- June 23, 2011
- Posted by: Christopher Hanson
- Category: Real Estate
Sellers (and listing brokers?) of residential real estate seem stuck in the ‘olden days’ of value. They are stuck with the old price. It’s the “sticky price” problem. They seem to ignore a reality: Value is based on CASH PRICING.
Yup. Those REO speculator investor buyers are setting the new market value of EVERYTHING.
And why not?
Isn’t “value” what a willing buyer will pay a willing seller – absent outside influences? And isn’t financing an outside influence? We only need to look at what the ability to get easy money (i.e. stated income loans with teaser initial rates and optional payment plans) did to values in the last 10 years. Now that governmental influence in lending money has reversed itself – making it feel nearly impossible to get a loan – even for a well qualified, fully documented loan applicant – prices are still ‘in the gutter.’ How come?
Because that’s where they belong.
Take a look at any chart that goes back, say 30 years. You can see the line of price increase is a relatively shallow one. If you take out the last 10 – 15 years, the place where today’s prices hits is just about in line with the historical norm. This ‘market adjustment’ has ben huge – no doubt about it. But is adjusted to where it ought to have been in the first place – absent government interference.
So, cash is king. It always has been. And a cash price value is THE value. That a borrower might be able to borrow dollars to buy at the cash price just gives that borrower leverage. What a nice thing. If you can get it.