Real Estate Market

Homeownership can bring with it many blessings. Yet, the idea of caring for and maintaining a home, as well as affording a mortgage can seem daunting, but let's review some of the many reasons that homeownership can be beneficial.  

The most obvious benefit is building wealth. The U.S. Department of Housing and Urban Development (HUD) notes that "home equity is the largest single source of household wealth for most Americans."

What is home equity? Home equity is the difference between the home's fair market value and the outstanding balance of all liens on the property. Let's say you have a balance of $100,000 left on your home's mortgage, but the property appraises for $150,000. You now have $50,000 worth of home equity.

And let's not forget about appreciation. While there is no set year-to-year rate that is considered normal, reports indicate that you can expect around a 6.5 percent average value increase in your home each year.

The National Homeownership Strategy cites that “through homeownership, a family ... invests in an asset that can grow in value and ... generate financial security." This is what sets homeowners apart from renters.

Other wealth builders to consider are tax breaks and tax credits, such as the deductibility of property taxes and mortgage interest and the exclusion of capital gains, and the $8,000 first time home buyer and $6,500 home buyer tax credits.

But beyond the numbers and the long term investment benefits, studies have shown that owning a home can actually make you healthier, and make your children happier.

Homeownership allows people to have greater control and inspires responsibility over their living environment. It helps stabilize and strengthen communities. And it helps generate jobs and stimulate the economy (National Homeownership Strategy)

The U.S. Department of Housing and Urban Development (HUD) reports: “Homeowners accumulate wealth as the investment in their homes grows, enjoy better living conditions, are often more involved in their communities, and have children who tend on average to do better in school and are less likely to become involved with crime. Communities benefit from real estate taxes homeowners pay, and from stable neighborhoods homeowners create”

These wonderful benefits only graze the surface of the world of benefits that awaits you in homeownership. Be sure to talk to your real estate agent about what other good things come your way when you buy a home.

How times change. Trulia.com is reporting this month that nationally fewer sellers cut their listing price on their homes and in some markets that's even resulting in bidding wars on lower-end properties, according to Trulia's March 2010 Price Reduction Report.  

Trulia.com stated that we are now at the lowest percentage of price reductions in the last year for homes that have been reduced. Just under 20 percent of homes that were for sale as of March 1st had been reduced at least once. However in the fall months of October and November, up to 26 percent of sellers slashed their asking price. The current figure is the lowest since the company started tracking these price reductions in April 2009.

"The total dollar amount slashed from home prices dropped to $21.6 billion and the average discount for price-reduced homes continues to hold at 11 percent off of the original listing price," states Trulia.com on its website.

The biggest declines in U.S. price reductions during the past few months (Feb. 1 – Mar. 1, 2010) have been in Charlotte, NC; Colorado Springs, CO; Houston, TX; Raleigh, NC; Jacksonville, FL. The highest percentage of decline for these areas was in Charlotte (28 percent drop).

In a press statement, co-founder and CEO, Pete Flint, said, "Consumer engagement on Trulia remains at an all time high, but home sales have dropped nationally during the past few months because there has been a lower sense of urgency to 'buy now'. As we get closer to the government incentives running out, we expect price reductions to increase as sellers begin to feel the pressure to lure buyers in, in advance of the tax credit expiration."

Trulia.com notes that the price reduction levels peaked nationally toward the end of last year. That corresponded to the Federal Housing Tax Credit's original deadline of November 2009 when price reduction levels reached a high of 26 percent for each of the months of September, October, and November. However, that credit has been extended and since then a noticeable decline in price reduction levels has occurred, resulting in only a 19 percent price reduction level for the month of March 2010.

For now, price reductions in some areas may have tapered off, but in other parts of the country—Arizona, Massachusetts, Washington, D.C., Hawaii, and Maryland—it seems buyers and sellers still don't agree on what's a fair price, according to Trulia.com.

The top five cities with price reductions and their corresponding total dollar reduction are: Milwaukee, WI ($17,247,300); Phoenix, AZ ($99,006,960); Mesa, AZ ($30,437,385); Memphis, TN ($24,090,936); and Baltimore, MD ($35,287,980).

The method used to acquire the statistics is based on all price-changed data from live listings on Trulia.com which are obtained from brokers, agents, third party aggregators, and Multiple Listing Services. The company tracked price reductions from March 1, 2009 to March 1, 2010. However, foreclosure properties are not included in this. The site states that, "The percentage of listings with price reductions includes any non-foreclosure property on Trulia.com that has experienced at least one price reduction since it was first posted on the site. The city level data is for listings within the city boundary, and not for metro areas."

If a number immediately popped into your head when you read this question, I have a few more questions for you:

• How did you arrive at that value—detailed research, neighbourhood gossip, property tax market assessment or a comparative market evaluation from your local real estate professional?

   

• Why do you think real estate value for a specific property can be represented by one number and not a range of values based on the variety of value factors and prospective buyers for your property?

   

• How important is it for you to know the value of what is probably your principal asset and, therefore, to understand your full real estate purchasing power in this market?

   

• What are the consequences of being wrong about the value you're so sure of?

If you have no idea of your property's value or little confidence in what you know, why have you not taken advantage of free opportunities to determine the current market value of your real estate?

Real estate brokers and salespersons routinely offer their services free of charge to property owners. Received a "free market evaluation" certificate by mail or email lately?

Although there is no set definition of what a market evaluation should include, there are basic ingredients that can be useful in evaluating your position and the services offered by local real estate professionals:

• Solds: A property is worth exactly what a buyer is ready to pay for it. Analysing actual solds for your location and for properties similar to yours in surrounding neighbourhoods will provide solid ground for establishing value.

   

• Expireds: These are listings which terminated at the end of the usual thirty- to ninety-day period without a sale. Expireds are typically considered to be over-priced for the market, based on the condition of the property and current buyer patterns. These listings can also represent insight into marketing strategies to avoid or to adopt in your area.

   

• Currents: If your property were listed, how would it compare with the other houses or condominiums that buyers shopping that location or that price range would be shown? It's buyers' needs, wants and what's "in," not sellers' costs, that determine value.

   

• Value Boosters: Repairs, modernizations and improvements to your property can boost value. The real estate professional will offer some simple, cosmetic suggestions and others which may involve investment with a predictable return. Listening to these suggestions is the beginning of learning to separate pride of ownership from investment realities. What you love is not necessarily what buyers will pay top dollar for in your location. For instance, a swimming pool can devalue a property in some neighbourhoods. In others, this amenity is highly prized. Inground versus above-ground can also make a value difference.

   

• Value Range: Using solds, expireds and currents, you'll be led through the process of determining a range of value for your property. The real estate professional will explain why market value is a range rather than an absolute value. The relationship between that value and property-tax market value will also be discussed since local variations are significant. The value range will be evident to you after this buyer's-eye-view evaluation.

   

• Selling Costs: It's not the list price, or even market value, but what you would net, or keep in your pocket, that is really important. Typical costs will help you fully appreciate what value in an offer will mean to you.  

• What Ifs: Example listings for moves "up" or for "downsizing" will complete your real estate value picture. Sometimes sellers gain the greatest value in closing the price gap between their neighbourhood and those considered "better." Not all locations fare equally in a market. Values in your area may be boosted by buying activity while other locations, even the most preferred, may not be significantly affected or may even face a downturn. Rural property does not always increase in value as quickly as urban. If you want to move out of the city, check to see if you'll be favoured by a value gradient which allows you to buy more house for less money in your dream country setting.

The opportunity: Contact a salesperson offering a free evaluation to find out what is involved (i.e., is it verbal or written?), and what each party should expect from the meeting. You want to know up front if there are any strings attached to the free evaluation offer. Make your wishes and concerns clear. The real estate industry has moved away from hard-sell, relentless high-pressure tactics, so if you feel you're being pushed into signing anything or committing to anything, end the meeting.

Real estate professionals welcome opportunities to "talk real estate" and to share their expertise or they would not offer the free evaluation service. Get a head start on the spring market by learning what your real estate represents in purchasing power.