The paradigm has changed

My friend Jim Lee posted an article on his blog at  http://knoxvilletennesseerealestateblog.com/  an article about the market in 2011.

We are all wondering about the ramifications of leadership change in Washington and whether the new guys will actually address the problems in any reasonable manner. They have heard the people, now what?

The largest hurdle for Real Estate is buyer confidence. There are a variety of reasons buyers are on the sideline, some obvious and some subtle.

1. They financially are unable. This problem is based on personal debt, concern about the economy and job security.  Not much will happen here until a direction and plan emerge form top leadership.

2. Depreciated value of current property owned. Buyers will have to believe that they can recoup any depreciation they might incur in selling when purchasing. Right now, well priced homes that are in great condition are selling. Buyers are positioned to buy the best of the best and great pricing.

3. Fear of risk. Confidence in the future is still a big wild card for the qualified buyer. Many buyers that are qualified remain on the sideline conserving cash. Just a few years ago, buyers and lenders believed that Real Estate was insulated from downside risk. The problem is that both lenders and buyers began to speculate in residential Real Estate ignoring that with speculation comes risk. Neither was prepared for a downside market adjustment and now the market is driven by the shattered dream.

4. Low trust in the statistics provided. People simply do not trust the news and statistics they read today. “The Housing market is improving.” Based on what? Are foreclosures slowing, are number of units sold increasing, are sale prices decreasing, increasing or flat? Are the statistics based on specific or US markets? Until there are some sensible facts with definition, trust will be low and fear high. A bad equation for improvement.

So what is in store for 2011? The risk taker buyers and lenders are out of the market. The available buyers and lenders are acting very conservative. As a result, the whole Real Estate Market including builders and suppliers will feel the effect until leadership at the highest level instills enough confidence to offset the fears. At some point leadership may recognize that the best pool for job creation in the Real Estate and Real Estate support arena. If that happens and stimulus is applied properly the whole economy will improve.

Distressed properties will only sell at distressed pricing keeping pricing soft from top to bottom even on the most desirable properties. The number Lenders as well as number of Real Estate Agents, and speculative construction will decrease. This means a bigger piece of the pie for the survivors. Without much speculative housing start, market demand will focus on newer, updated and well maintained resale homes.

Hey Jim,

I agree with your numbers. 2011 down from 2010 in units sold. I think the pricing will still drop a across the board with the more expensive homes dropping significantly. I showed $175- this past weekend. Seventy-five properties matched my buyer’s criterion. Looked at eleven and the list price had dropped as much as $30k. All eleven were available to show. However, the property in the best condition and with the best pricing ended up with two offers right at the reduced list price.