Coaching

Is it time to bury the past and rise up? Is it time to advise “buy”?

It’s 2011.  Not 2010 or 2009.  Viva 2011

What’s your real estate market like this week?  Is it better than it was a year or two ago?

Back then we had the difficult task of sharing mostly bad news.  A rational Fear Of Loss kept buyers who wanted to move from making a move.  It was simple logic, buy too soon and home values might fall, resulting in a financial loss.

Last year the Federal Homebuyer Tax Credit artificially stimulated 1st Quarter home sales.  The free-money party ended in April of 2010 and real estate sales activity went from gangbusters to bust.  It pretty much stayed crappy until January 2011.

From what I can see across the inter-webs and personal experience, the unstimulated 1st Quarter of 2011 is equal to or better than the artificially stimulated 1st Quarter of 2010.  Which means that most likely, the balance of 2011 will be way better than 2010.  Not a month to soon, amen.

But I’m worried.  Real worried.

I’m Worried About Shell Shock

It’s been so crappy for so long, some us may be suffering from Shell Shock.  When someone asks if now would be a good time to buy, we start mumbling, our shoulders slump and the light in our eyes dim. We hem and haw.  Because we’ve been so beat up for so long, our answer limps from our mouth to their ears.  On occasion we allow past emotional scaring to over ride current intellect and logic. This is normal human behavior, but we’re not paid to be normal.  We’re paid to perform.

People are counting on us for unbiased and expert real estate opinion and analysis.   When they ask the question, “Is now a safe time to make a move?” they expect a thoughtful and intellectual answer.  Not an emotional reaction steeped in Shell Shock.

It’s Time To Bury The Past and Rise UP

Note from the editor: The video at the top of this article is of Maya Angelou’s “And Still I Rise,” particularly relevant to the theme of this article.

The Fear Of Loss is perpetually valid.  Yesterday, the likely hood of suffering a financial loss by buying in falling market was high.  Today’s and tomorrow’s market is 180 degrees different.  If our buyer clients want to make a move and they don’t, waiting may cause them financial loss.

It’s a new day and a new market. Let’s think, advise and act like it.

Let’s start by reviewing and sharing a few important factors with our homebuyer clients.

Price & Value and Cost & Expense Factors

Advising our buyer clients to Not-Buy-Now because home values may go down, and they will have lost money by overpaying, is an example making a decision based on the Value & Price factor. Last year in many micro-markets this was smart, simple and logical.

Today, if we’re sincere about helping our clients avoid financial loss, we’ll want to include Cost & Expense factors in our advisory analysis.

Unless our buyer clients are paying cash when they buy, they’re going to use mortgage financing.  Their mortgage interest rate determines the Cost & Expense of buying and has a bottom line effect on whether waiting to buy will result in a financial Win or Loss.

Here’s an example of what I’m talking about:

Here’s how we can use both Value & Price and Cost & Expense Factors in our advisory analysis.  To figure out if it’s better to wait or make the move, consider alternate future outcomes.

Three What If Scenarios

Keeping in mind that our local and national economies are improving,  inflation is real and mortgage interest rates, are rising, We can evaluate the financial risks by asking ourselves which of these three scenarios is most likely:

  1. Home Prices stabilize and mortgage rates rise. Using the example in the picture above, if mortgage rates rise to 6%, waiting may cost our buyer clients the extra expense of $175.86 more per month.  If the value of the properties they’re interested in don’t drop more than 13% in value before mortgage rates inflate from current rates to 6%, the decision to wait would create a financial compound fracture.  Waiting would mean they’ve lost on two fronts, Value & Price and Cost & Expense.
  2. Home Prices drop more than 13% and mortgage rates rise to 6%. 
  3. Home Prices drop and mortgage rates stay the same or fall too.

If you believe that home values in your market will fall faster and further than mortgage rates will rise (2. or 3. above), then advising your buyer clients to stay put is the way to go.  Keep your eye on the market and when you see a favorable entry point, advise them to make their move.

If you think prices won’t drop more than 13% before mortgage rates rise to 6%, then your logical left brain will tell you it’s wise to advise your buyer clients,

Because home values are less likely to fall more than interest rates will rise, now is a safe time to make move you’ve been waiting and wanting to make.

Do your homework on property-value-trends for your micro markets, consider the implications of rising mortgage rates, Rise Up and advise with confidence.

Here’s what I think about my micro-market. . .

I think home values are stable and some neighborhoods will enjoy a rise in prices/values.  Mortgage rates have risen about 1% in the last four months and will continue to creep up.

When my clients who would like to move, ask me if it’s a safe time to move, I would discuss Price & Value and Cost & Expense factors with them. Afterwards, we’d be out the door dream home shopping.  Pronto.

What do you think?

What’s happening in your market?  What are you advising?

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Cheers and thanks for reading.

 

20 Comments

20 Comments

  1. BawldGuy

    March 28, 2011 at 12:13 pm

    Hey Ken — What sets your take apart (and surely impresses potential clients) is backing your opinion with empirically reliable numbers. The conclusion each of us reach, is still professional opinion, but based on something other than the glad hand school of analysis.

    What’s your view of this year’s potential increase of bank owned properties on the market in your area?

    • Ken Brand

      March 28, 2011 at 2:29 pm

      HI Jeff. Thankfully in our area Foreclosure are the exception rather than the rule. I know. We’re super fortunate. I’m talking less than 5% Foreclosure Inventory. The battle we face is mental and psychological mostly. Cheers man.

  2. Jonathan Benya

    March 28, 2011 at 12:43 pm

    I think I’d be walking a thin line as an “advisor”, and I do my best to avoid that. I try to explain to my clients that I’m not in the business of advising, I’m in the business of buying and selling homes, I don’t want the legal and moral responsibility of being wrong.

    • Ken Brand

      March 28, 2011 at 2:39 pm

      I hear you Jonathan. In this case, in our market, if I dodged my role as an advisor, I might cost my clients money because I didn’t speak up. Thanks for sharing.

  3. BawldGuy

    March 28, 2011 at 4:57 pm

    I’m wondering what thousands of agents said to 20-something virgins about buying FHA/NoDown in late 2006, early 2007? “I dunno, just do what you think best.”

    Ken — With so very few foreclosures, your market should, imo, be one to monitor closely. It’s maybe the closest thing we have to OldNormal?

  4. Rachel Vanderveen

    April 2, 2011 at 12:58 pm

    I am advising the same thing about interest rates and home prices. I think you’re dead on!

    • ken brand

      April 3, 2011 at 7:26 am

      Thanks Rachel. Hope you years is the best ever. Cheers.

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