Since the real estate market has gone into a full fledged downturn, we have learned a good deal about what went wrong, who is to blame, etc. What some forget is that between 1998-2005, many areas had a real estate boom. This boom had an affect on the publics perception about real estate. How we adapted to the boom is one small part of the problem, and its lingering effects are what we must contend with as professionals. The list below describes a few observations on assumptions that the general public seems to have as a result of the boom years.
1. Real Estate Appraised Values are Genuine
Many homeowners refinanced or set up credit lines based on equity during the boom. Anyone that pulled equity out in the form of this type of loan has to remember that the so called equity was based on appraisals in a boom market. Additionally, they are assuming that the appraisal was an actual estimate of value. In many cases, these appraisals had more to do with what the home needed to appraise at to make the refinance deal possible. Placing the monetary incentive on the loan officer to make the deal happen was usually transferred directly to the appraiser. After all, how many lenders would re-use an appraiser that cost them a deal? All and all, even an honest appraisal is just that, an estimate of what someone would pay for a property. True value is better determined when a property is actually placed on the market and sold.
2. Financing is a non issue
Ok, most buyer's can get financing. The changes to the lending industry aren't as extreme as the headlines might indicate. But subtle changes have occured that will continue to affect buyer behavior. Public perception prior to the year 2000 was that if one were to purchase a home, they would need a downpayment. What?!?#@! A downpayment? Buyer's in the past 5 years have often times purchased only if they could do so with no money down, with sellers ponying up for a bulk of closing costs. Now, even asking a buyer to come up with 5% can make a big difference in what they can afford. Additionally, sellers of properties in excess of $417,000 are seeing that buyer's are having more difficulties obtaining this type of JUMBO financing. Additionally, the cost has gone up on JUMBO loans, increasing the payments and giving buyer's reasons to avoid this price range now.
3. Real Estate is Liquid
Before the real estate market boom, people seemed to have more respect for buying a home, including realtors. As prices rose and investors jumped into the market with zest, it seemed that everyone thought that buying suddenly became a no-brainer. Some buyer's purchased without knowing or accepting the risk. Some bought badly--buying in areas where the developers were saturating the market. Some people needing to resell in this down market are finding out fast that the person who happily signed them up is their #1 competition; still selling at builder pricing and sometimes undercutting the re-sale prices to move inventory.
The biggest problem with this topic is that people think they can buy and then sell almost immediately. In the past 12 months, we were contacted over 5 times by people who owned for less than one year and already wanted to sell. While this occasionally happens due to unexpected changes, often times it appears that new homeowners have adopted the assumption that real estate is liquid; which is true if a purchase is made at a undermarket price. Unfortunately for many, the purchases made during the tail end of a real estate boom aren't made undermarket.
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