Home Sellers Should Remember That They And Their Homes Are Not National Statistics
If you follow network or cable news you probably believe that the real estate
market has gone from unbridled insanity where buyers apparently losing all perspective,
bid wantonly against dozens of other equally crazed buyers for the same house,
stretched way above their means to purchase increasingly unaffordable houses which
seemingly increased exponentially in value every hour to a market today where...
...nothing is selling!
And it made this dramatic shift in intensity and direction without ever pausing,
for even a second, at equilibrium.
We hear about houses sitting on the market for months while distraught sellers
cut prices time after time. There are stories of sellers throwing in a Jaguar
as a sales inducement, paying closing costs, offering cash back at closing for
furniture or decorating, and dangling vacation trips in front of buyers (or
to the agent who brings in an accepted offer). Builders are definitely offering
concessions such as materials upgrades (granite countertops instead of laminate,
more extensive landscaping, etc.,) rather than lowering contract sales prices,
while they are still building and pulling permits for even more houses. It is
also reported that inventories of unsold homes are increasing as are average
Perhaps a few words of reason are appropriate at this time of national media
hyperbole and seller angst.
The first word is "relax."
Ask yourself if you plan to sell your home in the moderately near future, let's
say in the next two years. If you don't then why do you care if the market
has collapsed? Real estate is cyclical and, while we may never
again see the superheated market of the last three or four years, the market
will shake out, inventory will be absorbed, and life will go on and probably
at a more reasoned pace long before you have to confront any of the current
If you do anticipate selling in the short term then listen
up. The current market situation may not be impacting your situation at all
or it may even have some positive ramifications.
The "bubble" was a localized phenomenon. Property
on both coasts and a few Sunbelt and recreation-oriented areas such as Nevada
and Arizona were the beneficiaries of double-digit price increases each year
and 24 hour marketing cycles. The rest of us plodded along much as we always
have with home prices increasing two or three percent each year, homes staying
on the market for three to five months, and a market that could not be described
as belong to either a buyers or sellers. This is still the case in these areas.
Sales may have dropped slightly as a reflection of rising interest rates, but
homes prices never reached a level that could be considered unaffordable and
the market is not self-destructing.
The most recent figures from the Office of Federal Housing Enterprise Management
indicate that only five states had a negative house price appreciation
during the second quarter (which ended on June 30 - third quarter figures
should be out shortly). Maine and Massachusetts, two states where prices had
gone through the ceiling, each lost ground for the quarter while Mississippi,
Ohio, and Michigan saw price declines of a fraction of a percent. Michigan and
Ohio have seen massive employment dislocations and Mississippi's declines
may or may not have been a function of Hurricane Katrina's devastation.
Recent figures from the National Association of Realtors show a supply
of existing houses that would take 7.5 months at present sales rates to absorb
and a new home inventory of 6.6 months. One year ago the absorption rate was
4.7 and 4.6 months respectively. But again, these are national figures which
may be heavily skewed by the building boom in Florida, Arizona,
Nevada, and California (the availability of new homes will also impact existing
home sales. A year ago homes were still selling overnight in many areas while
taking months in the middle of the country, therefore, it is conceivable that
that national inventory is totally a function of a slowdown in previously hot
markets and does not necessarily mean anything in your neck of the woods. Days
on market (DOM) is probably a more meaningful measure than total inventory
but a hard one to come by. Ask your real estate agent to provide an average
local DOM for your home's price range.
And price range is another variable that means a lot for sellers. Starter homes,
particularly those that are in good condition, seldom lack for buyers. As the
price range increases so does the time to sell but a special house appropriately
priced will always find a market in a reasonable time frame.
If you want to sell or need to sell in the current market, here is some advice.
- Re-evaluate your time table. If you are facing financial
difficulties or are being transferred you may be locked into selling now.
But if this is a move by choice - to downsize out of an empty nest or as a
move toward retirement - can you put it off for a year or so to a time when
buyer traffic might be better?
- Be realistic about your profit. Maybe you would have achieved
a higher selling price eight months ago, but are you actually going to lose
money? If you have owned your home for three years or more and are in one
of the previously hot markets you will probably still make out well - prices
are beginning to lose ground nationally, losing 1.7 percent in September compared
to one year earlier. Perhaps you live in an area that is still appreciating,
but if you hit the national average your $250,000 home will sell at $4,250
less this year than last. If you live in an area which has been in equilibrium
all along (neither a buyer's nor a seller's market) you will probably find
that your prospects have neither improved nor decreased. In the former case
quit thinking about what might have been; a home is an investment but it is
also shelter. That is more than Microsoft or Merck has offered you if you
invested with them. Save your weeping and wailing for the time - and it will
come - when your stock portfolio takes a hit.
- Price well from the get-go and if you must adjust your price, bite the bullet.
Consider under-pricing; you might attract enough buyer interest that the house
will sell for more than the asking price. The worst strategy is to overprice
the house initially and then reduce it every few weeks in small increments.
A well priced home will sell in any market and a substantial price reduction
will attract attention. In the last housing downturn in the late 1980's many
sellers chased the market down, reducing the price time after time without
ever managing to catch up with current levels.
- Forget lavish inducements. Unless you really want to get rid of the Jag
a well priced house is more likely to sell than one that is festooned with
fancy marketing gimmicks.
- Know your local market. Consult with a knowledgeable real estate agent about
current activity and follow their advice about pricing and positioning your
property and any hints they have to offer about making the house more attractive.