Before I get rolling, I just want to make sure that everyone reading this understands that this is my opinion and only my opinion and this should not be construed as fact(or fiction). That said, I do believe that many people (buyers and sellers alike) are still trying to figure out what is happening in this real estate market.
Let's start with the past year (2006). What happened? Quite simply, an expected and needed market check.
Real estate prices had been growing by a stagering 20%+ a year for about 4 years running. People from all walks of life and income brackets were jumping into the real estate market. Everyone wanted to get in because it was a great investment. Equities were growing faster and greater than any other form of investment and nobody wanted to be left behind. Coupled with low interest rates, frankly we had a frenzy. In addition to all the regular people who wanted to be homeowners or to move up to the bigger and better home, there were the investors who were buying property, doing some minor fixes or upgrades and flipping these properties for sometimes huge profits (Just look at all the "flip this house" reality shows on TV). That was great for homeowners and sellers, but it created a difficult market for buyers, particularly first time buyers. In the frenzy to get in before prices capped out, buyers were being asked (and they were complying) to do whatever was necessary to WIN the contract. Offers were higher than asking price (many times significantly higher), offers included escalation clauses (to let sellers know they were prepared to go even higher) to out bid other potential offers, sometimes even paying higher than appraised value. Buyers were giving up or foregoing contingencies to beat out the competition. No home inspections, no finance contigencies, no appraisal contigencies. It didn't seem to matter, they did whatever they needed to.
Well, things peaked. People (buyers) realized it needed to stop. Interest rates were still low, it wasn't that. Frankly, buyers finally stood up and said enough is enough. Buyers just didn't believe the price increases could be sustained any longer. So they stopped the frenzy.
Listings continued to come on the market, but the buyers weren't there, so inventory continued to grow. Homes sat on the market (buyers weren't rushing to them). Sellers who were motivated to sell and move (either they had to for a relocation or they were already committed to another purchase or some other personal reason) started to lower their price. If that didn't work, they considered incentives like closing cost assistance. Real estate agents started to suggest ways to entice buyers agents, like higher co-op commissions or bonuses. All this made for a very difficult year (2006) for everyone. Slowly, buyers started to come back. Houses did sell, but they took much longer to sell. Buyers got to exercise the rights they haven't had for years. Home inspections were no longer dreaded, they were welcomed. Prices stabalized and then dropped. Then, buyers started wondering when prices would stop dropping. They wanted to buy but wondered when the market would bottom out. They were afraid they would lose equity for a while. I think in the last quarter of 2006, the market has actually picked up a little.
What's next? I think we have mostly reached the bottom (opinion!!). I think we will see a more stabalized market as we move into 2007. Just like the buyers stopped the frenzy in late 2005, I think sellers have had enough. I think they now realize they have to price their home according to market demands and they have to allow buyers to have home inspections and other reasonable contigencies, but I believe sellers are done reducing their prices (for the most part).
I guess you might say that I believe that we will see a more fair and balanced real estate market in 2007!!
As always, your comments are welcome.
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