Last year, there was a definite change in real estate transaction volume compared to prior years. There was on average a 20% - 30% drop in transactions in NJ beginning in August 2005. The real estate market, on average, has remained softer since then compared to 2004 and 2005.
What the "Experts" Say
Since late last year, there has been a lot written and reported in the media about the softened real estate market. Some experts were predicting the softening is a needed correction in a very hot market that was bound for a bit of a cooling off period, that it would stabilize during 2006, and perhaps improve in 2007 as market corrections took effect and the market conditions improved. They cited the causes of the market softening as higher fuel prices, slowly increasing interest rates, general concern among the public about the national economy, and rapidly increasing home prices.
Other, less optimistic, experts were predicting that the 20% - 30% market drop was just the beginning of a bigger "bust" yet to come. Their prediction was for a much more drastic market correction in 2006 and 2007. They site what they believe is evidence of financial instability among the largest home building companies from over-building in a slowing market and possible deteriorating economic conditions in the economy. I believe these less optimistic experts are a minority among their peers.
My own personal opinion, which is in line with most people I have talked with and in line with the first group of experts above, is that the real estate market is going through a needed correction brought on by years of very rapid growth, but is now stabilizing and will gently improve over the next 12 months.
Last year at this time, I explained the four reasons why, I believe, the real estate market had slowed down in 2005...reasons why potential home buyers were taking a wait-and-see attitude:
- Rising gas prices (we were just hitting the first wave of rapid increases in the summer of 2005)
- Fear of high winter heating bills (fuel oil and natural gas prices were expected to be very high for the winter of 2005)
- Slowly increasing mortgage rates (the Federal Reserve was continually tinkering with short-term rates, which has somewhat impacting mortgage rates)
- Rapid increase in existing-home prices (seller's were in a frenzy!)
At this time, I believe that of these four reasons, the most impactful one by far on the current market is the last one...selling prices are very high. With each price increase, the pool of potential buyers for a house decreases. Add to it other economic factors that impact all of our wallets (like those other 3 reasons), and it only makes the pool of potential buyers shrink further.
The net result is fewer active buyers in the market. The active buyers now are mostly "have to purchase" buyers, with the "nice to purchase" buyers, that have fueled the excess volume in the market the last 5 years, waiting on the sidelines for things to settle down.
I believe that sellers are slowly getting the message to start lowering their prices. Like you, I've sold a home before and the prospect of lowering the asking price was painful, but after a certain period of inactivity, that is exactly what I had to do! It seems to me that sellers are getting this message and we will begin to see asking prices decrease over the next 6-12 months, or less.
But, Is It Really All That Bad?
Absolutely not! There are some pockets across NJ of strong real estate activity, and even some real estate companies that are having banner years, but in order to make 2007 a good year, we need to increase our marketing to get more buyers and do everything possible to help your home sellers attract buyers and bring qualified offers to the table.
It may not return to the glory years of 2000-2005, but it will rebound to be fundamentally stronger and more stable than those glory years...meaning a more reasonable growth rate that can sustain itself for a much longer period of time.
You Can Count On Us, Now More Than Ever!
Of course, we, your home inspection company, know how important every listing and purchase offer is to you. We all realize that our service to you is more important now than ever. Serving you for all of your home inspection needs (home inspections, termite certificates, radon gas inspections, mold sampling, air quality sampling), impressing your buyers and sellers with our expertise, attention to detail, and excellent customer service, and ensuring your image as a professional, real estate agent...giving you the competitive edge, now more than ever.
We take pride in always professionally performing home inspections and strive to provide the best service possible to you and your buyers and sellers. Afterall, your success is our success!
As we hope you can tell, we at Rook Home Inspections are very optimistic about 2007 and 2008. If there is ever anything we can do for you, or ideas you are looking for, or feedback you may need, or anything, just contact us and we will do all we can to help.
Andrew Rook
Rook Home Inspections LLC
Be Smart, Be Sure, Be Inspected TM
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