Thoughts from House Hunting

We looked at seven houses (supposed to be eight) this past Saturday and I thought I'd share my thoughts on the day with you. Here goes:

• Most sellers are still not fully reflecting market conditions in their pricing. I've seen about 40 homes since this past summer and I'm pretty familiar with what homes should sell for -- and many are still way over-priced. It's almost as if they know buyers will be asking for deep discounts so they are purposefully pricing their homes higher to compensate.

• For goodness sakes, if a buyer is looking at your home, be sure you're NOT there. Of the seven homes, two still had the owners at home, and as buyers, we just didn't have the freedom to look as closely as we wanted (which means we weren't as interested when we left -- we just blew through them.)

• We couldn't see the eighth house because the guy's wife "couldn't get the house ready on such short notice." (Three days.) No wonder their home has been on the market for six months now.

• There is no perfect home. To try and get the land, the house, the location, the design, and so on to be all something we like is not going to happen. As such, we're sorting through our priorities and ranking what's the most important to us.

• Looking through all these homes makes us really appreciate our home more. We like the design and size of our home. If it was only on more land and in a different part of the city, we wouldn't be looking at all.

• Two of the places looked interesting and we may make a lowball offer on one of them. Our next steps are to ask some questions and see the homes again.

• It's good to have a couple of contenders. That way, the sellers (and our own agent for that matter) know that we have other options and they'll be as motivated as can be.

• One of the homes we like has no one living in it. The owners moved to Texas and, according to our agent, are desperate for an offer. Music to my ears. :-)

Comments

[Mark]

FMF,

Some people are desperate to sell and will take a low-ball offer, however, most people cannot afford to sell their house for much less than they are asking. This is why prices will stabilize and begin to increase in the next year or so. Once the desperate ones shake out, the others that "want" to move but don't "have" to move will hold prices steady.

We bought our house for $192,000 3 years ago, we could maybe get $170,000 for it, but since we don't "have" to move we are staying put for now. We have had neighbors take jobs out of state and had no choice but to walk away from their homes because they could not sell them for what they owed on the mortgage.

What I am saying is the people that are willing and able to take a low offer on their house are fewer than you might think.

BTW, I live in Michigan as well.

[nooney]

I'm in Arizona, and I'm going through the same home-buying issues. There are quite a few short sales and bank-owned properties around, but it takes a while for them to close escrow. Real estate agents and appraisers only use the last three to six months for comparable home prices, so waiting a bit for some of these homes to close will actually help my bottom line. It's already having an impact on prices in my area, but it will be even better in early 2008 after these autumn escrows close.

[Joey]

That's so funny, I just looked at a house today and the owner and her two kids were in it the whole time - apologizing that it was such a mess, "oh, that closet is so messy...you're supposed to be able to get two cars in the garage, but we haven't unpacked yet from our last move 3 years ago...so sorry we're here..".

You're comments on appreciating your home more ring very true to us. We are only considering a move for more land...wish we could pick our house up and move it a couple of blocks to a larger lot and we'd have our dream house.

[John M]

When I was living in a house that was on the market, we would often get appointments that gave us less than an hour to get the house ready. Sometimes my wife would stay in the home if people were really late or early for an appointment, but for the most part if someone is still in their home their real estate agent is doing a poor job of advising them.

[FourPillars]

#2 made me laugh. I can remember a couple of houses we looked at where it wasn't just the family who was at home, but the entire extended family as well. One home in particular seemed to have a person in every single room (in some cases sleeping).

Good luck with the house hunt.

Mike

[Byron]

First Poster:

The real estate market, like any market, won't be driven by stubborn sellers. Your theory is like suggesting that if all sellers of 1991 GMC Pickup trucks ask $10,000 for their truck, then the value of that truck is $10,000. The value of that truck is only $10k if people are willing to pay that.

A house is a commodity, just like an old truck. It is governed by the rules of supply and demand, like anything else. Lots of people will continue to drive that old truck (stay put) because they can't afford a new one (the price to move). None of that makes the truck worth $10k.

[Jason]

Byron,

While Mark's logic may not be as solid as he believes, I think your truck example is a false analogy. Trucks are mobile. I can go find a 1991 truck on the other side of the country for $9000 and bring it home where to where everyone demanded $10k. However, if you want to buy a house in a particular town/neighborhood, you must pay at least what the lowest priced seller demands. One can disagree with the higher price all he wants, but unless he trades cash for home, he is left without. You COULD be caught in a stalemate if no one will sell low enough to meet your offer.

[Byron]

Jason,

You're right, the truck example is not a perfect analogy.

I would, argue, however, that extremely few houses are as special as their owners believe they are. Though one cannot buy a house and park it in a different neighborhood, current inventories are the highest they have been in decades, suggesting that one can simply walk down the street and get a different house.

It all comes down to affordability. People will make the economically rationale decision when choosing somewhere to live. For example, if I can rent a house for $800 a month, but a similar house is on the market for $300,000, the economically rationale decision is to rent. No rational person would "throw away" $1500+ a month on interest when they could pocket the $700 difference and actually earn interest.

In the past five years, this affordability rationale has been thrown away in favor of a speculative argument--that is, people believe it is an economically rational decision to buy because the house will increase in value at a rapid rate. People chose to pay three or four times rent to own a house based simply on speculation, the speculation that it will be worth enough more in the future to cover the difference. Houses, therefore, became overvalued, causing the bubble that we see now.

I think this all comes down to one key point: the only way any inventory will move will be to base a sale on emotion. What is a depreciating pile of lumber will be sold as a "home" and a "place to raise the kids." By pulling these emotional strings, some buyers will be duped out of making the economically rational decision. However, economic theory relating to capitalism suggests that a market cannot be carried this way...in the end, most consumers are rational and a traditional supply and demand market will be formed, as it is for any other commodity. To say that prices well outside of affordability will remain so is to suggest that capitalist theory is wrong.

Practically speaking, prices won't be driven by stubborn sellers. They will be driven by foreclosures, short sales, and inventory that must be sold.