Real Estate Reflections Fall Harvest 2007

Have you ever noticed that the only news that makes the headlines is bad news? Real Estate has had a lot of head lines lately. So is it as bad as the headlines suggest? The answer is not necessarily. So what is going on? The stats are conflicted. Real Estate across the country has seen a slow down and in some areas a reduction in median price.
That is also true in Rhode Island and in East Greenwich in particular. What is most interesting is that more single family, East Greenwich homes sold in the first nine months of 2007 versus the first nine months of 2006. Yes homes are in fact selling. More of the less expensive properties are selling, but they are selling. It is also true that average price of homes has come down over the past two years. So what explains the increase in sales? The market had suffered from a language barrier between sellers and buyers over the past two years. That barrier has begun to disappear. Sellers finally understand that the market is a buyers’ market. If they want to sell they need to be flexible, specifically with price. Those sellers who have not adjusted their price expectations have not sold. Those sellers, who have looked closely at the market value, reduced their price, have generated offers and sales. For many East Greenwich sellers the assessment at the peak of the market had given them a significantly inflated perception of value. The buyers, on the other hand, have been most effective in finding the best value. Buyers look at comparable sales and also analyze the motivation of the seller. A seller who needs to sell will be a better ‘target’ for the potential buyer. One of my clients recently focused on properties that had been on the market for more than six months. When we looked at properties, his approach included a comprehensive questioning of the sellers motivation. Do they really want to sell? He was very effective in purchasing a house twenty percent below original list and fifteen percent below assessment. In short, he got a great buy. The truth is that he is more representative of buyers. Price is the deciding factor.

There are some over arching demographics that we should acknowledge. Between 1980 and 2006, the number of households in the United States increased from 80 million to 115 million. Rhode Island has seen a more modest increase, but the housing supply as related to households is not in surplus. Very simply we have enough families to fill our housing stock. Value is ebbing now as credit has been more difficult and people are nervous. One of the curious outcomes of the difficulty in selling properties is that more properties have been rented. For some sellers this is a very workable alternative.

With every challenge there is opportunity. The correction in average value has made it possible for more people, based on their ‘real income’ to buy that first home. Affordability is always a major concern. The great news is that lower average price results in more people being able to buy. Additionally, many of the multi-families are now revenue positive. The rents will cover the cost of ownership. This is great for investors looking to purchase. There has been some comment in national media that foreign investors are going to use the strength of the Euro to buy American rental property as a long term investment. Clever.

At the end of the day residential real estate meets a basic need: shelter. The real estate professionals have refocused on that purpose. You need to be able to afford the financing before buying, but it is a time of great buys. So if you can buy, you ought.