Real Estate Reality: It always wins.
Monday, July 7, 2008 at 07:18AM Are people getting tired of the housing and lending crisis? Plenty of damage has been done. The sharp rise in prices and the ensuing backlash caught many homebuyers and sellers in that awful and proverbial position between a rock and a hard place. The news has not been pretty. How long will it last? I hear all sorts of reports. In Savannah GA about the half the number of homes have sold the first six months than in the previous few years.
What has been ground out of the system? Flippers who added no value have been ground out. Overpriced homes have been ground out. Buyers with poor credit and no investment in their property have been ground out. It appears homes priced right and in good condition and a good location are selling, but many sellers are holding on to high prices -- obviously, these sellers don't have to sell. Agents who aren't serious about real estate, or just not cut out for real estate, are being ground out, too.
It appears to me we are getting back to rationality. Is this a bad thing? The perfect market to me is a market where sellers sell when they have to sell, or really want to sell in order to move up or downsize, where sellers price their homes according to comparables from the last six months, where buyers are looking for value, condition and location that suits their needs, where professional agents are available to help with marketing and transactions. Were the numbers of the last 5-7 years real numbers? The bidding up of prices based on "irrational exuberance" could not sustain itself, or else prices would have zoomed past the average buyer's ability to purchase.
In spite of all the pain, what we are experiencing is basically what reality demands -- rationality. Any time human beings attempt to usurp reality through whim, greed, irrational impulses or subjective determinations, reality comes back to punish -- and the punishment is blind -- it punishes all those caught in the backlash. There's nothing fair about the workings of reality. In reality things just ARE. We can't change reality through consensus opinion, through wishing, through demanding, through stomping our feet or through appealing to angels of mercy who will favor us because we meant well. Who could buy properties on water if the average price rose to $5,000,000? Millionaire buyers aren't manufactured on demand. Who could buy a starter home if the average price got to $400,000? We can't manufacture those buyers on demand, just because we all got exuberant and a few made quick bucks on sales in a hot market.
No, reality wins. It always wins the war even if a couple of battles are lost to exuberance. What we are seeing now is areas settling down to the reality of each area. It HAD to happen. There was no way to usurp reality and create ATM machines out of homes. The reality is that there are limits and the limits will not be violated for long without repercussions.
Have we learned our lesson? Sadly, the answer is -- Not really -- not in the long run -- it will happen again. But, it will probably be a long time before it happens in real estate again -- oil and gas are the latest exuberance, but real estate is settling down to reality. And in spite of all the damage, it's a good thing. It's a tough world and reality has to be answered to -- no matter how we wish it was otherwise. Sellers will be forced to adjust and real estate agents will be forced to produce based on talent and service provided. Buyers will buy lower but they will have to realize they can't sell for a fortune in three years. Banks will be forced to apply rational lending standards and those who buy will have to come off their savings to invest, or they will have to rent.
Reality is having its way and it knows better ways to security than exuberance.
Reader Comments (6)
How true. Thanks for putting it into perspective!
Thanks, Dave.
Mike,
A voice of sanity in an otherwise insane world of real estate. Thank you!
Thanks Vance.
Mike,
Well said, very well said. Can I repost this on my blog at www.straighttalkaboutmortgages.com? There are more people who need to hear this.
Let me know.
Tom Vanderwell
(616) 292-7559
Tom, yes, you can re-post it -- no problem.
Thanks, and have a good day.