Buyers and Sellers Confused by Contradictory Trends
Originally appeared in Bay Area News Group publications on April 10, 2009
Real estate today is a tangle of blind alleys and bewildering inconsistencies. Almost every day, buyers and sellers ask my opinion of the present market and what I expect in the future.
Market data provides useful, albeit sometimes conflicting, information. National or state reports, which appear almost daily online and TV, do not shed light on local patterns. In order to do so, I looked at Multiple Listing Service (MLS) data for five popular Oakland zip codes (94602, 94610, 94611, 94618, 94619) to get a snapshot of single family home sales, excluding condos, in our local market.
Comparing March 2009 to March of 2008 and 2007 reveals how different the market is from not so long ago. The resulting graphs for each category are available HERE.
Median sold price. Last month’s numbers were 12 per cent lower than 2008, $585,000 vs. $662,600, and 21 per cent lower than 2007, when the median price was $745,000.
Number of solds. 30 per cent fewer homes closed escrow in March 2009 than either March 2008 or 2007.
For Sale properties. In March 2009, there were 26 per cent fewer properties on the market than the year before and 20 per cent fewer than two years ago.
Number of new listings. Last month’s listings were 22 per cent fewer than March 2008 and 40 per cent fewer than 2007. This leads into the next category, inventory supply.
Supply of inventory. “Months of inventory” is how long it will take to sell the number of homes on the market at a given time. Fewer than three months indicates a seller’s market; more than six is considered a buyer’s market. The March 2009 figure, at fewer than three months inventory, is 14 per cent lower than 2008 and 32 per cent higher than 2007, when it was slightly north of two per cent.
Number under contract. In the business, we call this “pending sales” and it reflects activity that will result in solds in the next month or so. 2009 came in 18 per cent lower than 2008 and 32 per cent lower than 2007.
Average days on market (DOM). This number indicates how many days it took to obtain an accepted contract from the time it was first entered into the MLS. Average DOM decreased three per cent from 2009 to 2008 and increased 154 per cent compared to 2007.
Using the latest statistics, the median sales price in the areas surveyed diminished $160,000 in two short years. That impacts not only the impetus to sell, but also a homeowner’s ability to refinance and the amount of his line of credit, if either option is still available. Keep in mind, however, that this is an overview and may or may not approximate your home’s change in value if you live in one of these locations.
Sellers who do not plan to remain in our city long-term want to know if they should sell now or wait until the market rebounds. The answer is a function not only of market direction, but of the specifics of the seller’s situation. Job change, illness, divorce, and other factors can limit a seller’s options in terms of timing.
Looking at the figures above, especially low inventory when combined with record low interest rates, a well-priced property will sell relatively quickly. The rub is that well-priced in 2009 is very different from the delirious days of 2004 to 2006 when almost any price garnered multiple offers. Today the house will sell, but for less.
Remember, even if a buyer is willing to pay higher than market value for your home, it might not appraise for that amount. Looking short term, it would not be surprising if prices continue to descend for awhile before they stabilize. In other words, waiting could actually cost you money. Eventually, of course, the market will recover and prices will rise. When and how much are the key questions.
Buyers ask if this is the bottom. No one knows and few will catch that falling knife. My advice is not to obsess on identifying a market bottom, but, rather, to take advantage of today’s fantastic opportunity to buy real estate. Not only prices, but interest rates are amazingly attractive.
Real estate goes through cycles. It makes most sense for sellers to sell when the market is either balanced or tilted toward them. If you need to sell soon, make sure you are well informed about your local market. Conversely, if you are a buyer, you are wise to take advantage when the pendulum, as it has done, swings in your direction.