Can you trust the Real Estate Statistics you receive?
August 12, 2008 – 7:17 pmIf you watch CNN or read USA today, you will no doubt be bombarded with doom and gloom about the current state of the economy, particularly the real estate market. Prices are down, mortgages are scarce and investors are wary of putting money into securing long term securities for fear that the dollar will plummet and everyone will go belly up. My advice: BEWARE OF THE NEWS!
One of the detriments to 24 hour news is negatively exaggerated spin. Think about it. How often does the news begin with a simple statement like ”So and so stubbed his toe….” After the commercial they continue with, “So and so, will he lose his foot? Let’s interview three people who have no expertise whatsoever but can talk like they do and scare the dickens out of you…” By the time the “news” program is over, Dr. Expert is doing a special segment on gangrene and you are left thinking terrible things about a relatively minor incident. SPIN. It can sneak up on you before you know it and leave you feeling utterly victimized by negativity.
GET THE FACTS
Soap box aside, let’s talk reality about the current Charleston real estate market. Now, before you make assumptions, please note that I am a Realtor but I am not a Pollyanna. This market is definitely challenging to anyone who bought high and needs to resell quickly. It is also difficult to see the same profits that we witnessed 3 years ago. But let me let you in on a little secret: The upswing of the last five years was predictably unsustainable. Like any market, what goes up has to come down in order to keep moving. It is the natural progression of every single commodities market in human history.
THIS IS A NORMAL MARKET.
If you look at the past 30 years of real estate sales data, the median time for a house to stay on the market before selling is approximately 9-13 months. That’s hard to believe if you’ve only paid attention for the last few years. This is where long-term vision is advantageous.
Call me a throw-back but in my opinion, unless you are a builder or a speculator, buying a house should be a long term capital investment. Long term means more than 5 years. So let’s examine price points over the last five to ten years.
In 1998, the average Single Family Home in Charleston County sold in 122 days for approximately $142,068.00.
Five years later, in 2003 the average Single Family Home in Charleston County sold in 62 days for approximately $249,784.00.
In 2008, the average Single Family Home in Charleston County is selling in 100 days for approximately $297,038.00.
So, chances are that if you bought a home 5 years ago and sold it today, you would see an 18% profit on your investment. If you bought 10 years ago you would realize a 109% profit. Not bad! Show me stocks and bonds that make that kind of money.
So what is all the doom and gloom about? Salability. The difference between the 1998 market and today’s market are the odds of selling. In 1998, approximately 6 out of every 10 houses that hit the market went under contract. That’s a 60% chance of selling. By 2003 that number climbed to 80%. Today’s odds are 20.9%. That means that for every 10 houses that hit the market, only 2 will sell. And if they do sell, they will probably sell in the first 100 days. If they do not sell within that time frame, chances are that they may not sell at all, unless something gives. That something is usually either price or condition.
Why?
- Mortgages are harder to come by unless you have great credit and a decent down payment. There are fewer buyers out there. Oh there are lots of folks who want to buy, but most can’t get qualified.
- Inventory is extremely high so buyers expect the home to be better than everyone else’s home, perfect in fact.
- Houses up for resale cannot compete with new construction because builders are in such a crunch that they will give incentives that go above and beyond the norm just to move their inventory.
So what does all this mean to you? Depends on which side of the table you’re on. As a seller it means that unless you are selling a long-term investment, you will need to lower your expectations on profitability and increase the elbow grease necessary to make your home the perfect shiny new product for sale. A great agent can help you do both.
As a buyer, make sure you are well equipped to purchase, with a decent down payment and a healthy credit score. Check out your buying ability with a mortgage lender before you go shopping for something you cannot truly afford. Once you are qualified, get a great agent to help guide you through the purchase. Chances are that you can get a good deal, but not a steal.
The most important thing to remember is that whether you’re a buyer or a seller, chances are that your long-term investment will realize a long-term profit, if you have the patience and the wisdom to reap your rewards.
(Source for Statistical Data: My own research of Single Family Home Sales since 1998)
