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Category Archives: business of real estate

Wayback Wednesday… How Were My Prognostications?

Last year I wrote one of those “wonderful” annual prognostication posts with my guesses on what we would be looking at during the same time next year… and that would be now.

Gwinnett County, Georgia

Image by dougtone via Flickr

Here is a link to the old post.  I’ll have the quick version below, but if you want to see the context, knock yourself out…

  • I predict that next year there will STILL be people talking about the coming giant wave of Shadow Inventory.  Well, I have to say that I hit that one.  Inventories are dropping, but the general buzz in the biz is that there is a huge wave of “Shadow Inventory” just around the bend.  Of course, it has been there (just around the corner) for a few years now…
  • Interest Rates ARE going to rise.  They did… a little… but they are down.  I was wrong.
  • there will be another wave of government intervention…  I hoped I would be wrong on this one, and I was.
  • The entry level market (under $200k) is well on the way to recovery… and that will continue.  I hit that one right.  The entry level market is pretty much rocking in Gwinnett County.
  • And I don’t think we will see a meaningful recovery in prices for the Luxury Market (above $600k).  Talk about a hurting market segment…  Unfortunately, I hit that one on the head.
  • The “Near Luxury” segment (from $200k-$600k) will be mixed.  That one is pretty close.  There are some markets that we are seeing a meaningful recovery for this price level… and other, not so much.  A few are just waffling.
  • I don’t see Unemployment going under 9% during 2011.  How do I rate this one?  Officially, I am wrong.  However, most of the improvement hasn’t been from job creation, but rather from people giving up.  The December numbers are supposed to be released later today…

I went 4 for 7… maybe 5 for 7, depending on how you want to score the last one.

 

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Wayback Wednesday… Zestimate Accuracy in Atlanta

You just have to love Zillow’s Zestimates.  Log in and look… poof… there is the Zestmate for your home.  Couldn’t be easier.  It’s almost too easy.  OK, it IS too easy.  And while I love the Zestimate just as much as everyone else, I also know that the chances of it being right are pretty slim.

"Lincoln Heights"I don’t want to slam Zestimates, though.  They actually ARE quite useful.  Their usefulness isn’t in their application to individual houses… it has more to do with looking at Zestimates for larger areas… ZIP codes, cities, regions.  The statistical variations that are the problem with looking at individual houses start cancelling each other out.  what we are left with is a pretty good measure of home values for an area.

Last year I posted up a breakdown of the Zestimate accuracy of individual listings in the Atlanta Metro Statistical Area.  The bottom line is that the Zestimate has about a 1 in 5 chance of giving you a value within 5% of the real market value of your house.  And the y are just as likely to be high as they are low.

If you are just curious, it is a fun tool.  If you REALLY need to know, you should talk with an Appraiser or a Real Estate Agent (depending on WHY you really need to know).  And remember, the real estate agent that tells you the highest value is probably wrong… and might even know they are wrong.  In the business, we call it “buying a listing”.  The strategy there is to promise a high listing price, and then come back after you are in a listing agreement and try to get the price down to where it should have been in the first place.  The biggest problem with that strategy is that it completely wastes the prime market time… when the house is first listed.  The end result is that the price usually ends up lower than if you had opted for a slightly lower price to begin with.

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Wayback Wednesday… Absorption Rate, What Is It?

 

English: Picture of an authentic Neapolitan Pi...

Image via Wikipedia

A couple of years ago I wrote a post describing what Absorption Rate meant.  I use it as a primary tool on my monthly market reports, so it is a pretty important term to understand.

 

The fun part was that I used frozen pizza to illustrate the point…  It seems to have worked pretty well.  And be sure to check out the link, especially if you have a little fog about what Absorption Rates are…

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Wayback Wednesday… Custom v Catalog v Mass Produced

1938 Type 57SC Atlantic from the Ralph Lauren ...

Image via Wikipedia

Last year I wrote a post about various ways to design a home.  Not in the “pen to paper” way, but rather in the conceptual way.  Homes can generally be characterized in one of three ways.

  • Custom – Built one at a time, all on site.  They might not be so custom that there will never be another one like it, but custom in that the builder gets a pile of materials and makes a house… each piece fitted on-site to the project.
  • Catalog – Built from pre-designed and constructed components.  The buyer could go through a catalog and select the different types of rooms to go into their overall plan.  The subsystems could designed to go together onsite.
  • Mass Produced – Factory built from the frame up and transported to the site for installation.  The first thing that comes to mind would be a “mobile home”, but there are some that are so beyond that.

In the post from last year I compared these to cars from the 1920s and 30s.  At that time, those were the distinct paths a car buyer could choose… full-on custom, catalog or mass produced.  Check out the link…  I think there is a revolution coming in home-building.  I think it is still a few years in the future, but it is coming.

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What Can “Fix” Housing?

There are still a few politicians, and a lot of real estate professionals talking about the government “fixing” the real estate market.  But the question is…

Is there a way or a role for the government to fix the housing market?

We’ve seen a substantial tax credit for purchasing a home, both for first time buyers and for existing (hopefully) move-up buyers.  And we’ve seen calls for more of the same.  But at the same time, there are a lot of experts that don’t think that the tax credits created many sales that wouldn’t have happened without them.

Even $8000 isn’t that much of a motivating factor for someone to make a $150K+ purchase.  And most of the people that took advantage of the tax credit were only hastened by the tax credit, not created by it… in other words, they would have purchased the home anyway, only their time-table was altered… in many cases, only by a couple of months.  Looking at past sales, it is obvious when the credit expired.  Sales increased at a rapid pace, and then dropped precipitously as the credit expired.  Sales remained well under par for many months after the credit expired.  Some economists estimate that the $8000 tax credit had a cost of over $44,000 for each sale it “created”.

There are other ideas floating around on Capitol Hill about ways that the federal government can spur housing sales.  And there are a lot of folks… especially in the halls of the National Association of REALTORS® that feel that housing needs to come back in order for the economy to rebound.

I think they have it backwards.  In order for real estate to rebound, people have to feel secure with the job market.  How can someone be expected to make a 30 year plan (getting a mortgage, for example) when they are worried about their job in the next few months?  So, focusing on job creating, especially by smaller businesses, and removing impediments to starting or expanding small businesses would do wonders.  Instead of tax credits focused on housing, tax relief for people starting businesses would do more for the housing market.

What do you think?

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