Ask the average “man on the street” about the real estate market, and you probably won’t hear very much excitement. Right now, real estate is a big “if” for many people.
The perception of real estate among retail buyers has been permanently changed during the past few decades, causing typical retail home buyers to view themselves as “investors” in real estate rather than mere “consumers” of real estate. This may be a fundamental cause in the “flood” of underwater homes on the market, hypothesizes Isaac Lewis of the “Red, White and Blue Press.” Whether you agree with that particular publication’s politics or not, it is something interesting to think about: While many homeowners are selling because they cannot afford their homes, other owners who can afford their homes are selling (or allowing foreclosure) anyway because they perceive that their home is no longer a good investment.
In other words, the decision to stay or go isn’t fundamentally about whether a property meets a home owner’s needs, but now includes a strong dose of amateur financial planning.
This should change the way we work with potential home buyers. When a typical retail buyer considers a home purchase, they’re likely to look for something that will eventually turn a profit rather than just an area or abode that they might want to live in for the next few decades in happiness and comfort. Perhaps by changing the way we present home-buying in the present to focus on the fact that real estate is still a good investment in present-day comfort and happiness for family and loved ones as well as in future wealth (much like many real estate agents do) we can build our buying base so that our buyers are not so reluctant to put their signatures on the line.
Psychological professionals call this “Framing”. By placing the object your want to sell in a favorable context to the buyer, mental “roadblocks” are removed for the buyer making the transaction far more likely. The “frame” we have to begin to include in our negotiations with buyers is one of “profit potential” or at least “capital preservation”. Food for thought!
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This sounds very much like a rewording of the same attitude that helped get this country into the total mess it is in now. It also is predicated on a rise in values of real estate in real terms, something I do not see happening under the current ideas of more regulation and increased government spending.
I disagree with this strategy, as I do not see a valid foundation for making the claims. Especially in light of the overwhelming inflation that will take place in the next several years unless we can change who is in power and severely reduce government spending. Although if we stay in the region of high unemployment/underemployment the inflation rate may not be as severe in this country but it will still hit us hard because we produce very few actual items to buy or sell in this country any longer.
My thought of a possibly better approach is not the one of promising future profits, as has been done for the last couple of decades, rather the concept of; this home is an affordable place to live, (hopefully a nice neighborhood), and because you have to live somewhere, wouldn’t it be better to not be at the whim of the landlord! More of instead of paying rent and not knowing when it is going up or what is going to happen next year, to one of you are your own rent holder!
I think this is a much more honest approach to work with people, with a better opportunity for long-term success. I say this because many people are becoming, and more will follow, jaded by the promises they see as just empty and often judged as lies at a later time by realtors. This coupled with the stripping of many of the tax advantages of owning a home and eventually even higher taxes on owning a home, makes it imperative we as investors find more honest methods of encouraging people to buy from us rather than a realtor. A class of people many people see right in the same mix as politicians and used car salesmen. Many people see investors in more favorable lighting because they feel there is someone to deal with later and someone that is more upfront during the deal making process.
With the right attitude and proper respect for clients, investors could push most realtors to the bottom, even if the government has “decided” investors are bad! Realtors are being seen by many as more an extension of bad government policy and protectionist of corruption than investors, so we should use this to our benefit instead of adopting more of the same for the future.
I think you mischaracterize what was written, Chris. Nobody endorsed misrepresenting the profit potential of a property. Rather, the suggestion is to factor in the notion that profitability is something that buyers are considering, and thus to consider this in how sellers are addressed.
– Bryan Ellis
Bryan,
Could be that I did, when I read items written or supported by academics “Professional” opinion or anything that harkens toward what “real estate agents” do I get my back up and see one more push back into the complete stupidity that has surrounded real estate for the last several years.
I think part of this comes from some of the truly idiotic statements by “real estate professionals” in the news lately and how little understanding from a both a political and economic point of view of what has happened with real estate over the last 40 years.
I agree it would be nice to hope for increase in valuation of property looking forward and if it is purchased cheaply enough this can happen on the surface. I think however it has been overstated in the past and I do not like the idea of it being overstated in the future. With the take over of our lives yesterday by congress and the huge boost in taxes we are going to see, I fear this premise will be a false one. One of the things I see is individual property owners being hit very hard by tax increases sooner rather than later. As this is a group of people that will not have a way of protecting itself as easily from politicians in the future.
So reflecting on the article I see both sides of the point, just my view is very shaded by a deep distrust of our government and in all likelyhood the demise of our country over the next decade or so.
Too much debt, too much government, too little voice of the people and even less abiltiy to manufacture going forward.
I think in order to effectively sell homes we need to change the way we perceive profitability or return on investment. While you can never rule money out, a lot of the other benefits to home ownership have become nearly invisible on the public radar. For example, having a home in which to raise your kids that they will someday come home to, having neighbors that you know and love – and have for years – having a good network of schools and social networks, local church home, etc. People are so focused on whether or not they can sell for profit in just a few years that they may overlook other intangible profits on the investment, causing them to not actually buy at all because these types of profits are much harder to “count on” in today’s market.
The gradual movement toward the view of real estate as an investment has more to do with the access to information (albeit good and bad) that people have these days. Real estate HAS been a good investment for anyone that purchased prior to 2003 and it will continue to be due to the demographics of the country. Immigration and the aging population will continue to drive people toward homeownership. And the tax advantage will NOT go away. Just try to find ONE congressman that would stand behind the elimination of deductibility of interest and taxes… you won’t be able to.
The current situation simply reminds me of the old axiom… buy when no one else wants to. Home buyers today will turn around in 5 – 10 years and say it was the best financial decision they ever made. Real estate is an asset that will rise long term. It will take longer this time but we will once again see real estate as an appreciating asset.
What Carrie, is saying is part of my point too.
We have mostly lost the true value of a home, which Carrie has stated very well and is not being used as the better selling point to many buyers. Researching a neighborhood and finding good ones to live in I think is really one of the best things we could do as potential sellers of real estate going forward.
The days of easily moving around are behind us and will only become harder as time goes on. Look at how things are in England if you want to see how it will soon be here. Very hard to have one’s own home, much more a home is generational. I see this is the wave coming towards us and when the new immigration bill is passed you will see this trend become even stronger. A complete rethinking of real estate is in order in this country and ideas like Carrie’s are on the front of the coming changes.
A little longer look at real estate in California, might give you a better perspective of real estate in general. When I moved to California in 1957, you could purchase a 3 bedroom 1 bath home for $10,500. In 2008 that same home was selling for $ 750,000 dollars. The major down market for real estate in California was from 1990 to 1997. The median price of a home in California during that period decreased 40%. Prices of homes go up and they go down depending on many different factors. So, I find it difficult to say its illegal, immoral or fattening to assume that real estate prices won’t keep on going up, with minor blips of down markets. Inflation is inbred in our economy.
Richard,
While what you say is historically true, we never had the set of circumstances before we do now. Before we had more free market economy, now we have the Federal Government in charge of well over 20% of the economy, when you take in their ownership and control of most of the mortgage market, with Fannie and Freddie, major stake holder in two auto companies, major stake holder in several financial institutions and all of health care now.
We have largest deficit ever by far, most of which is financed overseas. NO real manufacturing left in this country, and most of the so called stimulus money spent so far has been sent overseas also. The “green building jobs” have almost entirely outsourced to China, Gemany and Spain.
We have to have people with jobs and money to buy houses! This is not happening and inflation is coming and nothing is being done, and maybe nothing can be done now, to stop it!
We may see a tiny blip up in some regions of the country but it will not last long nor will it be very good. The housing market bottom is not close yet but it will be a slower fall than it has been. Will housing prices go up? I think it is too early to tell if this is going to happen in what is left of my life.
We have a President and Congress bent on turning us into the next second or even third world country. If we cannot get them out soon, it may be too late for all of us. A few will prosper, but most will be ruined.