Two items today:

Incentives are over-rated and, usually, ineffective.
In this Sunday’s REAL ESTATE section of the “Chicago Tribune”, Mary Umberger wrote about the plight of the builders in the Chicago area. To stimulate sales last year, builders, and many Sellers, offered incentives from upgrades to flat screen HDTVs to cars. Many of the people she spoke about, quoted or referenced are the big builders – Smykal Associates (Wheaton, IL) Town & Country Homes (Chicago), Gladstone Homes (Chicago), among others. Each spoke about the frustration of large, one-size-fits-all-incentive programs that didn’t necessarily bring out the Buyers. Several builders are now evolving their incentive programs in ways that actually match up better with what Buyers need – financing and time to sell current homes.

If you’re a Buyer who wants new construction, you’re in great shape. Be smart and ask for a lot. After all, they’re not going to give it to you and you have a lot more leverage this year than in the past. Builder’s are now operating on a one-by-one basis recognizing that big screen HDTV’s and stainless appliances are not as motivating as interest buy-downs, financing and time. ASK!

The link to Umberger’s article (01/13/08) is here.

Econ 101: Pricing is elastic, always has been; always will be.
One market fact all builders agreed on is that there are fewer Buyers in the market than in prior years. What is proving out is that the market demand for real estate is elastic – demand will change (up and down) as economic conditions fluctuate. One only has to look at the size of inventory available in our communities to see this. When prices get to a point that Buyers need to make material changes to their lifestyles, demand will drop. As interest rates drop and credit conditions loosen, Buyers return to the market and prices can/will rise. Sellers really need to understand this dynamic and react accordingly. As do the agents representing these Sellers.

Success Story: I helped another agent price a home this week. Nice home, good location, new kitchen with a big family room. The Sellers bought a few years ago and want to move up. Pricing was hard because the market has not yet given us a direction. I opted to use a model that assigned a rate of appreciation to the last purchase price rather than a qualitative, “what would this house have sold for last year?” method. Using actual appreciation rates, by year, my estimate was $75,000 less than the “What would…?” method. And it was in a very different pricing segment. Better yet, it was wasy to explain how we arrived at the price. The listing agent and two of the others agreed on the lower of the prices, an indication that more agents are “getting it”.

The byword in 2008 will be affordability – “Can I, as a Buyer, afford this house?” We need to recognize that Buyers do not have unlimited resources; that property prices do not continue to rise because the calendar says it’s a New Year; that, sometimes, prices go down.

More to come on pricing later this week,