Tuesday, July 27, 2010

Last remnants of tax credit show up in June reports

What are we to make of June's market reports? Closings of existing homes were up from last year, the Case-Shiller price index increased 1.3% from April to May, and new home sales jumped 24% over May's lows. Yet pending sales dipped, purchase mortgage applications continued to decline, and inventory is back on the rise.

See Cincinnati MLS based charts for June

The "conventional wisdom" suggests that what we are seeing is the result of home sales brought forward with the tax credit and the inevitable fall off once it ended. That may ultimately prove true. I can say from my own experience that buyer activity seemed to fall off a cliff in May and June, but has since taken a recent uptick as more buyer calls come in and open house activity increases.

A somewhat unexpected change in the market is that the average sales price of homes being shown is taking an upturn. The cause for this is that we are no longer seeing the first-time buyers chasing the low end of the market as we did earlier in the year. Buyers now tend to be those of necessity (such as those relocating for work) and are more comfortable at higher price points. While foreclosures will continue to pressure prices for the foreseeable future, don't be surprised if the average sales price for existing home sales increases significantly over the next few months.

Tuesday, July 20, 2010

Priced to show, or priced to sell?

A somewhat flip question that agents sometimes ask their clients these days is: do you want to price your house to show it or sell it? While it may be harsh, the question is often valid. Even as we enter a 4th year of a buyer's market, many sellers still have an inflated sense of what their home is worth.

Last month I discussed how many buyers are looking to make lowball offers when that may not be justified or in their best interests. On the opposite end of the spectrum, sellers paint themselves into a corner by thinking they can price high and then wait for "someone to make an offer and negotiate." Sorry, won't happen. Too many homes to choose from. Instead, buyers will simply pass yours by for one that seems more fairly priced. Price opens the door, value gets the offer.

While no seller seems to be happy today, I've seen too many times sellers cost themselves money by starting out too high, then lowering their price again and again, sometimes chasing a declining market while they continue to carry a mortgage they can't afford.

So what factors influence price?
  • Condition. How up-to-date is the home? Has their been significant "deferred maintenance?" How well the property will show to prospective buyers will greatly influence whether you get above or below the area average.
  • Location. Yes, that old chestnut plays a huge factor. It is indeed true that people will pay more for the same house depending on access to jobs, schools, and other nearby amenities.
  • Market trends and competition. This element probably plays a larger role today than it has in years past, particularly in areas where there may be a lot of foreclosures. Further, if an area has been experiencing declining values, then you don't want to get caught in the trap of trying to catch up to falling prices the longer your home sits on the market.
What doesn't?
  • What you paid. Just like any asset, the market value can fluctuate up and down over time.
  • Cost of maintenance or improvements. Yes, certain improvements do add value to a home, but you should not immediately expect to get out what you put in (unless it's a rehab).
  • What you need. This is the one that trips up a lot of people - they "need" to get x dollars out of the house. But buyers don't care, they view your house just like every other one on the block and will seek the best value available. This is a cold reality to many homeowners who believe others should love their house as they do.
For the typical home, a real estate agent generally evaluates the local market, comparable properties, and the condition of the home to establish an expected price range where the homeowner will receive an acceptable offer within a reasonable time frame. What constitutes a reasonable time period may be a discussion for another day, but in an area that has an average number of sales, then 30 to 60 days is likely a good target.

While the above fits the large majority of homes, there are some houses that are truly unique and determining the value can be extremely difficult - as well as their expected time on market. Excluding multi-million dollar estates, other methods that may help determine value include the cost to build or, if rental property, from the net income produced. In a few situations, it becomes a bit of a guess and you wait to see the reaction from potential buyers and adjust accordingly. Although that is an infrequent occurrence, it nonetheless can and does happen.

All that said, it is still the homeowner that sets the list price when it goes on the market. The agent is your adviser offering their assessment. If the two parties are far apart on where it should be priced, then they probably should stop and consider if it will be a good working relationship.

Real estate agents will sometimes debate whether to take a listing that the homeowner wants to price too high. Many (myself included) won't take a listing where we believe the homeowner has an unreasonable expectation of what they can get - a situation which can eventually lead to hard feelings between the agent and client. Others will give it a shot and hope for the best. As it's often said though: hope is not a strategy.

Tuesday, July 13, 2010

Aggregate programs and consumer choice set to lower electric bills

If you live in one of the several townships or cities in the area that have established an electric "aggregate" program, you may start seeing lower utility bills soon. In West Chester, where I personally reside, my electric rate is set to drop to 6.2 cents / kWh on my next bill as compared my Duke Energy "rate to compare" of 9.2 cents / kWh.

Aggregate programs vs. Consumer Choice options

You may have received a lot of mail recently from your local governing body, Duke, and even other electric suppliers trying to get you to either sign-up or opt-out of a particular program. As is often the case with mailings of this sort, much of the material seemed to purposely obscure or confuse the options available (in my opinion).

The Ohio Consumer Choice program has been around for some time and allows residents in Ohio to pick suppliers for gas and electric with distribution costs remaining the purview of your local utility.

Cities and Townships throughout Ohio have the option to create a governmental aggregation program in order to negotiate for lower rates from suppliers. Residents in the area are automatically included unless they directly opt-out. Suppliers, on the other hand, must get residents to "opt-in" to their program. A resident who opts-out of the aggregate program, but does not select another supplier would continue to pay the local utility rate as regulated by the Public Utility Commission of Ohio (PUCO).

This year, we seem to be experiencing a much more competitive environment due to the recession, increasing the significance in a choice of supplier. Both First Energy and Dominion have made available special offers for current Duke customers that will be less than the standard Duke "price to compare". Duke Energy has also created its own subsidiary unit that can be selected as a supplier at reduced prices (figure than one out, eh?).

Generally speaking, you'll receive some level of discount by signing up for a specific period of time - usually 1 year or longer. Some of these will have automatic re-enrollment, so you'll need to review your pricing again when the period expires. For those of you who are concerned with the source of energy (i.e., coal, gas, renewables, etc.), you may need to do a bit more research of an individual company to identify the makeup of the supply.

Be aware that pricing varies based on your personal energy usage, but you will likely benefit by making a choice of some sort from among the current offers. You can find a list of locally available suppliers on the Duke website. You can also visit the PUCO site that discusses the choice programs along with a list of cities and townships that have aggregation programs here.