In Real Estate it is still all about affordability- Real and Imagined
The psychological factor plays into the equation in two ways. First, when the popular wisdom says prices are falling, it only makes logical sense to wait until things get cheaper before you buy. This is in marked contrast to a couple of years ago when prices were in a perceived never ending upward spiral encouraging everyone to jump in before things were even further out of reach. Second there is much talk about recession and job loss. And there is nothing that affects a person’s willingness to spend like wondering if the source of income is about to disappear.
Sellers have a psychological problem too. In a word, it is Greed. They recall the heady prices of only a couple of years ago. And the thought is: “the market” notwithstanding, “my house” is still worth that price from November 2005. That reluctance to price according to today’s market, or “stickiness” in pricing, keeps those homes from being sold.
A person or family buying a home relies on their income from their work to carry the costs of the house and all other living expenses. There is only so much they can allocate to Principal, Interest, Taxes and Insurance. The territory in which you live determines in large measure wages and salaries. The marketplace determines price levels based on the overall economic activity in an area. There are opportunities to tweak this on the margin, but the higher in price you go within a given locale, the smaller the pool of prospects to whom you can sell. If you plan to sell a piece of residential real estate, you have to accept this. Uunderstanding these fundamentals will give you the chance to be successful.
Sellers have a psychological problem too. In a word, it is Greed. They recall the heady prices of only a couple of years ago. And the thought is: “the market” notwithstanding, “my house” is still worth that price from November 2005. That reluctance to price according to today’s market, or “stickiness” in pricing, keeps those homes from being sold.
A person or family buying a home relies on their income from their work to carry the costs of the house and all other living expenses. There is only so much they can allocate to Principal, Interest, Taxes and Insurance. The territory in which you live determines in large measure wages and salaries. The marketplace determines price levels based on the overall economic activity in an area. There are opportunities to tweak this on the margin, but the higher in price you go within a given locale, the smaller the pool of prospects to whom you can sell. If you plan to sell a piece of residential real estate, you have to accept this. Uunderstanding these fundamentals will give you the chance to be successful.
Going forward prices will fall. In one way or another, prices will fall to meet the realities of the current real estate market:
➢ Houses will be reduced in price
➢ New construction will be smaller
➢ New construction will be more spartan
➢ Land prices will come down
➢ Incentives will be attached effectively subsidizing the property including:
• Mortgage Interest buydowns
• Closing costs paid
• Mortgage payments
• HOA payments
• Tax payments
• Lease options and lease purchases
David Levin
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