Role of Emotions

Copy for Real Estate Guide Column for 12-1-06 (461 words)

REAL ESTATE PATTERNS
By Ken DuVall

The Role of Emotions

Studies show emotions play a huge part in our money decisions. There’s a system in our brains about money that controls us. It’s a $10 word called NEUROECONOMICS. Sometimes people will even pass up a sure thing. Some may even turn down a profit if they believe someone is unfairly profiting from the deal. Some may even refuse to sell if they feel they may come to regret it. Fear of FUTURE regret can be as powerful as money in your pocket today.

Research on the concept of “loss aversion” shows people tends to deny reality when their house declines in value. Sellers maintain their asking price at based on comparable sales made at the TOP of the market, despite current prices, and are reluctant to sell unless they get that higher price. Don’t fight the feeling. A Harvard University professor’s study confirms the psychological resistance to taking any kind of a loss on your house. Yogi Berra said it: “Ninety percent of the game is half mental.”

Real estate is subject to its own myths and beliefs. Some are wondrously true and others are dangerously false. Myth 1: “The housing market has ‘collapsed.’” Yet many people have bought homes this year. The seasonal and annualized figures by no means constitute a “collapse” of the market. Collapse is no more accurate than “bubble” was. It’s accurately termed a “correction.”

The Wall Street Journal said last week: “The worst of the housing slump is over” said 49 top economists surveyed, by a 2-to-1 majority. “We’re nearing the end of the slowdown for most markets. The drastic parts of the downturn have already run their course.”

Myth 2: “Prices are too high.” Prices were NEVER too high or too low. They are what the market dictates. When demand at a given price outpaces supply, prices rise. When supply expands faster than demand, prices retreat. Price is strictly a matter of negotiation between the parties. Prices are ALWAYS based on the immutable Law of Supply and Demand. Just noticed a new ocean front VACANT LOT listing below Santa Barbara offered at $3.9 MILLION. You tell me what its “worth”.

In Houston, TX home sales are up nearly 18% from a year ago, their 32nd CONSECUTIVE month of increase. Today you can buy a new 2244 SF 4 BR 2.5 BA home there for $139,900! Why? Because Houston enjoys the country’s LEAST restrictive land-use policies, resulting in lower home prices, according to Texas A&M University. Developers are moving dirt there within a year of buying land.

In California, it takes as long as 8 years, substantially pushing up prices. Harvard University’s study shows areas with excessive regulation have slowed construction to the point where price increases and demand has outstripped supply. Draw your own conclusions.

Ken owns Ken DuVall & Associates, Realtors at 3rd Ave. & Mangrove in Chico.  Ken was the 2001 President of the Chico Assn. of Realtors and the 1995 Chico Realtor of the Year.  See Chico MLS listings at www.KenDuVall.com and call Ken at 345-3700 for all your real estate needs. Free consulting.

Turnaround Continues

Copy for Real Estate Guide Column for 11-17-06 (450 words)

REAL ESTATE PATTERNS
By Ken DuVall

Turnaround Continues

Paraphrasing our NAR chief economist and other experts, today’s home sales slide is somewhat of an oddity. Previous downturns were fueled by big hikes in interest rates and economic slowdowns. We have neither today. What we have instead are consumers that understandably are nervous because values got artificially high, affordability deteriorated, and buyers lost confidence. That climate may not last much longer. As I said last week, buyers and investors (see below) are already getting back into the game.

That makes pricing the key. Sellers need to abandon unreasonable expectations about the value of their homes. Besides, if you’ve owned yours for even a few years, you’re way ahead of the game. Cutting your price by 5 or 10 percent won’t wipe out all those gains. Realtors now find themselves in the uncomfortable position of being in favor of price softening and asking sellers to consider the reality of temporary market conditions. Everything in real estate is temporary.

The housing sector and the U.S. economy need sales right now vs. price appreciation. Every time someone buys or sells a house we enter the “multiplier” zone, the trickle-down effect, where the furniture store and the appliance guy, etc., make out too. Buy a house- its good for America! In fact, housing constitutes about 20% of the U.S. gross domestic product (GDP).

Any short-term pain from slower price appreciation will ultimately be offset by sales gains. As sales pick up, inventories drop, which in turn places upward pressure on prices once again. Voila, the cycle of life in real estate as we know it continues…and we hopefully all live happily ever after. Note: last week’s Winds of Political change should blow favorably on housing.

A lot has been said about how overbuilt Sacramento has become, tons of unsold homes, etc. Well, guess what: New big time builders are moving into the market as I write. Despite a slow market, outside builders have big plans for the region. With every down, there’s an up. Remember my roller coaster analogy. 

L.A.-based Pardee Homes, among others, a division of giant Weyerhaeuser, plans 4000 new homes in Natomas and Rancho Cordova, their first ever venture into No. Cal. They’ve committed $100 mil to it. People in the know say Sac’s population will double over the next few decades. They do not see the growth trend slowing. Chico shares that same projection.

The boom has stopped. The craziness has ended. But the smart money is coming in now because it makes sense to, period. Question: Why do you think there’s so much new construction money now in the permit pipeline around Chico? Answer: same reason. You get your land now while there’s still some of it left.

Ken owns Ken DuVall & Associates, Realtors at 3rd Ave. & Mangrove in Chico.  Ken was the 2001 President of the Chico Assn. of Realtors and the 1995 Chico Realtor of the Year.  See Chico MLS listings at www.KenDuVall.com and call Ken at 345-3700 for all your real estate needs. Free consulting.

"Buy Now!"

Copy for Real Estate Guide Column for 11-10-06 (436 words)

REAL ESTATE PATTERNS
By Ken DuVall

“Buy Now!”

The Nat’l Assn. of Realtors has kicked off a $40 million public awareness campaign dubbed “Operation Tip-Off” encouraging potential home buyers to buy now. NAR’s first-ever media blitz features major national newspaper full-page ads with the headline, “It’s a Great Time to Buy or Sell a Home.” Interest rates have fallen for 7 months in a row and are near 40-year lows, inventories are higher than they’ve been in decades, and prices are stabilizing. But these “perfect buyer’s market” conditions will change as sales begin to pick up, prices gain traction, and conditions improve for sellers next year. “Sauce for the gander, sauce for the goose.” That’s life.

Homeownership has always been a safe, secure way to build long term wealth. The national median price of homes bought 10 years ago has increased a net 88%. The number of households is expected to increase 15% during the next decade, creating a continuing high demand for housing. America’s population increases by 5 million every year. Even the ultra-conservative Alan Greenspan says, “Most of the negatives in housing are now behind us.” In Chico, the number of active listings is falling while new escrows opened continue to increase, both positive indicators.

The old line, “You buy on bad news and sell on good news” is still true. The Nat’l Assn. of Home Builder’s chief economist states, “The current housing downturn is unlikely to push the economy into a recession and will begin to dissipate fairly quickly. By mid-2007, the balance of housing supply and demand will see considerable improvement.”

A “venture capitalist” is one who invests for future growth potential. There’s a new buzzword out now: “vulture capitalist”. Taking the place of the flipper/speculators that bought and sold for a fast profit, and artificially drove up prices, these smart big money guys are quietly making large investment moves in the so-called “bubble proof” markets of S.F., L.A., Seattle, Boston, and N.Y. City. A Wharton School Professor of Real Estate calls them “Superstar Cities.” The long-term trends there are so strongly upward that if you’re willing to buy and hold, it’s a good strategy.

The identical logic applies right here in Chico. We are already seeing indications that the smart money crowd is doing just that. Chico is a “Superstar City” too, smaller, but much more desirable, offering a whole lot better way of life, and with just as much upside potential. Our land supply is limited. Prices are likely to keep on climbing higher than the national average as more and more dollars chase fewer and fewer properties. “Ya just gotta know where you’re at in the game.”

Ken owns Ken DuVall & Associates, Realtors at 3rd Ave. & Mangrove in Chico.  Ken was the 2001 President of the Chico Assn. of Realtors and the 1995 Chico Realtor of the Year.  See Chico MLS listings at www.KenDuVall.com and call Ken at 345-3700 for all your real estate needs. Free consulting.