As we approach the spring real estate market of 2013 cautious optimism seems to be the prevailing sentiment both in Louisville and throughout much of the country. According to data recently released by the Greater Louisville Association of Realtors, 18% more homes were sold in Louisville in 2012 than in 2011. Our firm, Kentucky Select Properties, showed even greater improvement than the overall market with unit sales growth of 49% in 2012 vs. 2011.
I’m no Pollyanna but I think I can safely say that those of us who work in the industry — and survived likely the most challenging residential real estate market of our lifetimes — are comparatively bullish about this year and what lies over the near-term home buying horizon.
With the worst behind us, now seems like a good time to consider the lessons from this unprecedented chapter in housing history. Perhaps more importantly what are the fundamental things we learned that should continue to apply even as the real estate market improves?
First and foremost that home values don’t always go up indefinitely (despite the false sense of certainty we were lulled into during the market’s long-term steady appreciation before 2008). I do still believe unequivocally that over the long-term residential real estate in many markets will be as good an investment, if not better, than the stock market. Not to mention, that unlike stocks or bonds, a home provides a functional and emotional benefit to its owners.
That despite the financial inventiveness of some in the mortgage industry, with their “teaser rates” “pay-option ARMs” and “stated income (now affectionately known as liar) loans”, it’s not a good idea to buy a house unless you have the monthly income to afford it and can come up with a meaningful down payment.
A national media obsession with declining home values and mortgage shenanigans has taken up much of the spotlight in the wake of the meltdown. From where I sit though there was another storyline that often went underreported or not reported at all: the role of professional real estate agents in keeping the market on life support until it was stabilized and is now poised to make a real comeback.
I know many of our agents put in twice as much time and energy to bring and keep deals together and made a fraction of the money they did six or seven years ago. Which begs the question: what is the value of a good real estate agent these days? Or to put it more bluntly as a tech-savvy, thirty-something investor did to me recently: “With all the listings available on the Web, why do I even need a real estate agent anymore?”
It’s true that through national websites like Trulia and Realtor.com, as well as local broker sites, most real estate listings are now widely available on the internet for buyers to peruse. Additionally, as my investor friend pointed out, real estate sites like Zillow, and its Zestimate valuation tool, provide copious amounts of sale and tax assessment data with the click of a mouse.
But, I would argue, all this technology, while having its place, has underscored the importance of the guidance and human touch offered by experienced and knowledgeable real estate agents.
Zillow can aggregate publicly available sales data but it can’t tell you which homes in your neighborhood have been professionally remodeled and how much those remodels should translate to in terms of increased market value. That is precisely the kind of information an experienced and competent real estate agent can give you.
Between ever-changing mortgage regulations, epic negotiations over sales (and then again over home inspections), and wacky appraisals, there are more impediments than ever to successfully consummating a home purchase. Throw in the usual headaches of moving and a pair of stressed out clients and today’s real estate transaction promises more drama than a week at Actor’s Theatre.
In a classically efficient market — whether you’re buying stocks or tchotchkes on eBay — you’re dealing with a pretty straightforward transaction. Not so in residential real estate which is much more process oriented, and frequently driven by the unpredictable and often irrational emotions of sellers and buyers. Good real estate agents help their clients effectively navigate this unwieldy and sometimes stressful purchase process. This was particularly true during the real estate bust and will likely be one constant as we build toward the next boom.
Jay Gulick is Managing Broker of Kentucky Select Properties.