Anyone who has driven in an unfamiliar area without directions knows what it feels like to be lost. People are facing that same sense of panic today because they find themselves in unfamiliar economic territory. A handful of people vaguely remember being on this road before, but it was so long ago they've forgotten how to get through.
All real estate markets will follow the same road to recovery. However, not all markets will recover at the same speed because some markets spun out of control more than others. In Florida, for example, buyers-turned-speculators drove prices up to foolish levels and those irrational prices will now inevitably fall to irrationally low levels before that market corrects. Greed drove the prices up; fear will drive them down.
In Colorado, on the other hand, buying activity was never as out of control, so our prices may soften but not plummet like Florida's. Same road, different speed.
Everyone wants to know when our market will recover. That's like asking when a broken leg will heal. Technically, the healing begins right after the trauma happens. The break will heal faster if the bone is set correctly, but the setting process can temporarily add to an already painful event.
Likewise, our real estate market began healing as soon as the national bubble burst. Resisting the pain of setting prices correctly today only prolongs healing. Full recovery cannot happen until buyer confidence returns. However, that confidence hinges on prices falling to a point where fearful buyers feel comfortable about the value they receive for the price they pay. In the short term, many buyers will focus on price; they will sit on the sidelines if they can't get a spectacularly good price.
A few submarkets, like bank-owned properties and (some, not all) short-sales are already priced well below rational value. But they usually require additional investment and/or elbow grease after sale to bring them up to comparable condition to ‘ordinary' properties-proving the old adage that you get what you pay for. Until foreclosures and distress sales are wrung out of the market and buyers see beyond the frenzy of price-slashing and again consider value in what they buy, our market will remain in the healing process.
There is only one road to recovery and all market segments will fully recover. In the meantime, sellers who want to sell in this environment will need to "speed up" by driving their asking prices lower to appeal to price-conscious buyers. Ultimately, buyers will come to realize that there some very attractive values available without having to beat sellers down to foreclosure prices. At that point, confidence and order will be restored.
~With thanks to Denny Grimes, a Realtor friend in Ft. Myers, FL
Tupper Briggs is a Broker-Associate with Tupper's Team at Re/Max Alliance Evergreen. He has practiced real estate brokerage full-time for 35 years and his team has ranked #1 or #2 among Re/Max brokers in Colorado every year since 1996. Look for his column next month. Send your comments about this article and ideas for future articles to Tupper@TuppersTeam.com or 303-670-6358.
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