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Market Changes Require Strategy Shift


By Don Dunning | September 29, 2006

Originally appeared in Hills Publications, Sept. 29, 2006 and ANG Newspapers, Sept. 24, 2006

By now, the downturn in the real estate market is not news. That knowledge alone is not enough for you, as a buyer or seller, to make wise decisions. You also need specifics about market trends and direction in our local area. With that information, you will be able to determine what steps to take, and when to take them.

Listings are up; sales are down

In order to get a statistical overview of the market in the first nine months of 2005 vs. 2006 (Jan. 1 through Sept 15), I did a Multiple Listing System (MLS) search of residential properties listed and sold in the five most popular Oakland zip codes.

In 2005, there were 1302 residential closed sales, compared to 916 in 2006, a decrease of almost 30 per cent. Meanwhile, we have had a 20 per cent increase in inventory, i.e., 1699 listed in 2005 vs. 2038 listed in 2006.

As a point of clarification, MLS listing statistics are contaminated by a process called “churning,” whereby an agent cancels an existing, unsold listing and re-enters it as a “new” property, ostensibly to create more activity. The result of this questionable practice is that approximately ten per cent of the MLS listings surveyed were actually repeats, not new ones. I did not adjust MLS figures to account for these multiple entries because the year-to-year comparisons remain valid.

Prices are higher, but moderating

Both asking and selling prices have increased since last year. Nevertheless, the difference between the two narrowed, another sign of the “normalizing” of residential real estate.

For the first nine and one-half months of last year, the median sales price was $677,000 with a median list price of $619,000, i.e., homes sold at about nine per cent higher than the asking price. This year, the $699,000 median sales price has dropped to less than four per cent above the $675,000 median list price.

The data above show that although sellers in 2006 are asking more, their expectation of a similar run-up in selling prices needs to be tempered by a changed reality. Despite the fact that buyers are quicker (and happy) to accept a slowing market, some sellers still struggle with the concept.

Don’t expect prices to crash

History has shown that home prices tend to rise quickly, but fall gradually. If you are a buyer waiting for major price reductions, it could be quite awhile. Even so, if the economy goes into recession for a year or more, that could trigger the third phase of the real estate cycle: a buyer’s market.

“Normal” market considerations
  • In a seller’s market, inventory is so low and demand so high that even houses with serious defects sell fast and for top dollar. Today, less stylish properties, those with structural problems and/or ones in challenging neighborhoods will sit unsold unless attractively priced. Issues such as location, school ratings, number of steps, floor plan, outside living, sunny vs. dark, construction quality, convenience to shops and many others, are more important to buyers because they find themselves with greater leverage.
  • Buyers ask for concessions when the market changes. Increasingly, we will see buyers requesting, and sellers agreeing to, items such as credits for closing costs and/or repairs. “As is” sales could become less common. In particular cases, sellers may offer incentives, such as interest rate “buy-downs,” trips or merchandise for buyers, or additional real estate fees or “bonuses” for selling agents.
  • As a seller, look for an agent who understands your neighborhood and how your particular property fits into the overall market. Overpricing today is a much bigger mistake than in the recent past. You want someone who will analyze the variables and help you come up with a realistic price and marketing approach. Remember that, in a slowing market, recent sold prices might be indicative of a more active market that no longer exists.
  • Multiple offers, common until recently, will occur less frequently and cannot be counted on by sellers.
  • Marketing time, days on market from list to close, will be longer. For sellers, this must be factored into plans for buying another property, leaving the area, etc. For buyers, this means a less frenetic approach to making offers.
Final Thoughts

A “normal” market may seem strange to inexperienced buyers, sellers and agents, but it is welcomed by long-time real estate professionals. Our seller’s market, that lasted about nine years, was a magnet that tripled the number of real estate agents in this area. Whether you are a buyer or seller, now more than ever, you need a Realtor who has been through all the cycles and will use that experience in your best interests. The era of order-taking is over.

Related Articles:

When Will the Real Estate Bubble Burst?

 

 

Copyright 2006 Don Dunning (Bureau of Real Estate Lic. #00768985)
Permission is given to freely copy any or all articles for personal and
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