'Urgency' sells homes

Don't rely on low interest rates in today's market

By Inman News Feed
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Don't rely on low interest rates in today's market

Dian Hymer
Inman News™

After the tech bubble burst, people were leery about putting money into the stock market, and instead poured money into housing. It was easy to get financing -- too easy, as it turned out. The inventory of homes for sale was low, and demand was high. When the demand is high and supply is low, prices go up.

Rising prices created a sense of urgency; buyers couldn't buy fast enough. They wanted to own as soon as possible in order to take advantage of home-price appreciation that was rising rapidly in many areas.

This resulted in the housing bubble that burst in 2007. The housing market has been struggling ever since. Nationally, home prices have declined 30 percent to the level they were in 2002. Even low interest rates, coupled with low home prices, haven't been enough to ignite home sales.

Part of the problem is that there is still too much inventory of unsold foreclosure properties, mostly located in areas where people can't find work. Another factor holding the market back is the stringent mortgage qualification requirements. In the San Francisco Bay Area in 2006, more than 50 percent of home purchasers bought using loans that didn't require conventional qualification, such as stated-income or no-cash-down mortgages. Those loans aren't available today.

Many lenders today require a cash down payment equal to 20 percent of the purchase price. To get the best interest rate, your FICO (Fair Isaac Corp.) credit score needs to be 720 to 740. Before 2007, 620 got you a good rate. You also need to be able to verify a meticulous employment history.

The pool of qualified buyers has diminished significantly due to tightened lending criteria. Equity loss has kept many would-be trade-up buyers from moving forward. Of those who can afford to buy, many are nervous about buying now because of recent economic news indicating that the economy is slowing and unemployment is rising.

HOUSE-HUNTING TIP: This doesn't mean that all homes aren't selling, just a reduced number. This is because, in most cases, sellers are marketing their homes to fewer buyers. To be a successful seller in this environment, the goal is to create a sense of urgency by preparing the listing for sale and pricing it right for the market so that buyers feel that if they don't buy it now, someone else will.

Sellers are often in denial about how much a buyer will pay for their home. They have difficulty seeing their home from a buyer's perspective. This is unfortunate, because buyers know current market value better than most sellers do.

Today's buyers study the market carefully before they buy. They know the sale price of recent listings in the area that sold. They know when a listing is priced at, under or over market.

Sellers whose listings aren't selling should ask their real estate agent to give them feedback about buyers' reactions to their home. If the objections are about features that can't be changed, like a location on a busy street, the list price will need to be adjusted to account for the incurable defect.

During a hot seller's market, buyers often overlook incurable defects because they don't want to miss out on swift appreciation. Affordability is motivating today's buyers. They don't expect to see appreciation soon.

In some places, prices could decline further before turning around. Low interest rates make homes more affordable for buyers. So do lower home prices. Overpriced listings reduce affordability, and they don't sell.

THE CLOSING: The best time to reduce the price of an overpriced listing is as soon as the market indicates that it's priced too high.

Dian Hymer, a real estate broker with more than 30 years' experience, is a nationally syndicated real estate columnist and author of "House Hunting: The Take-Along Workbook for Home Buyers" and "Starting Out, The Complete Home Buyer's Guide."

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