Real estate - supply, demand and prices
Chad Brand writing in Seeking Alpha made some excellent points regarding the housing market.
"The main problem with the housing market is supply and demand and excessive pricing. Despite press reports to the contrary, most people can get a mortgage if they want to buy a house … So what will really help the ailing housing market? In my view, above all else, it's reasonable pricing. Not only can most people still get loans, but another myth out there is that you can't sell your house. That's not really true. What is true is that you can't get top dollar for your house or always make a profit on every property that you purchase. However, if you price your home competitively, you will find buyers.
Want proof? How about ... the "The Deal of the Century," where they (Hovnanian Entrprises) slashed prices by up to 25% or $100,000 in an effort to get rid of inventory. The results were beyond impressive. Hovnanian either sold or received deposits on 2,100 homes in just 72 hours. That compares with 2,539 homes sold in the entire quarter ending July 31st! … But still, the implications are very strong. If you price your homes as aggressively as HOV did, there are plenty of willing buyers. By doing so, Hovnanian sold more than 6 weeks' worth of homes in only 72 hours." Please read The Fed Cut and Housing Markets.
This brings up another subject, what happens to the homeowners who purchased houses in these same developments 3, 6, or 12 months ago or in the past few years who paid full price for their homes. In the "good old days of real estate", it worked just the opposite of what we are finding today. Back then, if you purchased in a newer development, by the time your house was built and you moved in, the builder had raised prices substantially. On paper, you had equity in your home. The builders have resisted discounting and devaluing their projects for a while but it now appears that financial pressures have caused them to no longer be able to simply offer incentives to attract buyers. Bottom line, the bad news, on paper, your house might be worth less than it was when you bought it.