Chase the market down

XXX Sylvan Way $139/sqft. Asking $359,000.

Sellers: don't miss out on the fantastic interest rates before the Fed stops its $1.3 Trillion MBS purchase program. CalculatedRisk says the program is 85% complete and is on track to finish by April 2010 as scheduled. At that point, expect mortgage interest rates to jump 0.35 to 0.5% over night. (The Fed seems to think rates will jump by 1% overnight, but I trust CR's analysis more). Higher interest rates mean buyers will be bidding less. That's less money for you.

Remember: you're holding on to a depreciating asset at a time when the government is bending over backwards to make sure you'll receive as much as possible for that asset.

My tax dollars are going into your pocket. Rob me while you still have the chance.

...or chase the market all the way to the bottom.

Today's property was listed on December 16th for $385K. I mean, it was listed December 16th, 2008. In the past year, the owners lowered their asking price to $380K, then to $368K. They took their house off the market for a short period and then relisted in September (giving it that "fresh" look) for $365K. Each time they lowered their price only enough to make sure it didn't sell.

Imagine if in December they had priced it for $370 instead of $385. They would be done with the arduous task of selling a house, and they would have gotten more for it than they will now. They are chasing the market downward with delusions that their house is worth more than what the market will bear.

April's going to be an interesting month. The home buyer's tax credit will end AND the Fed's MBS purchase program will end. There will be a rush of volume in April. May, not so much.

If you haven't sold by April, god help you.

Three years old.

This is as good a market as any seller will find for the next decade. The fed has lowered interest rates to 4.5%. The fed is even giving buyers an extra $8K (which means only that buyers can bid an extra $8K for the same house).

If you're trying to sell your house now, and you haven't sold yet, you need to lower your sales price as quickly as possible to unload your property now while the unloading is still good. The longer you wait, the higher your buyer's interest rate is going to be, and the less aggressively they can bid.

Ordinarily advice on my blog is of the form "if you're thinking about buying a house now, don't" -- so this is a little out of character that I would have something even remotely encouraging to say to current home owners. I'm not a current home owner, so I don't put much (any) time thinking about what it is to be in their position. But honestly, with interest rates this low, there's never been a better time to sell.

There has never been a better time to sell.

The bubble has peaked in the rest of the country, the fed has stepped in to keep interest rates low nationwide. The Fed stepped in to help the hardest-hit areas; by forcing down interest rates, the fed is supporting higher housing prices. Chapel Hill home owners benefit from these low interest rates -- but only if they sell now. If you haven't sold your house yet, and you intend to sell, you need to sell as quickly as possible. The market will only continue to loose ground from here.

Today's featured properties are the some of the ones that have been on the market the longest. (I am now keeping a database of all the houses for sale as listed on Realtor.com. When I figure out how to post files, I'll upload it for everyone else.)

XXX Tadley Drive Listed 2/13/2008. 669 Days ago.
XXX Rose Walk LaneListed 7/7/2007. 890 Days ago.
XXX Oval Park Place Listed 3/16/2007. 1004 Days ago.

Imagine having your house for sale for over 1K days. This last property has been on the market the very longest. It is coming up soon on its three year anniversary. If a child had been born the day this property had been listed, then that child would be walking, talking, and dressing up like Buzz Lightyear.

Now and Then

Chapel Hill houses increased in price dramatically in the last decade. These price increases coincided with a housing bubble in the rest of the country.

So the question that potential buyers have to ask themselves is this: were Chapel Hill's price increases due to the bubble or due to a change in the desirability of Chapel Hill?

Houses were affordable in Chapel Hill ten years ago.

One house near campus, on Roosevelt Drive sold for $234K in 2000. It's an 1800 sqft house with a very nice location. A modest house, not very large. That the house is currently asking $450K.

What does $234K get you in that neighborhood today? This 900 sqft condo.

How about this house on the eastern edge of Chapel Hill? New, it sold for $369K in 2003. This is an upper end house, with more than 3400 square feet. Today, it's asking $459K.

What does $359K get you in that neighborhood today? This house at half the size.

Houses used to be affordable. They stopped being affordable. If no one can afford to buy the houses, then no one will -- and houses will languish unsold on the market. A drop in sales volume, then, is indicative that prices are too high. Prices will only rise to what the market can bare. The market has not changed enough to bear the current prices. This year's low sales volume is evidence that sellers are asking too much.

If I were a buyer right now: I would wait to buy since I could buy more house for the same amount of money later. Prices will drop in Chapel Hill.

If I were a seller right now: I would make sure to undercut the price of my neighbors to sell my house as soon as possible. The longer you wait to sell your house, the lower it will sell for in the future. You're holding a declining asset. The longer you hold, the more damage it does to you financially.