THE REALITIES OF REAL ESTATE DURING THEGREAT RECESSION

Julie Lang ABR, CRS The Julie Lang Team First Weber Group RealtorsRacine, 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 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

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

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

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

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 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

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

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 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

Multiple offers – common

Inspections – repairs often not negotiated

Flippers present in the market

Homes ALWAYS appraised

Sense of Urgency….to list, to write an offer, to see a house…everything was urgent!!!!

THE NUMBERS DURING THE BOOM

Homes sold in eastern Racine County:2005 - 17212006 - 1524

2007 – 1364

How many houses expired ….. 815 in 2005

DOM - 52 in 2005

OTHER FACTS DURING THE BOOM……

Mortgage rates …approx. 6% People financing 100% plus Most homes are selling well above the assessed

value

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 What was it like locally vs. nationally

It took longer here to feel the effects

Offering incentives …bonuses, closing costs, etc

Homes are not appraising at purchase price

The pool of buyers is decreasing

Mortgages are harder to get

WHAT WAS IT LIKE IN 2008-2011

Buyers are sitting on the sidelines

Buyers are picky….sometimes looking at 50-100 homes

More difficult to get loans…. Require a down payment

Consumer confidence had dropped

Sellers owe more than their house is worth …”upside down”

Sellers still believe their house is worth more

2008-2011 THE HARD TIMES LP/SP…… 96% in 2008 down to 92% in 2011

Average DOM 109 in 2008 112 in 2009 107 in 2010 121 in 2011

Average sale price in eastern Racine County in 2011= $120,703

Number of foreclosures in the market = 40% of total sales

Homes are selling well below assessed value….approx 60%

THE NUMBERS DURING THE BUST

Homes sold in Eastern Racine County:2008 - 11112009 - 1120

2010 - 10132011 - 1134

How many homes expired in 2011 - 1260

DOM – 121 in 2011

OTHER FACTS DURING THE BUST…. Multiple price reductions are common

Short sales are common

Foreclosures are everywhere..in every price bracket

The shiny penny story… you only sell if you are the shiny penny… or really CHEAP!

Rentals are busy

Mortgage rates – under 4%

Good comparable properties are sometimes hard to find

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

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 Homes are now more affordable than ever!

The national affordability index Nov. 2011 – WRA 242Nov. 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 How to sell now

What are your options…is selling the best option

Perception vs. Reality

No Equity

Many Sellers have Multiple loans

Perception of value…some sellers still wearing rose colored glasses

Difficult to find comps

WHAT DOES IT TAKE NOW TO SELL Competitive prices

Updated & show well

Negotiating mortgages in short sales

Pulling other resources to move on if you don’t have enough equity

Know the numbers…….. How do you stay ahead of the curve when selling – get the numbers right the first time!

No Defects….pre-home inspections, make necessary repairs, and upgrades

Each transaction presents unique and new challenges….. Enlist professionals for help!

THE TOUGH CONVERSATIONS … BUYERS

Hard to get financing…good credit is a must Condition of foreclosures..can you afford repairs

What loans are available

Loan limits

How long do you plan to stay in this house

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 closingYES

WHAT’S IT LIKE TODAY

For Buyers

Money is available ….. Good news!

Prices are at an all time low…… Good news!

Interest Rates are at an all time low….. Good News!

Affordability is better than ever….. Good News!

There is a lot of inventory …. Good News!

WHAT’S IT LIKE TODAY

For Sellers

Houses are selling, # of SOLD homes is up…Good News!

Buyers are ready to buy…. Good News!

Interest Rates are low….. Good News!

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