As of end of quarter 4, the median income of an american family is 50,200 and the median sales price of a sfh is 206,000. Using benchmarkk calcs for interest, taxes and insurance, we arrive at a max mtg amount of @ 120,000. Using a 10% dp on 206, gets us to 185. There is a 35% affordability gap. The only way to bridge that gap is for incomes to rise or prices to fall or a combination of both. The exotic mtgs of the past five years will not do it. That ship has sailed. Incomes have been flatline for the past five years and look at the employment #'s for the past 9 months. So, we are left with the unavoidable. The RE market still has quite a ways to go before a true bottom is in place. The numbers don't lie.

So home prices are adjusted downward for 10 days in hopes of flushing out some buyers. Assuming that most buyers in the current market are too smart to take the bait, do the prices of the unsold properties go back up at the end of the "sales event"? It's all part of price discovery I suppose, but it's going to take years at this rate.

The 10-day sales event aims to close the gap between buyers and sellers by offering up to a 10% discount on listed homes for, you guessed it, 10 days.

It sounds like they need their agents to learn how to write a contract again.

And you guessed it, it won't work!

But it will fill the landfills with much needed waste.

While listings are down significantly, I believe that is so since many people have decided they DON'T NEED TO SELL!!

I would like to sell, but I don't need to.
Therefore I to took my home off the market.
I smelled low ball offers coming and unlike banks, I don't need to sell since I paid CASH for my home 6 years ago.

Ted,

Excellent point -- if the house won't sell at the discounted price with all the press, is it likely it will sell when the price goes back up?

Andrew

Steve,

What's interesting is that in the most troubled areas, particularly Vegas, homes are selling for below affordability levels as you describe them. Supply has overwhelmed these markets, and its likely we'll overshoot to the downside in many areas.

Opportunities will be plentiful....but not yet!

Andrew

If you can't walk up to a seller with cash (loan) in hand and demand (and get) a 10% cut in the price of a home today, you're not living in reality. The market's going nowhere, and its easy enough to find houses that have been on the market for 6-12months, and whose owners are desperate to sell.

Adding to this doom and gloom is that mortgage rates are terrible right now. WF is offering 6.5% on a 30y fixed. Yikes! Compared to the low of 5.625 of a month ago, that's almost worth your 10% difference in housing prices.

Realtors - face it, the market is soft because there's been such a huge run-up in prices from 2000 till 2006. Until prices fall to a more affordable level for the median homebuyer, the market isn't going to "turn around".

Andrew, quick question - what is the Median sales price and Median household income for Vegas? Traditionally it's been in the 3-1 ratio nationwide, but are homes selling for less than 150k (or is the median household income substantially higher)?

Travis,

The latest data I can find has Median income around $50,000 and Median Home Price at $195,000. The area I mentioned is the 89115 zip, which has a median income of $37,000. Homes in certain neighborhoods are selling as low as $80,000 (and falling).

The tough thing about these extremely distressed areas is that even going down to the zip code level isn't granular enough. There are so many homes for sale (most foreclosure or short sales), it doesn't even matter what's technically affordable. You have to go street by street, as certain ones have been decimated even as the block over is doing OK.

Many banks effectively redline certain areas, even though they're not "allowed to." There simply are not borrowers in this area that can qualify for anything other than an FHA loan. And with prices falling a few % every month, getting a 97% LTV loan from the FHA is still a losing proposition.

Andrew

Can't imagine that buyers will flock to the 10-day so-called special deal�.

For the past three or four years, I have been amazed at the total disregard by home buyers of an old-fashioned idea called Fair Value.

Seems to me there is still a real lack of perspective on residential real estate � in historic terms as well as in view of current economic/financial events.

It is so easy to do price discovery by looking at public real estate tax records. Use any random address to get details within your own home state/town, such as my sample house:

1. 2. 3.
Year : Taxable Value : Tax:
2000- $115,770 $3,572
2001- $125,324 $3,675
2002- $140,757 $3,951
2003- $163,816 $4,216
2004- $180,414 $4,355
2005- $219,673 $4,692
2006- $257,885 $4,911
2007- $333,500 $6,620
Zillow �s estimated value is at $ 264k � twenty percent below the city tax assessors.

This is a modest brick house, about 60 years old and on a 5000 square foot lot. The location is a town of less than 20 000 in Middlesex Cty., NJ, considered New York Metro area.

Looking at the table above, the price I would consider �fair value� would have to come down not by 10 or 20%, but by several year's worth of mania�......Just my five-cents worth.

I've gotta agree with you here. We have seen prices for specific areas in the past go to almost zero when a military base closed or a factory shut down. The potential for prices to fall is as great as the potential for reality to set in and people once again start to think of a home as a permanent Place for generations to settle into. The turnover in housing from moves and easy credit created the delusion that each new generation is supposed to buy new houses and that everyone gets to 'trade up' constantly for no reason except that the Joneses are doing it and they made a few bucks.
The real value of a place is in its future usefulness. Vegas has no future in a declining economy without cheap air travel or unlimited credit, and there are a lot of places which only have a housing market because they had cheap farms to destroy and no resistance to unnecessary development because everyone was inflating their net worth by cashing in on the boom.
Dieback is a harsh reality, especially for places with empty lots that used to be productive land.

While I think some valid points are made in this article, and I agree that 10-day sales are not the way to determine a homes appropriate value in today's market, I don't think the Realtors are the ones to blame. You suggest that they should take a pay cut to ease the pain of overburdened sellers. Well, we already have, my friend. While many of the fixed costs of operating a real estate practice remain the same, revenue for most agents is down substantially due not only to price erosion but also slowing absorption rates. If anyone should be taking a pay cut it should be the politicians who turned a blind eye in regulating lending, the leadership of the financial institutions who lied about the investment portfolios they were dealing to Wall Street and the media who has done nothing but bash this industry for the past 3 years!

My question is, how did today's sellers get there in the first place? Do they bear no responsibility for the choices they made, for buying more than they could afford, for using their home like an ATM and sucking out all the equity as prices soared?

There are, without question, some unscrupulous real estate agents, just as their are unsavory characters in just about every industry which exists in America. However, there are many hard-working, honest, professional Realtors out there, too, working diligently every day to provide a high level of service and fiduciary representation to our clients, and achieving the best possbile result for them in today's market. It is true that the revenue stream of a Realtor is driven by the sale of homes, but that doesn't mean that a valuable service is not being provided for that fee. The average Realtor pockets about 40% of the dollars earned through a sale of property. So, the 3% after the brokerage splits (in your 6% fee example) actually boils down to about 1.2% net dollars to the agent doing the work after brokerage fees, operating costs and expenses. Not to mention, tax liabilities and buying independent health insurance. In addition, each home sale generates business for a title company, an appraiser, a mortgage company, a home inspector and numerous other services and industries. All of these people derive income through each sale and ultimately are spending at least some of that in our local econony which contributes to the revenue and growth of all of those businesses.

The fact is, a lot of people made bad decisions. Many got caught up in the hype of a rapidly accelerating segment of our American economy and bet the ranch on something they knew little or nothing about. Realtors do not control the supply, nor the demand, nor the lending products available or the financial decisions of our clients. Our role is to provide the best professional advice we can based upon the information available to us at that moment and to represent the best interests of our clients in navigating the process of acquiring or divesting of real estate assets. The folks who remain in the business today likely represent many of the professionals who have done just that, not only during the meteoric rise in values, but for years or even decades before an after, enduring many up and down market cycles. Most of these individuals are not "fat cats" like the CEO's we are reading about today. They are dedicated business people working hard to make a living, just like a lot of other people in this country. It is a noble profession, and one I'm proud to be a part of, regardless of the market of the moment.

I agree with you Erik. Realtors help negotiate the process of buying a home which is the the most important decision some people will ever make. There are plenty of other professions where people who are far more overpaid are not going to willing cut their salary i.e., Lawyers, politicians, investment bankers, stock brokers. Basically, all those professions much like Realtors are in the business of helping people and providing professional opinions and none of us want to cut our salaries, commissions, etc just because times are hard. I see the government bailing out the banks but what about the people who lost their jobs and can't pay their bills anymore? Why isn't the government bailing them out didn't they make the same mistake that the banks made, which is they get in over their heads? Only there is no help for the people only for the corporations. Anyways, I digress. Point being that Realtors serve a very valuable purpose and the Realtors didn't create this problem.

Erik,

I appreciate the defense of your profession -- and also the professional manner in which you did it (not everyone who shares your views was so civil!)

You are right that there are a bad apples in every profession, and Realtors are unfortunately no exception.

My primary beef with the industry is that Reatlors are not financial motivated to act on their clients behalf -- only to close transactions. The fallout for a buyer paying too much -- especially in this market is nowhere close to commensurate to the Realtor who has to close homes at lower levels than before. Giving bad advice carries little, if any, penalty, whether that advice is given out with the best or worst intentions.

Buying a home is a monumental undertaking for most people -- as I am sure you know better than anyone. Buyers and sellers alike trust their Realtor to provide honest advice. Too often, this advice comes in the form of Rose Colored glasses, that its a buyer's market, even when it most markedly is not. '

I would be curious to know if you feel it is a good time to buy. Recognizing that all real estate is, in fact, local, what are you telling your clients right now?

Again, I appreciate your insight into the market

Andrew

"""My primary beef with the industry is that Reatlors are not financial motivated to act on their clients behalf -- only to close transactions. The fallout for a buyer paying too much -- especially in this market is nowhere close to commensurate to the Realtor who has to close homes at lower levels than before. Giving bad advice carries little, if any, penalty, whether that advice is given out with the best or worst intentions. """

Realtor/ReMax 27 years...giving bad advice has a huge penalty.
if you have a eithical compass, and ruins your credibility and future
refferal business.
most realtors that I know count their income once a year 12/31
and not with a client at the moment of decision.

sir; you are either an idiot or uninformed, possibly both

Hi Jim,

Going to ignore the dig, we don't do acrimony in the 'Ville. Yes, there are some moral, honest Realtors out there giving good advice. But I believe you are dwarfed by the rest.

As I mention, my problem is with incentives. You mention reputation, referrals, etc -- and while they are valid concerns, I would argue being upside down and foreclosed on is a lot more disrupting to one's life than a slowdown in business or having to spend extra money on marketing.

Why don't Realtors offer to share in the upside of their clients homes? Give up 1% commission in exchange 1% equity? It would be vastly more profitable in the long run for the great Brokers, and give you some real desire to find your client a great deal. The bad ones would be hit in the pocket directly, something more marketing dollars couldn't gloss over. Not to mention, if there was even an iota of transparency in the MLS data that's so secretly held by the local NAR orgs, you could track a Realtor's performance like that of a Mutual Fund manager.

I think the problem is that through the boom, bad decisions -- and bad advice -- was glossed over by appreciation.

Also, I have trouble with an organization whose members tolerate the likes of Lawrence Yun and the other spin-doctors who said month after month during the worst of the declines that the market was nearing a bottom, that now is a great time to buy. Lot's of people believed the hype and got kicked out of their homes as a result. Should they take some responsibility? Yes, but as a group, Realtors grossly abuse the level of trust their clients place with them.

I will take you at face value that you are one of the good ones, but unfortunately the rest of your lot more than outweigh the few stars.

I believe it was Edmund Burke who said "all that is necessary for the triumph of evil is that good men do nothing." So, that the NAR and NAHB for that matter) can put out its slanted, spun up reports every month and the good members don't revolt at the bad name it gives them, I am forced to believe that the great majority of Realtors are more concerned with earning commissions than anything else.

I would love to be proven wrong, but thus far I am yet to be.

Andrew