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 absorption times.

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 fallout.

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.