Just today I was out with a buyer looking at a home they liked. What they didn’t like was the price. The homeowners purchased the home 12 years ago. I won’t go into details as my buyers like the home, but at the current asking price the sellers would make a 186% profit on the home in those 12 years. That would average out to 15% per year.
As an agent that represents sellers and buyers, I have no problem with profit. What surprises me is how out of whack the listing price is, in the current market.
Now unlike, other parts of the country, Salem Oregon real estate has returned to a more normalized market. Definitely a buyer’s market, but people are still making a profit on the resale of their homes.
What this chart shows is the annual appreciation that Oregonians have had since 1975. Those nice down peaks occurred in the early 80′s when the timber industry hit bottom at the same time the S&L crisis hit the real estate market. Since then, Oregon has enjoyed positive appreciation on homes.
The Home Price Index is calculated by looking at appreciation from resale properties. So if someone bought a home in 1992 for $100,000 and then resold it in 2002 for $175,000, this index looks at that appreciation of $75,000. What is great about this index is it tells us what homes are really appreciating at. This chart calculates real loss on homes. Meaning that the sellers had to walk into closing with money in order to sell the home. The problem in the Salem, Oregon real estate market is that huge peak in 2006. What that peak did is create imaginary profit for home sellers. Some people made so much real money in real estate in the past two years, that their perceptions became distorted.

What’s the problem? The problem with sellers in 2007, is not that they are necessarily losing money on the resale of their homes, it’s that they aren’t making AS MUCH REAL MONEY as they THINK they should. Sellers feel like they have lost money, when they really haven’t. This is a very powerful psychological barrier to having appropriately priced homes in the current market. Even though people aren’t losing money on the sale of their home, they feel like they are, due to heightened expectations. This is one of the main reasons buyers aren’t jumping in. They are looking at what a seller paid for the home and calculating a more appropriate profit.
One of the more difficult jobs agents have now, is helping sellers understand that they are still making REAL MONEY on the sale of their home, and to give up on the IMAGINARY MONEY they thought they were going to make on the resale of their home. Those sellers that are able to do that are going to sell. The rest are just going to have to pretend they sold their home.

Related posts:

  1. Selling in a buyer’s market
  2. Rent or sell? Are you landlord material.
  3. Lowest Equitable Price??