If home prices are down, why are bargains so hard to find?

Here's a real estate column I wrote for Friday's St. Petersburg Times:

When I mentioned two weeks ago that Tampa Bay area home sales prices had fallen 21 percent during the previous 18 months, many readers reacted with an exasperated, "Where do I get a piece of that action?!?"

Someone even quoted me the old Mark Twain favorite: "Lies, damn lies and statistics." The implication was that the number was an attempt to shroud reality in pixie dust.

Buyers are told the market is so lopsided - 41,000 home listings chasing fewer than 2,000 monthly buyers - that bargains abound. Yet when they try to haggle down a home price, sellers recoil as if someone were demanding a pound of flesh from their firstborn.

Why the discrepancy between statistics and supposed reality? Where are all the hard-up sellers?

For one thing, the median home sales price can trend lower even in the absence of genuine price cutting. That's what happens when price-shy buyers steer to smaller, less expensive homes. You saw that happen with the increase in townhome sales.

Another reason is more obvious: Sales prices record just that - homes that have sold. These days, that grocery basket includes a ton of homes hobbled in various ways: short sales, fire sales, foreclosure fixer-uppers.

Heard about all the homes selling for 60 cents on the dollar? Probably not. That's because many are snapped up by investors before the general public gets a glimpse. When the average buyer sees them they'll have been marked up and relisted.

Among the armies of less desperate sellers, people are reluctant to give their houses away. Pinellas County home sales data show a large gap in many neighborhoods between asking prices and sale prices. It's a sure sign of sellers who haven't come to grips with the glut.

In December in south St. Petersburg, 50 of the 1,207 homes listed for sale actually sold. But most of those 50 sellers had to cry uncle. Their average listing price was $352,000, a number that had plunged by closing to $310,000.

Little noted by statisticians are the no-sales and the near-sales, the deals that fell apart over price. If you're a buyer negotiating with a stubborn seller, you can be excused for thinking the 21 percent price decline is just a bunch of fluff.

Comments

[Fuzzy Bear]

Kudos James!

I am pleased that you are digging deeper beyond the hype of the real estate associations.

The public needs to hear about the truth and nothing but the truth regarding this housing mess. Dig a little deeper and you will certainly find the facts that are eye openers which depicts the true market in the Tampa Bay area.

Just yesterday, I talked to a young man who had moved to the Tampa Bay area about six months ago. He could only find a low wage job and had not been able to find an affordable home in his price range. Their lease is due to expire soon and he and his wife are considering moving out of Florida to a state with a lower cost of living.

[Cindy]

Did he tell you what he was qualified to do? His education level? His years of experience?

[Sandra]

I see both sides of the story. I am trying to sell my house (not because I have to, because of my horrible commute) and I am looking at houses on the side of town I want to be. I have taken Mr. Thorner's idea and listed my house $20K below what everyone else has their's on the market for. I am even lower by $8K-$20K less than what the last houses sold for. Ours is not a starter neighborhood (more "move up") and I am shocked how many buyers want my house to be below $200K. The last two houses that sold in my neighborhood sold closer to $300K and that was last month. I don't see them as being reasonible. But, I do see quite a few houses in neighborhoods that have no business asking the price they are asking. Sellers have to be realistic and so do buyers, that simple. Not everyone is being forclosed on.

Sandra...A house that is priced right and properly marketed will always sell for what it is worth.

Real sellers are willing and able to take the best price obtainable from the best buyer available in the current market, AND they will have something to lose if they don't do so.

Sandra, you are not a real seller, and should take your home off the market. (Actually, you're already OFF the market and don't even realize it!)

[john]

Something else is going on...but I don't know what. I've dropped my price a long way..cheapest per sq ft in my zip code. Good house, good neighborhood...no offers. The market is paralyzed.

I'm tempted to have my realtor put a neon sign atop the For-Sale sign to read:

MAKE ME A FREAKIN' OFFER!

[Tom]

Feel the pain sellers. House appreciated $100k in 2 years? Get ready to go the other way. I hope it hurts.

[david]

Sorry to tell you this Sandra but in about a year 200,000 will seem like a good offer.

[Fuzzy Bear]

I feel the pain of the sellers and I fully understand the frustration.

The big problem for the sellers is that many of the buyers on the market cannot qualify for the prices being offered by the sellers.

The lending institutions have cracked down on loaning money. If you want to buy in this market, you must have a good downpayment, excellent credit, debt levels that are in-line with banking standards, purchase price at no more than 3 times your earnings, etc. Much like it has been in the past.

Gone are the past few years of lax credit standards and underwriting. The consumer now days have just way to much debt and most won't qualify.

For instance, a property I saw listed in Hillsborough county had an asking price of $200,000 and was only 1,500 sqft. That is $133 per sqft and is overpriced in the current market. At $200,000, it would take an income of $58,000 with no debt and 25% down payment. You must also add in the insurance, taxes, HOA fees which will increase the monthly payment.

Again, it all comes down to when you purchased your home and if the house price represents the true appreciation over the time period you have owned the home. A house normally appreciates at inflation plus one or two points. That would have been around 3% year over year. Maybe a bit more, but not the double digit gains we have seen for several years.

[Fuzzy Bear]

Cindy,

The young man had a BS in business mgt. and the job he found pays $35,000 a year. He had about 6 years of experience. His wife makes $22,000.

[david]

"The lending institutions have cracked down on loaning money."

I believe this is not the main reason why houses are not selling. The psych as changed. People now know everything about the housing market was a lie, and now realize its a major bust. Housing even after some correction is fundamentally way overpriced. The tide or psychology has changed and this is the main reason why people are avoiding houses.

Tom...you have anger issues. Not everyone's house has gone up $100K. Also, a house is worth what someone will pay. If some buyer overpaid for his house, how is that the seller's fault? The seller didn't hold a gun to the buyers head.

$35K a year isn't minimum wage and a BS in Business Management is one of the most common degrees going. Wife making $22K a year? Doesn't have a degree or skill.

[Mandy]

Wow...the interest rate (for a 30 year fixed rate mortgage) at my credit union is 5.3%. How come this isn't getting buyers moving? These are great rates. Is it because they can't get loans?

[david]

"Is it because they can't get loans?"
As I stated before it is because the psych has changed. And the fact that houses are still way overvalued. Most areas still need to drop 25 to 35%.

[Jon]

"As I stated before it is because the psych has changed. And the fact that houses are still way overvalued. Most areas still need to drop 25 to 35%."
I don't know, I have been holding off and if those interest rates go any lower, I might have to start looking. I don't want to pass up a 5% interest rate. Especially if I am going to stay in my place for 5-10 years.

Jon...Start looking! What do you care if 90% of the houses on the market are overpriced? You only need one house. Go find a good deal now.

[david]

"Jon...Start looking! What do you care if 90% of the houses on the market are overpriced?"

Thats great advise! You must be a Realtor. 25 to 35% could very well translate to a savings of up to $100,000. If you dont think this is a lot of money, yeah sure you should go buy. All the power to you!

David...He who waits for roast duck to fly into open mouth, goes hungry! There is nothing wrong with Jon looking, and making an effort to find a house now. He needs to look at the 10% of houses that are priced right now. With some effort he can find a house now that has already dropped the 25 to 30%. They exist, one has to sift through all the over priced stuff.

[Rachel Sartain]

I'm a realtor and bought my personal home in this market - it was (and is) a great deal! There are bargains to be had, knowing how to find them and how to negotiate are the keys.

There are good buys in bad markets and bad buys in good markets. Do you homework. How much you are willing to pay for a home depends on your needs and desires and should not be influenced by big talk. Do your homework and determine if the purchase makes sense.

[david]

"With some effort he can find a house now that has already dropped the 25 to 30%"

How about waiting for that same house that has already dropped 25 to 30% off to drop a further 25 to 30%.

"should not be influenced by big talk"

Unfortunately this is one of the reasons why we are in this mess to begin with. Too many people listened and believed the "big talk" about housing from mortgage brokers, and realestate agents.

[Rachel Sartain]

David - real estate agents and mortgage brokers were not the 'big talkers' that caused a housing boom and bust. The housing boom was from built-up buyer demand... low inventory, low interest rates and a desire to own a home. Greed and poor insight caused the bubble to burst. Not greed from realtors and mortgage brokers but from builders, and every Tom, Dick and Harry that called themselves an investor'. Builders built homes and condos to satisfy the buyer demand - and many did not have the insight to stop building once supply got out of hand.

'How about waiting for that same house that has already dropped 25 to 30% off to drop a further 25 to 30%.'

Show me any point in history where this has ever happened with a commodity! I might be able to find a foreclosure in a bad neighborhood that was falsely inflated to begin with. And yes, the price might be reduced 50%. These are rare occassions and far between and they are not in desirable neighborhoods. However, if that is what you want and are waiting for, then let me know and I will sell it to you:)

[david]

Rachel it is now very well known that this whole housing situation involved brokers both mortgage and realestate that were ripe with corruption, and fueled this artificial demand. It was a false demand, and now we are all paying the price.

Throughout history

[Fuzzy Bear]

David - real estate agents and mortgage brokers were not the 'big talkers' that caused a housing boom and bust.

I do not believe the above information one bit! In fact and to the contrary, there are numerous criminal and civil cases in Florida that would prove that statement is incorrect. In fact, the information on the NAR's website would prove that to be wrong as they continue to hype Now is the time to buy.

What is true is the realtors and mortgage brokers did play a significant role as they were the ones who worked with the end users during the boom. In fact, 75% of Florida realtors were involved in the hype during the boom. The famous statements were: Florida is running out of land, buy now or be priced out forever and the list goes on and on.

Now granted, the remaining 25% were the true professionals who did not drink the kool aid, but 75% is a large number who helped fuel the mess. In fact, realtors have now surpassed car salespeople in terms of jobs that lack a good reputaion in terms of ethics, etc.

The whole real estate industry needs to be put under stricter controls/regulations to weed out the unethical people who helped create this mess. The NAR and state associations have failed to self regulate itself during the boom.

[Fuzzy Bear]

Is it because they can't get loans?

The answer is Yes and No.

During the boom, the underwritting standards went out the window. Anyone who was alive could get a loan. The banks ended up stung by a rash of bad loans which lead to the credit crunch and investors were burnt by SIV's. etc. that have lost significant value.

The outcome, stricter lending and underwriting standards. What this means to the consumer, you must be able to afford the home and prove you can afford it. It means buying a home at 3 times your income, not the 7,8 or even 10 times your income during the boom. It means you will need a downpayment to buy the home and good credit. It means that that your debt including the mortgage must be in-line with your income as it has always been prior to the artificial housing boom.

[david]

Rachel not all realestate agents are bad. It sounds like you are very competent, intelligent, honest and hard working agent. And most of the blame must be with the public who speculated that housing "only goes up and up" but the fact is there was alot of highly illegal or corrupt activities facilitated by people in your industry.

As Fuzzy has stated,

"In fact, realtors have now surpassed car salespeople in terms of jobs that lack a good reputaion in terms of ethics, etc."

And what is worse is that as the housing bubble is imploding people in your industry still continue to spin and say its NOW a good time to buy, losing the little bit of credibility your industry had. It is truly sad!

"In fact and to the contrary, there are numerous criminal and civil cases in Florida that would prove that statement is incorrect."
What are the statistics when compared to the millions of transactions that occured? While the unscrupulous ones make the press, 1000's work diligently and honestly for their money. There are a few bad apples in every profession...

"What is true is the realtors and mortgage brokers did play a significant role as they were the ones who worked with the end users during the boom."
Do you really think end users would have NOT purchased a home if there were no Realtors? That they would have ignored those heady days when property values were sky-rocketing, when money was cheap, and the media could not publish enough stories centered around how great and profitable it was to own a home. Come on now! Aren't you being a tad bit bitter?

The market, comprised of all of us is to blame. The Feds, the buyers, the sellers, the realtors, the builders, the media, the city planners, the investors... all of us.

So long as our population continues to increase, homes will be in demand and real estate will rebound. We've been through this before...

[david]

"The market, comprised of all of us is to blame. The Feds, the buyers, the sellers, the realtors, the builders, the media, the city planners, the investors... all of us."

Agreed.

"So long as our population continues to increase, homes will be in demand and real estate will rebound."

Could be a good 10 years before it rebounds.

[david]

Look at the markets today. Tomorrow the Dow will most likely TANK. I think we are already in a recession. If the fed does not cut rates substantially and soon, housing will drop another 25 to 30% this year.

[Rachel Sartain]

David - do you have any historical data or statistics to support your ideas?

The only way the housing slump could last 10 years is if everything just stopped right now - building, population growth, education, aging, retirement, employment, economy - and remained at a stand still for the next 10 years.

[david]

I am saying it will take about 10 years from the peak of 2005 or 2006 to match the the prices of homes in real value of those peak years. It happened during the early 80s.

[Rachel Sartain]

Just so you know the actual numbers/years. The market height was 2004 - 2005 with the peak (in Pinellas County) in June 2005.

And what exactly happened in the 80s? I think you throw a lot off the cuff without supporting information.

[david]

Rachel, you do know we had a housing crash in the early 80's dont you? Or was this before your time?

[Frances]

Although there was deflation between 80 and 85, by 1990 home values SURPASSED 1980 numbers. (Look up any housing chart to see for yourself.) Then we had another decline in the early 90's, and we all know how that decade ended up. It's been repeated over and over with one thing always being true - in the end values recover and are boosted.

Over time, home ownership builds wealth no matter when you buy. (BTW, the DOW was a terrible comparison as that too appreciates over time, tank or not.)

Finally, where are you getting this 25 - 30% figures of home depreciation?

[david]

"1990 home values SURPASSED 1980 numbers"
It took 10 years!

"Finally, where are you getting this 25 - 30% figures of home depreciation?"

Right now houses in most markets are still overpriced. Does not make sense to buy when one can rent for cheaper. Until the cost of ownership comes in line with rent there will be price depreciation.

[Fuzzy Bear]

"1990 home values SURPASSED 1980 numbers"
It took 10 years!

The only reason it surpassed the 1980's numbers was due to the bubble that was created and prices being artificially inflated.

There was the S&L crisis in the late 80's that drove down prices, a recession in the early 90's and again around 1994-95. Home prices remained flat until they began to rise rapidly in double digit increases from 1999 through early 2006 and then the bubble burst.

However, when you deduct all of your costs of home ownership, prices have remained flat since 1950.

[david]

So of course they lowered rates by three quarters. This is no surprise. What they should have done was kept it the same or actually RAISED rates. Raising rates would have quickly facilitated the washing away of all that CRAP in the system. Now they will only prolong what is inevitable, and long term make is worse. Because lowering will probably wont make much of a difference. The banks no matter how low rates are will not easily lend out money as they have become much stricter. This time you actually need a job to borrow and not just a pulse.