The past several days have been interesting, with much discussion off-line (they do happen, you know) about the effects of the changing real estate market. The Wall Street Journal has an excellent summary of what some of these changes mean for different segments of the market. With the standard caveat of “all markets are local… ”
The changing dynamics have implications for a wide variety of players in the real-estate market. Some brokers are advising sellers to price their homes in the bottom 25% of comparable properties. People looking to enter the market for the first time are being told not to overly stretch their finances because rising home prices may no longer bail them out. Employees who are relocating are being advised to steer clear of new subdivisions where competition from brand new construction could make reselling soon difficult.
Such strategies aren’t entirely new, but they had fallen from favor in many markets as home sales heated up early in the decade. Recently, markets have shown signs of cooling. The number of homes for sale has climbed about 30% over a 12-month period, reaching its highest level in nearly 10 years, according to the National Association of Realtors. The group recently predicted sales of existing homes would drop 5.7% this year versus a 4.4% gain in 2005.
Let me be clear – I don’t foresee the market in the Charlottesville/Central Virginia market tanking, prices dropping, or any of the other well-worn clichÃ©s that have been bandied about in the media. I have said it before and I will say it again – my crystal ball shows that there will be a decrease in the rate of appreciation of houses. For instead of a 20% year over year increase in value, homeowners may see 5-10% appreciation. I could be wrong, and am certainly open to other opinions.
As the housing market cools, first-time buyers have the opportunity to be more thoughtful about their purchases and to negotiate for a lower price, a more flexible move-in date, or incentives such as seller-paid closing costs.
Jill Green, a Realtor with Century 21 Award in Carlsbad, Calif., a coastal community north of San Diego, has been making offers that are 1% to 5% below the low end of the seller’s price range. “Sellers are entertaining the offers and are taking them,” she says.
Some brokers are advising first-time buyers to leave a financial cushion instead of stretching as much as possible and counting on rising home prices to bail them out. They are also asking sellers to help with closing costs.
Some brokers? Some brokers? Any who are not advising buyers to ensure that they have a financial cushion/emergency fund is straight-up irresponsible.
In closing, relax. It’s all about the price (and location).