It has been a bizarre summer in real estate. We have seen very good activity as we complete the sales of the early summer. The median price in Rhode Island has moved up to $220,000. Closed sales are in fact also up, but there is a new normal. It is much more difficult to obtain mortgage money. The lenders have over reacted to the experience of the time of 'easy money.' The new reality is that virtually all of the commitment letters being issued to buyers are to extremely well qualified people. In an absolute way this is appropriate. The real estate market and the country need a housing market of 'sustainable home ownership.' Sustainable home ownership is a concept in which people are qualified and purchase properties that they can afford to own for the long term. We used to call this 'common sense.' It is the way it should be: People should only purchase what they can afford to own.
The challenge is in the details. The lenders have increased the standards from rigorous to highly rigorous. Some of the requirements are over the top. It is fair that the 'chain of flow' of the deposit should be documented. Where is the money for the down payment coming from? A friend of mine in Maine shared with me a story about that concept applied to the ridiculous. A young couple, with whom she was working, had received $8000 in wedding gifts from about 80 quests. The originator wanted gift letters from each of the guests indicating how much they had given. To my Realtor friend's credit, she had the young couple give the money to each of their parents and then provide two gift letters and two checks, each in the amount of $4000. When I share this story with other Realtors....no one is surprised.
This is the new normal.
When I started working in real estate 30 years ago, once a sales agreement was signed, it was likely to close in 99% of the time. Now we are seeing between 10 and 15% falling apart because of inspection issues, appraisal issues, or underwriting issues. It means that sellers are waiting until contingencies are satisfied before making other commitments. This is appropriate. As we are having 'issues' at all price points.
This is the new normal.
One of the hardest things to get used to in the market now is in negotiation. Historically a buyer would make an offer expecting a counter. It would be normal to have a couple of 'back and forth.' In this market the buyer will make an initial offer. If the counter is not compelling, and sometimes even if it is they step away. Negotiations are over, and buyer moves to another house. This can be extremely frustrating for sellers. How do you negotiate strategically in this market? Knowing as much as you can about the buyer and how she, he or they think is important. Having an advocate, a Realtor, is becoming more important not less.
This is the new normal.
Finally, the reduction in the number or real estate licensees in amazing. Every two years. holders of real estate licenses, salespersons and brokers, must complete 24 hours of continuing education to obtain 'the state authority' to sell real estate. This year the number of sales person dropped from just over 7000 to approximately 3500. It is a drop of half. Brokers licenses dropped as well, but not as much. Most sales people work on a contingent fee. It is a difficult way to make a living in a soft real estate market. It also means that lots of new Realtors have moved into other fields. This is unfortunate. What is true is that this will pass . A different market will find us.
This is the new normal.
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