Wednesday, February 22, 2012

Disconnect in Housing

Yesterday at the sales meeting a new agent brought up a really, really important topic that I feel compelled to write about. It is an age old problem anytime someone is selling just about anything. It has been compounded in the housing industry, however, with the volatility and the tremendous swings we have had in the last 10-15 years. The problem is, of course, pricing what you have for sale and, conversely, figuring out what to pay for what you are buying.

Real estate, at its core, is actually very simple. People have a need for housing. Other people build houses. The first people find one that fits their personal tastes, needs, etc. They agree on a price and the home transfers ownership.

Of course it is not that simple. There are legal requirements for registering ownership, lender requirements, laws to follow when marketing, etc, etc, etc. The main complication I want to focus on today is in pricing. How does the seller offer at a price a buyer is willing to pay? I specifically want to look at the current climate we are in.

Let's rewind about 15 years. In the late 90s, we saw growth, lots of it. Government started telling people to buy homes. Lenders starting making that more possible. Lots and lots of people wanted to buy and lenders said "yes". This flooded the market with buyers. That means that sellers could get basically what they asked for. Life was good if you were a seller. Agreeing on price was a fairly simple process. Seller asked for $----- and buyer, if he liked the home, said ok. They did this because there was a shortage of homes available. Now move forward a few years. The feeding frenzy escalates beyond anyone's imagination. Literally anyone who wanted a loan could find SOMEONE to give them one. This means we basically have an infinite supply of buyers and sellers are making tons of money. If the seller did not want to sell, they could still make money by taking out the equity in their home. This volatility (and yes, it was volatile--just volatile upwards) made it somewhat more difficult to agree on a price because sellers started trying to sell at what the house could be worth at some unknown time in the future. Buyers still were buying because they thought it was their right to own a home. Lenders were still lending because it was their paycheck (and lots of big ones at that!). Plus, if they didn't lend, someone else would. Then it got really complicated.

Depending on where you lived, the crash started in 2007, 2008 or even 2009. Basically, a few lenders realized people were not paying their bills. Then a whole bunch of people weren't paying their bills, then a WHOLE bunch of people weren't paying their bills. Lenders were in hot water and so they retracted--big time. It became harder and harder and harder to borrow. This meant the infinite supply of buyers that were driving prices up and up and up dried up--AND FAST. The momentum swung way more quickly than we could stomach and thus prices dropped big time. This meant that you could have literally had your house appraised at $200k one day and $175k the next--or sometimes worse. The media compounded the problem by using fear tactics and a sort of "self fulfilling prophecy". In other words, they started talking about how awful the housing market was, buyers pulled out and the market became worse.

Normally there are a handful of people that can't pay their bills. The market absorbs those issues with no problem. When the market becomes flooded with those issues, prices drop further. This compounds the problem that we started talking about--agreeing on a price. Lets look at a hypothetical that I deal with on a regular basis.

Homeowner wants to sell his home. First step is to figure out how much it is worth. They had the home appraised in 2008 when they refinanced and took out $20,000 to buy a new car and pay off some other debts. They now owe $175,000 on the house. They paid $185,000 in 2005. They have $10,000 in equity still, right? When they invite the Realtor over to evaluate the home and price it for them, they find out that their neighborhood has had 10 homes sold in the last year. 3 of those were foreclosures, 4 were short sales and 3 were "normal" sales. Based on comparables, the home should sell for around $170,000. This causes an array of emotions--anger--at the market, at the Realtor that sold them the house, at the Realtor that is in front of them, at themselves, Sadness and hoplessness--like they are stuck, and of course, defiance. They are determined to sell the house and, further, to sell the house at their price--$190,000 because it is silly to think they could actually LOSE money on their home. So they interview a few Realtors. Most of them tell them the same story. Then they find one that is willing to list it at $190,000. That Realtor works hard with good pictures, a well crafted marketing plan, open houses, etc. Surprisingly, they get no activity. So the homeowners fire the Realtor and get another. This time they agree to $185,000. This time they also get a buyer. The buyer wants the home for... $170,000. They disagree because of what they paid and what they owe. Negotiations ensue. Finally, they settle on $180,000. Then the home appraises for $170,000. This seller did not have an accurate perception of the market.

On the flip side--there is a buyer that watches all the "experts" on TV talk about how bad the market is. They watch the late night infomercials about buying homes for pennies on the dollar. They know everything there is to know about real estate except how to get into the homes. They call a Realtor to open doors for them. They only want to see homes that are "great deals." They look at 30-40 homes. Some of those homes are great deals based on condition, price compared to the market, location, potential, etc. They aren't good enough because they aren't "pennies on the dollar." What they don't realize is that the media shows a national picture and we live in an ultra local market for housing. What happens in Smyrna is not the case in LaVergne or Antioch or Nolensville. They get discouraged and angry that the Realtor is not showing them the best deals. Then, as humans are prone to do, they fall in love with a home. They want to offer 30% less than asking price. The Realtor tells them that the home is priced pretty close to right and it should only be about a 5% reduction. They make the offer anyway and the seller doesn't even acknowledge them. 2 weeks later it sells for 3% above asking price with closing costs.

The point is this, both sides have misconceptions about the market right now. Both are selective in the information they retain. Both are wrong. Obviously it is not always this way. Deals are still going on. I am as busy now as I have been so far in my career. Bottom line, if you are on one side or the other, find a Realtor you can trust, one who knows their local market. One who will explain the position to you. Also, take in all types of media but do so with a critical mind. Verify facts and pay attention to the scope of the report. If they talk about "national housing trends," pay very little attention to them because, just like "averages" they include all the extremes. In our area, in particular, we are a solid upper middle. We took some hits but nowhere near as bad as many other places. Even then, some areas were hit harder than others. There are some parts of Nashville, at some price points, that NEVER really lost value. Find an expert and trust him or her.

Wednesday, February 15, 2012


I've always enjoyed a good religious discussion. I find religion to be fascinating. How do people get so incredibly zealous about something they can't see? How do people get to the point where they are willing to kill others or themselves over something they can't empirically prove?  How can people so emphatically deny that there is a being larger than us and insist that humans are the pinnacle of existence? How can GOD evoke such strong reactions whenever he is mentioned in discussion? It truly is fascinating.

I am a Christian. I do believe that God created the Earth and all its contents. I also believe that Jesus was born to a virgin and was sinless. I believe he performed all the miracles (and many more) that are chronicled in the Bible. I believe he was hated then (as he is hated now) by people that refuse his love. I believe he was crucified and was buried only to arise from the dead 3 days later. I believe he was God in the flesh and that he provides atonement for the sins I commit.

All that said, I respect other religions. I respect that they are just as adamant in their convictions as I am. I still disagree with them but I respect them. Where I get tripped up is how to make them all work in the same world. If I am having a discussion with a devout Muslim, we will have a few things that we can agree on and a whole bunch we disagree on. How do we reconcile those differences? Do we need to reconcile those differences or can we coexist with no problem? I don't know the answer to that question. I know the task I am charged with--Go out into the world and make believers or all men. I believe this is an important task and one I should do with gusto. So do other devotees of other religions.

I guess the point of this blog is to open up dialogue about this topic. I struggle with this part of religion. I know some of my friends will say something to the effect of, "well, that is why I don't believe in God" and "the zealots are who drove me out of organized religion". I get that. I really do. I don't think you have to be obnoxious to get your idea across. I think my mission is to present a great example of Christ's love and give the raw materials for someone to form their own faith while providing the instructions if they want them. Any respectful conversation is welcome.

Wednesday, February 8, 2012

Doom and Gloom and Dr. Who

I am a Doctor Who fan. I have been watching the most recent run of episodes on Netflix. If you are not familiar with the phenomenon, The Doctor is a character that originated on TV way back in 1963. It ran from 1963 until 1989 and then was resurrected in 2005 (the ones I have been watching). It is a very exciting, British sci-fi serial. I don't know that I have necessarily "gotten anything out of it" but I have been entertained and there is one theme that keeps popping up. Humans are a remarkable race and are incredible survivors.

You see, The Doctor travels throughout space and time and even dimensions and no matter where he goes, he is reminded of how resilient Humankind is. I think this is an important message. We keep hearing nothing but doom and gloom--if Obama is re-elected the country will turn into a communist state, if Romney is elected the Christians will revolt, if Paul is elected the country as we know it will cease to exist, Republicans hate poor people, Democrats hate rich people, they all hate Hispanics and Muslims but yet want to cater to their vote. It never ends. We are a quarrelsome, yet resilient species.

The bottom line is this, ALL of them, every single politician is in it for themselves at least to some extent. In the meantime, they can help others but at the end of the day, they are in it for them--period. The other piece of that, we will survive no matter what. Our country will move on. Other countries around the world will move on. It is all cyclical. Other countries may even move "ahead" of us, but we will keep going. Housing prices will rebound, unemployment rates will drop. We will experience a Renaissance of sorts. Then, we will decline again. That's just how it works.

I guess I am challenging you to block out as much of the hysteria as possible and believe in our people, believe in humans and trust that it will all come back around. I believe that there is a greater source of power than us and He is in control and knows whats best. He controls the cycles. You may not believe like me but you cannot deny the cycles. Take a deep breath, do your part to help the system. Work, innovate, think, question and make the world a little better before you die.

Wednesday, February 1, 2012


Privacy is an interesting topic. Every company has a "privacy policy" and we all have private information. Yet, we are, as a culture, all too eager to willingly give up the lion's share of our private lives. I am not passing judgement on this, just making an observation today.

Last week Google rolled out its new privacy policy. If you read the words around the policy they say something to the effect that the changes will not affect your privacy per se, they will just share your habits, information, key words, etc. with all of their affiliated sites in order to make your "online experience more meaningful". You should read this to mean that any time you use a Google product (YouTube, Blogger, Gmail, Google Groups, etc.), Google is watching and recording what you do. They will then use that information to post ads, make page suggestions, etc. to make the price of their ads go up. Its a brilliant move by Google and I am sure their revenue will soar. The vast majority of people will not read the policy and will certainly not change any of their habits. I will probably not change any of my habits but it will always be (and has been for a while) in my mind that Google Big Brother is always watching, always. That said, lets look into this a little more.

It's always funny to me to see people ranting on Facebook about other people "getting into their business." Can anyone else see the irony in that? We all think we want privacy and to be able to live our lives without the scrutiny of others yet we willingly give out some of our most private information and moments on Facebook, Twitter and other outlets. It makes the identity thief's job so much easier. People do terribly private things over video chat that is so easy to record and redistribute. Once its out there, its out there forever. Yet we still get upset when we feel our privacy is invaded. My question is, "where is the line anymore?"

Another interesting development is the information jealousy that has arisen out of this purging of private information. I have seen this firsthand. I post something on Facebook before telling someone close to me. I fail to realize that some information is special enough that it still warrants a phone call and that there are hierarchies of importance for people to learn info. In other words, it is more important for my mom and dad to learn about something first than it is for my old high school chum to read about it on Facebook. It's not that I don't love them if I mess this order up. Its just that it is easy to post it and disseminate to all 1000 of my "friends." Besides, if they love me, they will be hanging on every moment to read the information, right?

I am starting to wonder where this voluntary forefeiture of privacy is leading. Some people already expect you to put everything on Facebook. Basically, if you didn't post it, it didn't happen. I don't blame them. Outlets like Facebook have replaced our ability to actually keep up with people and have conversations. I have witnessed people put terribly private things on Facebook that involve others before they even discuss it with that person. I recently saw a friend of mine post very revealing information about the state of their marriage. Whats really crazy is that some of that person's friends "liked" it (it was not good news by the way)! I know for sure that the other marriage partner did not, would not, could not have been very happy about this. Its one thing to air your dirty laundry to a friend or two but to post on Facebook, come on!  This to me is especially insidious because it is not just your information that you are willingly giving up, it is your spouse's also. You revealed information about someone else without their consent. You should not ever have the right to confess someone else's sins or misgivings.

At what point do we shift the other way and start to value our privacy again? Why do we feel the compulsion to share EVERYTHING with everyone? Do people value privacy at all? What do you think?