Another Housing Crash Looming?

I've always been a proponent of buying and holding for the long term, maintaining properties diligently, and establishing productive landlord/tenant relationships. For the past few decades, that formula worked like a charm.

However, times have changed. We are in a period of unprecedented uncertainty with an unconventional monetary policy that has kept interest rates artificially low. Currently a 30 year mortgage can be had for around 4.125%, which is still historically low. Rates staying at these levels for a decade or more is a very unrealistic expectation.

Inflation is starting to tick up, and the Fed officials are getting more heat than ever to start raising interest rates. A true "market" mortgage rate would probably hover around 7% in a sluggish economy. Imagine if mortgage rates crept up from 4% to a still-very-low 5.5%? That is very possible in the near future (maybe 2015?).  Owners on the fence will be rushing to sell their homes, and it would cause an avalanche of pessimism to counteract the buying fervor of 2013.

When I started this blog in 2012, I saw some incredible opportunities with distressed sales and low prices, especially with condos and townhomes. I no longer see those bargains. I don't think the market is "super expensive" like it was in 2006, but some areas are starting to look frothy. The rental parity isn't there anymore.

Does Your Listing Agent Really Work for You?

For whatever reason, there will come a time when you will sell your property. When it comes to selling, there are two choices. One is to hire a real estate agent to list and market your property. The other option is to sell it yourself. I do not have experience doing the latter but the influx of tools such as redfin.com and zillow.com are making me consider selling without a listing agent in the future.

Let me start by saying that some real estate agents provide value and work diligently to make the sale as smooth as possible. But any homeowner has to keep in mind that while the listing agent ostensibly represents his client, his personal interests come first. That's natural and completely understandable. But as a homeowner looking to sell, you must educate yourself in addition to the information given from a biased party.

Here are some nuggets of wisdom from my most recent dealings with a listing agent:

1. The agent presented "comps" from 3 months prior to benchmark what my home was worth. But I was selling in a rising market and felt that the comps were already outdated. Always do your own benchmarking with tools from websites such as redfin.com (if it serves your location)

2. The agent wanted to list my investment unit for $260,000. I felt I had a more accurate pulse on this particular market. I thought that $285,000 was more than reasonable based on my own research. The agent said that a similar unit sold for $260,000. I said that unit was 100 sq ft. smaller and faced a busy street. An agent would rather get a quick sale, even if it's under market value. $20k to $30k does not make much of a difference in the agent's commission but it will make a BIG difference in your bottom line. My home ended up selling for $293,000 with multiple offers on the first week. The market sets the price, not the agent.

3. The agent asks how urgently you have to sell. There are good reasons why your agent would ask, but I would generally advise you not to lay all of your cards on the table. If the agent knows you are a "motivated" seller then guess what? They will let the buyers know. Remember, what you say can and will be used against you.

4. I would never pay more than 5% commission on both buyer's agent and listing agent combined. But I don't advise to shoot for 3.5% combined because the agent on the buyer's side will not have much of an incentive to take their client to your home. 2.5% per side is more than reasonable, and be sure to have the listing agent include complementary professional photography to list your home.