I just read the report of a study saying that Americans now have the greatest gap between what they think their homes are worth, and what an independent appraisal shows. You can see the problem here--how can we sell your property for what you want, if you think it's worth more than the experts do? That doesn't mean that some buyer might not agree with you about value, but the general idea suggests that many homes wouldn't sell for what the owner would agree to take. Recently, we had one homeowner who wouldn't accept an offer for the full listing price, because it didn't seem worth it to them to move for that amount.
This brings me back to the old proposition that it doesn't matter whether you sell low or sell high, as long as you are buying in the same type of market. Therefore, if you sell your current property for 10% less than you think you should get, if you are honest, you are probably buying your new property for the same differential. At some point, you need to move on with your life, whether that means upsizing, downsizing, changing towns, or just changing. It's better to do that when rates are (still) historically low, which will matter more in the end than the price you pay. And it's better to live your life in the present, not the unpredictable future.
Showing posts with label home value. Show all posts
Showing posts with label home value. Show all posts
Tuesday, September 22, 2015
Monday, January 27, 2014
Conflicting Information on Prices--What to Do?
Yesterday's New York Times Business Section had some very interesting articles on the current state of the real estate market. One of them took a few homes in different parts of the country, and compared the prices each had sold for at various points over the past twenty-five years or so. They ranged from homes that had gone up or down very little, to ones which were now above the highest earlier sale, to ones where the value had not regained its earlier level. This was excellent data, and is measured differently from the more often cited Case-Shiller Index. The latter index is derived from taking the entire aggregate value of real estate prices in a city or SMSA, and comparing the whole package to the entire aggregate value of sales at another point in time. That means that you are essentially comparing apples and oranges, although the sheer volume of data would indicate that it might be a pretty good predictor of overall values.
When you look at the history of one home, however, you can clear see the effect of any given downturn or uptick on whatever owner happens to be in place at a particular time, and it's so clear that the market is driving the price up or down, because, of course, it's the exact same house. The NYT article included pictures, which always tend to make a story more compelling. What was missing, though, for obvious reasons, was advice about how to apply such information to a personal decision. How could it say what to do in Connecticut, when sellers all over the country were in such disparate situations?
Perhaps the best answer to the unspoken question of what to do in today's market is to focus on the overall variety of price levels, and conclude that there is no one right answer. Which is, in itself, good advice: Don't try to outguess every expert and every real estate seller or buyer. If all the experts agree, and the whole country is in the same position, you are most likely too late to cash in on the upturn. If it seems as though results are spotty, you conversely have a better chance, if you're a buyer, of landing a home that will increase in value over the next few years.
By pointing out that similar properties can have very diverse sales outcomes, the article reminds us strongly that a home is, after all, a home. Buy what you love. Live there because it enhances your life. Sell when it's time for a change. Hope that your timing is good, but don't plan everything on a certainty you can't achieve. Sometimes people get lucky, and sometimes they don't. It doesn't mean that you shouldn't be happy where you live. We don't know what the future will bring, but the present beckons--buying now is a great option if you qualify for a mortgage at current rates, and can buy at current prices. That's all you can know, and all you really need to know to take that first step!
When you look at the history of one home, however, you can clear see the effect of any given downturn or uptick on whatever owner happens to be in place at a particular time, and it's so clear that the market is driving the price up or down, because, of course, it's the exact same house. The NYT article included pictures, which always tend to make a story more compelling. What was missing, though, for obvious reasons, was advice about how to apply such information to a personal decision. How could it say what to do in Connecticut, when sellers all over the country were in such disparate situations?
Perhaps the best answer to the unspoken question of what to do in today's market is to focus on the overall variety of price levels, and conclude that there is no one right answer. Which is, in itself, good advice: Don't try to outguess every expert and every real estate seller or buyer. If all the experts agree, and the whole country is in the same position, you are most likely too late to cash in on the upturn. If it seems as though results are spotty, you conversely have a better chance, if you're a buyer, of landing a home that will increase in value over the next few years.
By pointing out that similar properties can have very diverse sales outcomes, the article reminds us strongly that a home is, after all, a home. Buy what you love. Live there because it enhances your life. Sell when it's time for a change. Hope that your timing is good, but don't plan everything on a certainty you can't achieve. Sometimes people get lucky, and sometimes they don't. It doesn't mean that you shouldn't be happy where you live. We don't know what the future will bring, but the present beckons--buying now is a great option if you qualify for a mortgage at current rates, and can buy at current prices. That's all you can know, and all you really need to know to take that first step!
Monday, March 16, 2009
The Mark-to-Market Rule
You may have been reading about the mark-to-market rule in connection with the travails of the banking world. It applies to real estate in a very unfortunate way, which helps to explain why appraisals are so problematic these days.
Very simply, mark-to-market means that the value of an asset should be governed by what other similar assets are worth. Since most homes are only valued when they are sold, or refinanced, most people would expect to be unaffected by changes in valuation when they are not in the process of selling. However, the current focus on "stress testing" banks, and the influx of the TARP money, has caused regulators to take a new look at the revaluation of assets already on the books of those banks, and revalue them based on the basis of recent transactions or valuations at other banks.
Let's assume that there's a house on your street that went into foreclosure, or even just got sold to a relocation company when the owner moved. Since either of those scenarios would favor a quick sale, it might well have changed hands at what you would consider a rock bottom price. The mark-to-market rule, however, would then dictate that your home is now worth what the relo company sold your neighbor's home for, at least insofar as they are comparable properties.
You can easily see how things can spiral downward from there. If you then had problems with your mortgage, your bank would be carrying the value of your home at the "new" value, making your home further underwater. If every other bank then writes down the homes they have financed on your street, pretty soon everyone is underwater on their mortgages, and the banks have way more in the way of "troubled assets". All this is true even though perhaps only one or two homes changed hands at the lower value, and maybe not even in an arm's length transaction. The next thing you know, another bank is below recommended capital requirements, and is on the endangered list. At that rate, every bank may end up on the list, when the only thing that happened is that one home in a neighborhood got sold at a bargain price. Scary, right?
Very simply, mark-to-market means that the value of an asset should be governed by what other similar assets are worth. Since most homes are only valued when they are sold, or refinanced, most people would expect to be unaffected by changes in valuation when they are not in the process of selling. However, the current focus on "stress testing" banks, and the influx of the TARP money, has caused regulators to take a new look at the revaluation of assets already on the books of those banks, and revalue them based on the basis of recent transactions or valuations at other banks.
Let's assume that there's a house on your street that went into foreclosure, or even just got sold to a relocation company when the owner moved. Since either of those scenarios would favor a quick sale, it might well have changed hands at what you would consider a rock bottom price. The mark-to-market rule, however, would then dictate that your home is now worth what the relo company sold your neighbor's home for, at least insofar as they are comparable properties.
You can easily see how things can spiral downward from there. If you then had problems with your mortgage, your bank would be carrying the value of your home at the "new" value, making your home further underwater. If every other bank then writes down the homes they have financed on your street, pretty soon everyone is underwater on their mortgages, and the banks have way more in the way of "troubled assets". All this is true even though perhaps only one or two homes changed hands at the lower value, and maybe not even in an arm's length transaction. The next thing you know, another bank is below recommended capital requirements, and is on the endangered list. At that rate, every bank may end up on the list, when the only thing that happened is that one home in a neighborhood got sold at a bargain price. Scary, right?
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