Saturday, August 19, 2006

It's Time for a Buyer's Revolution

Do you want to see this housing bubble come to an end sooner rather than later? So does Catherine Hockmuth of the Voice of San Diego. She is calling for an outright revolution to be carried out by potential buyers. Play "low-ball" she says. I agree.

Here's how:

1. First, realize that you buyers have the money and so the power. Furthermore, realize that the fearmongering of the real estate industry -- "buy now or be priced out forever" -- is history and is being proven incorrect every day now. Real estate agents know this and so want you to believe that it is a buyer's market (wrong: it's a "waiter's market"...the longer you wait, the cheaper you will get the house) and that there is "never a better time to buy" (wrong: it is always better to buy at reduced prices if for no other reason than the property tax you have to cough up year after year will be less). No, what they really mean is that it is always a good time for them for you to buy now.

2. Figure out how much that Marin house you are interested in cost five years ago when Marin was just as special as it is now, when the sky over Marin was just as blue, the beach was just as close, people wanted to live here just as much as now, the constraints of "no more land" was just as constraining as now, the weather was just as nice as it is now, the intangibles were just as intangible, and incomes were about what they are now.

3. Adjust that price from five years ago by +25% to take into account five years of inflation. Add another 2% for good measure. The result is how much you should pay for that house, no more, no less.

4. Don't worry about angry or so-called "insulted" sellers or even an embarrassed agent. Who cares? There are plenty of other agents to choose from (and they are getting hungrier). And with today's inventory there are plenty of other options. And don't fall for the old tear-jerker "Oh, but I can't sell for less than this because otherwise I take a loss". Too bad. It's not your, the buyer's, fault that the seller overpaid. Why should you make the same mistake now? This is business after all; it's not personal. Or maybe the seller HELOCed out most or all of their equity and so cannot sell for less. Again, too bad. Why should you the buyer pay for their "lifestyle choices", pay for the things that they bought with that unrealized equity?

Some choice quotes:
But I didn't write this column to analyze how much every home in San Diego would cost in monthly payments if buyers agreed to pay the ridiculous prices sellers are slapping on their homes. And slap is the most accurate term to apply to a market in which sellers routinely list homes with $100,000 price ranges.

What further evidence do we need that pricing is purely arbitrary?

Take a look around your own neighborhood and you'll likely find numerous comparable homes listed at wildly disparate prices even after upgrades have been factored into the equation.

Why are prices so arbitrary? Because the real estate market is so uncertain that sellers have no idea what their property is worth.

So you tell them.

If this is indeed a buyer's market why are buyers standing on the sidewalks anxiously hoping for a fire sale? Were investors passive about driving up prices in the first place? No, they were sharks who changed the market for everyone by marching up to the front doors of homes that weren't even for sale and throwing cash around.

So stop being passive. Be a shark. It's a buyer's market. If this bubble is going to burst, let us bring out the needles.

I'm calling on all buyers and wannabe buyers to join forces in a boycott against overpriced homes. That means stop monitoring price reductions and start marching right up to the front door and setting your price. Chances are good that they're not getting many other offers.

I'm talking low ball.

You know that house you've been eyeing. The three-bedroom, 1,200 square foot, 1920s house listed for $700,000 -- the one that's been on the market for five months. Offer $500,000. $400,000 if it needs a facelift. $350,000 if it needs major reconstructive surgery.

Or, figure out what the house was worth five years ago and tack on 25 percent -- 5 percent appreciation for each of the last five years, or what a normal market would have paid if investors and cheap money hadn't screwed everything up. If it was worth $300,000 five years ago. It's worth approximately $364,000 now. Offer that.

What's the worst that could happen? They say no and slam the door in your face? They get insulted? Your agent is embarrassed to be seen with you?

Who cares? You're the one paying the mortgage. Offer what you think the house is worth. As Gregory Smith said, it's a buyer's market. That means we set the price.
Take strength in that the N.A.R., C.A.R., etc. are scared. So scared that they've been pressuring the Fed to stop its regimen of interest rate hikes; they are fighting the much needed tightening of GSE (Fannie and Freddie) oversight and any tightening of current lending standards; they are preparing for impending lawsuits; they are redefining what "affordability" means so as to justify today's obscene house prices.


Blogger fredtobik said...

I just spent a few weeks in L.A. and SD, and boy did I learn a few things. I didn't know they have shows dedicated RE! All cheesey actors with all the scare tactics we have seen and heard before, it was truly amazing, I couldnt believe it I actually spent 2 hours in the house instead of at the beach. I was waiting for Ashton Kutcher to pop out and tell someone they were punk'd.

I have been to both places a few times, but this was the first trip since I have lived in Marin (bought a house). Leaving a friends house I drove past 4 houses with the exact same design as the one he bought, and I mean EXACT, colors windows trim everything, one was even directly at the end of his block you could turn around and see the exact same house! anyway I lol'd, thinking I bet you can't do that in Marin.

I like "SOCAL" the beaches and weather are great, but the traffic is NOTHING compared to the Bay Area. People in SD actually complained aobut a commuter rail being a waste of money, because it took up some highway lanes. My favorite is the Fast Track Car Pool lanes. That L.A. Traffic is insane 90 minutes to go 30 miles, the smog, anyway I was for the first time seeing these places as homes not just somewhere to go and hang out, and I was very happy to get back to my Marin POS!

Just to keep things on topic SD and L.A. seem a lot worse in the RE world than Marin anyway...

Aug 19, 2006, 10:52:00 PM  
Anonymous Anonymous said...

It would be good if more news media would introduce buyers to this new 'wait and lowball' mindset and discard the old 'get in before it's too late' party line. Write enough column space and maybe it will 'make it so' causing the necessary chain reaction to correct buyers mindsets.

It will probably take quite a bit of column space though to combat the years of ingrained price rises, and mortgage agents and realtors who know they only get paid if they make transactions happen. There is a conflict of interest - do I advise my client to wait and see and potentially not get any money in this month??? What would you do?

Be nice to see a shakeout of realtor fees too - why should they get paid practically double what they did only 5 years ago due to house price rises? Did their costs really double in that time - I don't think so. Let's see something more reasonable than 7% - a king's ransom. In the UK they're under 2%. Is the effort and cost to sell a house really so different in each country?

Aug 20, 2006, 8:29:00 AM  
Blogger Ali, in Cali said...

This is a welcome & refreshing perspective, but do you think the buyer's have the guts to believe??

If so that formula will come in handy...

Come to think of it, I haven't checked how many folks have signed up over at in a while.

Aug 21, 2006, 1:10:00 AM  
Anonymous Anonymous said...

ah, yes....sellers greed. i'm in a situation like this right now myself where my sister, who is the executor of my father's will, has refused an offer of 300k on a dump he owned in portland me.she says she wont be "ripped off" and that in six months prices will "go right back up" i am practicing saying "i told you so" in different tones of voice for when she has to swallow hard and take 200K...if she can get it.

Aug 21, 2006, 6:55:00 AM  
Anonymous Anonymous said...

and I mean EXACT, colors windows trim everything, one was even directly at the end of his block you could turn around and see the exact same house! anyway I lol'd, thinking I bet you can't do that in Marin.

ummm... I can think of a few in Marin like that - one big example being the Hamilton area of Novato.

Thanks for this article Marinite - this is so very true. Buyers are just starting to realize out here that waiting and low balling is the way to go. Let the REAL price reductions begin.

Aug 22, 2006, 4:27:00 AM  
Blogger marinmaven said...

This revolution is exactly what is needed. You need to reduce the price the market will tolerate. There is no reason why people should pay these outrageous prices for these homes.

Aug 22, 2006, 6:33:00 AM  
Blogger fredtobik said...

"I can think of a few in Marin like that - one big example being the Hamilton area of Novato."

lol a military base, thanks for that CPT!

A better example would be the new "developments" no yards with houses crammed next to each other. You know these new developmetns that average over 1million a home, and help make housing affordable in Marin.

Aug 23, 2006, 11:39:00 AM  
Anonymous Anonymous said...

How exactly can you check on historical pricing of houses? Is their a website or something?

For instance, if I wanted to know what the average house price was for San Rafael in 2000?

Sep 28, 2006, 10:46:00 AM  

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