Why the real estate market is a great market.

People who are getting so anxious about the trends in sales prices in Westchester and the Hudson Valley need to remember that the real estate market is just a market.  And like every other market, the real estate market is subject to the fundamental economic laws of supply and demand.

Indeed, the real estate market in Westchester and the Hudson valley is a really GREAT market from an economic standpoint. That is, the market is extremely responsive to changes in supply and demand.  What do homes in our region sell for?  Exactly what the market will bear, no more and no less 

Why?  Because the cooperation among real estate brokers creates a very fluid market in which most buyers are aware of every home on the market, and can compare homes when making a purchase.  There's very little "friction" in the market, and a lot of transparency. So sellers have to be responsive to other properties on the market.  Sellers can increase their purchase price (or get their home sold when otherwise it would languish on the market) by marketing their home better, or staging it, or making it more available to buyers, but generally speaking the price will be determined by the interplay between the pool of buyers on the market and the number of homes on the market.

Compare the housing market to, say, the auto market.  The auto market used to have a lot of friction, and very little transparency.  As a result, you might buy a Toyota from Dealer A for $25,000, and someone else might that same day buy a Toyota from Dealer B for $23,000.  Why? Because the market didn't have much transparency.  That has changed in the past few years, but even now it's a lot easier to buy a house than to buy a car. 

Why?  Well, if you're buying a house, you'll probabaly have a broker who will (1) tell you about every property on the market, (2) take you to go see them, (3) negotiate on your behalf, and (4) be your fiduciary in the transaction, your advocate.  You can hire one real estate broker, and she can work with you to help you buy virtually every property for sale in Westchester and the Hudson Valley, regardless of price range.  She'll help you compare properties, and you'll be able to make an intensely informed decision on your purchase.

What if you're buying a car?  Well, then you go out on your own, and you have to go to websites that have much less complete information than, say, www.prudentialrand.com.   You have to go looking on your own, and you have to schlep to every different dealer: you have to go to the Toyota dealer, the Nissan dealer, the Ford dealer, the Chrysler dealer, etc. etc.  And every time you walk on the lot, you're dealing with a salesperson who works for the seller.  No one works for you.  As a result, even now, the car buying experience is much less fluid than the home buying experience, even though home buying is a much more serious and involved investment.  No matter how well you research, you're never going to know whether the other guy who bought that same car that same day got a better or worse deal than you.

So what's my point?  The real estate market is a market, responsive to changes in supply and demand.  When supply (i.e. housing inventory) is tight, and demand is high, prices go up.  When supply is abundant, and demand is low, prices go down.  We went through an upswing from 2000-2005, and now we're on the downswing.  That's all.  It doesn't mean that prices will always go down, just like prices don't always go up.  Over time, given the relative fixed nature of the supply (i.e., God is not making any more land) and the inexorably rising level of demand (i.e., people are still making babies), prices will over time head up.  And buying real estate is always a good deal because of tax breaks and equity-building.

But the worst thing you can do in this or any other market is assume that trendlines will continue in the same direction from today onward.  People in 2005 who thought that prices would always go up 8-10% every year were wrong.  People in 2009 who think that prices are going to go down 10% every year are wrong, too.  The market will eventually correct itself and come back into balance.  For more information please contact Kevin Cavanaugh at Prudential Rand.