What Home Buyers Get Wrong

Six months on in the new crib, I’m ready to educate my brother who is allegedly studying design. This is for him, but I’ve been posting so infrequently of late, feel free to eavesdrop. Bro, just send a check for whatever you think my insights are worth.

Home buyers focus too narrowly on total square feet, too often thinking the bigger the better. We moved to a slightly smaller home, but it feels larger because we regularly use much more of the total area. In other words, there’s no wasted space. And even though there’s less total square footage, the kitchen is quite a bit larger. The beauty of the kitchen layout is you can open every drawer and the dishwasher and the refrigerator and still have two-three feet all around. No more sucking everything in when moving the silverware from the dishwasher to the drawer. In fact, now there’s nothing stopping me from packing on an extra 40-50 lbs this winter.

Our new master bathroom is about 60% the size of our former one. And it’s perfect. That other 40% was wasted space for the purpose of what, a slightly higher sales price? The new one has just enough room to do everything comfortably, and when it comes time to clean, it’s a breeze because damn near everything is in reach.

Homebuyers don’t realize small things make a big difference. Especially when combined together. Case in point, dimmable lights. Mercy me, how did I live in an on-off world all those years? There’s nothing like entering the bathroom at 5:30a, flipping the switch, and being met by a faint pre-dawn-like light. Same when preparing to retire at night. There’s nothing like brushing one’s teeth under a faint post-sunset-like glimmer. Every light should be dimmable.

Another lesson. You can’t put a value on genuine quiet, and on natural beauty, and on the edifying result of the two combined.

Another lesson. You can’t have genuine quiet and natural beauty without sacrificing some community. There are always trade-offs. Long time readers of the humble blog will know I value community. Is sacrificing some community worth the return in quiet, natural beauty, peace? Stay tuned, time will tell.

What else do home buyers get wrong?

 

House Hunters International on HGTV

Love it.

Or I should say “really like it” since moms always says, “You can’t love something that can’t love you back.”

Each tightly packed episode is a thirty minute long travel/house hunting fix. A person, couple, or family chooses among three residences in some foreign country. Recently, while watching a college football game, I caught most of two episodes*. The first was about a British man and an American woman who met in Orange County, California. They were moving to England. Immune to our recession apparently, he needed a large garage for his cars and she needed a dance studio.

The second couple, an Irish man and an American woman moving from Chicago to Ireland, had two small girls. Appears as if Euro men are stealing our women, but I digress. Their Chicago house had a small yard “where every time the girls kicked the ball it hit the wall”. He wanted at least an acre which they eventually found a few minutes from where he grew up.

A few times in the episode he implied his girls needed a large yard, but I couldn’t help but think he was projecting his past on their present. We all do that to some degree don’t we? Recreate our childhoods for our own children in some form—whether tangibly in terms of the house and neighborhood environment or intangibly in terms of norms, expectations, ethos?

Did the toddlers really “need” a soccer pitch-sized backyard? Would their lives turn out much differently with a small yard or if they found a house near a public park? All I could think of was how much of his time and money he was going to have to spend maintaining his giant patch of grass. To each is own.

Dear HGTV network. How about a show with the same format, but focusing on minimalists proactively embracing our new economic realities by looking for smaller yards, less space, less clutter, lower energy costs? People convinced that some cliches, like “less is more,” might just be true.

House Hunters Downsizing. Or Downsizing House Hunters. Either way, I’d watch it during college football commercials.

• This requires deft remote controlling. And I’m the deftest. Which brings to mind the best sports story from the last month. A 97-year-old man who wanted to watch a Milwaukee Brewers playoff game called 911 to report someone had stolen his remote control. According to the Greenfield police report: The man called 911 to report someone had stolen his remote control from his residence in the 9300 block of West Howard Avenue prior to 8 p.m. Sept. 26. The remote control was found after police responded, so the man was able to watch the Brewers game.

Housing Prices

The conversation turned to real estate on a recent Saturday run when I shared my opinion that many sellers in our community were slow to grasp the correction as evidenced by their overpriced houses languishing on the market for six months to a few years.

You would have thought I suggested we extend our 10 miler another 16.2 just for the fun of it. The right wing nutters immediately jumped on me for assuming I knew more about free markets and home values than the actual homeowners themselves. And more importantly, who did I think I was, homeowners have the right to price their houses however they want.

Of course they do just like they have the right to be irrational and waste money more generally. Check out this chart:

credit—Jodi Ashline Newsletter

In the end, the average “priced right” and “priced reduced” home sell for the same price, but the “price reduced” home is on the market an extra 162 days. If “price reduced” homeowner has $100k in equity, and that equity was invested for 162 days @ 5%, they passed on earning $2,219. That’s the cost of exercising your constitutional right to overprice your home.

Around here at least, it appears that the larger and more expensive the home the greater the tendency to overprice it. That’s counterintuitive if one assumes, on average, the most well-to-do homeowners are the most business savvy, but I digress. We can also assume a much smaller pool of prospective buyers (I know it only takes one) and therefore the “average days on market” I suspect is far greater than 197, but for consistency sake we’ll stick with that.

Let’s consider a waterfront home that is four times the average at $1,317,392. Ultimately, after 197 days, overpriced sellers have to reduce their price $251,008 ($62,752 x 4). Let’s compensate for the too short “average days on market” by assuming that our waterfront sellers own their home outright. If “expensive price reduced” homeowner has $1,066,384 (the final sale price) in equity and had invested that for the too short 162 days @ 5%, they passed on earning $23,665.

To which the nutters might say, “That’s waterfront sellers right.” Which again, of course is right, just irrational.

Since I’m on math fire, and the nutters are down for the count again, one related thought. One oft repeated housing axiom is that housing corrections don’t matter if you’re buying and selling into the same down market. That’s only true in one of three possible scenarios—buying and selling similar priced homes. It doesn’t hold for buying a more or less expensive home than sold.

For example, consider the case of buying a more expensive home. Imagine you could sell your existing home for $300k or $100k less than its peak 2007 valuation. You buy a home for $1m or $250k less than its peak 2007 valuation. Had you made that move in 2007, it would have cost $1,250,000-$400,000 or $850,000. Today, the equation is $1m-$300,000 or $700,000 for a savings of $150k.

The opposite is also true. As a result of the correction, it’s more expensive to move down. Imagine you could sell your existing home for $600k or $200k less than its peak 2007 valuation. You buy a home for $300k or $100k less than its peak 2007 valuation. Had you made the move in 2007, you would have pocketed $400k, $800k sale price-$400k purchase price. Making that move today you would only pocket $300k, $600k sale price-$300k purchase price.

So assuming one has the resources, it makes more sense to move up in down markets and down in up markets.

School’s out nutters. Do they give out Economics Nobels for this stuff?