Sally English Atlanta Real Estate: June 2009

Underwriting Standards are Choking Off Market Comeback

 Real Estate Agents have moved from one battle  to another as we tackle adversarial market forces in a never ending attempt to create real estate transactions in today's challenging market.  The latest adversary: underwriting guidelines gone wild!  Sure, lots of loans were made in the past to folks who could not afford them.  I guess the only solution available was to totally shut down the market with loan underwriting rules that prevent even well qualified borrowers from obtaining loans to purchase a home.  The straw that breaks the camel's back is an appraisal process that totally ignores the importance of local knowledge in the valuation process.  Our industry needs to let Washington know these regulations are stifling any resurgence in the residential real estate market.

Lately I feel like a rookie batter up against a veteran knuckle ball pitcher when it comes to pricing houses.  I am confident in my "hitting" ability but the ball is ducking and diving when it gets to the plate.  Heck, even the catcher can't figure out where the ball is going.

Pricing a home for the market has become a really tough undertaking.  Owners are hopeful the market is starting to come back to life and they have become reluctant to put their best price forward at the time of listing.  Buyer's have been brain washed by the media into believing the list price of any home is at least 50% more than the price they need to offer in a purchase contract.  So once again the Realtor is left to hammer on both sides until some agreement can be reached.

But the new problem is what list price to start out with.  In the old days we had tons of data to help us in pricing a home.  I do my homework and study my local neighborhoods so I had a huge data bank of knowledge from which to draw on when presenting pricing opinions to sellers.  It is much less scientific nowadays.  No, let me retract that statement.  Pricing a home has become more like laying down cards in a poker tournament.  We turn cards over one at a time until we see what the competition is showing.  When we start to feel confident we have a winning hand, then we place the big bets.  (As a side note: taking an overpriced listing is no way to run a successful brokerage business,,,and I have 25 years of experience to back up that statement).

Knuckle ball hitters have to swing where they they think the ball is going to be based on intuition.  Good fastball hitters can watch a pitcher's release and know, based on the trajectory, where the ball is going to be when it crosses the plate.  If the ball is released at a certain point it will be low and away....so they swing at that space on the plate.  With knuckle balls, no one, and I am talking no one; be it pitcher, catcher umpire, or hitter; has a clue where the ball is going to end up when it gets to the batter and home plate.  Batters almost have to close their eyes and swing with hopes that they are going to connect.  This crazy real estate market has me closing my eyes and swinging away when I price homes.  I can't use the "trajectory" of where home prices have been.  I have to be prepared for the "ducks and swerves" of home prices based on the latest media announcements,

Applying the Heisenberg Uncertainty Principle to the Residential Real Estate Market

Over my rather lengthy career in residential real estate brokerage, I have become amused by the prognosticators who profess to have a crystal ball that allows them to predict future movements of the residential real estate market.  Whether PhDs or taxi drivers, everyone feels qualified to make a projection as to the direction of the real estate market in the next six to twelve months.

"The market is coming back in 2009, count on it" says one expert.  "We believe the market will turnaround in 2010" is the pontification of seller clients who have held the line on the list price of their home.  Just about ever body has two cents to throw in on the debate of the markets direction.

Werner Heisenberg developed a theory of quantum mechanics in the 1920s that may have some application to understanding today's real estate market.  In what is a gross understatement of Heisenberg's principle of Uncertainty, certain physical properties/variables can not be known exactly because it is impossible to know or measure the position of one property/variable and to simultaneously know the velocity of the other property/variable.

Economists can with accuracy measure where the residential market was from a historical perspective.  Looking back say three to six months ago by examining the number of homes sold in a historical period or by examining any number of data available to researchers is reasonable and provides valuable information about where the market has been.  The tricky part is the simultaneous calculation of the markets direction in the future!  The "velocity" component of the market becomes virtually unknowable because we can not "stop" the market and take accurate measurements of multiple variables including home sales, foreclosures, inventory etc,

I do not suggest there are no informed opinions about the direction of the market for the second half of 2009 or even for 2010.  What I would propose is that "experts" who barrage the media with claims of fool proof knowledge of the direction of the residential real estate market are practicing what is more or less modern day alchemy. 

Buyers and sellers (and their advisers) need to make decisions based on data at hand and not based on what I see as speculation.  More buyers and sellers would reach point of a meeting of the minds necessary for a transaction to occur if we remove some of the baggage added to today's real estate market by "experts" pontificating the future of real estate in the national media. But then my job is not to sell advertising on TV or newspaper ads. Those folks who provide the experts with a media platform to pass along their real estate pontifications have a different opinion, probably based on the revenue from ads and commercials.