It appears that the state of the residential market has had some time to work on the mental aspect of the homeowner. Well, what do you mean by that statement Joe? I mean that this new normal that we are experiencing is not going away for some time, probably several years from all that I read and hear from folks. And many home owners are finally accepting that the value of their home is down significantly from three years ago. I think Realtors are doing a much better job of providing factual information that supports the current value of their market's homes. The owners that are selling their homes have figured it out. If they want to sell their home, they have to price it right, it has to be priced to sell.
When it comes to commercial properties, the mind set of many owners is to believe that their property's value continues to remain at the same price of when we were at the height of the market. Maybe its because we're a couple years behind the residential market. Maybe its because in many ways, the owner is looking at their retirement plan slipping through their fingers. Maybe its because they have a loan maturity date looming and they fear they can't refinance their property because the debt cover ratio is out of wack. Maybe its just plain denial.
I can't tell you how many conversations I have had recently with commercial owners and shared with them the shift in cap rates, the reduction in lease rates, the number of banks that are no longer in the lending game or the horrific under writing that takes place when applying for a loan. Many see their dream of retirement washed away as the equity in their property has diminished by 30% to 40%. This blog is not meant to be a downer, but the reality is, our commercial owners are now beginning to face what the residential owners experienced a couple of years ago and they are not having fun.