The following is a reprint of an article that appeared in the December 2010 edition of Inside Personal Finance, a newsletter published by Ric Edelman. Mr. Edelman is a frequent speaker on financial matters and consistently ranked by Barron's as one of America's top financial advisors. He is Chairman and CEO of Edelman Financial Services, LLC.
Neither the Best of Times Nor the Worst of Times
But home buyers and sellers won't admit it!
It's no secret that the residential real estate market is slow. Nearly four million homes are for sale in the
U.S. - a supply so big that if no more houses were to come onto the market, it would take a year to sell them all, according to October data from the National Association of Realtors. And because more houses will certainly become available for sale, the actual time to reduce the inventory could easily take longer than one year.
Why aren't homes selling? One reason is the unemployment rate: If you don't have a job, you probably can't afford to buy a house. And those who can buy are worried about the economy; many are thus delaying their purchase. Still others already bought, taking advantage of the government's now-expired program for first-time buyers.
But none of that fully explains why houses aren't selling. Two big reasons are little discussed: sellers and buyers.
Sellers need to lower their prices.
Far too many home sellers are demanding prices that are not realistic in today's economy. They are setting home prices based on the amounts they paid, the amounts they owe on their mortgages, the last appraisal from a few years ago, or the tax assessment. Too many homeowners are pricing their houses as though we were still at the real estate market's peak of 2006.
In fact, there is only one number that matters: the price that a buyer is willing to pay. So if you're selling a home and you can't find a buyer, you've priced your house too high. You need to lower your price so you can sell your home and move on with your life.
And it's not just home sellers who need to become more realistic: Buyers need to raise their offers. Too many of today's buyers believe that the real estate market has been devastated. No seller is going to accept an absurdly low offer, so buyers need to realize that they are not going to be able to buy million-dollar houses for $100,000. Prices have dropped - but not as far as buyers think.
If you're a buyer, you need to make a realistic offer.
Look at what other homes in the area have sold for in the past three months and realize that if you want to buy a house in that neighborhood, those comparable prices are what you'll likely have to pay. If you make an offer on a home in good condition for 20% less than what other houses sold for because you think real estate prices are still dropping, you're wasting your (and everyone else's) time. If you're serious about buying a home, make a fair offer and be happy that the price you're paying for the home is lower than it was four years ago.
Sellers are asking too much and buyers are offering too little. As a result, nothing is getting done. Houses aren't selling because neither side is being realistic. The impact on your life is huge: You're stuck with a house you don't want to keep or unable to get the house you want to move into. Your kids aren't going to the schools you want them to attend, you're not living in the neighborhood you desire, and your commute to work or travel time to family and friends is missing the convenience you want.
The impact on our economy is equally huge. Because you haven't sold or bought that house, the real
estate agents haven't earned any commissions. The mortgage lender didn't do a loan, appraisers didn't get hired, the home inspectors weren't called, the title settlement company didn't earn a fee, the moving company wasn't hired, and the retailers who offer furniture, appliances and home entertainment systems didn't sell any products. Home improvement stores, painters, plumbers and contractors haven't won any business and, as a result, none of those businesses have hired back any of the people they laid off.
Until buyers and sellers are willing to accept the fact that current real estate prices are not as high or low as they thought, their lives will remain on hold, the real estate market will remain sluggish and our economy will not recover. And it'll be entirely their fault.
If you're a home buyer or seller, change your thinking, and change it now.
Reprinted with permission from Edelman Financial Services
Dave Bender, Realtor, Montgomery County, MD, Real Estate Home Sales
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