Time in 2010 - Rethink Buying
- Time Magazine 2005- Buy Real Estate!
In September of 2010 I completed my 35th year in Williamstown real estate. There was a time when counting the years in my early career meant simply lasting from one year to the next in business. I recall how I began my career right around Labor Day of 1975 with high hopes and many trepidations, having left the security, though modestly remunerating, of a teaching job at Pine Cobble School. I was full of enthusiasm and fears but had a good teacher and mentor in my then broker. The first office was primarily an insurance agency and real estate was a extra "back-up" income for my Broker. I was to bring real estate forward with new energy and attention. I also obtained my insurance license and devoted some of my time to that as well. September passed, then October and no real estate contracts. Then November came and was almost going to pass when I put my first property under contract at Thanksgiving. That was more than symbolic as it turned out. I felt like the Pilgrim who had struggled to survive and finally there was some promise of reward. The sale didn't actually close until the following February as I recall so it took me six months to earn my first income from real estate. I also had my first and fortunately last two migraines ever, the first one right after signing the contract in November.
In the months that ensued, thanks to determination, many appreciative former parents of students who became clients, a patient wife, supportive family and good training by my broker, I gradually built a reputation and one success on top of another. In December of 1978 I left my mentor and broker. So on January 1 of 1979 I began a new phase of my Berkshires Real Estate career and with two totally green and brand new Real Estate Agents, Martha Dietze and Judy Peabody we began what was then Harsch Realty. We later changed the name because too many Williams College students thought it was amusing to add an 'I' to the word "Realty" on our Real Estate signs changing it to "Harsch Reality". Thus today, we are "Harsch Associates Berkshires Real Estate". I'm sure I had a few more headaches in the early years but the company grew rapidly and very quickly became the leading Real Estate agency in Williamstown and then we added real estate offices in Bennington VT and Manchester VT, North Adams MA and Lenox,MA. At our peak in 1990 Harsch Associates had 50 sales associates divided about ¾ in the residential division of the company and ¼ in our business and commercial division plus 10 employees. It was a large and busy company and in our top year we closed on over $32 million in sales. Changes happened as they always do and in the ensuing years, following significant changes to tax laws affecting depreciation rules for one and other internal changes, we began a downsizing process. Today we are a highly efficient, very personal group that does as much in real estate sales as agencies three to four times our size. We sell our listings on average in less time and on average at substantially less of a discount to list price than our chief competitor and we have the most comprehensive most visited web site in our entire market area of the Berkshires. Our office is located in a historic building- Walden House at 311 Main Street in Williamstown MA. We provide privacy and spacious conference rooms to discuss your real estate listing and buying needs with total confidentiality. I wrote back in '06 that the market had peaked in our market area in terms of sales volume in '05 and I later wrote in '08 that prices had peaked in '07. These two predictions in time proved accurate. It is reasonable to think the bottom was reached in volume in '09 but that prices will not start to advance overall until next year and even then only very slowly and randomly. This is because a substantial backlog in Berkshires and Williamstown Real Estate inventory exists that will take time to work through. As our local population drifts south, the baby boom generation moves in to retirement mode with the intention of selling their "extra home" and unless we see a significant increase in employment figures, the Williamstown and Berkshire Real Estate supply will still outstrip demand leaving many real estate sellers still hoping for purchase offers. In an effort to stimulate the nation's economy following the dot com bust and then the terrible events of 9/11, Alan Greenspan pumped money in to the economy like free beer at a frat party and soon the nation was on another bender leading to the gold rush of the housing bubble, which like the dot com bubble and all others before it, was doomed to burst. Thus the excess of home inventory and the accompanying discomfort today for sellers. This is the "hangover" we have to work through. Those who did not "benefit" during the bubble are very uncomfortable now. It is very difficult to deal with increasing days on the market before a purchase offer is received. But like the mess that has to be cleaned up following the frat party, there is a lot of cleaning up in real estate that has to be done and it will be a while before real estate return to some semblance of "normal". That said, there are really only two reasonably certain ways to deal with this period of recovery. One is to just sit it out and wait for prices to rise again but this can be misleading. After all, its expensive to keep a property you no longer want or need and inflation will gradually eat away at the value of those future dollars. Between the carrying costs and the loss of future purchasing power, not to mention the postponement of other plans, the "holding strategy" can result in more loss than gain, The best approach is "realism" and understanding fair market real estate value (see our blog on this topic). This requires recognizing the degree of competition for your property in the market and deciding to price your property to compete well. There are not many shoppers in the current real estate market and the current buyers are making well considered decisions before making any purchase offer. Sellers can find it hard to deal with hard reality in a buyer's market. Even costly improvements that were highly desired several years ago, hold little appeal for the savvy buyer today. Selling your home in a buyer's real estate market depends on pricing to sell knowing the fair market value in your area. Without an unbiased professional appraisal to justify the listing price, it is easy to see why there are many homes that languish on the market as compared to the few "priced right" homes which are actually selling fairly quickly. Many sellers are unable to view their property (home) objectively. Sound real estate advice from a knowledgeable real estate agent plus a professional appraisal in hand will go a long way when pricing a Berkshire property and will result in a purchase offer within the shortest amount of time. No buyer will overpay in a buyer's market, especially when they obtain the right to cancel the contract based on an appraisal that is very likely much lower than the listing price. No bank will offer a loan above what a property is actaully worth in today's buyer's market. Low loan rates do not mean a willingness to extend credit beyond what a property is worth. From 2000 to 2007 the median price of a home in the US jumped from 3.5 times the average household income to almost 5 times the average household income. Such inflation was and is unsustainable except through artificially low interest rates. Many investors began a rush in to the real estate market thinking of real estate as the next "hot commodity".
I commented on the growing number of people, whether as second incomes, side jobs, retirement activities or in the contracting business who were buying houses to simply fix and flip. I knew the ral estate bubble was becoming too big to sustain and the end was near when I learned in '06 of young college graduates who were setting up businesses to "fix and flip" houses. Now many of these entrepreneurs are unemployed. The market has been glutted with "fix and flip" homes valued at lower prices than they were purchased for and foreclosures have ended many career dreams. Buyer euphoria, low rates, easy money, and a false impression of a booming economy all came together in the perfect real estate collapse storm. That destructive storm has passed we hope. A lot of cleaning up and recovery is taking place now will continue into 2011. The real estate bust and ensuing economic recession brought the country to a national real estate "Katrina" sized crisis. We are currently in the "clean up" phase and real estate gains as we knew them are no longer happening . The nation is recoverying . However, things will not bounce back to the way they were in 2005-2007. The nation is burdened by enormous loads of debt and jobs are not rebounding since so many jobs have been shipped overseas to much cheaper labor markets.
The decade ahead will be defined by how willing and able and quickly we do adjust to changing economics. It will require current sacrifices to assure future stability and growth. New homes which are being built emphasize the trend toward smaller and more energy efficient units. In the academic world it is often said "publish or perish".
In real estate is it adjust your price to the market or prepare to continue to live in your current home for many more years. As we close this first decade of the new millennium and prepare to enter a new real estate market in 2011 where cost competitiveness is the key to selling success we will be encouraging our sellers to be very aware that they are priced competitively to try to attract real estate purchase offers.
We will be counseling all buyers to view their home purchase not as a promise of profit potential. The most important reason in 2011 for purchasing a home is the pleasure and comfort of living within the home and community. America is returning to the roots of real estate purchasing in that residential real estate should be thought of as a home, a place of peace and enjoyment for the occupants and still the best "investment" a family can make toward their financial well being.
Over the long run, homes have provided a solid very respectable average annual appreciation of approximately 5%. Not bad at all when you can enjoy living in your investment (playing, sharing, caring, belonging to a community and providing shelter for those you love). These are things a stock share cannot offer. At Harsch Associates we understand and anticipate trends and have made adjustments to help our clients get the best results possible in a buyer's market. We have been able to bring together a satisfying number of sales (up 17% from 2009) in this tough real estate market. Our buyers and sellers have benefitted from our close attention to real estate trends. We are committed to achieving the absolute best results for our clients, both buyers and sellers.
Selling real estate today is far more complex a process than when I began in 1975. Numerous regulations on the local, state and national level have been added to the process over these past 35 years and its almost impossible for anyone in our business who is not full time and fully dedicated to adequately serve the buying and selling public. Naturally this leads to a broad diversity of levels of skill and dedication and thus very mixed results for the public. We believe we consistently provide the best possible service and results for our clients. We wish you a wonderful holiday season and we look forward to our next real estate closing with you in 2011. Paul Harsch, President and Realtor® Harsch Associates Berkshire Real Estate