Hybrid market confuses buyers, sellers
Originally appeared in Hills Publications, April 6, 2007 and ANG Newspapers, April 14, 2007
Fourteen offers on one house? Eighteen on another? Overbidding by hundreds of thousands of dollars? Is this the return of 2004/05? In Oakland, Berkeley and other nearby communities, 2007 has started out surprisingly strong for many sellers in desirable neighborhoods. Having written three contracts on different homes in the past three weeks that each involved multiple offers, I can personally attest to this trend.
Have we returned to a seller’s market in the corridor from Oakland to El Cerrito? This question is perplexing buyers and sellers alike.
A hybrid market
In our local area, we are experiencing a “normal” market with pockets of hyperactivity. Clear signs point to the differences between the current situation and the seller’s market that ended in the last quarter of 2005. Compared to the previous, superheated market, today we see:
- A significant increase in foreclosures, reflected by “short sales,” even in some of the best locations.
- Longer time on market and close of escrow.
- Numerous broker’s tours on the same property.
- Frequent price reductions.
- Incentives for buyers and their agents to sell specific homes, e.g., a trip to Hawaii for the selling (buyer’s) agent.
- A noticeable number of houses listed at less than they sold for 18 months to two years ago, including in some “chic” areas.
- Sellers willing to negotiate on repairs/problems.
What is happening?
In the most sought-after locations, several factors have combined to cause competitive bidding: an abundance of buyers; a shortage of quality listings; and low interest rates, hovering around six per cent.
Buyers and sellers are asking if this multiple offer state will last. Based on history, we know that increased inventory will lessen the frenzy. Until that happens, our hot market within a normal market may continue.
Bear in mind that, while real estate undergoes its present permutations, home buying and selling is connected to the condition of the economy. It is possible that things could change significantly in the next year or two.
On that note, an article on Forbes.com references former Federal Reserve chairman Alan Greenspan’s recent statement that there is a one-in-three- chance of a U.S. recession this year. As always, never assume that real estate activity today will remain the same in the future.
What buyers should do
For those who are not longtime professionals, it is difficult to suspend logic and fathom the contradictions of our present market. What, not long ago, looked like a good opportunity to buy (supported by media stories), appears, for some buyers, to be a return to the Wild West days of the seller’s market.
Today, some buyers are willing to overbid and stretch their financial limits to buy a house they love. Conversely, others are waiting for prices to drop. Aside from buying low and selling high, there are some basics in real estate.
Timing the market usually does not work. I know some people who thought prices were too high and did not buy in the late 90s. Today, they are still renting rather than enjoying their own home and its increased value.
On the other hand, jumping into competition can be a gamble rewarded or a risk that ends badly. Those who purchased from 2000 through 2004 commonly paid a price that, at the time, looked outrageous. Not many years later, a sizable number of these same buyers earned considerable profits when they sold.
The flip side is the sellers I met in the early to mid-90s. A common lament from these folks was how they wished they had not paid a premium just before the seller’s market of the late 80s went south. I can recall one of my sellers bringing, not receiving, a check for $20,000 to the closing of his property.
Remember that condition is key. Handling repairs can be expensive and time consuming. Always make sure you know what you are buying.
Real estate can be an excellent, secure, long-term investment. When you buy, plan to hold your property for at least five years. Do not sell in a down market unless you absolutely must. Over time, good properties increase in value.
What sellers should do
A majority of local homeowners are not experiencing hordes of buyers beating down their doors. This includes some sellers in so called “hot” neighborhoods. Many variables come into play. Most important are the location, style and appeal of the property.
You need to be aware of the complex nature of today’s real estate market and price your home accordingly. If your property is priced for where it is and what it is, assuming full exposure, it should sell within two weeks.
Whether you are one of the select sellers who will benefit from this blip of buying mania, or one whose home is getting less attention, this is still a good time to sell. Unless you bought recently and paid more than today’s market will bear, the stratospheric rise in prices during the past ten years should be helping you.
Final Thoughts
It can be unnerving when there are apparent contradictions in the real estate market. The wrong choice on your part could cost you. As a buyer or seller, more than ever, you need a competent, local Realtor, who has been in business through various market cycles, to guide you through this puzzling present market.
Related Articles:
Condition: What Your Agent Should Tell You
Sell for the Present, But Buy for the Future