â€œIt was the best of times, it was the worst of timesâ€¦â€ so begins the novel a Tale of Two Cities. Or in the case of real estate, it is the tale of two markets. On the one hand inventory for unsold homes in MLS remains fairly stagnate at 56,000 homes. On the other hand, pending sales continue their trend upward currently hitting 8099 â€“ certainly a record high this year.
In fact there are really two real estate markets at this time. Homes that are correctly priced for their condition and properly marketed, are selling. In some cases we are even seeing offers within days of listing or multiple offers. On the other hand, there is the second market of homes that are not at current market value for their condition and location. Those homes are stagnating and accumulating market times of 300+ days with no sale.
Is this good or bad news for sellers? Well, we think overall it is good news because the factors that control the sale actually remain unchanged from any earlier markets. Fortunately, all of those factors are under the sellerâ€™s control â€“ price, condition, and marketing. Pricing is established by the seller (hopefully with the aid of a qualified agent), condition is controlled by the seller, and even marketing is determined by the active FSBO or by selecting a qualified agent.
So what is making this market appear so different from earlier markets?? We think it comes down to the number of â€œqualifiedâ€ buyers. It is said that the seeds of failure are sown in times of success, and that certainly applies to the real estate market. Letâ€™s review how the seeds were sown. Prior to 2003, buyers were using traditional financing to obtain homes. Yes, there were buyer programs to allow buyers to purchase with nothing down (VA, Nehemiah, etc.) but still they had to qualify. They needed income, a decent credit history, and a reasonable debt load that supported their proposed house payment. Those standards in lending began to change in 2003. Standards began to weaken as the housing market roared forward. Foreclosures were low because the increasing values allowed sellers who couldnâ€™t make their payments to sell as the market built their equity rapidly. Lending confidence grew stronger and caution, weaker. And so the seeds of failure were sown. Both lenders and buyers threw caution to the wind, since the market seemed Teflon coated. Investors sensing the potential for quick money, jumped in to the market with a vengeance. This created an artificially high number of buyers â€“ buyers never before seen in this marketplace. These buyers were unqualified, whether owner occupants or uneducated investors.
Eventually the lending market imploded in August of 2007, and it took a large pool of buyers out of the marketplace. Letâ€™s look at some numbers to put this in perspective. At the peak of the market in 2005, there were over 10,000 transactions closing a month. In the first half of 2007, average closings per month were down to approximately 5500. After the lending meltdown in August, the numbers dropped monthly until hitting a low in January 2008 of only 2877 MLS sales. Since Januaryâ€™s low, February posted sales of approximately 3436, and March rose to 4302.
Probably the most troubling trend is the number of short sales (homes that are being sold for less than the amount owed to lenders) and REOâ€™s (real estate owned â€“ more commonly called foreclosures). Currently, foreclosures (both pre and post) amount to approximately 25% of the market â€“ both in active listings and solds. Sadly, foreclosures are predicted to continue to mount through this year. However, Congress and both the current and each of the possible new presidents are proposing a myriad of legislation to attempt to halt this trend. This is why predicting the future can be so difficult. However, it seems fairly clear that we are at near bottom, if not bottom of the market.
So what does a seller do in this tale of two markets? First, if you need to sell, be assured that there are still buyers out buying and your home can be sold. On the other hand, if you are not buying as well as selling (in which case any loss on the sale is neutralized on the purchase) and can wait â€“ wait! Real estate markets operate in cycles, and this too shall pass.