I just ran across this article on Home Builders that speaks volumes to what we are seeing in our marketplace. Builders are drastically slashing prices on existing inventory and there are some great deals to be had. It also makes a direct point on the downward pressure on our existing home prices. Land continues to fall in value and there is less and less interest in new construction starts.

Bloody Week in July

The last week has been an apocalyptic one for the home building industry, as you can see from the stories below. Public companies posted more than $2 billion in combined losses during the most recent quarter. Figuring that they might as well get it over with now, since no one expects the market to get better real soon, these companies took big impairments in land, and they abandoned option contracts.

What does this mean to the rest of the industry? It's only going to heighten competitive pressures and squeeze margins. When the publics say their land is worth less now than it used to be, they start from the new basis in pricing their homes. Land write-downs partly explain how prices in that community of $320,000 homes suddenly dropped in the latest phase to $240,000.

D.R. Horton reported a staggering $852 million in write-offs of land and options, the biggest single quarter impairment charge in recent history. Pulte was a close second with $749 million. Standard Pacific took $165 million, and so on down the line. And the publics aren't done yet, though they are past the half-way point; there's likely to be another round next quarter.

For many of these companies, the losses are on paper only. Before impairments, many produced operating profit and generated positive cash flow. Meritage, for instance, would have made $13 million, if not for $70 million of write-offs.

Nearly all the publics, to allay growing concern in the debt markets, emphasized that they are in campaigns to bolster cash flow. What does that mean to competitors? It means that public companies are very eager to make a sale. They want to convert their fixed assets, land and inventory, into liquid ones, cash. They are willing to make concessions to make it happen.  

This bloody week in July potentially speaks to even bloodier ones in the new home sales marketplace for the remainder of the year.

Michael Polly

Vice President Denny Grimes & Company

Buyers and sellers have different opinions

Residential real estate prices are falling, and the selection of homes to choose from has never been better. There seem to be good deals out there, so should you buy now or wait for the market to get even better? In other words, when is the best time to buy real estate?

Does this question sound familiar? Not only is this question verbalized hundreds of times a day, but I believe it is on the mind of every potential buyer in our market.

It's a good question, one that I would like the answer to if I were buying. So, I decided to find out what other people were thinking. I was operating under the premise that if I asked enough people, a common answer would lead me to the truth.

My unscientific survey consisted of me asking dozens of buyers, sellers and real estate agents when they thought was the best time to buy. I was surprised to learn that there were about as many opinions as there were people willing to give it. However, it wasn't surprising that buyers and sellers opinions seemed to be 180 degrees apart. Most Realtors’ opinions mirrored that of the sellers.

The general consensus from the buyers is that the best time to buy is sometime in the future. They gave answers such as “when the property tax law changes are finalized,” “later this fall when sellers are more desperate,” “after hurricane season,” “after the elections” or “when the market hits bottom.”

Not all buyers felt it was beneficial to wait. Some were actively in the market in hopes of striking a killer deal, but they were in the minority. Some had already bought and were glad they did.

Is the buyer's propensity to wait being driven by common sense or common greed? Is it possible that buyers are behaving like sellers did back in the seller's market? When sellers were in control of the market, buyers were willing to pay almost any price, but for many sellers, it wasn't enough. So the buyers paid more than the asking price.
A strange sense of irony exists because today’s sellers are still unhappy with the buyers' offers, because these offers are not enough either. They are well short of asking price. Turn about may be fair play, but buyers beware. Greed doomed many sellers because they held out for more. Don't get caught holding out for less.

The sellers and most Realtors I talked to were more focused on the present. They stated that “today is the best time to buy.” They defended their position by stating that prices are way down from their peak (some even felt they had bottomed) and interest rates are still attractive. The Baby Boomers are coming, so get while the getting is good.

Is this advice self-serving or a warning to take advantage while you can? It may be both. Unfortunately, too many buyers will ignore the prudent advice of a reputable salesperson when they say “this is a great deal” or “this is the developer’s bottom-line price.”

In many cases the salesperson will be right, and he or she has the best interest of the buyer in mind. The challenge for the buyer is to sort out advice that is good for them versus advice that is good for the salesperson.

Now you have heard when it's the best time to buy from the buyer, seller and agent perspective. But is there a better answer, one that does not matter which side of the real estate fence you are on?

Try this. The best time to buy is when sellers' fear that tomorrow will be worse than today. Real estate agents should memorize this answer because it is not self-serving and its 100 percent true.

When fear motivates, sellers will entertain offers, conditions and contingencies that they wouldn't under normal circumstances.

This “fear of tomorrow” is a buyer's friend. As long as they have that ally, they have bargaining power. When hope and optimism begins to replace fear, sellers will dig their heels in and will become less negotiable. This change in attitude will take place before the market bottoms, so if you happen to be waiting for that mythical day, you may have waited too long to strike your best deal.

Buyers, you find yourself in an envious position because the window of opportunity to get a great buy exists today.

When will the window close? I don't know. Will it exist tomorrow? Probably, but the question you will have to ask yourself is whether you’d rather buy one day too early or one tomorrow too late?

By Denny Grimes
Originally published on July 29, 2007 News-Press