The Return to a “Normal” Housing Market

by Glenn Keller

Most of you have noticed that the real estate market is not as hot as it was last year at this time. We remember it well: If you were a home buyer, you lived your life on pins and needles waiting for the call from your realtor informing you that a house just came on the market that meets your specifications. It may not have been the “perfect” house, but it was a house, it was for sale and you needed to buy. As soon as you got the call, you dropped what you were doing, jumped in the car and drove off to meet the realtor, who was bringing the contract they had prepared weeks ago, in anticipation that this would someday happen, and in the hopes of being the first one there to have the honor of placing an offer on the house. You carefully crafted a letter to the seller, including pictures of your family, identifying why you should be selected to be the next owner of the property. Many contracts had an escalation clause in them as a hedge against someone coming in later and submitting a higher offer. What about the seller? It was clearly a seller’s market. All the seller had to do was stick a sign in their yard (or even hint that they were thinking about selling) and say “let the bidding begin”.

Well that is not the case this season. The tides have clearly changed and we are back to much more normal market conditions, where able sellers and able buyers negotiate a price that is satisfactory to both. That is the way real estate sales were designed to take place.

If you are a buyer today, there are many more options and the process is much less stressful. However, since sellers were so spoiled over the last couple of years, they are panicking when it takes sixty or ninety days to sell a house. Many are offering incentives again, such as price reductions and contributions towards closing costs. Builders are offering upgrades and other creative toys to get inventory moving. Again, this is not unusual.

Much of the mainstream media had predicted a doomsday scenario for the real estate market in general. However, knowing that the media tends to play on the fear factor, it is apparent that they seemed to overlook several significant points.

First, there is no doubt that the inventory of homes has increased significantly. However, the actual increase could be dramatically overstated. Why, because remember earlier when I said that all a seller had to do to sell a house the last few years was to stick a sign in his front yard? Well, that is exactly what many people did. We all became realtors because we did not need to pay a commission to sell the house. It is called For Sale By Owner (FSBO). Neither the National nor the State Associations of Realtors have the capacity to drive around the neighborhoods of America counting up all of the FSBO properties that were for sale to include them in the inventory numbers. How do they calculate their statistics? By using the numbers posted on the MLS. In the last seven months or so, since it is taking much longer to sell a house, many of those FSBO ore “seller assist” type sellers have realized that selling a house requires a bit more skill and they have turned those properties into Listings with a realtor on the MLS and suddenly, the inventory of homes has gone way up.

Additionally, many sellers are trying to price their homes using last years’ appreciation model. For example, if I owned a home at the end of 2004 with a value of $300,000, at the end of 2005 that house probably had a value of $375,000. Now, in mid-2006 I want to sell that house. If I price it based on last years’ growth, I list it for $422,000. However, the current growth model would truly only price that house at $390,000. That means it was listed 8.2% over value. Now, if I sell the house for $390,000, it looks as if prices are dropping when in fact, they are not. They are still appreciating, but at a more historically reasonable rate. The problem is that this information is propagated in such a way that makes it look like the sky is falling.

When evaluating the strength of the real estate market, it is critical to look at the facts through unfiltered lenses. The two elements pointed out above are misconstrued as being negatives, when in fact on the surface they can be misleading as I have shown. Further, the economy is thriving, inflation appears to be in check and here in Florida, we have the one of the highest job growth rates and one of the lowest unemployment rates in the country. As a result, we project mortgage rates  will remain fairly stable throughout the balance of the year. These are the real facts that create great anticipation about the continued appreciation of  Florida real estate as we return to a normal real estate market.

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