Posted on January 28, 2011 - 03:16 PM
by Mike Hill
The sun is shining, birds are singing and I see homebuyers beginning to peek from the sidelines at the local real estate market, although many are still moving a little cautiously. A little stiffly, too, since they’ve been frozen in place for two years.
Lenders and Realtors still left in the business think they’re seeing some market movement, also, although it could still be hunger pains. There are more buyers, they say, and they don’t appear to be as timid as they’ve been.
Or is all of this wishful thinking, I asked myself. “Get up and go find out,” myself answered. So I did.
And it’s true, buyers are waking up, according to the spawn of the devil machine sitting on my desk, constantly abusing me with contradictory instructions on a blinky monitor and a balky keyboard with a roaming mystery key capable of shutting everything down while it translates my projects into Martian.
I’m gonna kill it one day, probably soon, and with an axe, too, then drag it out into the parking lot, burn it and dump the ashes into a septic tank.
The real estate action, formerly busiest until five or six years ago in Northwest Valdosta, has now moved to North Lowndes County, especially Northwest Lowndes County, much of it because of a (perceived) difference in the city vs. county school system, less density and because that’s where the new houses were being built.
So year to date, I compared last year’s activity in North Lowndes to this year’s to see whether Realtor or lender optimism is based on something besides desperately wanting to believe the market is beginning to turn in our favor.
And this year IS starting better than last year and by a pretty good bit, too. Home sales in North Lowndes are up over $2.5 million from the same period last year.
Significant also is that the average days on the market before selling was 132 days in 2009, compared to 93 in 2010. Maybe more significant is that the price per square foot went from a 2009 average of $91 to $97 per square foot in 2010. Averages are just averages, don’t start using them to value your single house, but using that six bucks a foot difference for illustration purposes, the price difference of a 1,800 square foot house would be $10,800.
Numbers for expired and withdrawn listings are also improved. Last year to date, 99 houses died on the vine or were withdrawn – $23.5 million spurned houses limping out the back door of MLS.
This year, there were 31 fewer houses on the expired and withdrawn list, which is much better, although too many houses are still dying of a serious lack of payments on the courthouse steps.
Increased activity indicates competition for good properties is increasing which is likely responsible for a $5,288 average increase in the value of homes sold in 2010. Fortunately, interest rates are still at five percent or less, a figure which still appears ridiculously low for anyone around during Jimmy Carter’s presidency, when mortgage interest rates topped out at 18 percent.
Realtors still in the game then were riding around in large, aging cars with increasingly bald tires – cars big enough to haul around entire families and a soccer field. Most agents got priced out of the market long before payments hit 18 percent and got ‘real’ jobs, meaning one with a regular paycheck.
Nobody expects interest rates to stay in the cellar forever. “I feel like I’m missing a chance,” this guy tells me. “I’ve built up $50,000 equity in my house over the past 12 years, I’d like to cash it out and buy a bigger house, but I’d take a ten percent hit on the price in this market,” he said.
He’s probably right; his house is worth $90,000 today and very well could have sold around $100,000 or more two or three years ago. Not because we had a price bubble, but because developers and builders aided and abetted by loose lenders, let supply get waaay too far out in front of demand.
I suggested he do the math and take the $10,000 hit. “Are you nuts,” he said, “ten grand is a lot of money.” And it is, but consider this: When his house was still worth $100,000 two or three years ago, the larger houses he was looking at were still worth $150,000, a full $50,000 price difference back then.
But if the current market caused the owner of the bigger house to take the same ten percent hit, which would be for $15,000 compared to my guy’s $10,000 hit, my guy would be $5,000 ahead. Put another way, losing ten percent value puts my guy’s house at $90,000, but the same ten percent drops the $150,000 house to $135,000 --- and $90,000 from $135,000 is $45,000, not the $50,000 it would have been earlier.
More math: What if my guy can’t bear to “lose” the $10,000 and the value of both houses recovers, but interest goes to six percent in the interim? Using his newly recovered $50,000 as a down payment on the also recovered $150,000 house puts his new mortgage on the larger house at $100,000.
At yesterdays five percent, the monthly payment would have been only $536.82, but it increases to $599.55 at six percent. Stay with me here, this is a different way to look at it and it may be surprising.
Waiting on both houses to recover the ten percent price drop has already cost my guy $5,000 compared to buying now, as described above, right? Waiting also allowed the interest rate to increase from five to six percent, as also noted above.
If he insisted on making only the $536.82 payment due at five percent on the $100,000 mortgage – and used only that payment with the six percent interest rate – the lower payments which would support a $100,000 mortgage at five percent would only support an $89,500 mortgage at six percent.
Put another way, the interest rate increase cost him $10,500 between the $100,000 mortgage the five percent payments would have supported today and the $89,500 mortgage the same payment will support at the increased mortgage interest rate of six percent tomorrow.
Subjecting himself to what appears to be a $10,000 “hit” today actually puts him $15,500 better off than if he waits to recover the $10,000 value of his house lost over the past two or three years.
Good deals aren’t found, as I’ve often said, they’re made. If he buys now, my guy will be selling his house at today’s full value and will be paying today’s full market value for the new house, right?
So where’s the good deal? It comes from applying a little real estate math and market research to make his deal $15,500 better today than it might be tomorrow, which sent him home to sharpen his pencil and scratch his head.
It only appears to be a $10,000 hit, I said, as he walked out the door.
Mike Hill has been in the real estate business in Valdosta since 1976 and still gets a headache trying to figure the correct tip in a restaurant.
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