Monday, January 28, 2008

Adapting to the Real Estate Boom

Real Estate Lofts
Since the real estate market has begun its decent, we hear a good deal about what went wrong, who is to blame, etc. What some forget is that between 1998-2005, most areas had a real estate boom. This boom had an affect on the public perception about real estate. How we adapted to the boom is one small part of the problem, and its lingering effects are what home sellers and agents must contend with today. The list below describes a few observations on assumptions that the general public seems to have as a result of the boom years.

1. Real Estate Appraised Values are Genuine

Many homeowners refinanced or set up credit lines based on equity during the boom. Anyone that pulled equity out in the form of this type of loan has to remember that the so called equity was based on appraisals in a boom market. Additionally, they are assuming that the appraisal was an actual estimate of value. In many cases, these appraisals had more to do with what the home needed to appraise at to make the refinance deal possible. Placing the monetary incentive on the loan officer to make the deal happen was usually transferred directly to the appraiser. After all, how many lenders would re-use an appraiser that cost them a deal? All and all, even an honest appraisal is just that, an estimate of what someone would pay for a property. True value is better determined when a property is actually placed on the market and sold.

2. Financing is a non issue

Ok, most buyer's can get financing. The changes to the lending industry aren't as extreme as the headlines might indicate. But subtle changes have occured that will continue to affect buyer behavior. Public perception prior to the year 2000 was that if one were to purchase a home, they would need a downpayment. What?!?#@! A downpayment? Buyer's in the past 5 years have often times purchased only if they could do so with no money down, with sellers ponying up for a bulk of closing costs. Now, even asking a buyer to come up with 5% can make a big difference in what they can afford. Additionally, sellers of properties in excess of $417,000 are seeing that buyer's are having more difficulties obtaining this type of JUMBO financing. Additionally, the cost has gone up on JUMBO loans, increasing the payments and giving buyer's reasons to avoid this price range now.

3. Real Estate is Liquid

Before the real estate market boom, people seemed to have more respect for buying a home, including realtors. As prices rose and investors jumped into the market with zest, it seemed that everyone thought that buying suddenly became a no-brainer. Some buyer's purchased without knowing or accepting the risk. Some bought badly--buying in areas where the developers were saturating the market. Some people needing to resell in this down market are finding out fast that the person who happily signed them up is their #1 competition; still selling at builder pricing and sometimes undercutting the re-sale prices to move inventory.

The biggest problem with this topic is that people think they can buy and then sell almost immediately and still make a profit. This could happen during the boom, but is less likely to happen today. Sometimes it appears that new homeowners have adopted the assumption that real estate is liquid; which is true if a purchase is made at a undermarket price. Unfortunately for many, the purchases made during the tail end of a real estate boom aren't made undermarket.

The good thing, and one not to forget, is that Rome wasn't built in a day, and the renaissance in Downtown St. Louis continues to move forward block by block.

Reaching Out to Fellow Residents

Downtown residents
When the Blues moved to the Scottrade Center downtown, it seemed like a good thing. Memories of the games at the Old Barn were fond, but state of the art it was not. The past few years, breaking our streak of consecutive playoff berths and the strike seemed to greatly diminish interest from the community at large, so the Blues front office has gotten aggressive.

One thing that makes sense is to reach out to the growing downtown population. So that's what they're doing.

Feb. 1 is the first ever "Downtown St. Louis Resident's Night" at the Scottrade Center. And if the hockey game isn't enough of a contest, the additional contest between buildings to see who can bring the most support is an additional incentive to show up. See the attached file for the specifics. See you at the game!Blues%20Downtown%20Residents%20Night.pdfblues%20residents%20night%2001%2008.pdf

Friday, January 25, 2008

To Forget or Not to Forget 2007

Real Estate in St. Louis
For the typical real estate professional, 2007 was like getting bashed in the face with a baseball bat. "Business as usual" took a much needed hit.

For years it seemed like certain things were happening that deviated from normal real estate and historical practice. Double digit appreciation was one thing. 100% financing for just about anyone was another. Things were happening for years that didn't really make much sense, and people were getting pretty comforatble with it.

One thing that hasn't been derailed by the housing and credit slump of 2007 was growth in the fantastic downtown neighborhood. This past year more than any, the actual sales were much greater than what my data source, the Multiple Listing Service, shows. The new "thing" for some developer's is to list only the model type and provide no record of sales in the MLS despite using the system to promote the buildings. Since all prior years are based on the MLS, it made sense to continue with this data.

Year--#Sold-------$/Sq Ft----Ave.Days on Market-------Ave.Price

While the sensationalism by journalists continues, looking at the "big picture" of our downtown growth is encouraging. One additional plus in looking at this material is that there are a few large buildings that are early in the completion phase with buyer's set to move into downtown. Interest rates have continued to stay low with this weeks average mortgage rate hiting a 4 year low.