You Want the Truth in a Hot Real Estate Market?

 

 

 

“It depends on what the meaning of the word ‘is’, is.”

Former President Bill Clinton

 

“What is truth?” 

Pontius Pilate

 

I was talking to a client the other day when he mentioned buying a house to live in.  He was currently renting and wanted to find a place he could settle and begin to grow roots with his growing family.  He had owned houses before and was ready to get into the real estate ownership game again.

 

However, we discussed that buying a house in Charlotte (and probably across the country) is difficult now.  If a home for sale is priced competitively, it usually has multiple offers as soon as it goes on the market.  In addition, home prices have escalated.  Even with low interest rates that would keep his payment down, he didn’t want to overpay as he was afraid it would take a long time to see any capital appreciation.  It was a conundrum- Continue renting or buy?

 

There was another option he wanted to talk about.  He had found a nice house that was in a great area that he thought was priced right.  It had been languishing on the market for months and the only reason he could see that it hadn’t been snapped up was that it had a shared driveway.  So his question was, “Do people really hate shared driveways that much?”

 

I didn’t know.  At first take, sharing was good.  Sharing is caring.  How much time do we really spend in the driveway anyway?  Surely not enough to be priced $75K below the other nearby houses and not be under contract, right?  I never thought that much about sharing a driveway.  It would be a nice opportunity to know the neighbor better; maybe share cars occasionally if his was parked in front of mine (especially if his was nicer!). 

 

So what’s the true value of an independent driveway versus a shared one?  I told him I didn’t think it should matter that much. 

 

But… at the end of the day, it didn’t matter what I thought the truth was.  The truth was the market.  The truth was that in the midst of an extremely hot real estate market, this home with a shared driveway was not sold.  And I wasn’t sure why this fact would change in a colder real estate market.  Bell bottoms may come back into fashion, but I’m not sure about communal driveways on higher end homes.

 

One thing that I have to come to realize in real estate (and other goods) is that the market is rarely wrong.  It happens sometimes and the people who bank on it can make a killing (see multi-billionaire hedge fund manager, David Tepper, the owner of the Carolina Panthers).  But usually, the market is the economic truth- it’s efficient and self-corrects quickly. 

 

I had read something a broker wrote (if I remembered where I’d read it, I’d give him the shout-out) about pricing homes that are $500K or less in this hot market.  He said something to the effect that if the home was still on the market two weeks after it was listed for sale, the price needed to be reduced.  I’d largely extend this to the rental market as well.

 

A rental home may look like it is worth $2,000/month, but if it is marketed properly and there are no showings or takers, it’s not worth $2,000/month.  And let’s be clear, I’m not saying that, the market is.  

 

It’s hard to tell what the truth is sometimes.  But in real estate, the market is one of the biggest truth-tellers out there.

 

Happy Landlording!

Predicting Presidents & Charlotte Real Estate Prices

 

There are people who are very interested in politics, especially in the US presidential election every four years.  “It’s the most important election of our lifetime!  Think of the children!”  I don’t fall into this camp.  However, I do like to try to predict who will win.

 

That doesn’t mean I’m any good at it, unfortunately.

 

I try to use “common sense” on who will win- ha, ha!  Below are the actual winners from the past few elections and my rationale at the time for why there was no way they could win:

 

2008: Barack Obama.  I was wrong.  I didn’t see how a community organizer with no experience running anything could win.  Plus, he shared his middle name with a top, evil dictator.

 

2012: Barack Obama.  I was wrong again.  The economy was in shambles and the “Great Recession” was on his watch.  I wasn’t sure that President Obama could effectively keep blaming former President GW Bush for the poor economy his entire term.

 

2016: Donald Trump: Wrong on this one too.  Where do I start on how I didn’t think his election was possible?  I mean he didn’t even think he was going to win.

 

2020: ???  Pollsters say Joe Biden is close to a shoo-in. 

 

Now let’s shift to Charlotte real estate.  When COVID-19 began to affect our lives in March 2020, people were understandably afraid.  Corporations began rapidly shedding jobs, the stock market tanked, and there was little optimism in the world. 

 

We had just put up a home for sale for a client that month (who really needed to sell) and we were concerned that COVID-19 would adversely affect the market.  We lowered the price and worked quickly to get it under contract before things got worse. 

 

However, the adverse effect on Charlotte housing prices never really happened; in fact, prices actually climbed and continue to climb.  We probably should have raised the price!

 

So why am I bringing up my poor predictive skills?

 

Sometimes it is more effective to forget the short-term noise of what is going on and stick to market fundamentals.  The market fundamentals for Charlotte are that 66 people on average are moving here every day and that number will probably increase as people flee big cities for more space.

 

There is also a housing shortage in Charlotte.  This has been exacerbated as people are “sheltering-in-place” and not putting their homes on the market.  The fundamental “supply vs. demand” rule takes effect and prices rise with scarcity.

 

Things can change quickly, but fundamentals and long term trends tend to move glacially or not at all. 

 

And political incumbent candidates usually win…

 

Happy Landlording!