Why isn't the home selling? It's the Price.

Now nearly two months into "historically low rates" and home sales really haven't perked up as much as one would think they should. Theories abound as to the the reason(s) why, so it's time to comment on some of those out there.

1) We "borrowed" buyers from the future with the tax credit:

Yes we probably did. There were a number of buyers I had an opportunity to work with that specifically mentioned the tax credit as their motivation to buy at that time. As proof look at the massive run up in offers in the last two weeks prior to the expiration date. The effectiveness of the tax credit is certainly debatable. Some analysts argued that the credit didn't really add that many extra buyers to the market as the expectation was that there were going to be 2 million first timers out there anyway, regardless of the credit.

While not being able to confirm it, Christine Kites of Keller Williams Mid Willamette's Broker Duo believes that the slow down after the credit's expiration is due to the fact that the "immediacy and urgency" to buy was removed from the equation. That sounds very reasonable to me as we have more of a buyer's market mentality now with lowball offers or buyers simply sitting on the sidelines waiting for the sellers to bleed a little more. If she is right then maybe the fall and winter selling season will make up for a relatively anemic summer one.

2) Anxiety about future economic prospects:

We all have our own personal markers for when we decide to make a large purchase. Potential buyers are understandably concerned about their ability to make a house payment in light of the current economic conditions. The prospect of committing to the biggest obligation they will ever make when they are watching their friends and neighbors lose their jobs seems counter intuitive to being a prudent consumer.

If one is concerned with losing a job in the future having a mortgage on a home is a far better position to be in than being a renter. Moral arguments and other considerations aside,  if I were one that had a job that allowed me to qualify for a loan now and I was worried about my future employment I'd buy a house, now. The reason is simple; If you are a renter and you don't make your house payment you are going to be kicked out in 30 days. The last stat I saw showed that the average number of days from first missed payment to the date the sheriff shows up at the door is 444 days.  A year and 3 months sounds like a much better timeline to get my act together than 30 days.

3) Price:

Anybody in lending that understands it will always point out that the cost of the money being borrowed has a bigger impact on the "affordability" than price. So, here we are. The refinancers have figured it out. Drop the interest rate save money, period. a 1% change in the rate of 30 year loan drops the P/I nearly 10%. Potential buyers know it. Time for the sellers to get on board too.

I liken the amount of profit one could make on the sale of a home as "game show" money. If I come in to the Price is Right I start at 0. If I run up my winnings and then lose it all because I spin the wheel too many times I end up with what I started, 0. Despite NAR's contention a primary residence is NOT an investment, it's a place to call home that allows you to control your personal living environment. It gives the homeowner an opportunity to live in a place that is safe and secure, surrounded by others in the same economic cohort. Plus Uncle Sam gives us some tax spiffs to boot. That is not the definition of an investment.

To be sure, there are some sellers out there that can't sell without bringing money to the table because they bought at the top of the market. However, many others have the opportunity to sell their homes at a "profit" should they choose to. The only real challenge Realtors are being presented with right now is getting those sellers that can sell to lower their prices. Sellers need to embrace the horror and stop waiting for the market to bounce back, it's going to be a long while and once rates start going back up buyers will be pounding on them even harder than now.  The question sellers should be asking themselves is, do they want to be "on" the market, or "in" it.

Willamette Valley Oregon Rental Market

I had the pleasure of attending a meeting where Dolf De Vos of IPMG property management was the speaker. He was asked to give his assessment of the rental market in the Mid Willamette Valley. It was great timing as he had just published his quarterly newsletter, Valley RE-View and there was a very good piece on vacancies for the towns on our area.

As suspected Corvallis, OR  has and will continue to be a strong market for rentals. Given it is a smaller community and has seen little if any growth in the inventory of rental units vacancies have dropped from a little less than 5% to under 3%. Eugene, OR also being a university town, has consistently seen those rates below 5% as well.

Somewhat surprising, though it I guess it shouldn't be given the hype and excitement over the coming medical campus, is Lebanon. That town's vacancy rate has dropped from a little over 7% last year to less than 2% this year. Lebanon seems to have some things going for it, some good, some bad. The impending influx of people for the new medical college and VA center are certainly good so Lebanon can hopefully break free from its' timber based roots. The flip side is that the foreclosure problem has hit this town, along with the rest of Linn County very hard. Unfortunately, when people lose their homes they become renters.

Both of these events present a potential investor with opportunities in that area. Lebanon has historically shown to have lower home prices than the surrounding communities. This coupled with low interest rates in my mind puts Lebanon at the top of the list in the mid valley for investment real estate.

It is interesting to note that in the run up in RE from 2004 to 2007 the market was flooded with would be investors looking to cash in. Some were taking the chance to "turn and burn" because values were moving so quickly. It's time for those individuals interested in making a long term investment in RE to get off the fence and take advantage of the current environment. Because interest rates are so low month to month cash flow is a reality in many homes available.

Timing the Market and the bottom of the Gravy Boat

Timing the market comes up in every conversation with a potential buyer. Some are convinced that prices will fall another 30%; they might, in some places. Others are concerned with the future of their personal economy. And though some can't articulate their specific concerns, nobody wants to "overpay" for a home. If there is no way to quantify every consideration in the decision to buy a home that means the conversation needs to be about being near the bottom of the bowl.


As any investor will know timing a market to maximize return is nearly impossible. The more factors, conditions or considerations that go into assessing the value of an investment the less likely one can hit the sweet spot. Real Estate is one of the most difficult to time. Condition of the home and surrounding neighborhood, time on market, sales prices of homes in close proximity, intensity of the owner's desire to sell, interest rates, borrower's confidence of continued employment, etc...don't forget location.  All these and more go into the determining the value of a home.


 Probably everyone in Real Estate has seen this type of graph:

I don't necessarily agree with the text, but I like the graphic. See all the happy sellers running away with their money on the right side. What we need to do is educate the buying public is that being near the bottom of the Gravy Boat is a great place to be and getting to the bottom is fairly impossible to accomplish. Maybe we say that if you are swimming in gravy you did OK.