Back in February of this past year, 2009, I made my predictions for the coming year.
As promised, I have decided to bring in the New Year with another round of precipitous predictions for 2010. Most of you know, I make these predictions based on my 17 plus years in the industry, mostly in McHenry and Lake County, IL and a lot of ‘gut’ plus soaking in all of the day to day observations from the trenches.
I’m no voyeur, however for the sake of those who don’t know me, or who do not get to see me often enough in person to ask the inevitable question: “Hey, Lydine, How’s the Market???” I’m going to pretend to have this discussion just as I would if we were sipping by a cozy fire, or talking over a lovely dinner, or huddling by a large metal garbage can under the McHenry bridge fishing for our dinner… So, pull up a chair, grab a glass of wine or beer or green tea (or a valium) -- take your pick--as I spill out my 2010 predictions for the market. Better make it a double! There are no short stories or short predictions in real estate!
Where do we go from here? In 2010?
First, I think we need to take a look back-- take a walk back through the past year in the consumer’s shoes—and since I have to start this reflection somewhere, I’m going to start with last Spring, 2009. The volume of homes listed for sale was off the charts. Foreclosures were rampant. Unemployment was on the rise. Consumer’s rates on existing balances of credit cards went skyrocketing, along with their adjusting rates on their mortgages.
To ease the pain, in February and March, the administration worked with major lenders to declare a stay on foreclosure proceedings for 90 days. It lasted through the spring and was lifted sometime in June, 2009. This move was intended to get some of the mortgages re-negotiated to keep consumers in their homes. (Yeah right. Oh, sorry, I’m allowed cynicism, it’s my blog)
The moratorium did keep a large number of homes from foreclosing, and from coming onto the market, at the time. SOME homeowners were able to re-negotiate, but not as many as predicted. In the mean time the market of 2009 was still a glutted mess of inventory--short-sale offerings, foreclosures and poor sellers who were just looking to get out from under their homes and debt. (I know this is painful, this is why I suggested the valium and the wine or beer.)
What buyers there were in spring, began to swoop up bargains causing prices, and appraisal values on ‘normal’ properties to further decline. The amount of distressed properties continued to flood the market and still outpaced demand. (Ok I’ll mention the buyer tax credit, it helped--it did! Like gum in a dike! But it did work, and will continue to work in 2010)
Jumping ahead, well we know the moratorium was lifted in June, and you may or may not know that it takes about 6 months or more for a foreclosure to completely process through the courts and hit the market. It’s not rocket science that in 2010 we will see even more foreclosures from those who could not get the cooperation of the banks to accept short-sales or renegotiate their loans during 2009. Unless there are some drastic changes in the near future, unfortunately, there will be more inventory and even more foreclosure filings in 2010. So, my first real prediction: The inventory level will increase in 2010. (Ha, I’m pretty good, eh? )
The REAL situation of 2010 now comes into view. The problem will not only be increased inventory, but the CONDITION of the inventory.
Many of these homes yet to hit the market are now in even worse condition than before the moratorium and worse than our existing vacant inventory. Owners ran out of money a long time ago to maintain their homes. Some owners knew they were walking away and didn’t care anymore about condition. Right or wrong, there has been a huge amount of vandalism, theft, and destruction to these properties which has yet to be fully processed and assessed by the management companies or banks.
In 2010, I believe there will be tremendous amounts of completely uninhabitable inventory hitting the market than ever before. Liens have been filed for association dues, taxes have fallen in arrears, properties have been abandoned and vandalized and values on these properties continue to plummet. How can this be good?
Well, somewhere through the smoke and tears welling up in our eyes –there is a blue sky--a clearing of massive change. The distinction is starting to be made between two clearly defined markets: Distressed and Abandoned Properties,
and a new term: Owner in Control (OIC) Properties – owner in control--occupied, maintained homes. Owner In Control: of negotiations, of terms, of closing dates, of concessions. OIC will be the preferred market of the consumer of 2010.
In 2010, these two separate entities: Distress and abandoned properties and OIC properties will no longer be grouped in the same 'market' together.
I foresee these two markets becoming more and more separate as the year goes on. We may even see an evolution of a new listing ‘system’ of distressed, bank owned properties outside of the MLS, for good or for bad.
How does this help??? Well, it helps stop the bleeding to differentiate. Value is going to differentiate for OIC properties. A home will not be grouped into the ‘bargain basement’ if it does not belong there and is Owner Occupied.
In 2010, an Owner In Control (OIC) Property will start to be quite different in value, from a stripped-out home on the block.
There are those buyers who will want to shop at the Bargain Basement store in the distressed market, and those who will NOT. Horror stories are being told time and time again by the consumers of 2008/2009 who got juggled around, burned, taken advantage of, had their time wasted, with the short-sale and foreclosure mêlée. The new motto in 2009 truly became: Caveat Emptor. These stories are starting to resonate to new buyers. Now, an even more educated buyer has emerged. There are many buyers who are adamant about NOT going after a foreclosure or a short-sale. (But there are some who WILL) I see the trend toward OIC properties accelerating, differentiating, unless the banks and investors and asset managers change their tune and make it easier to buy a distressed property.
The consumers all the way around in 2008/2009 were BULLIED! And, as Realtor®s and many dedicated lawyers will tell you, there was absolutely nothing we could do.
OK HOLD ON, CAUSE I’M GOING TO GO ON A RANT!
RANT ON {In my opinion, the same banks that caused this crisis maintained the same sorry level of ethics and callousness with their negotiations on short-sales and their choice of shady management practices in 2009 as they did when they lent the darn money to begin with. It’s a double-dip slap in the face to the consumer! I’m angry and I make no apologies for my comments!
The Foreclosure and short-sale market is the WILD, WILD, WEST, and there are NO Sheriffs! There are/were barely any rules at all, no regulation. Most of these entities handling these transactions do not care about families, or the torture of not knowing when your child will have to be taken out of school because your home is being foreclosed on, or long sleepless nights with no answer to a short sale offer. Sellers were praying someone would just answer the phone at the bank day after day after day to help or to answer their questions. Not to mention the buyer’s --who were ready and willing to buy--being tossed around on a roller coaster of angst, total confusion, delay and indecision by the powers that be. It was absolutely disgusting….Maybe, maybe 1 out of 5, no 1 out of 8 deals closed with someone happy. But mostly—everyone was just pushed around like so much dust. These investors didn’t care when they lent the money, and they don’t care now.
This will bite you in the butt you banks! This will bite you in the butt!
And, while I’m on this soap box, I might as well go up one more step to scream –
When did these banks and investors get so powerful they could seemingly change contract law in the U.S????? There are no dates adhered to, no agreements they won’t break, no timely answers. They have had contracts on their desks for 5 months, and then they turn around and say JUMP HIGHER! They FORCED the consumer to say ‘uncle’. They have arbitrarily changed the price, and changed the terms of deals all year long.
During this process, the condition of the homes listed deteriorated. Contents of the homes disappeared - refrigerators disappeared, plumbing disappeared, on and on and on. The consumers were like, huh what do you mean we have to put up with this??? We Realtor®s were like huh? The investors and decision makers did not care. The banks ignored it and moved on to another buyer if the current buyer wouldn’t play along. Then they screamed to the Government that they lost money…
And moreover, the ‘normal’ sellers have had to put up with it because (and we’ve come full circle again) they were sold a bad loan and are now at the bank’s mercy. What a vicious, vicious game. I will be happy to see this decade come to an end. But, BUT market forces will prevail. Offer a crappy product and you will get NO BUYERS in your market, the consumers will go elsewhere! (ok not eloquent…and I am sure full of holes, as to responsibility…but ok….RANT OFF)} Back to business.
Where will buyers go in 2010? Where do we go from here? Oh yeah, that was the real question: Well, as I asked, did we just come full circle???
What were the four rules of real estate a long time ago??? Condition, location, price, terms??? Yes, we actually just came full circle, in my opinion, and the consumer will come back to a good product, at a good price, with good terms.
The steadfast rules of real estate have not changed: Location, Condition, Price, Terms.
Owner In Control (OIC) Properties: The desirable, cute, maintained properties, in good locations--the ‘good one's’-- are going to be competed for in 2010. As the learning curve accelerates, and buyers learn the truth about foreclosed and 'as is' properties, they will begin to fight for the cream of the crop (and price may drive them, but they will try to get it all, just like we did). I believe the prices of the OIC’s have just about hit bottom and we are going to start to see a leveling off of value for you and I, the average Joe Homeowner. Possibly even a significant increase upward in OIC properties in 2010. (relative to the decline, a market adjustment of the good stuff).
2010 BUYERS: If you are looking to buy- don't be so sure that prices will continue to fall, except on the junk. I say BUY NOW thru April (of course I say that, lol, but you know I mean it). The good stuff can still be bought at EXCELLENT historic low prices right now and you can negotiate an excellent price with an OIC who needs to sell. But soon, more and more buyers will figure out the good stuff is in short supply and they will start to vie for properties that have location, condition, proper price and decent negotiable terms.
That prediction may seem a bit optimistic: But, in 2010, there may be two and three offers on a properly priced, non distressed, OIC, 'normal' property. This trend should continue to pick up momentum through the year and prices on the good stuff are going to have price pressure in the right direction, finally, to rise a bit.
2010 Buyers, If you really want to go after a short-sale or a foreclosure, please understand it is still the Wild Wild West…and you will need to have the patience of a saint and some money in the bank to make repairs. You will need to be able to deal with uncertainty and to be flexible in negotiations. You will need to have all of your financing secured BEFORE you make an offer. You need to know you may not be the only offer. You need to know some properties are not able to get financing—make sure you go over what type of loan and what type of home your lender will work with. Unless of course you have cash, then be ready to prove it.
You need to determine if you have the time and resources to make repairs if your project does close. If you are working 60 hours a week at your job just making ends meet, and cannot afford a furnace if it blows out, or a new water heater or electric if it needs to be repaired, etc… think twice. Also, you need to know, you may not make a profit if you intend to sell. Try living there without the intention of selling (think about that). You really, really, seriously really need to be realistic, and seriously look at location, condition, price and terms.
2010 SELLER’S: If you need to sell, I mean NEED to sell, please, please listen to your Realtor®. In 2010, try to differentiate your home from the distressed market. Accent its features such as a “Newer Furnace”, “Owner Occupied”, “Well Maintained” ( heck just put the fact that it has had heat all winter with no frozen pipes, in your listing!!! j/k) Emphasize your location—why people love your neighborhood—close to schools, transportation, shopping…etc…Show your value and how it has maintained its value! Then listen to your Realtor® and price it correctly for your market, what is an affordable level for your area?
2010 SELLERS: The single most important feature of your asset is to be maintained! If it is vacant—and you still own it, protect your asset! Regularly visit, stage it with furniture, make sure the roof is there after a storm, and the basement didn’t leak! Protect your value with condition! Let me take you out and show you the abandoned properties. You will understand.
Do as much as you can to help your curb appeal and let your Realtor® assist you with the inside.
Again, PRICE IT RIGHT! Work with a Realtor® and discuss realistic scenarios for 2010. Don't waste time 'trying' a high price to see if you can get it. And, for goodness sake, be available to show the home without a hassle. I know you are depressed, but…Buyer’s have plenty of vacant properties they can go see on a moment’s notice. Don’t turn down showings if you get one! And, if you get a legitimate offer, NEGOTIATE…don’t get insulted. Counter offer, offer terms, compromise. Listen to your Realtor®!
In 2010, you may save money when you buy another home. So compare these costs. You may need to be ready to bring money to the closing table on your current home, if you HAVE to. You may need to borrow some money to sell your house and MOVE-ON to a better value. Weigh these costs carefully. But, above all stop the bleeding. Denying reality will only hurt you more. The ‘profit’ you need to get out is not what the price is, or what a buyer will pay. (You cannot double dip either. You cannot have taken your profit out in 2005 to re-finance your debt and then expect another profit now—especially in 2010).
To my Realtor® friends and colleagues: I’m going to pontificate further. When looking to value a property, we need to begin to really think about those homes on the street that closed recently which may have had broken pipes, or gerbils running around in the walls, or neglect. There is value in condition and we really need to begin to get our computations right on what that value is. I am not talking carpet and paint—a buckled floor is another story. This winter is going to be brutal on vacant and neglected homes.
2010 Forecast for Realtors: Maybe this is already coming into future rules in the MLS, however I truly believe any home listed in the MLS should be required to list the condition of the interior of a home in the comments after it sells. OIC (Owner In Control) properties, need to be properly valued. We can do it properly: If the REO companies choose to get with it, or they just segment. Make your choice. Our comments need to reflect a home with no copper, or plumbing fixtures—maybe after the sale. To be realistic, comments should be required after the fact as to condition. A stripped REO may have sold on the same street, or is the same model—but, it IS NOT the same as a properly well maintained OIC home on that street. And, values in appraisals would benefit from this discussion and comments. This will become more evident in 2010.
Let’s begin to demand appraisals that indicate how much money was needed to repair a home, or listing data that shows what was really going on in the sold comps. (Ha, did we just come full circle again??? Use the foreclosures--don’t use the foreclosures, MUST use the foreclosures--DON’T use the foreclosures…what a yo yo!!!) I think we simply need to be required to do a better job of indicating what exactly it was that sold, in writing, in one place…we know the basics…we should be allowed to adjust the comments accordingly, and not throw the comparable out, but adjust a bit more freely). Then we will know how to correctly price and advise our clients in the mix, and help appraisers and (ok fine)…the asset managers and the REO companies, and banks. There is a serious problem with our data. Garbage in, garbage out. Admit we need change.
In conclusion: Further summing things up for 2010, I see a bit of pent up demand. There are smart buyers who have taken time to get their ducks in a row, reduce debt, and save money, and are waiting. Initially, these buyers will be limited, but more people will qualify as the year 2010 goes on. Be patient if you can. Our nicer inventory is going to level off and stop declining in price by April and be in demand. Spring Market should be active and competitive. Be ready.
Attractive Home, Attractive Location, Attractive Price, Attractive Terms
= Attractive Offers!
The last one with ‘solid’ signs in the ground wins!
There will be two markets which emerge:
1. Distressed and bargain basement, bank owned, short sale properties (I firmly believe these will split from the MLS…but I’m not sure when. Maybe soon??
2. ‘Owner In Control’ (OIC) will remain Realtor® driven in the MLS.
In 2010, more than ever, there will be a need for good Realtor®s to help good buyers get together with good sellers. The Realtor® symbol will become ever more important. Beware of imposters. Realtor®s will continue to serve this market with excellence, ethics, and in accordance to the rules of fair play and protection of the consumer, governed by our Realtor® code, as it should be. And, this quality service will survive and become a tremendous value to the consumer in 2010. There are reasons our codes of conduct and rules exist and we will see that value. We seriously just got schooled as to why those rules exist in 2008/2009. Now more than ever, 2010 is the YEAR OF THE CONSUMER, AND THE REALTOR®.
Happy New Year! And, Hug a Realtor® today!
(The views expressed here are strictly the opinions of Lydine Burke-Oakley, and do not reflect the views of CENTURY 21 Roberts and Andrews, or CENTURY 21)
