The Seller's Dilemma:Is Now the Time?

The Seller's Dilemma:Is Now the Time?
By JUNE FLETCHER.

For months, Richard and Sher Pestino have watched real-estate prices in their neighborhood in Loomis, Calif., climb toward, and pass, the $1 million mark. But it was only this week that the couple decided to sell their own four-bedroom house.
Among the deciding factors: A neighbor's home wasn't selling, leading them to believe the market was cooling. Then came a series of confusing economic indicators, and Hurricane Katrina. "We decided it's time to be sensible," says Mrs. Pestino, an office manager for a venture-capital firm.
Homeowners who've been trying to pick the right time to sell are grappling with a new set of questions. Over the last two weeks, as Katrina reeled through the south, a less-noticed array of at-times contradictory economic data were also released. On one hand, median prices for existing homes climbed at a record pace, and mortgage rates last week dropped yet again. On the other, according to a report issued Aug. 23, existing-home sales declined in July, the second time this year. Rising oil prices, meanwhile, could result in lower interest rates that would keep the boom going -- or could prompt a recessionary trend.
The optimistic view, held by economists such as David Lereah of the National Association of Realtors, argues that housing prices could continue to grow. In July, for example, existing-home prices rose to a record median price of $218,000. In the second quarter of 2005, 24 states and the District of Columbia showed double-digit annual price growth, according to the Office of Federal Housing Enterprise Oversight. Indeed, Katrina has had the surprising effect of lowering mortgage rates, a development that's likely to keep people buying houses. The bond market has pushed down the long-term rates on which mortages are based, partly because it expects the Federal Reserve to be less aggressive in raising rates despite some jitters about inflation. For the week ending Sept. 2, the average contract rate for a 30-year fixed rate mortgage was 5.64%, down from 5.78% two weeks earlier, according to the Mortgage Bankers Association.
Yet the more pessimistic feeling among other economists is that the rapid home-price growth over the last eight years is winding down. In July, existing-home sales dropped 2.6%, while new-home prices in June fell to $219,500, from a record $237,300 in February 2005. As of Aug. 26, the Mortgage Bankers Association reported that its index of demand for mortgages used to purchase homes was 470.6, down 11% from the peak of 529.3 in June.
All of that has prompted Michael Aston to begin researching an asking price for his 80-foot-by-120-foot canal-front lot in Punta Gorda, Fla. The retired businessman worries real-estate prices have climbed too high in the area -- prices overall in the neighborhood have increased almost 30% since June 2005 -- and about future hurricanes. Though he hasn't decided whether to offer the lot now or to wait until January when the "snowbirds" start heading south for their vacations, Mr. Aston says he's committed to selling, because "a nosedive is possible." He's also begun receiving entreaties from brokers: One, the 58-year-old says, offered to cut his 10% commission to 4%.
Buying in Texas
In San Diego, economic indicators coupled with the impact of Katrina prompted Robert Campbell to take a different tack. Watching news accounts of the storm, Mr. Campbell, an economist and self-employed investor, became convinced that the post-Katrina landscape included high oil prices that would slow job growth and prompt a recession. In this scenario, he concluded that homeowners would cash out of high-priced areas and move to more affordable ones. After identifying Austin, Texas, as one likely destination, Mr. Campbell began calling fellow investors, looking to raise $3 million to buy raw land in Austin. His plan: Buy up land at $10,000 an acre, spend about $300,000 subdividing it, then sell it for $20,000 an acre to homebuilders. "I think things are ripe for a correction," says Mr. Campbell.
In spite of worries about Katrina's immediate impact, over the long term, some economists say that high oil prices may well be the factor that puts the brakes on soaring home prices. Since the Gulf of Mexico supplies about one-fourth of U.S. demand for oil, Katrina's devastation has already yielded higher oil prices. That will make it more expensive to produce and transport building-related materials, from windows to drywall.
Muddling the picture further: the rebuilding of New Orleans, which will attract construction workers for months or years, and take them away from other parts of the country. That may cut into the supply of new homes that can be built elsewhere, says William C. Young, an economist in Arlington, Va., and as supply shrinks, prices will rise.
Sprucing Up for Sales
For sellers in the nation's hottest housing markets, the thought that the peak may have passed is sobering. In the suburban Washington, D.C., market, the number of contracts for single-family homes fell 8.9% in July from the year before. Brokers who used to oversee bidding wars of houses that hadn't had a makeover in decades are now pushing sellers to fix up their places to sell faster.
Vivian Donahue says she encouraged one client in Falls Church, Va., to spend $6,000 to put in new carpeting and refinish her hardwood floors, to compete with similar homes nearby that had been on the market for weeks. "You wouldn't have had to do this a year ago," she says. Her client's spruced-up house sold in a few days at a little more than its $475,000 asking price; the others are still for sale.
In Cape Cod, broker Jack Cotton says things have changed since a year ago, when prices were in a "frenzy" and he was advising clients to price their homes at or slightly above the market. Following Katrina, he's expecting a slowdown, at least in the short run, and has started telling sellers to price about 5% below the asking price of comparable homes that have sat on the market for at least a month. "That will create urgency," he says. For sellers who don't want to lower their prices, he's recommending they pull their homes off the market for at least a year, when he expects the national economy to have recovered from Katrina's effects.