Dear Monty: Has the real estate market fully recovered?
Reader Question: Before the banks caused the 2008 meltdown, I purchased my home for $475K. Homes directly around me have recently sold for anywhere between $215K-$360K. Prices are finally rebounding here, and I have the most beautiful home in the area. Can I expect to make any money by putting my home for sale or should I wait to die in this house before I make a profit?
Monty’s Answer: Many areas have recovered entirely from the meltdown our federal government created years before 2008 (more about this below). We all don’t live in Seattle, San Francisco, or Las Vegas, but around the country, even the slowest markets to recover are progressing. Currently, many pundits expect the market’s appreciation rate to cool because of rising mortgage rates.
Update your knowledge
The local and regional recovery rates vary on supply and demand driven by local or regional economies. For example, in my home state, a huge international company is building a massive manufacturing plant, and homes in that area are expected to increase in value as new workers will need housing. There are many sources to find real estate news. You can search online to find regional and local value trends. A Freddie Mac article at http://bit.ly/2MGrEDn is a logical starting point.
Seek local opinions
Consider contacting several local agents and ask for a competitive market analysis (CMA). You will get three different opinions of value from them, and your job will be to decide which one makes the most sense based on the research they present, and the depth of the study. For example, many real estate agents either do not know how to calculate adjustments between the subject property and the comparable sales or they do not want to invest the time necessary to go through the process. If you decide to sell, here is an article about how to pick a good real estate agent at http://bit.ly/2NFYdhb.
There is a high likelihood that you can sell long before you expire. When you mention you have the best home in the local community, that may be a factor that impacts the sale price. Buyers avoiding the house because of lesser neighboring values may reduce the size of your market. Like you, not all buyers will view it in that fashion.
Most real estate agents will encourage you to keep reducing the price if time wears on because they believe a home that sits on the market for extended periods is overpriced. While there are overpriced homes, in many instances, it takes time to find the buyer that can overlook the value differential. Patience is the answer based on research conducted within a relocation company that studied this issue. Here is the result of that research at http://bit.ly/2I2K9if.
Back to the meltdown
Many consumers incorrectly believe the banks were responsible for the 2008 meltdown. While the banks and many others were undoubtedly complicit, they were not the cause. The Federal government runs the banks.
Insights from folks such as Warren Buffett who studies financial markets daily are excellent sources of information. Here are excerpts from his 2008 Annual Letter to Shareholders for his perspective on the meltdown. To read the entire letter go to http://bit.ly/2wx81Un.
“Derivatives are dangerous…They allowed Fannie Mae and Freddie Mac to engage in massive misstatements of earnings for years. So indecipherable were Freddie and Fannie that their federal regulator, OFHEO, whose more than 100 employees had no job except the oversight of these two institutions, totally missed their cooking of the books.”
“On June 15, 2003, OFHEO sent its 2002 report to Congress – specifically to its four bosses in the Senate and House, among them none other than Messrs. Sarbanes and Oxley. The report’s 127 pages included a self-congratulatory cover-line: “Celebrating 10 Years of Excellence.” The transmittal letter and report were delivered nine days after the CEO, and CFO of Freddie had resigned in disgrace, and the COO had been fired. No mention of their departures was made in the letter, even while the report concluded, as it always did, that “Both Enterprises were financially sound and well managed.” In truth, both enterprises had engaged in massive accounting shenanigans for some time. Finally, in 2006, OFHEO issued a 340-page scathing chronicle of the sins of Fannie that, more or less, blamed the fiasco on every party but – you guessed it – Congress and OFHEO.”
Richard Montgomery is the author of “House Money – An Insider’s Secrets to Saving Thousands When You Buy or Sell a Home.” He advocates industry reform and offers readers unbiased real estate advice. Follow him on Twitter @dearmonty, or find him at DearMonty.com