lot of buyers but these clients were good friends who knew I wouldn’t steer them wrong. Since there was no huge issue that would cause somebody to walk away, all they were risking was losing out on the $500-1000 in repairs that a seller would do. We got the house!

Another buying family was referred to me by a past client who had used me twice before. I knew that listing agent too. An art that seems to be lost on younger realtors is calling the listing agent and letting them know some things that aren’t on the offer. I told that listing agent that I had been working with my Buyers for a while and how sensible and reasonable they are. I also pointed out that they would be doing a Conventional loan and had 20% down and would not be asking for the seller to pay any of their closing costs. I did this because I was sure the price point of this house probably meant that the other offers were FHA/VA with little money down and asked the seller to pay some of their closing costs. Get this, the listing agent countered our offer because we did not have the highest price. He said if we could match the highest price, my people would get the house because their loan type and huge down payment seemed more of a sure thing than the other offers. We got the house!

I sold a really amazing townhouse downtown to a friend. That was not in multiple offers since it was under construction. Another buyer who was referred to me from a friend bought 5 acres in Jessamine County. We did an escalation clause on that one to get it. The rest were listings.

It has been a busy two weeks but it felt good and overwhelming to be thrown back in the deep end of the pool after the COVID-19 Staycation.

Always think about selling in a Buyer’s Market

by John Rice

I am always sad when I see a house sell that has been sitting on the market forever.

Sometimes a house will stay on the market for a long time because the initial listing price was too high, or the house didn’t show well.  Both of those can happen to perfectly good homes.  The reason those don’t sell is because of the seller, not the house.  Often these houses sell once the list price gets reduced into the realm of reality, or the seller does some cosmetic repairs that make it easier for a buyer to want the house.

Any time I show a house like this, my client usually asks me why the house hasn’t sold yet.  If I check the listing history and see that they started out asking a crazy high price and have reduced it, I tell them it is okay to buy it.  If I look through old pictures or see fresh paint, new flooring, etc, I tell them it is okay to buy the house.  Sometimes sellers just need to learn how the market works at the expense of their days on market.

Then there are those houses that don’t sell because of the property itself.  Those are the ones that I advise my clients to not buy.  These houses usually have some odd feature like a crazy floor plan, a poorly done addition, a neighbor whose yard is full of junk or has a dozen dog kennels in their backyard, the house backs to commercial or industrial zoned properties, etc.  These houses eventually sell to somebody who doesn’t mind that particular negative.  Whenever I show one of these houses, I like to tell my client that while they might not mind the negative feature that has kept the house from selling, it will be extremely difficult for them to sell it when it is their turn.   The past 8 years have been a pretty strong Seller’s Market.  If a house took a long time to sell in a hot market, can you imagine how long it would take in a Buyer’s Market?

I have lived through lots of markets.  I have seen seller’s who paid too much in a hot market lose money when they needed to sell.  I have seen people get their dream job and move out of town, only to have to make two mortgage payments until their old house sells.  I have seen people who felt lucky to have gotten their house in multiple offers struggle to sell it in a Buyer’s Market.

I don’t want to see any of my clients go through any of this.  In real estate, you often don’t see the consequences of a mistake until years later when you go to sell.  Helping people avoid this mess is one of the greatest joys of my career.

Real estate predictions for 2029

by John Rice

Just gonna jump right into this:

Gen Z will have a harder time getting a house than the Millennials did.    They are the biggest generation ever.  They will be entering the real estate market at about the time Millennials are selling their starter homes.  Great news if you own a 1300 square foot house in Masterson.  Times will be tough for them, but they will keep the market going strong.  Every seller of a starter home needs a first time buyer so they can move up.  That first time buyer is the oil that lubricates the whole market.

The Millennials will be moving up to their 4 bedroom houses on a cul de sac in a good school district because that is just a natural progression once you start a family.  This is great news for Gen X sellers who will be downsizing to medium sized houses in upscale neighborhoods.

What makes me think all this?  It’s not really crystal ball as much as it is history.  Everything I just described happens with every generation.  You buy a smaller house you eventually outgrow, you move up at least once to the house you raise your family in, then you downsize.

So what does all this look like for Lexington?  More gentrification as it becomes expensive to live anywhere in Fayette County.  I know it sounds unheard of, but the neighborhoods that nobody wants to live in like Cardinal Valley and Winburn may become the budget choice as similar neighborhoods with better locations become too expensive.  I know it sounds crazy, but when I was in high school, people didn’t want to live in Kenwick and now those houses equal Chevy Chase for price per square foot……yesterday’s bad neighborhood can easily become a tomorrow’s good location.  Plus, it isn’t like we are ever going to see brand new starter homes ever again.  All that can be done is update/remodel existing houses.  The people that flip houses need some margin to do this so they will buy distressed houses in whatever neighborhoods are affordable, just like they are doing now in downtown, Melrose, The Meadows and all those streets that begin with D around Pasta Garage.

Before long, I don’t think there will be any new construction in Lexington.  We are already filling in every spot big enough to stick a short row of townhouses.   This means that being in Fayette County will be even more expensive, and people will go to surrounding towns like Nicholasville and Georgetown even more.  One day, people will discover that Winchester is only 15 minutes from Hamburg and the interstate passes right through it.  I’ve never understood why more people don’t move to Winchester?

Remodeling will be hot too.  With not much new construction, people will start remodeling existing houses more and more.

Sort of some majorly huge economic melt down, I think housing is going to be strong for quite some time.