Random musings about a real estate market in transition

Friday night on Metro North
Creative Commons License photo credit: bitchcakesny

Recently I watched my daughter respond to a Twitter stream from a friend. A young twenty-something, she admitted she had never heard of the Mary Tyler Moore Show. And when he sent her a link to the show’s opening credits, she wrote, “Ha! Now I’m hooked: Did she make it in the big city? God, the 70s look great.”

The 70s were “great,” all right. The Village People, Pet Rocks, Saturday Night Fever, and a big yellow smiley face that reminded us all to “Have a Nice Day!” Now, decades later and standing in the shadow of my looming AARP card, it all seems rather ridiculous. But, at the time, polyester, tube tops and Richard Nixon seemed like really good ideas and, save the latter, no one could have convinced me otherwise.

Looking back objectively and honestly requires some distance. I think we are mostly in agreement that our once-prevailing “home as ATM machine” strategy of the early 2000s was an awfully misguided concept. But back in 2003 when everyone was refinancing to buy cars, vacations and more houses, and while the lenders enthusiastically dangled the carrot of jackpot riches tethered to the end of a subprime, teaser-rate stick, few recognized (or were prepared to admit) how incredibly silly it would all seem with a little time under our bloated, over-extended belts.

Last week, as I attended a local weekly broker pitch session, the agents were talking about the current state of real estate. The consensus was that we haven’t fully recovered, at least not emotionally. A disconnect remains. Sellers aren’t quite prepared to fully accept current market values, and the buyer pendulum, having swung too far in the other direction, leaves far too many would-be home purchasers waiting for shear perfection and at pennies on the 2000 dollar.

One agent remarked that buyers are looking at their purchases only from a financial perspective: Is it a great investment, and can I get it for significantly less than the rack rate? Gone is the emotion that we have historically associated with the home buying process.

To this another agent offered that we need to infuse a little of the absentee emotion back into the process. Where we have spent the better part of a decade talking only about the money (“Homes are always a good investment over time,” “Consider the tax write-off,” “It beats throwing rent money out on the freeway”), she suggested that we need to retool our approach and reprogram the client’s thinking, and that maybe it is just a little personal.

I believe they are both right. I also believe that changing the mindset and the fashions of a decade will take time. And I got to thinking about this again as I was reading The Big Short, Michael Lewis’s latest book on the housing crisis. There is enough blame to go around, for sure, but I found myself wondering how we – the consumers – missed it.

Most of us, if we are honest, didn’t miss it. We just collectively ignored the signs because there was a movement afoot. Wealth was being created, and no one wanted to be left off the party list.

Think leg warmers. Unless you were a budding gymnast in the 70s who had to take extra precautions against muscle pulls and leg cramps, leg warmers made no sense. Regardless, we all went out and bought several pair because it was fashionable. Forget that they made my legs look like the bottom quadrant of a giant Sequoia and that, for me, a hard workout mostly consisted of walking briskly to the refrigerator. It became a huge, unattractive national movement, and we all bought into the concept that we would be transformed into that really cool Flash Dance girl if we only wrapped hideous wool-blend tubes around our scrawny calves.

So we did. And now we don’t. We’ve moved on, but it took too many years of feigning a love for Jazzercise and Disco to change our wardrobe. Our more recent bad decisions will take time too.

I predict (and I know this isn’t highly original) that, this time next decade, buyers of their primary residences will be looking long-term again, time being measured not as their grandparents might have, but maybe as their favorite older uncle did. And this next time we will be looking at the long-term rewards of enjoyment, not the promises of cash-out, refi retirement.

The cool kids will be buying not just what they can qualify for, but what they can afford. They will once again be looking at a home as shelter – as a life style and that happy place where the children grow up, the crazy relatives convene on holidays, and the dog hurls on the carpet.

I predict that the way we think about our homes will be charmingly retro. The purchase will be less about winning and more about succeeding, and the return on investment will be measured less with imputed financial equity and more with emotional equity.

Of course I could be wrong. But, I do know that trends do not turn on a dime; it is a process. For now, we remain stuck in the middle. Our transition won’t ultimately be about lending guidelines and jobs, about government programs and policies. Those things matter, of course, but our next housing market will be about by an attitudinal shift.

And for all of you who are trying to sell a home or buy one in this mixed up market, believe me when I say that agents are just as frustrated. Buyer demand and prices – these things are moving targets. We are navigating some new waters, and they are going to remain turbulent for a while.

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