Market Values

Is It a House or Is It “Housing?”

May 14, 2013 By Rick Jarvis

cantor — Congressman Eric Cantor was kind enough to listen to what a panel from the RAR (including yours truly) had to say back in 2011 about the lending policies of Fannie Mae and Freddie Mac.

I live in a HOUSEand you live in a HOUSE, but collectively, we live in HOUSING.

Please explain…

Individually, we buy a house (or condo) that fits our needs and personality. It can be big or small or it can be blue or beige or tall or short, but it is our house. It contains our stuff and it contains our memories. It has pictures on the walls of the people, places and things that are important to us and it creaks and moans when the wind blows…and we know where the water shut off valve is (because of ‘The Incident’ back in 2007.) We also know that flushing the toilet in the master bath while the washing machine is running means an immediate increase in the shower temperature by about 20 degrees.

Once again, it is our house.

That being said, the US is comprised of millions of houses just like yours and mine. This collection of millions of homes makes up the market called ‘HOUSING’ and it is what shot to the moon in 2006 and was in free fall in 2008. The US Housing Market is a complex collection of numerous inputs (supply, demand, credit, Mortgage Insurance, schools, materials, seasonality, type, location, density, demographics, etc.) and it is these factors collectively that drive value. Despite what HGTV, Pottery Barn and Home Depot would have us believe, it is not our paint colors, furniture placement or lighting selections that truly affect value.

[ Inventory levels have plummeted since 2008 while pending inventory is trending upwards. More stats here ]

Currently (spring of 2013), we are in the throws of another massive correction…but this time to the positive. The correction that we are currently experiencing is a re-correction from the over-correction that occurred from 2008-2011. During the 5 year period prior to 2008, prices rose at an unsustainable pace due mostly due to a lending process that was flawed. The severity of the correction was due, in large part, from the UN-availability of credit once the market adjusted. The overall leverage in the marketplace in 2008 was unprecedented, especially when compared to historic trends, and when values began to fall, the debt levels exacerbated the correction on a level unseen in most of our lifetimes. The implosion of the market either caused (or was caused by, depending on who is asked) the implosion of Wall Street and the fallout in the credit market was global.

The lesson in all of this is that the HOUSING MARKET determines the value of homes and not Realtors, an appraiser, Zillow or the individual homeowner’s selections. Without a doubt, the most important inputs to the local market are controlled well outside of the region. While design trends and color palates may affect pricing to some degree, by and large, the swings in value that are significant are driven by MACRO factors. A paint job will not improve your property values by 10% but a policy shift in DC sure can. Simply put, when there are more homes than buyers, prices go down and when there are more buyers than homes, prices go up. Those who are truly shrewd investors understand this and strategize accordingly.

Remember to keep these macro factors in mind when making the decision to purchase. I see so many buyers fail to understand the overall picture and in doing so may let a home pass over an inspection item or negotiations break down over a few thousand dollars. In the grand scheme of things, owing property now, at the interest rates currently available is likely to be one of the most intelligent financial decisions you will make.

These extremely favorable market conditions will continue to be for the next 12-24 months as we correct back to trend. Keep an eye on the inventory levels and interest rates. When the graphs look like they did in 2003-5, we are back to a stable and (relatively) predictable market.

The re-correction is not over but it is in mid-process and the days to purchase an large asset at a discount are ending sometime in the foreseeable future. Serious consideration should be given to the opportunity to enter, re-enter or adjust one’s housing situation as these market conditions are fleeting.

Pushing Back

May 9, 2013 By Rick Jarvis

While every purchase or sale situation and deal is different, at some point in the offer/counter-offer process one of the three following statements is uttered:

“What should we offer?”
“Should we take it or should we push back?”
“Tell them to take it or leave it!”

When to Push Back

Having a sense for whether or not to push back one (or more) times in an attempt to maximize your yield is hard. No matter what the scenario, having more information is better than having less. Knowing where you stand relative to the market is critical in capturing that last several thousand dollars.

While there are many ways to analyze your place in the market, one of my favorite charts to help offer guidance is below. The chart shows the percentage of the home’s asking price that a seller received (sometimes called the Ask/Bid Spread). When inventory levels tighten or demand increases typically, the higher the percentage. You will also see the ‘Days on Market’ statistic move in concert with the Ask/Bid as when demand increases, buyers will act more quickly and thus tend to pay prices closer to asking prices in order to secure the right to purchase the home.

You can toggle on or off the individual zip codes (click the dots below the chart) to compare how one is preforming relative to another.

Numbers Never Lie, Right?

“So we should follow the chart above, correct?”

Not necessarily.

All statistics contain some ‘noise’ which can skew results and/or give less than accurate guidance. And while each individual MLS handles their statistical packages differently, all MLS’s should offer some sort of package to help both agents and the public make some sense of the data.

So when looking at the charts above, please keep in mind the following:

Most statistics packages use Zip Codes, not MLS Zones, so some zips may encompass radically different neighborhoods. This more typical in the urban zips.
New Homes are typically entered into MLS at 100% (or more) of asking price so zip codes with larger numbers of New Homes may have slightly higher percentages than the market is really dictating. Conversely, resale homes in new home neighborhoods may be in weaker bargaining positions than the chart would indicate.
23220/23221/23226 have a smaller data size so the percentages will bounce around more. Smaller data sets are also more more skewed by an extreme individual sale.

Dig in, Move or Accept?

So should you dig in and fight for that last little bit when selling your home? Simply put, it depends.

Remember, there is no magic formula as each purchase/sale event is unique. We wrote a post about using COMPS exclusively in the analysis which discusses the issue of looking backwards to predict future events. We also wrote a post about understanding the difference between the many different interpretations of value. But just know that those who know how interpret data will always come out ahead.

Ask your agent about the stats and see what they say…

Million Dollar Homes For Sale in Richmond VA

April 14, 2013 By Rick Jarvis

No matter where you go in the US, one million dollars is a measurement by which salaries and homes are compared.

[ listings in excess of $1MM are below ]

Each market in the US (and the world) has their own inputs that drive values and specifically, what drives values to $1,000,000. For some it is proximity, for some it is history and for some it is space.

Regardless of the reason that a home can justify an asking price in excess of $1MM, in Richmond and surrounding areas, the $1MM threshold is not an easy one to crack.

What makes you worth 7 (or more) digits in Richmond?

The first and most important factor in getting to the $1MM mark is involvement with water….specifically, the James River. The condos on the upper floors of the Vistas, Rocketts Landing and the homes in both the City and Henrico, Goochland and Chesterfield that have expansive River views, can command that price. While I am sure that some of the properties that front smaller lakes or other smaller rivers or creeks (South Anna) can ask a premium, having property along the James drives a large portion of value.

History also plays a role. Monument Avenue, Seminary Avenue and Cary Street Road all have enough historic currency to command the $1MM+ number. Richmond’s powerful (and oft divisive) history is highly valued by many. Additionally, those who own some of Richmond’s most iconic properties along these avenues feel a responsibility to steward these properties from one generation to the next.

While size matters, simply being big does not necessarily mean expensive. While there are certainly homes whose scale (and thus, cost) generates a price over the $1MM mark, often times, size without another element (river, history, estate setting) will not necessarily mean ‘a mil’ (or more) is the value.

Lastly, there is a geographic component to value. There are more areas in Henrico that can command the price than Chesterfield. There are more areas in Goochland than in Hanover and Powhatan and so on. Owning a million dollar home in Chesterfield is likely only in very specific neighborhoods. Henrico offers more spots where 7 digit home prices are justified.

Overall, Richmond is not really a $1MM city quite yet.

What does a million dollars buy you in (and around) Richmond?

Is Your Realtor a ‘Cycle-ist’?

April 6, 2013 By Rick Jarvis

A quick note –– the original date of this article is April 6, 2013.

In the years that followed the 2008 crash, no one really seemed to care about the fact that we had lived from the bottom to the top to the bottom again.

Well as we head into the 2020 market, impacted oh-so-angrily by a virus named for a beer, it is all happening again.

Being an agent when times are good isn’t really that hard –– you just call a lot of people and let the market do its work. Well now, that has all changed again.

We are at the precipice of another cycle, and we are now multiple-time cyclists.

Enjoy the original article –– the message rings true again.

From April of 2013 …

I am “cycle-ist.”

I don’t ride bikes nor motorcycles. I don’t wear yellow jerseys and I don’t wear those hats with the brims turned up –– and I don’t wear a lot of spandex (and that is a GOOD thing.)

But I am a “cycle-ist.”

Huh?

I am a “cycle-ist” because I have lived through an entire 20+ year real estate cycle and I have done it while in the real estate industry.

Beginning in 1993 when I was first licensed, to 2008, when we opened One South, to today, at 40+ agents strong, we have survived from the heels of the 1987 crash to the beginning of the 2013 recovery.

Home Prices Continue Rising | Builder Magazine — **NOTE: I added this chart to show how far the market rose from 2013 to 2020 in case you were wondering. Expect to see some impact in the latter half of 2020.**

Why does this matter?

While predictive models will tell you what to expect based on a set of inputs, experience will tell you when the inputs to those models are incorrect. No one anticipated 30% decreases in value from 2008 to 2012, but it happened. Understanding why it did is the most important lesson to learn from it.

At the end of the day, having lived through a cycle means a far better understanding of the many levels of risk and how to mitigate them. While being in an ownership position always carries some form of risk, understanding the level of each (as well as the new forms that we discovered from 2008-11) is paramount.

When we look back at this period in American financial history, we will see more real estate fortunes made (or at least more equity gained) than at any time in our history.

Those that have chosen to see ONLY risk will have missed an opportunity.
Those that seek to understand the risks that they take, will thrive.
Those that seek others who can offer pointed observations about the risks that drove us into one of the worst financial periods in our history, will thrive to a higher level.

Seek out the cyclists. They have seen a thing or two.

What Does A Buyer’s Agent Do?

March 22, 2013 By Rick Jarvis

A buyer’s agent works for YOU when you buy a home.

When we say ‘works for YOU‘ we mean that it is YOUR interests that are the primary focus. While all agents are supposed to be on their best behavior when it comes to no lying, cheating or stealing, the difference between a BUYER’S Agent and a SELLER’S Agent is whose pocketbook is being looked after.

A BUYER’S Agent’s sworn goal is to help you pay as little for a home as possible. A SELLER’S Agent is trying to get you to pay as much for the home as possible (to the benefit of the seller, obviously.)

But how can this be so? A house is worth what a house is worth, correct?

It really depends.

The comparable sales that are shown to buyers and/or interpreted for them can be made to illustrate vastly different values. Comparing a home to others which have varying degrees of applicability can yield radically different (yet TOTALLY believable) results and it is the job of your advocate to understand this.

I would rather save the commission…

Doesn’t really work that way. The listing agreement is between the seller and their agent, not between you and the agent. Odds are, you are getting no representation and the agent is getting the entire commission. They would LOVE to help you, obviously.

I don’t want to tie myself to any one agent…

Then in essence you are tying yourself to every other agent you meet. If the LISTING Agent thinks you are not working with a BUYER’S Agent, then you will get their full force sales pitch on both why their home is best and why you should use them as the agent. Once they know you have chosen a BUYER’S Agent, the dynamic changes as they know they are dealing with an informed consumer that has an advocate. Facts are forthcoming and the constant sales pitch ends.

Don’t Trulia and Zillow show sales?

Trulia and Zillow can be described as ‘helpful’ at best and ‘wrong’ at worst. In effect, a computer located in San Francisco and/or Seattle is telling you the value of property in Richmond.

Would I use them IN my analysis? Sure.
Would I use them AS my analysis? No.

By their own admission, only 90% of the value estimates fall with 10% of the actual value. Stated differently, only about 90% of the time, these sites can tell you that a $400,000 home is worth between $360,000 and $440,000…and 10% of the time, they cannot even get that close. And it sure would be nice if they told you which ones were the really bad estimates…

But I get an appraisal, right?

Sure, but the appraiser knows the sales price going in and in most cases, the goal is simply to justify the sales price to the lender. If the appraiser had no idea as to the contract price prior to the appraisal, it would have more value and thanks to the Dodd-Frank legislation, lenders have little control over who is doing the appraisal. Do you really think it is a good practice to have a Goochland Appraiser valuing properties in Church Hill? It happens all of the time.

So you are telling me that Realtors determine price?

Far from it.

Realtors, much in the same way as appraisers, look to the comparable sales to help EVALUATE the price of a potential home, but ultimately, the market sets the price and it is the agents job to help you interpret all of the data. Where an appraiser is trying to justify the value of a home at a specific point in time, they have no obligation to communicate to you the factors at work that can impact values in the future. Understand that your agent has seen the same inventory and seen your reaction to it. They understand your motivations (or at least they should) and they know your goals. Most importantly, a good agent will help you to understand the things that drive value in your marketplace.

So how do we find a good Buyer’s Agent?

The key to understanding a GOOD Buyer’s Agent is to interview them. Ask about their background and how they help interpret values. Find out how they see the world and if their style matches yours.

Can they compute an absorption rate?
Can they band $/SF?
Do they recognize different builder’s signature styles?
Do they understand development momentum?
Do they know inventory levels?
Can they communicate the underlying market dynamics?

Invest a few minutes in an interview and see just how capable your agent is. Compare them to others and see if the advocate you have is the right one for you.

Is It a House or Is It “Housing?”