Transcript Slide 1

THE REALITIES
OF REAL ESTATE
DURING THE
GREAT RECESSION
Julie Lang ABR, CRS
The Julie Lang Team
First Weber Group Realtors
Racine, WI
“Real estate cannot be lost or stolen, nor
can it be carried away. Purchased with
common sense, paid for in full, and
managed with reasonable care, it is
about the safest investment in the
world.”
-Franklin D. Roosevelt
“Owning a home is a keystone of wealth..
both financial affluence and emotional
security”. –Suze Orman
“It’s tangible, it’s solid, it’s beautiful. It’s
artistic, from my standpoint, and I just
love real estate.” – Donald Trump
“The best investment on Earth is earth.”
-Louis Glickman, American business
executive
PERCEPTIONS OF
REAL ESTATE & HOMEOWNERSHIP
 It’s the American Dream
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It’s a good investment
It’s safe
It is a status symbol
It is an entitlement
It’s scary
It’s a risk
A Responsibility
It’s now OK to walk away
It’s a terrible investment
Too much work
What are your perceptions?
WHY DO PEOPLE WANT TO OWN A HOME
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Not throw money away
Build a nest egg
Decorate the way they want
Have a good place to raise a family
Fulfill a dream
Stability
Budget
Feel Grounded…Emotionally Satisfying
SOME QUICK DEFINITIONS
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DOM – (Days on Market) the period of time a
property is listed for sale prior to being sold or
removed from market.
LP/SP – (list price to sale price ratio)
Assessed Value – the value placed on a home by a
government tax assessor in order to calculate a
tax base.
SOME QUICK DEFINITIONS
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REO – (Real Estate Owned) property acquired
by a lender, through foreclosure, which is held as
inventory.
Short Sale - a sales transaction in which the
seller's mortgage lender agrees to accept a payoff
of less than the balance due on the loan.
SOME QUICK DEFINITIONS
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Sellers market – a very strong real estate market where
sellers have the advantage because there are more buyers
than properties for sale. Generally when there is less than
a 5 month supply of inventory.
Balanced market - occurs when the relative supply of
homes reach a 5 or 6 month level.
Buyer’s market – a real estate market in which the buyers
have the advantage over the seller due to slow sales.
Generally this is when there is more than a 7 month supply
of inventory.
SOME QUICK DEFINITIONS
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Sales Concession – an instance where the seller will pay
a cost that is normally paid by the buyer. Usually done
to ensure the sale will go through.
Price appreciation – an increase in the value of real
estate. The price may increase because of a number of
factors, such as shortage of supply, improved economy,
favorable political environment, tax incentives, or
increased profitability.
Expired listings – when the time frame of a contract to
list a property for sale passes and the home is no longer
for sale. No purchase was made.
SOME QUICK DEFINITIONS
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Sale Price – the amount of money that is paid by a
purchaser to a seller for property that is bought.
Absorption Rate - this is the measurement of current
housing supply divided by the current rate of sales,
expressed in months of supply.
Multiple offers - more than one offer to purchase a
property, which usually occurs in a seller’s market.
This is most likely a competitive bidding situation.
WHAT WAS IT LIKE IN 2005-2007
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People looked at few homes…they might lose out on
the one they want
Confidence was up ~ Positive feelings were up
Lending was easy…… easy underwriting, minimal
qualifications
No down payments , interest only loans, etc…
WHAT WAS IT LIKE IN 2005-2007
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List/sale ratios…… very high 97-98%
Average days on market…..
52 in 2005
72 in 2006
86 in 2007
Average sale price in eastern Racine County
2007=$174,132
Average appreciation over 5 years in city of Racine
30%
WHAT WAS IT LIKE IN 2005-2007
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Multiple offers – common
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Inspections – repairs often not negotiated
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Flippers present in the market
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Homes ALWAYS appraised
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Sense of Urgency….to list, to write an offer, to
see a house…everything was urgent!!!!
THE NUMBERS DURING THE BOOM
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Homes sold in eastern Racine County:
2005 - 1721
2006 - 1524
2007 – 1364
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How many houses expired ….. 815 in 2005
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DOM - 52 in 2005
OTHER FACTS DURING THE BOOM……
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Mortgage rates …approx. 6%
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People financing 100% plus
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Most homes are selling well above the assessed value
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Many Realtors flooded the industry
ANNUAL APPRECIATION FOR RACINE
2002-2006
A HOUSE FOR SALE DURING THE BOOM
1330 Erie St. ~ Racine
4BR, 1.5BA ~ 2017 sq. ft.
Sold March 2007 for $140,900
National Statistics Show
The height of the market….
The absolute peak
Q1 2007
THE BUBBLE IS BURSTING
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What was it like locally vs. nationally
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It took longer here to feel the effects
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Offering incentives …bonuses, closing costs, etc
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Homes are not appraising at purchase price
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The pool of buyers is decreasing
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Mortgages are harder to get
WHAT WAS IT LIKE IN 2008-2011
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Buyers are sitting on the sidelines
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Buyers are picky….sometimes looking at 50-100 homes
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More difficult to get loans…. Require a down payment
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Consumer confidence had dropped
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Sellers owe more than their house is worth …”upside
down”
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Sellers still believe their house is worth more
2008-2011 THE HARD TIMES
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LP/SP…… 96% in 2008 down to 92% in 2011
Average DOM
109 in 2008
112 in 2009
107 in 2010
121 in 2011
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Average sale price in eastern Racine County in 2011= $120,703
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Number of foreclosures in the market = 40% of total sales
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Homes are selling well below assessed value….approx 60%
THE NUMBERS DURING THE BUST
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Homes sold in Eastern Racine County:
2008 - 1111
2009 - 1120
2010 - 1013
2011 - 1134
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How many homes expired in 2011 - 1260
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DOM – 121 in 2011
OTHER FACTS DURING THE BUST….
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Multiple price reductions are common
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Short sales are common
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Foreclosures are everywhere..in every price bracket
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The shiny penny story… you only sell if you are the shiny
penny… or really CHEAP!
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Rentals are busy
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Mortgage rates – under 4%
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Good comparable properties are sometimes hard to find
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Realtors are leaving the industry for other jobs
ANNUAL APPRECIATION FOR RACINE
2007-2011
THE SAME HOUSE NOW FOR SALE
1330 Erie St. ~ Racine
4BR, 1.5BA ~ 2017 sq. ft.
Sold October 2011 for $32,000
A SNAPSHOT OF WHERE WE ARE TODAY
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Many areas of the country felt the hard hit from
2008-2010
IN Q4 of 2011, The median existing single-family
home price rose in 29 out of 149 metropolitan
statistical areas1 (MSAs) in the fourth quarter from a
year earlier
Some areas of the country are starting to stabilize
However……
SE Wisconsin was slow to feel the bubble inflate…..
LOCALLY…..
WE ARE ALSO SLOW TO FEEL THE RECOVERY!
THE MEDIAN SALES PRICE
IS STILL DECLINING
ACCORDING TO STATISTICS
FROM JANUARY 2012
This is by far the BIGGEST hurdle for us to cross!!
AFFORDABILITY
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Homes are now more affordable than ever!
The national affordability index
Nov. 2011 – WRA
242
Nov. 2011 – Nationally
just under 200
Definition: that the family with median income can
afford to buy 242 percent of the median priced home
in the state, given 30 yr. fixed rate mortgages and a
20% down payment.
In some cases, homes might be starting to
become undervalued
THE TOUGH CONVERSATIONS ..SELLERS
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How to sell now
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What are your options…is selling the best option
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Perception vs. Reality
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No Equity
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Many Sellers have Multiple loans
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Perception of value…some sellers still wearing rose
colored glasses
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Difficult to find comps
WHAT DOES IT TAKE NOW TO SELL
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Competitive prices
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Updated & show well
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Negotiating mortgages in short sales
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Pulling other resources to move on if you don’t have enough equity
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Know the numbers…….. How do you stay ahead of the curve when
selling – get the numbers right the first time!
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No Defects….pre-home inspections, make necessary repairs, and
upgrades
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Each transaction presents unique and new challenges….. Enlist
professionals for help!
THE TOUGH CONVERSATIONS … BUYERS
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Hard to get financing…good credit is a must
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Condition of foreclosures..can you afford repairs
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What loans are available
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Loan limits
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How long do you plan to stay in this house
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What is your lifestyle…buying within your means
THE TRICKY PART
Finding a home…or finding a buyer - NO
Marketing a home – NO
Looking at properties – NO
Negotiating initial terms of offer - NO
Dealing with contingencies & getting to the closing
YES
WHAT’S IT LIKE TODAY
For Buyers
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Money is available ….. Good news!
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Prices are at an all time low…… Good news!
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Interest Rates are at an all time low….. Good News!
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Affordability is better than ever….. Good News!
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There is a lot of inventory …. Good News!
WHAT’S IT LIKE TODAY
For Sellers
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Houses are selling, # of SOLD homes is up…Good News!
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Buyers are ready to buy…. Good News!
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Interest Rates are low….. Good News!
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If homes are priced well and show well….they sell fast!
LOOKING FORWARD
Fannie Mae:
“The housing sector will likely take incremental
steps forward in 2012 …according to
economists at Fannie Mae.
USA Today:
“Housing Outlook is
More Upbeat”
The Wall Street Journal:
“From Bottom Up, Signs of
Housing Recovery”
LOOKING FORWARD
RIS Media – Feb. 22, 2012