Real Estate Isn’t Rocket Science

RealEstateIsintRocketscienceReal estate isn’t rocket science. It’s not even advanced auto mechanics. It might be brain surgery. Simple brain surgery like connect the dots between the synapses of supply and demand.

The housing market isn’t like HOUSE, the TV series, where a simple cough turns out to be the onset of a one in a million pituitary gland disorder caused by a rare tropical rain forest virus carried into the United States hidden in the microscopic fibers of tongue depressors fashioned in third world sweat shops.

And now that I’ve mentioned TV and real estate in the same breath, I gotta digress further… Those responsible for FLIP THIS HOUSE should be walled up Edgar Allen Poe-style behind one of those fake façades they put up to lure stupid buyers and viewers.

The only thing appropriate for TV would be a show called FLIP OFF THIS HOUSE. It would chronicle all those once eager home-investors busy surrendering their homes to the bank via short sales and foreclosures.

Back to brain surgery… At times like this, I think the market would be better off if we distributed free chainsaws and encouraged people to apply them directly to each others’ corpus callosums. That’s the part of the brain that connects the right and left hemispheres and helps mix up all of those strange nonlinear urgings with rational thought patterns.

Disassociate all feelings, emotional baggage, feedback loops, arbitrary psychological lines drawn in the sand, from the more analytical, empirical observations of the world and 2 + 2 might equal 4 rather than the fantasy that they equal 10 with the help of leverage and a ton of appreciation.

Is there any Seller out there who honestly thinks that happy days are just around the corner? And yet… aren’t the majority of Sellers hopelessly hanging on, unable to pull the string or the trigger or their heads out of the sand as the market dynamic continues to pull
the rug out from under their dream of saving their savings and preserving some shred of their equity and dignity.

Why such a disconnect? I said it last week. When bad news hits, folks typically go through a five step progression: denial, anger, bargaining, depression, acceptance.

Four years after the peak of the market in 2005, most sellers are still stuck in the denial stage. The classic model of real estate denial includes reasoning like this: “No matter what I read in the paper or hear what my Agent says, I know that all it just takes on buyer to sell
a house. There must be one person out there that is perfect for my house. He’s got a suitcase full of cash, doesn’t care about that stupid thing called market value and will do anything to buy my home. I just have to find him.” I call this the lottery method of selling.
Maybe you’ll find that guy tomorrow. Ten years from now. Or never.

Sellers have only two real choices at the moment, if they aren’t up to playing the lottery. The first one is to capitulate. Give in to the market and sell your house at
a price that the market is willing to pay. Every house could sell tomorrow at the right price. Obviously, that price is far less than what most Sellers even want to contemplate at the moment.

The second choice is to hunker down and be prepared to hold onto it for a long, long time. Much longer than you can imagine right now. If you are (emotionally) waiting for your home to be worth what you bought it for in 2005, you could easily wait for 5-7 years for that to happen. Or longer. 2005 wasn’t normal. It was a façade fueled by greed, leverage, and
unprecedented access to money without inconvenient truth.

Does that sound normal to you?

The notion of keeping your property as a rental, having a negative cash flow, paying 5 – 7% interest on the debt, being a property manager and selling it in a year or two (when it is worth even less) makes absolutely no sense at all.

Forget the emotion. Do the math. Bite the bullet. Denial is a shovel that digs the hole deeper and deeper You are going to hear a lot of talk in the coming months about a real estate recovery. Let’s get clear on Recovery is simply that point in time when the market stops going down. Somehow, human nature twists the concept into something wishfully but wildly impossible. It thinks that recovery means that one day, we wake up and suddenly it is home circa 2005 when the Median Price was $750,000 and people were lined up to buy. You can’t click your heels and go back to that home again. Time to move on.

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