VOL. 37 | NO. 15 | Friday, April 12, 2013
Big difference between $499,999, $500,000
For all of our lives we have seen products advertised with a 99 cent suffix, that suffix is usually preceded by a number, or at times a whole slew of them.
Automobiles, for example, are often priced at prices such as $19,999 or the like, while groceries may have a $5.99 or $9.99 price tag.
Even with a lifetime of training in so-called psychological pricing, real estate buyers and sellers alike are often confused and, at times, seem to reverse the pricing and how it pertains to their respective roles in the transaction.
For example, a seller may price a home at $199,975 in order to keep it less than the $200,000 mark.
It is unsettling when a buyer offers, for example, $499,999. In the buyer’s eyes, he is offering $500,000, yet the seller sees something in the $400,000s.
It would seem that the buyer should have upped his ante by a buck and offered $500,000. It has a better ring to it.
Sellers fall prey to this as well, often countering offers of $385,000 with numbers in the $400,150 range rather than dropping to $399,950 or so.
While all of this seems inane, it must work for the retailers and car dealers, so why not in real estate? However, the negotiator needs to realize his role and on which side of the zeroes to play.
NAR Chief Economist visits
Lawrence Yun (rhymes with tune), the chief economist for the National Association of Realtors, visited Nashville last week and spoke with a group assembled by the Greater Nashville Association of Realtors.
His first forecast is that inflation will be notably higher by 2015, perhaps somewhere in the 4-6 percent range, numbers that seem comfortable enough as double digit inflation is always touted as the scourge of the economic system and the precursor of doom for all that exchange currency for goods and services.
A little known fact is that 2 percent is the Fed’s preferred rate. It is therefore understandable that 10 percent or more could give some cause for worry. According to Yun, the rates hit double digits in the 1970s.
The net worth of households across the country is on the rise again having grown each quarter since the first quarter of 2009. Homeowner equity is on the rise, credit card debt is dropping, as is delinquency rate.
It is difficult to have credit card debt without a credit card, and qualifying for a credit card is much more difficult than it was years ago when they arrived in the mailboxes and begged whoever found the plastic to go somewhere and spend as much as they could.
It was interesting to see that the trade deficit is shrinking at a considerable rate after having been more than $700 billion. It has been at $400 billion for the past four years.
Along with those tidbits of good news, Yun noted that rental rates have climbed both in number of renters and how much they pay. Once again, the credit crunch helped those numbers inasmuch as fewer qualify for loans and they have to live somewhere and landowners have more ability to raise rental rates when homeownership is more difficult, in a good way, of course.
Yun sees the monetary policy by the Federal Reserve continuing its present course, perhaps even falling to a zero rate policy in 2015. At that time, interest rates may fly into the 5.5 percent range.
Even with rates on the rise, Yun says home prices could grow 15 percent during the next three years, citing Case–Shiller, FHFA data showing a 5 percent increase in home prices, nationwide, in 2012 with a 7 percent increase in the median price.
He notes that existing home inventory is at a 13-year low across the US. And we thought it was unique to Nashville.
Also worthy of note, the much-feared shadow inventory is falling. These are homes that are distressed and include 33 percent of the homes in 2010 and 2011, dropping to 25 percent in 2012 with a prediction of a drop to 15 percent this year and bottoming at 5 percent in 2015.
What in the world will people talk about once the foreclosures are absorbed? No more “I gotta have a foreclosure” opening remarks by buyers.
As the economy has improved, household formation numbers are “busting out” according to Yun. This statistic benefits renters and owners.
Since he was in Nashville, Yun applied some of his national mojo to the local market.
As we have heard, sales are up 26 percent with prices up 6 percent and dollar volume up 32 percent in Nashville with payroll jobs skyrocketing. Our home inventory is at an eight-year low compared to the 13-year low nationally.
Here are some good ones: Housing permits were reaching 16,000 in 2006 and falling to 8,000 in 2006 and 4,200 in 2009 through 2011. In 2012, they increased to 2006 levels with more than 8,000.
The good news is that homeownership is affordable since interest rates are low and home prices have barely reach pre-recession pricing. Yet, homeowners are becoming the haves in the haves/have not situation.
In closing, Yun noted that renters do not accumulate wealth and that the renter population is rising since “tight credit hinders ‘good’ renters from becoming homeowners. Consequently, “investors are becoming an increasing share of the property owners.”
Richard Courtney is a partner with Christianson, Patterson, Courtney, and Associates and can be reached at email@example.com