The New Normal in the Kenosha Real Estate Market
In 2006 I began selling Kenosha, WI properties as short sales. When I first started listing these homes they “flew off the shelves” faster than the iPad 2 because there was a shortage of good priced properties.
That year the average sale price of the 2,158 single family homes sold in the Kenosha County MLS was $202,538 and our town as well as the entire country was sitting on a real estate bubble.
I remember an agent from another office calling me that year regarding one of my listings. The listing had been published in the MLS as being subject to short sale approval by the sellers lender, and the agent wasn’t sure what that meant. He wanted to write a full price cash offer. I explained to him that the sellers lender would still have to approve the sale, and that would take 6-8 weeks. I will never forget the conversation we had…
“Ralph, you don’t understand. We are willing to offer FULL PRICE” he said to me.
I answered him, “I heard you”
“And IT’S A CASH OFFER” he continued
“I understand that,” I replied “But the lender still has to approve it. The seller owes more money than the list price”
There was a pause and a deep breath on the other end of the phone, “You CAN’T list a house for less than what you seller owes… that’s unethical!”
That’s when I KNEW that I was on to something that was going to take my career to the next level. Virtually nobody understood what a short sale was, or how to do one. After a little further discussion with that agent, he has his broker call me and give me the same lecture. My response to her was very simple. Not only was what I was doing NOT unethical. It was more ethical that what most agents were doing, which was to simply overprice listings based on what their sellers needed or wanted to get out of them with no regard for market conditions. I also explained to her that there was going to be many more of these short sales to come, and that she might want to learn what they were, because they were going to become a very normal part of the real estate business, and that there was going to be a NEW NORMAL.
In MY market, I practically invented the short sale, but it was not my invention at all. I simply read things written by people smarter and more experienced in this area, and implemented them in my market first.
Fast forward to 2011 where short sales are common place and where 2/3 of my personal business are REO properties that I list for national and local lenders and the statistics are quite different. There were a total of 1,237 homes sold last year which is a 43% decrease in sold properties and an average sales price of $160,674 which is a 20% decrease.
What is more TELLING is that when you focus on the city of of Kenosha and look at 2-unit properties the average sales price dropped from $146,858 to $54,712 which is a STAGGERING 63% drop in value. The AVERAGE price is lower than the LOWEST sale of 5 years earlier of $70,000. Landlords and more importantly amateur investors bid up the price of investment properties to unsustainable levels similar to the way tech sector stocks drove up the NASDAQ in 2000 to the all time high of 5132.
I think the story of the NASDAQ run up helps tell the story of the NEW NORMAL in the real estate industry and can help people to understand. Just as real estate prices were higher than market rents were able to support, tech sector stock prices were unrealistically high with no regard to the actual value of assets or profitability of tech sector companies.
After reaching its all time high on March 10th 2010 the exchange lost 62% of its value over the following two years. Just as we have never returned to the highs experienced in 2000 in the tech sector in 11 years, it will be a very long time before we reach prices in investment properties anywhere near the highs of 5 years ago.
As more time goes on, sellers will accept the NEW NORMAL and the real estate market will return to more normal levels of volume, but with the new lower prices and possibly a rate of growth based on common sense instead of raw speculation. Once the rest of the sellers in the market GET REAL about the value of their properties, the market can continue on the path of slow steady recovery.