Home - as an Investment

Over the almost-six years I’ve been writing these monthly emails, I’ve said more than once that looking at a house purchase strictly as an investment is missing a big part of the picture. 
 
A house is more than an investment. A house is also a home. 
 
Life – romance, marriage, intrigue, kids, gardening, entertaining, joy, sadness, good food, good friends, hangovers, holidays, the whole ball of wax – happens at home.
 
And yet … Investing in a house can also work in your favor – big time! Right now, in these crazy covid-challenged times, it’s a good idea to look at that side of the equation, too.
 
First, let’s get this one out of the way: ALL investments involve risk. No risk, no reward. Generally, the higher the risk, the higher the potential reward. But of course, with high risk comes the possibility of no reward at all.

So, how do we look at the risk/reward picture with residential real estate?

Let’s compare to the stock market. Gains in the S&P 500 look impressive this year, rising almost 5% from January through mid-August. Unfortunately, that’s entirely due to the gravity-defying performance of six tech stocks: Facebook, Apple, Amazon, Netflix, Microsoft, and Google. Without these six, the index would have dropped by 4.2%. And how long can these six fly so high? Remember Icarus?
 
Bond yields are lousy and values are sinking. Hoarding cash won’t work. The value of the dollar is down 3% so far this year.
 
Pretty gloomy, right? There’s always gold, of course. Gold is up 35% this year. But gold can be volatile and – here’s a fundamental question – what can you actually do with gold?
 
Which gets us back to real estate. Not only do values generally increase over time – sometimes dramatically – you can live in a house while it’s appreciating. See paragraph three above. It’s the only investment you can throw a party in, cook dinner in, make love in … whatever. Try any of that with stock certificates or gold bullion. 
 
True, property values sometimes drop, but they always rise again. And in the mean time you have a place to live, which can take the sting out of a – usually temporary – loss.
 
Add to this mix ultra-cheap mortgage rates – currently 3.5% (or less) for a 30-year fixed – and the answer is obvious: Buy a house!
 
One more thing – always work with a good realtor. Preferably one who will mix you a nice cocktail …

Stones in the road – it’s bumpy out there

As Nashville goes through the most challenging year in living memory – tornado damage, a raging pandemic, economic uncertainty, and a long-overdue reckoning on racial equality – the Nashville real estate market seems to sail on, undisturbed.
 
Values are still climbing – more slowly than in recent years, but still climbing. Money is getting even cheaper – currently under 3% for a 30-year fixed – offering increased purchase power for buyers. Inventory is tight, offering a field day for sellers.
 
Sounds like a party!
 
And yet … it can get bumpy. 

Mixed Blessings for Buyers 
Cheap money is great! The rule of thumb is that every one-point decrease in mortgage rates increases purchasing power by 10%. But, as I’ve said in recent months, cheap money brings out lots of buyers, and limited inventory makes the competition absolutely fierce! It’s great to be able to buy, but what if there’s nothing for sale?
 
Mixed Blessings for Sellers 
It may seem odd, but this situation can make life crazy for sellers as well. Especially with listings at $500,000 and under, multiple offers are more-or-less the norm. Often, very juicy offers come in as buyers try to elbow their way to the head of the line. I’ve had several listings that received offers with escalation clauses competing against each other. Assessing which comes out on top requires some serious math, and the price has to be factored in along with the other provisions of the offer to determine highest and best. On top of this, bidders can get really crazy and offer above – sometimes way above – appraisal value, which can open another can of worms. What happens if the house doesn’t appraise at contract price? Challenging for sellers – even with people scrambling to buy their house. 
 
What to do? A few suggestions:
 
Buyers, keep calm. Shop carefully and deliberately. Know what you want, know your limits, and make a strong bid on a house you really want. If you don’t get one, there will be another.
 
Sellers, price it right and stand back. In spite of the general frenzy, most buyers can look at comps and can tell if something is priced too high. If you price it right, they will come and you’ll get an excellent price. 
 
Sellers, remember you are looking for both highest and best. Don’t jump at a high-dollar offer that’s larded with weird provisions and/or potential loopholes for the buyer.

Buyers and sellers, work with a good realtor. Managing challenges and stress factors is what realtors do for a living. Anybody can find a house these days. Most people can more-or-less offer one for sale on their own. It’s the complications, the pitfalls, the terrifying unknowns – stones in the road – that realtors specialize in handling.
 
I’m a realtor BTW, and I’d love to talk with you about how I can help!

What are you waiting for?

It’s baaaack!
 
After falling off the cliff in March with the twin body-blows of the tornado and covid-19, residential real estate in Nashville has come back to life. Big time.
 
Last month, I talked about possibilities, starting off with the question, what happens next? A month ago, it looked like normal activity would return at some point during this year, and I mentioned that some sources were predicting a gangbusters comeback in the fall.

Fall, it seems, has arrived early. Leading indicators tell the story. While actual closings are still depressed, the number of new listings and new bound contracts in Davidson and Williamson Counties this May are actually above the May numbers a year ago. Closings will follow suit next month.

What does this mean? If you’re thinking about jumping into the market – either as a buyer or a seller – but were hesitating because things seemed uncertain, I say this: what are you waiting for? 
 
Money is still really cheap! As of yesterday, the 28th, Freddie Mac’s average rate for a thirty-year fixed mortgage stood at 3.15%. Average rate for a fifteen-year fixed was 2.62%. Those are remarkable numbers. Great news for buyers!
 
Inventory is still tight. Housing starts have not kept pace with demand for years. Everybody has to have a place to live and low interest rates bring swarms of buyers into the market. Great news for sellers of all stripes – both builders and sellers of existing properties. 
 
Is there a fly in this ointment? Well, the future is impossible to predict with certainty. While there has been progress, we are not done with covid-19. Some fear that a too-rapid reopening will result in a second wave of infections, and a second wave could shatter the currently-building confidence. That’s possible, but I think it’s unlikely. See above: everybody has to have a place to live. 
 
Time will tell, but my advice is to come on in. The water’s fine.
 
A word of gratitude. This has been a rough time for all of us – especially for those who are out of work and those who have faced sickness and death. One of my sons is out of work right now, and I have several close friends who have suffered through this terrible illness (clue: this is NOT just a flu), but no one I know personally has died from it. And I am grateful for continued health and for having useful work to do. I am also grateful for all of you who read my emails, especially those who send me such nice comments back. My hope for each of you is that you stay healthy until we are safely past this pandemic. 

So, what happens next … ?

Questions. 
 
I get lots of them. Most realtors do – even in “normal” times, and these times are certainly not normal. 
 
Lately, most people are asking me what’s going on in the market now, and what’s going to happen. Hard questions to answer – even the one about what’s going on right now. And, since we predict the future by looking at the past, and nothing like this has happened in over a century, getting a clue about the future is especially tough.
 
But we can try. 

What’s happening now?
Real estate is happening. After falling off the cliff in mid-March, things are moving again. My case is fairly typical. In March, I lost four deals worth nearly $3 million, and two other clients put everything on hold. 
 
By April 20, I had three deals under contract. So, batting 500. Not terrible. And this seems to be happening for others as well. Things are especially active under $500,000 and multiple-offer shoot-outs are still happening.  

So, yeah, real estate goes on.
 
What’s next?
Nobody knows, of course, but I’ll stick my neck out …
 
National real estate experts and others tell us business is coming back gradually and will continue to do so. Unlike the collapse in 2008, driven in part by oversupply and under-qualified buyers in residential real estate, we have short supply and high demand from well-qualified buyers. Some predict a gangbusters comeback in the fall.
 
I’ve been asked whether things will be cheaper later in the year. I doubt it. While demand has softened – especially in higher price ranges – buyers expecting to pick up bargains like seashells on the beach will be disappointed.  
 
So, is this a good time to buy? Or sell?
One word answer: Yes. 
 
Money is historically cheap these days. Buyers can qualify for more and better than they could at higher interest rates. And if you want to sell, there’s likely someone out there who can afford your house.
 
But more than this, there’s the issue of intent. When many people are afraid to go into a strange house, or have strangers come into theirs, it’s a given that anyone showing is pretty serious about selling. And anyone out looking is serious about buying. That cuts out the lookie-loos and tire kickers. And it cuts out sellers who overprice hoping to land a sucker.
 
I little clarity. Not a bad thing.

Lost and Found

It’s been a wild couple of weeks here in Nashville. 
 
With covid-19 causing illness, death and extreme disruption of routine life, it’s been rough all over the world, but on top of that, we were hit with a fierce tornado just before the pandemic took hold of us.
 
It’s easy to feel that everything’s ruined, especially if you’ve lost something or someone specific and precious. But it also reminds me of a song from the soundtrack of my teen years, Joni Mitchell’s Both Sides Now (Judy Collins’ rendition in particular). 
 
The song is about looking at life from both sides, win and lose. The third stanza includes this line: something’s lost, yet something’s gained in living every day. Truer words were never spoken.
 
So what have we lost? What have we gained?

We lost a lot in the tornado. Irreplaceable historic buildings, ranches in Donelson, apartment homes, favorite haunts and hang-outs, family photos, heirlooms, entire streetscapes. And in some cases, we lost jobs, friends, and loved ones. 
 
On the heels of this debacle came the pandemic, and the losses just keep piling up. More jobs lost. Coming soon, there will be friends and loved ones lost. And on top of this, our entire world has been put on hold, and we don’t know when, or if, we will be able to unfreeze the frame. Or what the world will look like when things start moving again. Scary!

So what have we gained?
 
Here’s my bet, or at least my hope: we will regain a sense of our common humanity. 
 
In a time when we seem to be sinking ever deeper into our cloud-connected devices and detaching from the people next to us, the outpouring of generosity and volunteer labor that began before sunrise after the tornado was inspiring. Our need to connect with each other is, as it turns out, nearly irresistible.
 
Now that we are hunkered down, keeping our physical distance to avoid harm to ourselves and others, the need for human connection gets more acute. It’s only been a week and I’ve never had such a hankering for a simple thing like a trip to Target. Or an hour hanging out at Village, gabbing and getting a little work done. I miss people. I know, I know – I’m not cooped up in my house trying to home-school my kids. But even these beleaguered parents are missing connection with the wider world.
 
When the clouds pass, I hope that we will have regained some of our sense of community and common purpose. Gained a bit more appreciation for the pleasures of our commonplace routines. Gained a little gratitude for simply having survived.