The Clash – Should I Stay or Should I Go?

Remember this great song? Who would have thought the lyrics to be so relevant for a real estate market? The song goes on to say…”if I go there will be trouble, if I stay it will be double!” So come on agents, what advice do we give to sellers? Should they stay or should they go?

Well, it’s not an easy question to answer sometimes. There are some factors that have to be considered before making such a big decision. I always take the position with my clients that I give them the complete picture of both scenarios. If you sell, here’s what it will take. If you stay, here’s what you need to expect. Since I have this conversation SO OFTEN these days, I decided to write a little outline on some ideas and consequences all based on statistical data. As the saying goes…numbers don’t lie. Once I present this information, then it’s up to the seller. At least I know I’ve done what I can to help them make the best decision.

As a side note, the information provided here is based on the Outer Banks market only. Please feel free to input actual data from your own market as the concepts will likely be the same.

So, should you stay or should you go?

1. If you stay, be prepared for a long turn around. Cycles like these historically have taken about 10 years. We are only 3 years into it. We have another 7 years to go. Not selling today because of pricing means waiting at least 7 years to get a better price than we can today.
2. Many people own beach homes as an investment and part of their overall financial planning. Knowing that your home/investment is not going to gain value over the next 7 years, how does that affect your long term plan? Is it smart at your stage in the plan to keep money in an asset that will not grow at all for 7 years? If you sold today and took a bit of a loss, could you put the money in another investment vehicle that would actually GROW over the next 7 years? Of course you could. When your beach home goes from the family vacation spot every year to something you’re holding for financial purposes, the timing becomes so much more important.
3. If you stay and something happens over the next 12 to 24 months that causes a hardship and you HAVE to sell, know that you’ll be getting a lot less than we can get today. So before you make the decision to stay, how secure are you financially? Could something upset the balance and cause you to have to sell before the recovery?
4. If you stay you have carrying costs. Most homeowners here will spend $10,000 to $20,000 (sometimes more) each year owning their home. By the time you spend that each year for 7 years waiting for prices to come back up, how much did you actually make? Consider a situation where I recommend $500,000. You want $650,000. You spend $20,000 each year owning it for 7 years, that’s $140,000. Does it really make sense to wait?

Now you’re probably thinking, well all that sounds good, but how do you know for sure it’s going to take 7 years? As I said in a previous blog, I don’t have a crystal ball. What I do have are statistics. Statistical trends are pretty solid indicators of what to expect. If they weren’t, they wouldn’t be used in any industry for predictions. That being said, here is some actual data that contributes to the 7 year timeline.

1. The top 3 sources resort buyers use to provide their down payment when buying on the Outer Banks are –

a. Equity from their primary residence or the sale of some piece of real estate. Until more people have equity in their homes, the number of buyer sales will stay limited.

b. Stock, bonds, funds or other investment sales

c. Bonuses, inheritance or some kind of money gifted

How long will it take before more buyers feel confident in this economy to use these kinds of funds for real estate purchases, rather than saving due to the economy?

2. Foreclosures. 16% of our active listings are a distress sale. Sounds small, right? Well, consider 40% of closed sales each month is a distress sale. While we don’t have an overwhelming inventory, they are certainly a BIG percentage of what’s selling. Does a distress sale affect the price of your home? With so many, how can it not affect you? The good news here is that 60% of sales are regular homeowners. They are also priced competitively with the distress sales.

3. Shadow Inventory. It is estimated banks are holding 50% of their foreclosed inventory off the market in an effort not to crash it. They are strategically releasing homes for sale slowly because they know more supply equals less demand equals lower pricing. So, if we have another 2 to 3 years of 16% of our inventory being distressed and 40% of closings being distressed, how can prices go up?

4. Homes are still being foreclosed on. Let’s not forget the foreclosure crisis is still happening. We get weekly reports in Dare and Currituck Counties of homes that are facing foreclosure. Each week there are at least 15 to 20 homes on the list. That’s 60 to 80 more foreclosed homes a month! How can we hit the bottom and start recovery with that many properties still being taken back by the bank and facing the open market at some point for considerably lower prices?

5. Inventory of regular properties. A normal market has 6 or less months of inventory actively for sale at any given time. Right now, we have over 2 years worth of inventory. AND, that ‘s if nothing else came on the market. Each month we get about 375 new listings. If we have right now OVER 2 years worth of properties to sell, how will it be better next year?

6. Once we DO hit the bottom, prices aren’t going to rebound instantly. So let’s say in 3 years we hit the bottom, prices stop going down and we have a better handle on inventory. How long will it take to climb back up to the price you’re comfortable with? Another 3, 4, 5 years? The decline didn’t happen overnight, neither will the recovery.

Please understand my goal with this information is not gloom and doom, rather reality. With the right agent, right exposure and right PRICE, your home WILL sell. That’s not the question. The question is typically when can we get more? The answer…7 or more years. If that doesn’t fit into your plan, sooner is better than later. Time is not your friend in a declining market.

So before it costs you double, give us a call for a complete analysis on YOUR Outer Banks home.