Weekly Observation for January 14, 2012; The Herd Mentality
January 14th, 2012What is it about human nature and the Springfield consumer? Let’s flash back to the 1990’s when the government was ordering banks to lower lending standards through the Community Reinvestment Act to make home ownership affordable for more low income families. This resulted in anyone who could fog a mirror to be able to get a home loan. Home prices were rising and were never going to stop.
What did people do? They rushed to the market to compete with a record number of buyers to buy higher priced homes. Home sales peaked in 2005 and 2006 in our MLS with just under 4,200 home sales each year. Real estate was the talk of the town, at work, in the news, at the kitchen table. People couldn’t wait to jump into the market. The herd mentality in action.
Flash forward to 2011 and home sales have fallen to just over 3,200, almost a thousand fewer sales from the peak years. Real estate is no longer the talk of the town, at least not in a positive way. The news is all about millions of foreclosures, one in four families underwater, owing more than their home was worth, from which sprang a new term everyone learned; short sales. People stayed away from the market. The herd stayed in the barn.
The Capital Area Association of Realtors will report the final sales for the year 2011 in a week or two. At last report there were 3218 closed home sales as reported by member brokers to the MLS. Down 223 home sales or by 6.48%, the fewest since 1998.
The association will probably report the fewest since 2001 but that won’t be comparing apples to apples because Jacksonville joined the association in 2005 and Taylorville joined the association in 2000 accounting for 527 of the 3218 sales in 2011. When deducted that leaves 2691 closed home sales compared to just a dozen more than the 2679 in 1998. That’s an apples to apples comparison.
Why is it when prices are rising people rush to the market in droves but when prices and interest rates are falling people stay away? Why? The herd mentality.
Tons of negative news doesn’t help but is true; high unemployment, rising prices for gas and food, a 67% income tax increase, has driven down consumer confidence. People without a job, who are concerned about losing their job, or who have a job but have witnessed their disposable income evaporate aren’t going to buy a house. That’s fair enough.
But what about people who can qualify to buy a home who are renting and have decided to wait until the economy improves, or are misinterpreting the housing news, or are waiting for prices to fall more? Can’t say I blame them but if you wait until all the lights turn green before you head to town, you’ll never get there.
Here’s the news that these folks should be hearing; home prices in Springfield have gone down in spite of the soon to be reported nine tenths of a percent increase in the median sale price for the five county area.
The inventory of homes for sale at 1448 today is the highest in three years to start the year. Plenty of homes to choose from.
In 2011 home sellers were more apt to negotiate their price than at anytime I have seen in my twenty fifth year in business. In fact the 95.3% average sale price to list price ratio was the greatest spread on record for our MLS.
Interest rates haven’t been this low since Adam asked Eve out on a date. Mortgage money has never been cheaper, except in the old days when the bank lent you their money.
What about homeowners who stayed off the market in 2011 who would like to move but were afraid their home wouldn’t sell or wouldn’t sell for enough? Maybe you don’t sell, or maybe you don’t sell for as much as you could have a few years ago, but when you buy you’re not going to have to pay as much either!
When is the best time to sell? When you don’t have to. These homeowners have nothing to lose and plenty to gain by making a run at selling and making the move they want. So what if you don’t sell? Refinance, lock in a low cost for your housing and hunker down until this economic storm passes.
The herd mentality has kept scores, if not hundreds of people in our market from buying a home in 2011. When in reality there couldn’t have been or could there be a better time to buy; cheapest money in history, low prices, big inventory, and sellers willing to deal.
Wonder if the herd mentality will rule in 2012? I recommend getting into the game. Granted you won’t have the thundering herd to compete against, but there’s nothing wrong about taking your time and doing this right.
There’s another saying that applies this year, that many can’t hear when they’re in the middle of a stampede; buy low, sell high.
Join us at our free, no obligation home seller seminar Thursday January 26 at the Hilton Garden Inn beginning at 6:00pm. Learn how to get that home sold in this new economy. There may be fewer homes sold in our market this year than last, but there’s no reason you can’t be one that does sell. Come learn how by reserving your seat by calling 217-391-1811.
The opinions expressed here are solely those of Fritz Pfister or identified sources, and not necessarily those of RE/MAX Professionals of Springfield or RE/MAX International.
