Or not.
If nearly 3 years of home price declines, historically low interest rates and a relentless media barrage of half-truths from the National Association of Realtors haven't been able to stabilize home prices, it's doubtful a gimmicky used-car-style sales event will do the trick.
Coldwell Banker, one of the nation's largest real-estate brokerages, launched a nationwide campaign last Friday to boost the flagging housing market. The 10-day sales event aims to close the gap between buyers and sellers by offering up to a 10% discount on listed homes for, you guessed it, 10 days.
This selling bonanza was hatched in response to a recent survey of over 3000 of the firm's real estate agents, which found that a majority feel listing prices are too high to attract buyers. The survey also showed almost 80% of the agents believe more appropriately priced homes are garnering more attention; apparently, you need a license to know people like to pay less for a house, not more.
Coldwell Banker's president and CEO, Jim Gillespie, is confident the housing market may finally be nearing a bottom. He told our friends at Marketwatch: "Despite the difficult headlines regarding our overall economy, the residential real estate market has been showing several positive signs over recent months that could be signaling a tipping point."
It's unclear whether continuing price declines, historically high levels of inventory, tightening lending requirements or frozen credit markets are the "positive signs" he's referring to.
Gillespie also believes the unprecedented sales event will encourage buyers to jump back into the market: "Because of higher inventory, buyers have more homes to choose from and they can take advantage of near historically low interest rates and affordability levels that are the best they have been in years."
Yes, affordability levels are the best they have been in years: Much better than when the only way to get into a house was to lie about your income and take out an Option ARM with a 1% teaser rate.
About this time last year, homebuilder Hovnanian (HOV) tried a nationwide fire sale to flush out its bloated inventory. More recently, Lennar (LEN), Centex (CTX), and DR Horton (DHI) tried a similar approach with both land and homes - to no avail. The fundamental forces pushing housing prices down will persist, regardless of futile ploys aimed at tricking buyers into paying more than they should for homes.
To be clear: Being negative on the housing market isn't exactly a contrarian position. Therefore, anyone claiming it's a great time to buy -- like Coldwell Banker and tens of thousands of real estate professionals around the country -- clearly have their own reasons for doing so.
Real estate agents get paid to close transactions; whether their client receives (or pays) a fair price is a non-issue.
Commission expenses are borne by sellers, typically to the tune of 6% of the sale price. In California, where the median home price is still over $350,000, that's $20,000 out of the pocket of someone who's already seen his home's value evaporate before his eyes.
The selling agent usually splits the commission with the buyer's agent, a pay structure that gives both sides an incentive to not only focus exclusively on closing deals, but also to sell homes for as much as possible.
Coldwell Banker correctly asserts that many sellers have unrealistic expectations about their homes' final selling price, and as a result keep asking for prices too high for too long. Their cute little sales event, however, is aimed more at earning commissions for their struggling agents than advancing true price discovery in the troubled housing market. If the firm truly had the best interests of homeowners in mind, agents would volunteer to take a pay cut to ease their troubled clients' burden.
Gillespie, Coldwell's CEO, claims the event will "help move the US real estate market in the right direction." He's right - home prices must continue to fall. Simple economics, the interplay between supply and demand, is driving most markets, as tens of homes sit on the market for every one qualified buyer. Until this overhead supply is worked through, prices will remain under pressure.
In some of the most depressed areas -- Las Vegas, the California Central Valley, Florida and Phoenix -- homes have reached or surpassed traditional levels of affordability. Unfortunately, there's more to buying a home than just being able to make the monthly payments. With down payment requirements returning to pre-bubble levels, low interest rates are almost a moot point.
There just isn't any economic rationale for buying if home values keep sliding.
Even if a borrower can afford the monthly payments, home price declines wipe out the tax benefits of writing off mortgage payments and risk putting the new homeowner in the paralyzing position of owing more than his home is worth. Buying a home today is almost like buying a new car: You're upside-down as soon as you're handed the keys.
Until there's real, verifiable evidence that home prices have stabilized, buying a home remains a dangerous financial proposition. This is true in every market, not just the ones that make the headlines for mind-boggling foreclosure rates.
Renting is still the far more fiscally responsible option. Staring into the teeth of a recession, families should be making choices in the best interest of their financial security, not for bragging rights at cocktail parties.
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