5 Reasons Home Values Should Not be your Biggest Worry

How in the world can I get away with saying Home Values should not be your biggest worry? I am sure this statement is enough to get under the skin of any homeowner/home seller and those buyers out there looking for the best deals possible.

As a seller, the goal is to get the highest price possible and as a buyer, the goal is opposite. So why not worry about the value? Because as a home seller or home buyer you have little control over market values. Below are the five reasons to consider which may help you sell your home at the maximum possible price or purchase a home at the best possible price.

1. Your are not in control
2. Consider the Contrarian
3. Population Growth & California
4. Keeping regional data reports in perspective
5. You home is a place to live not a commodity
   

1. You are not in control. There are many outside contributing factors that affect Home Values.  Everything from area employment opportunities, the local and regional economy, mortgage interest rates, supply and demand and location.  Any one of these conditions will impact home values significantly and if two or more of these conditions are present in the market at the same time, the impacts are even more dramatic.

2. Consider the Contrarian. Who is the contrarian? A Contrarian as known in the stock market is the person that goes out and buys Exxon stock after the Valdez crashes and fills Alaska’s waters with crude oil. While the event causes significant environmental damage and investors sell off all their Exxon stock, the Contrarian will come in and buy the stock while on sale knowing that Exxon as a huge company can weather the lingering effects of accident.  Are there real estate contrarians? I believe so. Take a state like California and even in the worst economies, real estate will eventually recover. Climate and opportunity has always driven California.

For example looking at the West side of Los Angeles, areas like Brentwood and the Palisades may be affected negatively by a declining real estate market. Now consider their proximity to business and opportunity in Santa Monica, Century City, downtown, the movie/tv industry in Burbank and Hollywood and it becomes easier to understand why those areas over the course of history in Southern California have remained  affluent and highly desired and tend to recover quickly.

3. Population Growth & Control. California’s population increased by approximately 5 million over last decade. California population growth in the past was tied to people migrating from other states. This is not happening anymore. While population growth in California has slowed due to a higher cost living, the population continues to grow through increased birthrates and foreign immigration.  If and when the state government can fix it’s own financial problems, as the recession eases and unemployment begins to retreat, California’s attractiveness will return and the slowdown in population growth for the state will end. Because of the climate and the opportunities California has afforded those who have moved here over the course of history, the long-term outlook for our state will always be positive. The big take-away is that California is increasingly become very diverse culturally and we all should consider that doing business with our foreign immigrants will increase and be very common.

4.  Keeping regional data reports in perspective. The news typically reports regional trends for real estate and rarely delves into the specifics of any local or hyper local market. Traditional news, such as the papers and television are tied to viewership and advertisers. Stories are watered down and massaged to gain readers and viewers. The chore of reporting detail below a regional level has been absent from the newspapers for a long time. Over two years ago Los Angeles Times closed down their real estate section.

Consumers have access to real-time information on market conditions through many internet sources. The median home price for Ventura County is essentially useless for a homeowner in Simi Valley. That median price for the County takes in account  million-dollar homes in Camarillo, entry-level homes in Oxnard and all the neighborhoods in-between. If you live in a single-family detached home in Simi Valley that is approximately 2500 square feet, 20 years old with an average size lot, the market conditions of the homes on the extreme ends of entry-level and the million-dollar markets really don’t matter. Besides, buyers looking for homes in Camarillo typically do not have a search broad enough to include Simi Valley. Local market trending is extremely important when determining home values.

5. Your home is not a commodity. Probably the biggest thing that has been lost in translation for those at the cusp of the baby boom, generation X and generation Y, is how home valuations function over time. Over the last 10 to 15 years younger generations have placed home ownership as a high yielding investment. This is in complete contrast to the older baby boomers and those who grew up in the depression.

Since home values have been recorded, if you go back historically, a maximum of a 6%  average annual increase in value is what you will find. The 10%, 15% and 20% gains we saw just five or six years ago are more a fluke tied to lending and hyper consumerism.   The Wild West mentality in the banking industry will not return any time in the near future, which ties people’s incomes to how much they can borrow.  As people can  only qualified for monthly payments tied to their income, home pricing will return to historical trends.  Historically home prices have always been a function of a person’s real income and the market is now correcting to that trend. Doubling or gain large capital gains form the sale of a home purchased today is going to take a very long time.

The sum this all up, Home Sellers need to be very cognizant of their local market conditions, how much competition they have in the market place and what the buyer can afford to pay in price.  Home Buyers need to understand that there a very good buys out there now, but the screaming deals are not the norm, no one is giving their house away.  Short Sale prices are ultimately determined by the Seller’s lender and foreclosures on the open market are subject to healthy buyer competition.  Write down your Home Selling or Home Buying goals and see if that fits with the current market conditions before moving forward as this may help you avoid frustration.