The economy is starting to improve but the housing market has yet to show any significant signs of recovery, which has homeowners nervous.
Home prices are hovering near their recession lows, hit in April 2009, according to the latest Case-Shiller home-price report. It’s a buyer’s market and by many projections, it won’t shift to a seller’s market for a good year or more.
So, how do homeowners, who have most of their equity in depressed real estate, slog through until it becomes a seller’s market?
Here are 10 tips from real-estate moguls who have survived several housing-market downturns.
1. Homeowners should be very encouraged by the fact that home buyer sentiment has improved.
“The mood has definitely changed … Buyers are feeling more positive,” said Barbara Corcoran, the founder and former president of the Corcoran Group and a real-estate pro who has survived four housing-market slumps. “The activity level has jumped considerably in the last 60 days … over and above the typical spring market,” she said.
Rents have been soaring and it’s now cheaper to buy than rent pretty much anywhere you go, Corcoran pointed out, which will only add fuel to home-buyer desire.
2. Builders aren’t building many new homes, which means less competition.
Housing starts have been flat for the past year, according to data from the Commerce Department, which means that homeowners won’t really have to worry about competing with new construction when they go to sell their homes.
“You’re seeing a lot less inventory on the market while at the same time, there are more buyers in the market,” said R. Donahue Peebles, chairman and CEO of the Peebles Corporation, which has a $4 billion portfolio that includes properties in Miami, Las Vegas and Washington, D.C.
3. In about 40 percent of major metropolitan cities, home prices are going up, according to the National Association of Realtors.
Low interest rates have been tough on savers, since saved money isn’t making as much interest, but they help drive up housing prices, Corcoran noted.
4. Remember: Your house may be worth less on paper, but you won’t lose any money unless you sell.
This is one thing homeowners often forget when they get caught up in the latest headlines about home prices or checking on the value of their own home: If you don’t need to sell right now — don’t.
Corcoran said she owns a country house that she’s not living in, but she plans to hang onto it until the market recovers. “I can’t bear to let it go for 50 percent of what I could have five years ago.”
5. Slumps feel like they go on forever, but the recoveries can happen quickly.
“Prices are always slow to unwind. And the time feels much longer than it actually is,” Corcoran said. “But when they recover, they recover like gangbusters — and you can make up a lot of appreciation in a short amount of time,” she said.
No one is suggesting this will be a “gangbusters” recovery, Corcoran clarified, but it will probably happen more quickly than most people think.
“I think people are grossly overestimating how long it’s going to take,” Corcoran said. Previous price recoveries have happened in quadruple- or triple-time, she said. “Maybe now it’s double,” she added.
6. While you’re waiting, do some renovations.
There are two big financial benefits to home improvements such as upgrading a kitchen or adding “curb appeal” (visual appeal for potential buyers before they even enter the house) during a housing-market slump: First, you’ll get a better bang for your buck when the market recovers and you sell your house. Second, you’ll save money on the labor. It’s basic supply-and-demand: When times are good and the work is flowing, contractors can charge more, and when the work is slow, they’re more willing to bargain on the price.
“Contractors are much more hungry for work right now,” Peebles said. “Architects and consultants are also hungry for work,” he added.
Not only will renovations help you command a better price when you go to sell the house but upgrades will help you sell the house more quickly in a competitive market.
Given how many homes are on the market, “buyers don’t have to tolerate things they don’t want,” Corcoran said. For example: hardwood floors. “I don’t care how pretty you think your carpet is, you rip it up and refinish the floors,” Corcoran said. “Nobody wants to move into your carpet.”
And, she said, it’s more important now than ever to have curb appeal. “Home buyers shop online nowadays and if the façade of the house doesn’t grab them in the first few seconds, they’ll click onto the next one,” Corcoran said.
However, she cautions, you have to be smart with your renovations and make sure you spend the least for the biggest payoff. So, maybe you don’t replace all of the kitchen cabinets, but you put on new doors or new hardware. Or, you replace the countertop. Change out the kitchen floor. Fix the doorbell. Repoint the driveway. Formica and and broken doorbells may have been acceptable during the boom, but in this market, they can kill the deal.
Plus, as an added bonus, you’ll get to enjoy the upgrades until the market recovers!
7. Don’t date yourself.
There are certain things that will date a home as soon as you walk into it. Would you believe that one of the things that can date a home in today’s market is a granite countertop?
“Granite is out, I hate to tell you!” Corcoran said.
That’s right — it used to be that formica and linoleum dated a house, but in this market, high-end materials like granite can date a house. The new thing is man-made materials such as Caesarstone (which is 93 percent quartz) or DuPont’s [DD 52.53 -0.39 (-0.74%)] Corian, which are cheaper, more durable and come in hundreds of colors.
Stainless steel sinks are also on the way out — ceramic is back, Corcoran said. Farmhouse sinks are still safe, though: they’ve withstood the test of time, she said.
Her advice is to go shopping in a new, high-end development to see what all the latest materials and gadgets are, and then choose your renovations wisely to stay competitive.
8. Don’t let yourself get stuck. If you want to trade up — trade up.
“If you wish you had a better street, a nicer town, a better school district or a better backyard view — whatever you’re dreaming about, there’s no better time to trade up,” Corcoran said. “Even if you have to take 30-percent less on your house, you’ll get a better home and save 30 percent [on the trade-up], so you’re ahead of the game,” she said.
So even though it may seem counterintuitive to buy more real estate when you’re feeling trapped in the home you already own, real estate pros say a downturn like this is the best time to buy.
“The biggest mistake I ever made in any downturn was not buying my first apartment during a downturn … I was too scared,” she said. “I still regret it.” After missing that opportunity in her first downturn, she said, it took her five years to get up enough money to get into the market.
9. Consider buying a vacation home.
Not only is now a great time to trade up, it’s an even better time to buy a vacation home, given that some of the most depressed real estate in America is in sunny destinations such as Florida, California and Las Vegas.
It’s not just because of the depressed home values, but also for the super-low interest rates. When Peebles started in real estate in 1979, he said, interest rates were at nearly 20 percent. Today, they remain under 5 percent.
It’s not easy to go against the tide but that’s how you make money in real estate.
“I saw great fortunes that were made in the early ’90s. I saw great fortunes made back in the early ’80s,” Peebles said. “I’m a big believer in the fact that you buy when fewer people are buying … It’s stressful, but you get rewarded for it. It’s called risk-taking.”
10. Be a smart seller.
When you are ready to sell, resist the urge to go with the real-estate agent who gives you the highest value on your house.
“Always go with the lowest — that guy is truthful!” Corcoran said. “The best broker is the one who will tell you what your house is really worth.”
It can be nauseating to watch the value of your home drop but the bottom line, the pros say, is not to get bogged down in the slump — but focus on the recovery.
Corcoran recommends ignoring all the negative housing news, and kicking back and toasting some marshmallows or firing up the grill.
“All that time you’d spend being worried, you could be enjoying your house!” Corcoran said.
“I believe that people who hold on will be rewarded,” Peebles said. “I think we will look back at this time period as one of the best buying opportunities in the nation’s history.”
“The biggest lesson I’ve learned is that it always comes back,” he said. “And if you believe in the USA, then you have to believe in the housing market of the USA.”