Question from a reader:
My sense of the housing market is that we have seen the biggest run-up in prices from the late 1990s to the present in the past 100 years (e.g. this NYTimes graphic). The market has started to soften, but like prior real estate slumps, housing prices will decline or be flat for several years to come. Nothing can go up 15-20% in value each year forever. The collapse of the subprime mortgage market is just one piece of evidence that the market has changed. And, I do not think Charlottesville is immune from the nationwide real estate slump; in fact, the data–e.g., record inventories, homes staying on the market for 6-9 months or more, etc.–confirm my suspicions. So, I am keenly concerned about not overpaying for a house in this market. I am glad to continue renting if sellers are unwilling to lower their prices to account for the fact that the market has changed and real estate prices are unlikely to appreciate much in the near future (see, for example, the recent New York Times aricle entitled “A Word of Advice During a Housing Slump: Rent“). Owners enjoyed the run-up in prices/equity during the housing boom; now, they have to endure the decline in prices/equity during the inevitable slump. However, I am also glad to buy a house tomorrow–if, and only if, the price is reasonable. The fact that inventories keep growing but that prices are not declining very much leads me to conclude that most prices being offered today are not at all reasonable. I realize that most sellers are probably not going to accept an offer well below their asking price all at once; rather, they are probably going to reduce their asking prices gradually until someone makes an offer reasonably close to what they are asking. However, many of the homes in the MLS are priced well over assessment–in fact, quite a few are priced $100,000 or $150,000 (or more) over assessment. I know assessments are a mixed bag, but a quick check of the 2007 sales data for Albemarle County shows that approximately as many homes have sold below assessment as have sold above assessment for the price range we are considering. The NAR is predicting a decline in home prices this year for the first time in 40+ years. And, the CAAR market report shows prices declining in the Charlottesville area, as well.
So, my question is this. Should I not even look at houses that are priced $100,000+ over assessment if I have no intention of paying anything like what is being asked? Stated differently, is it worth the effort to make (what the seler would perceive as) a low-ball offer in such situations?
First, thank you for the question and for allowing me to post it. The Charlottesville area real estate market has traditionally been moderately insulated from the national market vagaries, primarily due to the influence of the University, but also other factors such as tourism. While we are not immune, we have been less susceptible. That said, we are clearly in a transitional market. Below are the inventory levels for single family homes in Charlottesville/Albemarle for the first quarters of 2004 and 2007 respectively. The last column is the absorption rate, shown as the months of inventory available on the market. The PDF with the full data is here.
Sellers are starting to come around. So are Realtors. We are all adapting to this new market.
Back to your final question concerning assessments – for the most part, ignore them. The valuations provided this year by the County of Albemarle were forward-looking projections of value that did not take into account the shifting market. They appear to have been projecting forward the same rate of appreciation that the area has experienced for the past several years. My house is assessed for about 12% higher than what market value probably is. Previously, assessments were largely irrelevant because they were significantly lower than market value and now, they seem to be higher than market value. More on assessments at cvillenews.
A brief analysis of homes sold in the MLS between $$500k and $600k since the first of the year comparing their sold price to their asking price and the assessed value found, unfortunately, very little consistent
Right now, when searching for buyers, I tend to search prices 15%-25% higher than their “comfortable” price range (not the maximum they are pre-approved for, but comfortable) because often, price is not the greatest determinant when sellers are considering offers.
The decision of whether to buy now is one that should be made with (far) more consideration than was necessary in the past five to seven years. Buying can be the “right” decision for many, perhaps most of those in the market.
I hope this answers your questions. Thank you – this analysis makes be a better Realtor better prepared to represent my clients – buyers and sellers.
This may be one of my most favorite emails of late:
Sorry I haven’t gotten back to you sooner, things have been crazy (as always.) Anyways, I just wanted to let you know that (we) decided not to buy right now. With input from our parents, the state of the market right now, the small time frame that we’ll be here in Charlottesville, etc, we just don’t think it’s the best move for us right now.
I feel bad because I know that you put in a lot of time and effort for us and we appreciate it very much. If we change our mind you’ll be the first person to know. Also, if we hear of anyone looking for a good realtor in the area we will send them your way.
Again, thanks so very much for all you did for us, we learned a ton from you.