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Understanding the Market

Real Estate Agent with Lucas and Associates

For a while, real estate stories seemed to fill the news.  It did not matter if you were looking on television, the internet, or in print media.  First, it was the housing boom, then the bust, then the entire mortgage fiasco.  Suddenly, it looked as if the entire world's economy hinged on the American housing market.  Even the Birmingham-Hoover Metro Area saw its fair share of focus, from Center Point being one of the hardest hit areas in the nation to Mountain Brook being one of the least effected.  Politicians promised everything but the kitchen sink, and they are still promising that.  There is just one tiny little fact that they are leaving out.  Lucky for you, your friendly area Green-designated REALTOR is here to help.


Real estate is the single most unique commodity sold.


Just like that image of Vulcan, the symbol for Birmingham's old iron and steel industry, means little to people from outside the area, so too is the real estate market.  The state of the market in New York or Chicago has little to do with the market in Hoover or North Dakota.  In fact, the internal markets of any one area can vary wildly.  Unlike any other item, where demand tends to be steady across local, state, and national divides, real estate doesn't work that way. Did you know that the average listing price of a home in Los Angeles would buy almost any home in Vestavia Hills, one of the Birmingham Area's more popular suburbs? The median price in New York City, for example, is almost 8 times higher than it is in Moody, AL?  Even within a market, it varies.  There are places on the same street in this area where being one or two houses one way or the other can make a 400% difference in price!  Imagine that!

There are lots of reasons for this.  One of the most basic ones is also one of the reasons real estate is different than other commodities.  Supply and demand dictates price.  Places like New York City have high populations and limited space, creating low supply and high demand.  Los Angeles has much more space but very high demand.  LA also adds distance: how far are you willing to drive to afford what you want?  This is also where the system breaks down.  In a global market, or even a regional or national one, an increase in demand will cause an increase in production.  In real estate, there is no more production.  Yes, what is ON the property can be changed, but no NEW property is being created.  Also, in the short run, in a global, regional, or national economy, an increase in demand will lead to supplies being shifted from one location to another.  We cannot ship vacant houses in Detroit or Los Vegas to New York, so the system breaks down.

There is another issue, though, one that is often ignored in these stories. The impact of external, outside forces on real estate.  For example, mortgage rates are at an amazing low, so that creates more demand.  However, requirements on the mortgages are higher than they have been, slowing it some.  The quality of the local schools pushes demand up, where the lack of neighborhood or local amenities like shopping pushes it down.  The internal nature of supply and demand fails because of the external.  Even home pricing is limited by mortgages and appraisals.  Your home is not worth what someone will pay you if they are getting a mortgage.  It is worth what the bank will loan on it.

So, Ralph, why did you post all this?  Simple.  I am long winded and wanted you to read it before the great climactic finish.  When you are looking to buy and sell real estate, you need a LOCAL expert to market your property, help you buy the new one, and explain the LOCAL market to you.  You should not trust what you see from national news sources alone.  And, when you are looking for a Birmingham-Hoover Metro Area Real Estate expert, test them on their knowledge.  Do not take general answers ("the market is improving") but push for specifics ("this zip code showed a loss of 43% of home values, pushing prices back to 2002 levels, while recently showing a modest increas, while this zip code only lost 12%, back to 2007 levels and is already climbing back" OR "recent hirings in this industry have caused demand in this price range to go up...").

Your home is your most expensive asset but it is more than that.  It is your HOME.  Why would you trust it to someone who doesn't know EVERYTHING about the LOCAL REAL ESTATE MARKET?


Li Read
Sea to Sky Premier Properties (Salt Spring) - Salt Spring Island, BC
Caring expertise...knowledge for you!

Excellent post...says it all, and a nice invitation to contact you.

Jun 13, 2012 02:44 AM
Erv Fleishman
Realty Associates - Boca Raton, FL
Luxury Prop Specialist Realty Associates

Your home is not valued by what the bank will lend on it. 

That is but one view. 

There are cash buyers.

Banks are in an ultraconservative mode right now.

The value is determined by what a buyer and seller will agree on at an arms length. 

Jun 13, 2012 02:52 AM
Michelle Francis
Tim Francis Realty LLC - Atlanta, GA
Realtor, Buckhead Atlanta Homes for Sale & Lease


Great info on the importance of a local Realtor with strong local knowledge.  The market is improving is just too generic.  Atlanta is big, and the whole city is not improving at the same rate!   We know some markets are much stronger intown than out of town suburbs.  

Buyers should want the best knowledge base they can get to make an imporatant decision.

All the best, Michelle

Jun 13, 2012 04:34 AM
Ralph Harbison
Lucas and Associates - Birmingham, AL

Erv, you are correct. In either case, though, the deal must close for it to matter.  In the Birmingham area, cash transactions are about 1/3, same as conventional. The median price of a cash sale, however, is about 1/4 the overall area median and about 1/6 the value of the conventional median.  If someone in my area is looking on a cash buyer to salvage an over-priced listing, odds are they will never get that buyer and only work to sell every other listing in the area.

Jun 13, 2012 04:51 AM
Edward Gilmartin
CRE - Boston, MA

If lending institutions stayed consistent then we would avoid bubbles..insist on 10% down payments, verifiable income..strict ratios...and do not relax these when housing prices get too high as is usually the case....

Jun 13, 2012 05:26 AM
Lloyd Binen
Certified Realty Services - Saratoga, CA
Silicon Valley Realtor since 1976; 408-373-4411

Ralph,  thanks for the primer on real estate economics and you're right. An active, experienced local agent knows more about their marketplace than anyone else.

Jun 13, 2012 09:32 AM
Joan Whitebook
BHG The Masiello Group - Nashua, NH
Consumer Focused Real Estate Services

A very good post and it is important to consider local conditions.  I am working with buyer who sold a house in State X and now they are in State Y and they keep saying, but in State X....  it is difficult to get them to understand our local market is VERY different than state X.

Jun 13, 2012 12:44 PM
Christine Donovan
Donovan Blatt Realty - Costa Mesa, CA
Broker/Attorney 714-319-9751 DRE01267479 - Costa M

Ralph - 400% from being just down the street shows how important it is to have someone knowledgeable.

Jun 13, 2012 03:54 PM
Gary Frimann, CRS, GRI, SRES
Eagle Ridge Realty / Signature Homes & Estates - Gilroy, CA
REALTOR and Broker

It is a topic that has been making headlines for the past decade.  For better or worse, that's all people want to know is what is their house worth.  Sometimes, I wish it would get out of the news.

Jun 13, 2012 11:35 PM
Carol Farrish
Virtually Carol - Cleveland, OH

Good post, Ralph. The wide availability of national stats has contributed to a lot of gloom and doom about the real estate industry, I think. As you mentioned, real estate is always local; what's happening in the local market may differ vastly from neighborhood stats. Certainly what is on Zillow and Trulia a loud replace the comparative stats about a particular home from a good real estate agent.

As a virtual assistant (see www.VirtuallyCarol.com), I can tell you that clients that I've worked with have been extraordinarily busy even during bad times in the last couple of years. Either I am real smart to have mainly picked winners or else there's something to be said for a good local expert who works hard regardless of the economic circumstances.


Jun 16, 2012 02:43 AM