Sellers face reality check with pressure of declining sales
Peter Simpson
Sun
And now the news. You likely saw this banner screaming from the front page of The Vancouver Sun on Sept. 4 — BUYERS SEE HOPE AS HOME PRICES DECLINE.
Home sales throughout Metro Vancouver did indeed decline during August. Actually, free-fall is a more appropriate assessment of the realtor report revealing that Multiple Listing Service sales dropped nearly 54 per cent from the same month last year, which, by the way, was an exceptional month.
The rise in home prices over the past four years has been nothing short of meteoric. Prices increased 13 per cent in 2005, a further 21 per cent in 2006, and another 11 per cent last year. Housing economists say this year’s increase will moderate to single-digit territory, although it is not unreasonable to expect the forecast to be downgraded a tad when the latest numbers are crunched.
Most economists agree this region still enjoys relatively low interest rates, stable job growth, consistent interprovincial and international in-migration and a better-than-many economy.
However, it seems confidence is a little shaky at the moment, as consumer sentiment is influenced negatively by less-than-stellar economic performances south of the border and east of the Rockies.
Housing starts from January to August are actually ahead of last year’s strong pace. If the increase holds for four more months, 2008 will be the best year for starts since 1993. That’s welcome news for at least two key contributors — our hard-working tradespeople and suppliers of building materials.
Since sales typically precede starts, particularly in the multi-family sector, the fly in the ointment might be a weakening of housing starts this fall precipitated by a slowdown in new-home sales.
So, what does this all mean for home-sellers and buyers?
For sellers, reality check; for buyers, opportunity.
After reading that Sept. 4 headline, a friend remarked he was concerned the value of his house might have dropped slightly last month. I shot him a pained look, then reminded him he purchased his house more than 10 years ago and that his equity has increased significantly since the middle 1990s.
Let’s face it: The downright giddy price escalations in the real-estate market have transformed entire communities into Millionaire Manors. Examples include the fine homes in Surrey‘s golf-side Morgan Creek and Port Moody’s mountainside Heritage Woods. Both communities have evolved beautifully.
A particular 2,200-square-foot oceanview home in White Rock sold in 2001 for $392,000. It was listed earlier this year, offering “fantastic value” at $1,084,900. The most recent advertisement has it “priced to sell” at $1,049,999. Do the math: Whatever the final selling price, it’s an extraordinary equity gain in over just seven years.
An acquaintance, holding fast to unreasonable expectations, and after accepting rah-rah encouragement from a wet-behind-the-ears realtor, listed his 1,450-square-foot detached home in an area of other modest homes for an unprecedented amount. Why? Because he believed he would get it.
Despite having been given a wall-to-wall makeover during the past year — most of it executed by moonlighting trades — the home attracted maybe three or four showings over a two-month period.
The price was lowered, then dropped again a month later. Finally, the home sold — at a price slightly below what it should have been listed for in the first place. All that angst could have been averted had the owner listed with a realtor boasting broad experience pricing homes to match the market.
Sellers who are just testing the waters, and under no pressure to move, might even delist their homes. Others will likely lower asking prices, bringing the somewhat skewed and attention-getting sales-to-listing ratio back into balance. And if the sellers are buying a home elsewhere in the Lower Mainland, that purchase price will also be influenced by current market conditions. Again, balance.
Buyers today can be excused if they are feeling a little confused. A real-estate organization releases the latest weakening sales statistics and the media are all over it like hair on a bear. One media outlet positions the story as a sky-is-falling debacle, while another focuses on the positive scenarios.
I suppose it all depends on whether one views the glass as half full or half empty. If you are looking for a home and are of the half-empty persuasion, choose a dark corner and assume the fetal position. If you are an optimistic half-full person, keep reading because opportunities abound in this market.
Yes, the pendulum is swinging towards a buyer’s market.
As I wrote in a spring column, the panic has been taken out of the purchase and, as Martha Stewart likes to say, that’s a good thing.
Buyers can now catch their breath and take sufficient time to choose a home that closely matches their needs without someone breathing down their neck, creating the potential for a bidding war.
My daughter was caught up in such a situation until clearer heads prevailed. She backed away from the lunacy of it all and eventually got the home she wanted, in her preferred location, at a good price.
Regarding new homes, I believe real-estate buzzwords “location, location, location” have been replaced by “builder reputation, value, location.”
It is important to deal with builders who have been through the peaks and valleys of market cycles, and have a history of delivering good value.
Buyer incentives are starting to surface, as builders try to get a leg up on the competition.
Nothing as dramatic as free swimming pools or Mercedes, like builders are offering in some dead-as-a-doornail American housing markets, but beneficial to buyers nonetheless — subsidized mortgage payments, upgrades, early-release pricing, 42-inch flat-screen TVs and other premiums.
First-time buyers continue to have a devil of a time. For many years — during both buoyant and flat housing markets — the overriding concern to first-timers centred around affordability issues, the fear of exclusion from the housing market.
(Thank goodness for understanding and generous parents.)
Planners, architects, designers and builders responded by offering more choice and size in condominiums.
About a dozen years ago, condos (townhomes, lowrise and highrise apartments) were only about 45 per cent of the market. Condos now comprise 80 per cent of newly built homes.
In San Francisco, a developer is marketing condos sized between 250 and 350 square feet — the size of seven ping-pong tables.
The San Francisco Chronicle reports the stylish and functional condos, which have nine-foot ceilings, large windows and balconies, “represent one means of providing more first-time home-buying opportunities in a city where most prices outstrip most incomes.”
The project’s marketing tagline reads, “It’s your small piece of the big city.”
This sensible tiny toehold into the housing market should be explored. Some have been built here already but, if memory serves, not as small. Living in a micro condo would certainly force the practice of living without clutter. Murphy beds and efficient, compact appliance packages are readily available. And cash-strapped first-time buyers could equip the entire condo with one trip to IKEA.
A final word of advice for homebuyers: Don’t treat a home as you would, say, an investment in pork-belly futures. A home, new or resale, is a proven, long-term, blue-chip investment solid enough to ride out the peaks and valleys of regional housing markets.
Peter Simpson is chief executive officer of the Greater Vancouver Home Builders’ Association.
E-mail [email protected].
INSTEAD OF A SWIMMING POOL, COOKIES
Some real estate agents in southern California are trying to create business by introducing brunches and lunches into their agent previews, the Los Angeles Times newspaper reports.
What we up here call an “agents’ open,” they down there call an “agents’ caravan.” Reports the Times:
Caravans of old offered little dishes of M&Ms or a pot of hours-standing coffee as reward for an agent’s trouble, but in the current molasses market, candy and caffeine just don’t lure the masses. And if the agents who sell in the area won’t come, who will bring the potential buyers?
No one is certain exactly when the food offerings went uptown, but the weekly caravan list circulated in Malibu now specifies what refreshments will be served at each house — information posted as prominently as the asking price and number of bedrooms.
In the MLS Open House Guide, a knife-and-fork icon alerts agents to lunch offers; a wine glass symbolizes just refreshments.
Alan Mark and Tony Mark of Prudential Malibu Realty recently provided omelettes — cooked to order by a private chef — to those agents who made the trek to their new listing.
With a salad and pastry bar on the side, agents could order their omelettes prepared with 20 different fresh fillings. Spinach with feta cheese, anyone? To quote from the Malibu Association of Realtors’ Caravan West weekly bulletin, ‘This is the beach house of your dreams! … And everybody’s favorite omelet bar!’ By all accounts, the $1,000 spread was well attended.
Addictively good delectables also play a role. “Monus’s Malibu Bonuses” — freshly baked chocolate chip cookies by Coldwell Banker Malibu East agent Susan Monus (above) — are a huge draw in the coastal community, according to area agents.
She makes the cookies from scratch and, because presentation matters when it comes to both real estate and baked goods, displays them in a fancy silver bowl. For agents on the run, Monus also offers them in personalized cookie tins with her logo — to go.
Without question, “more realtors seem to come to see your listings if food is served,” comments Wailani O’Herlihy, Sotheby’s International Realty, Malibu. More seasoned agents come to see new listings even if food is not served, however, “because they’re in the business of moving real estate.”
The bottom line for Lynn Yang of Prudential California Realty, who has a mountaintop gated estate in Malibu listed at $2.95 million, reads like this: “If you want them to come, feed them well.”