Caution precedes uninhibited buyer exuberance.

2011 defined a new attitude about home ownership, an attitude shaped by the difficulties the national real estate market has experienced over the last few years. Buyers are keenly aware that buying a home is not always a sure thing and might become a liability if home values fall.

Video Clip
Fed Chairman Bernanke discusses the two additional problems slowing down the US housing market:

Fortunately, home values in Lawrence have proven to be resilient compared to areas of the country that have lead the decline. (Run your own comparisons of Lawrence home values over time to other areas of the country at HomePriceGraph.com)

My optimism that sales volume in 2011 would match that of 2010 by the end of the year is being confounded by a sharp drop-off in sales activity since the end of July. Since my last update, August numbers were revised upwards, but are still very weak (contracts signed in August fell 24% and September contracts dropped 5% both compared to Aug. & Sept. 2010 respectively). A year over year comparison of completed sales transactions to date (Jan - Sept) shows 2011 now lagging 2010 by 16.3% (or 111 fewer transactions). Buyer enthusiasm picked up in May, June and July leaving me to believe buyer sentiment was improving. Along with interest rates returning to all time lows and home prices off their peak, I anticipated we would end the year strong, but the mood of buyers has dramatically deteriorated in the last 90 days. My hope is this is just a short pause, but it's very unclear how long it could last. With the deficits we are entering the last 3 months of the year with I find it likely 2011 will referred to as the, "Terrible, Horrible, No Good, Very Bad Year" for sellers trying to sell a home here in Lawrence.

What does this mean for sellers?

It has been my experience that buyers have become very rigid about compromising when it comes to making a purchase decision in 2011. Buyers want to find a home that closely matches all of their expectations before they are willing to make an offer. More specifically, I can define this by saying buyers are looking for either a "spectacular deal", like an unreasonably low priced foreclosure (regardless of condition), or a home that is new (or well maintained and modernized) and matches the buyer's unique tastes. This is leaving many good Lawrence homes overlooked (and undervalued) by buyers shopping this year. Sellers should consider this market dynamic and plan for an extended period between receiving offers, while waiting for the "right buyer". The other option is for sellers to reduce their price to compete with buyers shopping the low end of the market. Many sellers appear to be weighing the option of renting in lieu of selling with the expectation the market will improve, "later". But selling a home that is being rented comes along with its own unique set of difficulties that sellers must consider.

Is it a good time to sell my Lawrence, Kansas home?

Ultimately, 2011 has been more difficult for sellers, who are offering good homes at fair prices, to find buyers willing to make offers. Many sellers are being forced to make hard decisions about selling for less or holding on to the property. Some are even becoming landlords and renting in hopes market conditions improve next year. Homes that look great, inside and out, are getting the best offers. The majority of buyers are now expecting sellers to negotiate on the price and terms of the sale. Homes that sell, generally fetch 95%-97% of their last recorded asking price. Many buyers are shopping up to the maximum amount a lender will give them or buying with cash. This means a home's list price must be very close to what the buyer is able (and willing) to pay before a home even hits their shopping lists. Even when buyers are willing to 'stretch' to make a deal happen, they likely can't, because they are already shopping at the limits of their financial capacity and need to negotiate just to place the home within their reach. Combined with tighter lending practices, tougher comparable sales and stricter appraisal guidelines, a home's list price must truly be attractive and feel within reach before buyers are compelled to make an offer. If you are trying to sell your home, I encourage you to consult an experienced agent and not get too discouraged about the market, because it could be worse, you could be one of the people who bought a home five years ago in Los Angeles.

So, although our market activity is slow, home prices in Lawrence have been resilient compared to other areas.

Is this a good time to buy a home in Lawrence?

Update October 11th, 2011
Fed Chairman Bernanke discusses the opportunities home buyers are finding in today's housing market:

Although indexes like the Housing Price Index (HPI) show home prices have been on a very slow decline since their peak in 2007 (a total decline of 5.4%, approximately 1.3% a year, in the Lawrence area). Lawrence MLS data shows the median home sales price for Lawrence is rising; $162,700 in 2007 up to $166,300 in 2011, an increase of 2.2%. Although this data appears somewhat contradictory, it means buyers are still willing to spend about the same amount on a home, but they are getting a slightly better home for that same price today.

But the real truth about home affordability today is much better than most buyers imagine.

Hiding in these numbers is something astonishing. To find it, we have to do a little math and calculate what buyers who purchased back in 2007 actually paid each month on their mortgage, and compare that to what a buyer would pay for the same house today. The results blew me away, buying a house today can save you more than 20%!

How is this possible? Let's look at the math for a typical Lawrence house sold in 2007.

In 2007 the median sales price of a home in Lawrence was $162,700. The FreddieMac historic interest rate index shows the average interest rate in 2007 was 6.34% on a 30 year loan. If you purchased this home back in 2007 with a 5% down payment, the principal and interest payment would be $961 per month.

Jumping ahead to 2011; Adjusting the sales price of the same house using HPI data, we see it has declined slightly more than 5% in value and would now sell for $153,877. Average 30 year mortgage rates have also fallen from 6.34% in 2007 to a historical low of 4.67%. So, buying the same home today on a 30 year 4.67% mortgage, with a 5% down payent, the monthly payments are reduced to only $795, a reduction of $166 per month! That's a savings on the monthly mortgage payment of over 21% or a total of $59,760 over 30 years... more than 1/3 of the homes original sales price.

Combine this with a robust inventory of homes in every price range and sellers willing to work with buyers to make deals happen, I have never seen as many great opportunities for buyers here in the Lawrence real estate market.

If you are shopping for a home in Lawrence, I would be happy to direct you to some great deals in wonderful neighborhoods, just give me a call at (785)550-2585.

Single Family Building Permits issued in Lawrence, KS

Building permits for new single family homes can indicate how people are feeling about the Lawrence housing market. A spike in new home construction may indicate an appreciating real estate market. The graph below tracks new single family building permits each month in Lawrence, Kansas. There were no new single family building permits issued in Lawrence in January 2011 There have been fewer Single Family building permits issued during the first five months of 2011 compared with the same period last year.