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| Send Page To a Friend | Thursday November 20, 2008 |
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Is it too late to get out of the real-estate market? Is it too early to get back in? Newsweek interviews an expert on the mysteries of the bubble. There are lots of euphemisms for the state of the housing market these days. Depending on what you read, real estate is cooling, softening, stabilizing, bursting—or simply sagging. However it's described, some of the new data on home sales is causing angst among brokers and sellers. Existing home sales (80 percent of the residential market) dropped for the fifth month in a row in January (they fell 2.8 percent from December 2005) according to the National Association of Realtors. And there is a lot of inventory of unsold homes out there—2.91 million—the largest supply in eight years. On the other hand, prices held steady in January—and in 2005, they actually rose 13 percent over 2004, says the Office of Federal Housing Enterprise Oversight. So how do you navigate a real-estate market that is in flux and subject to ever-rising interest rates? "You can't expect the sort of returns you did before, but there are clever ways—especially with the Internet—to sell your home even if you're in a declining market," says June Fletcher, a journalist and author of the new book "House Poor, Pumped Up Prices, Rising Rates, And Mortgages on Steroids: How to Survive the Coming Housing Crisis" (Collins)
June Fletcher: There has been double-digit inflation in home prices for the past five years and it looks like the end of that is near. We don't know if it's going to pop or be like air going out of a whoopee cushion, but I tend to think it's going to be gradual—like something moving underwater. Last year, price appreciation was about 13 percent. Typical appreciation is 4 to 6 percent a year, and they're predicting a little bit higher than that for this year, and there's a large inventory. So yes, there's probably going to be a decline. How do homeowners decide whether to sell in these conditions? You can make money even if the market is going down, but it will depend on where you are. It's all local. If you are in a declining market you'll have to work harder to sell—maybe do some sprucing and some creative advertising. Look at your microclimate. Say you're in Washington, D.C., which has some of the worst traffic in the country. And say you're in the south part of D.C. and there are some new jobs created in the north. That's important because jobs are the No. 1 driver of home prices or decreases. But exactly where the jobs are created is relevant to your price because, as in D.C., people may not want to drive through traffic to your house. So you need to look at the climate and the prices within 10 minutes of you. How do we find out how things are selling in our area? Up until recently, unless you wanted to dig into the tax records of your county, you'd have to go to a Realtor to get the comparable sales prices. But now there are some great new Internet Web sites like Zillow.com or Domania.com. Zillow has satellite maps, and you'll see your house and what sold and when. Also look at the new homes in your area when you're trying to price your house. New homes are usually 10 percent more expensive than existing homes, and you need to see how they're selling. How important is it to fix up a home for sale in this market? You should spruce up, but that doesn't mean you should paint everything beige or start installing granite countertops—especially if everyone else has them. Other things may matter more. Replace the hardware on your doorbell and repaint the door—the entry way is important. People make a decision on whether they like a house within seconds. Either it feels like home or it doesn't. People spend less time choosing a house than a car believe it or not. Your book has advertising tips for selling in a buyers' market. More and more we're becoming a global real estate market because of the Internet. Even if you live in a place in New York, it's still cheap relative to places like London and Hong Kong. So it might make sense if you've got a house on the coasts to advertise on international Web sites to people abroad. You can also advertise in alumni magazines or in trade publications that don't have many real-estate ads, and that means your ad might get noticed more. A lot of people who do sell are wondering whether to buy again or rent. The ratio of what you get for the rental cost is tremendously cheap in some places like There are tons of buyers who are sitting on the fence waiting here in Naples, Fla. In Miami they've got people creating "vulture funds" waiting to buy condos. Realtors are always going tell you it's the best time to buy, but if you think it's not, why not rent—apartments are getting nicer and nicer. So is it risky to buy something now? I'm conservative about home buying. It's an illiquid asset, and you may have to wait out the housing cycle [to sell]—and they run for five to nine years. I've had to do that once. I've waited out, and I made good money in the end, but I had to wait. Now is the time to look at your house as shelter, not as an ATM. And you should avoid what I call those "funny money" loans, like the interest-only ones. You don't want the house to own you. With interest rates going up, and prices likely to go down, should those of us with big home-equity loans worry? I am very scared about all those home-equity lines of credit. Everyone saw easy money and started to use their homes like ATMs. Fixed interest rates are going up, but they are still relatively low, so I'd recommend that people get out of home-equity loans and into a fixed-interest-rate loan as soon as possible, for peace of mind. The interest-only loans or an ARM [adjustable-rate mortgage] with optional payment are also worrying. With those, you could wind up owing more on the house than it's worth. How could a housing price decline affect the national economy? Right now, housing has been propping up the economy, as the housing market starts to cool off, it's definitely going to have a cooling effect on the rest of the economy. As you know, the pace of sales is slowing, builders are going to take out fewer permits and those are construction jobs, you'll have Realtors out of work, construction workers out of work and that will dampen job growth. And people feel less wealthy when they see that endlessly expanding home equity start to contract. If they see their neighbors not selling their houses at as high prices, they're going to start feeling poor and spending less. Courtesy of: http://www.newsweek.com/ |
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