One of the unfortunate things about a real estate recovery is the emergence of the strike-it-rich-real-estate-people. The breathless group was gone for a while, back when real estate was harder work, back when you couldn’t just participate and receive compensation for your presence. That group left us for a while, off to work other salaried jobs, but if some of them are coming back now, just wait. Once real estate volume rises even more, and the mood improves over a little more time, they’ll be back with a vengeance. I don’t look forward to that day.
Back in 2010, a home on Arrowhead in Fontana came to market. It was July. It was probably sunny and warm, which are things that I’ve only read about in old books that collect dust on the top shelf of a wooden cupboard in my childhood home. The house was listed for $1.195MM. It was a nice house, to be sure. A beneficiary of a McCormack and Etten vision, it was a pretty cottage style home with some classic features, and it had a very nice view of the Abbey Harbor and the West end of Geneva Lake. There was little not to like. Except for that pesky $1.195MM price, and so the listing came and the listing went, returned to the sidelines waiting its next shot at glory.
In December, that home came back to market. It came to market on a cold day and then eight cold days later it sold. It closed last week, to a buyer with a conventional loan and a keen eye for pleasant design. The market is so much better today that the home that couldn’t sell in 2010 sold in just eight days in 2012 for just $4k off the ask. What an amazing resurgence in the market! Proof that we’re back to better than okay, we’re back to perfection! We’ve reached the summit, and from here on out it’s mostly downhill, not in a negative way but in the way that we could coast as children aboard on bikes down slight paved slopes, with ease. Hurray for real estate, it’s time to dust off the magnetic car sign and buy some more name tags and invest in Altoid futures!
But this isn’t really me writing. This is what they’d have you believe, those out there who need a cheerleader first and a Realtor somewhere way behind second. The nice home on Arrowhead that didn’t sell in 2010 for $1.195MM and then did sell in 2013 sold for $695k. To repeat, it didn’t sell in 2010 for $1.195MM and then sold in 2013 for $695k. The story here isn’t one of volume, nor of a resurgent market that is in the process of speeding this momentum, the story here is simply one of a market that has finally taken its medicine. It’s a story of compelling pricing first and compelling pricing last. It’s a real estate story for 2013, but it’s only a love story if you’re unnecessarily reading it by candlelight in a breathy voice.
The property was never worth $1.195MM. It might have snagged a buyer in that strata back at the absolute peak of 2006, but even that would be a stretch. The property was likely worth somewhere around $950k back then, and as it sold for $695k now, it sold for a rounded up 30% off its prior, peak value. That’s the metric we’re looking for as we hunt for value, and if we’re going to stay true to our goal we’re going to need to see these sorts of reductions off of not the prior ask, but the prior peak value. There are exceptions to this rule, plenty of them. Certain homes have avoided such a dramatic fall, but who says which homes earn that special certification? The gal with the fresh car wash and the new cards, or this guy who actually knows what the heck he’s talking about?
I’m hoping it’s this guy, but such is real estate in a recovering state. Value seems less a quantifiable goal and more a quaint thought, but it needn’t be. There are deals out there, and I’d go as far as to say that the listing that just sold (not by me) on Arrowhead qualified as a nice market deal where the buyer achieved some form of value mostly because the seller caved the the realities of a new market. Is the market better now? Of course it is. There are more buyers milling about today than I can remember stirring at one time in roughly forever, but while that might mean decisiveness is a requirement of a search now, that doesn’t mean we must blindly pick our vacation homes in haste.
Why does the media, CNBC in particular, push the real estate comeback narrative? Every Trulia / Zillow price chart seem to show a price rebound. Is it that the speculators / flippers in the sun belt dominate the national statistics? Or the analysts are prone to groupthink? Or it’s justification for their permanently bullish outlook? It doesn’t seem like this (weak) economic recovery is underpinned by a "real" recovery in housing as I’m constantly told. If they believe this I have a house in
Chicago to sell them!
Real estate as a rebound project is a fun narrative for the media, so they’ll run with it as long as it’s quasi-truthful. The recovery is volume based only as this point, with any sort of widespread valuation recovery seemingly a long ways off. Until the foreclosures ebb to a reasonable level, and until new households are prepared to buy en masse, there’s no way the national scene can become dominantly positive.