Why Are There So Many Homes For Sale?

Yesterday a friend of mine asked me, "Why are there so many homes for sale?". Now that's a very simple question, but it made me realize that not all simple questions have simple answers. And, asking it some two years after the peak of the housing boom, tells me that perhaps more people out there have similar questions. So, here it is in a nut shell.

The housing boom started in 1995. Homes appreciated significantly for a period of ten years until 2005, when the market peaked and home sales and prices started to decline. Real estate is a market just like any other market, based on supply and demand. The primary reason that homes appreciated so much from 1995-2005 was easy money, meaning interest rates were low and mortgages were easy to get. Normally a boom is associated with some economic growth to support it—-higher wages, better jobs, etc. But this boom was not backed by any economic growth; in fact, it was quite the opposite. It was caused by the Federal Reserve artificially lowering interest rates to keep the economy from falling into decline after the "dot com boom". With interest rates so low and mortgages easy to acquire, people thought they could afford bigger and better houses. This caused the price of homes to sky rocket, as banks gave out cheap mortgages with flexible financing deals, aka the ARM or adjustable rate mortgage. The euphoria lead to speculation, as buyers and sellers thought real estate was the investment panacea.

But what happens when the inflated value exceeds the actual value of any product, whether it’s homes, internet companies, or pork-bellies? People loose confidence in the market and want to sell for fear of loosing their investment. Soon, more and more people want to sell, causing a flood of homes on the market, which in turn causes home prices to decline, as they compete for fewer and fewer buyers. Thus, we have too many homes on the market and not enough buyers. This has caused the median home price to fall 1.3% for the first time in 50 years.

Unlike stocks and bonds however, homes are so much more complex—-we create emotional ties, build memories, and raise families in our homes. As home owners, we don't always pay attention to the laws of supply and demand. But laws they are and obey we must.

What is Marketing anyway?

We all know what marketing is, right? Or do we? We're bombarded with advertising and various forms of marketing everyday. But do we really understand it, or more importantly, what purpose marketing serves?

Peter Drucker, famous business guru, has a great definition of marketing. He says, "The aim of marketing is to make selling superfluous. The aim is to know and understand the customer so well that the product or service fits him or her and sells itself." In other words, the message (and your connection to it) is so compelling that you want to run right out and buy that product or service. This has happened to all of us on some level. Did you really comparison shop MP3 players before buying that Ipod or did you go straight to the Apple store?

So how does that relate to marketing in real estate? I'm sure we've all experienced the over-zealous realtor trying to "sell" us on the features and benefits of his or her latest listing. Peter Drucker would have us believe that if we truly understand our customer's needs and our message really resonates with them, they will be "sold" before they even get to the front door. And isn't that what the Internet is all about? The consumer has the ultimate weapon of choice, but we as real estate professionals have the opportunity (and the obligation) to communicate effectively to our potential customers.

Great Time to Invest

If you didn't see the Larry King show last night on CNN, you missed a good one. As you know, there is a lot of bad news about the mortgage industry affecting the housing market, which is now affecting the stock market and may even have global ramifications. The media is grabbing a hold of this with a vengance, becauase it's the biggest story since the Iraq war. It's full of drama, mystery, emotion and best of all, it affects all of us right here at home and right in our own wallets. So, yesterday, Countrywide, the nation's largest home lender announced their financial troubles. This is really big news, because if the nation's largest lender is having financial difficulties, what does that mean for the rest of the mortgage industry and for all of us who may be trying to buy or sell real estate. Well, Donald Trump and Robert Kiyosaki had some thoughts about the subject on Larry King last night.

In a nut shell, they both beleive that this is a great time to invest in real estate. Yes, credit may be tightening and rates may be a little higher than they were a year of two ago, but the fact is, the real estate market is experiencing a correction in many markets around the U.S. and now is a good time invest. Kiyosaki said that this is a similar market to the savings and loan crisis of the mid 1980's, prior to the boom. Investors should be looking for good cash flow properties, not flips and rehabs. Flipping property is based on speculation that the property value will increase. Since the market is unstable, now is not a good time to flip property, but a good time to invest in deals at or below market value.

Furthermore, it may even be prudent to sell in this market to avoid further losses. Remember, all real estate is local and every person's situation is unique. Speak to a competent, trustworthy real estate advisor about your unique situation and opporunity.

Taste of UA

I thought the Taste of UA was a lot of fun this year. I know it's pretty much the same event every year, but there were a few new entries this time around. The new fast food mexican place, Qdoba, on Reed Road had a booth. For a buck, you could get a tasty Naked Burrito, which is pretty much a taco in a bowl. I always enjoy seeing friends and familiar faces from around the Upper Arlington community. I usually help out the Leadership UA booth or the Real Living HER booth, but this year I just enjoyed the food with my kids.