Riding the Waves of New Millennium Real Estate
These are confusing times for anyone who wants to buy or sell a home.
It's national news that homeowners in higher priced markets are taking a beating on their investment.
Both foreclosures of sub-prime and now quality borrowers of second-lien loans are on the increase.
Many owners are being forced into compromising positions.
And while this may seem like good news for home buyers, it isn't if the home they buy today is worth less tomorrow or next year when an unforeseen personal problem may force them into a short sale that often requires taking money from their savings to essentially pay someone to take their home.
This is what is happening every day in formerly hot markets across the country.
Add to this the increasingly difficult aspects of obtaining cheap credit and the American dream of owning a home, and profiting from its appreciation, seems ever more unobtainable.
It should be easy.
Buy low and sell high, right?But to do that we need to know just where in the buyer/seller cycle the market actually is.
Unfortunately, conflicting reports come from every quarter.
Even the National Association of Realtors has reversed it's predictions of a 1% national drop in home prices and instead predicts that prices will bottom out this quarter (3rd Q 2007).
If this is true, It looks as if the ride--however uncertain--may be a short one for long suffering buyers forced to pay ever escalating prices for less and less home.
However, predictions, especially by an organization with a vested interest in a robust real estate market, tend to be, well, just that, predictions.
The reason for this confusion is that real estate markets are extremely local with many areas of the country never experiencing even the slightest bubble, or, unfortunately, as is the case of some rust belt towns, the slightest appreciation.
So, no national prediction by any organization, even one generally considered reliable, applies but generally to any local market.
How then will buyers know when the time is right and the bottom has truly been reached, that a corner has been turned and a return to a seller's market and possible double digit appreciation lies just ahead? Of course, this information is also essential to the seller, since a return to an appreciating market may be the light at the end of the tunnel.
Here are four telltale signs that the downward trend, for those buyers lucky enough to have one, is reversing.
1) Declining Inventory Chief economist at the Real Estate Center of Texas A&M, Mark Dotzour [http://www.
dotzour.
com/main/?p=bio] sees it like this: The balance between a buyer's and a seller's market can be expressed by the estimated time it would (theoretically) take to sell all the homes in a given market at the current rate of sales.
If it would take less than 61/2 months to sell all the homes in a given market then home prices are appreciating faster than inflation.
This is a seller's market.
If it would take more than 61/2 months prices are lagging behind inflation.
Above 9 or 10 months and it's a buyers market.
Besides these generalities, a clearer picture can be seen by comparing the quarterly or even monthly inventories.
When inventories decline it's a good sign that prices will increase.
2) Time on Market In addition, if houses are selling faster than before it indicates stronger buyer demand which pushes prices up.
This indicator is found by looking at the average time on market for a given area.
Of course, as in the use of any "average" extenuating factors should be considered.
But if the basic economic foundation of a community remains stable, averages are an effective way of timing the market.
Generally, if homes are selling in less than 30 days it's a sellers' market; more than 90 days it's the buyer's advantage.
3) Price Reductions When sellers are no longer forced to take price reductions on a market-wide scale it's a sure sign that the market is turning.
This can be gauged by noting the "reduced" headlines on real estate ads in the local newspaper or by noting the lack of "reduced" sign riders on homes in the neighborhood.
Another solid sign is fewer open houses per week and the lack of incentives offered by sellers to tempt buyers into acting when they want them to instead of when it may be more advantageous for the buyer.
Of course, if an incentive happens to appear at the same time the market is deemed to be right for a buy then so much the better.
Since this last indicator can be observed casually by reading real estate ads or noting the for sale signs in a given neighborhood it is ideal for anyone just thinking about a move.
A more accurate way to judge price reductions as well as time on market and inventory utilize statistics available from a local real estate broker who will probably have these figures at his or her fingertips.
Real Estate professionals live and breathe the market.
It's their profession and their livelihood.
4) Your Broker is Certain a Market Change is in the Wind As noted, real estate brokers are deep in the market on a daily basis.
They feel the subtle vibrations almost as if the market were a living breathing thing.
However, also as noted, if even the National Association of Realtors might be biased, how can we rely on someone who wants to sell us a house or sell our home? We can't rely on every broker.
In a tough market some agents get desperate and might feel forced to exaggerate.
But an experienced broker who has been in the business more than a few years knows better.
These men and women succeed or fail on their reputation.
In addition, a large percentage of a top broker's clients are referrals.
Give bad advice and lose the client plus everyone they know.
Getting burned on something as important and expensive as our home is not soon forgotten.
Nor is there any valid reason for a broker to exaggerate the truth.
A good broker sells in a buyer's market and a seller's market just as well.
The difficult time is when the market needs a correction, for instance, when prices are just not affordable or when prices are so affordable there's no inventory.
Even more than the data, a good broker with a sense of the market and where it is heading is an invaluable resource for anyone buying or selling a home.
It's national news that homeowners in higher priced markets are taking a beating on their investment.
Both foreclosures of sub-prime and now quality borrowers of second-lien loans are on the increase.
Many owners are being forced into compromising positions.
And while this may seem like good news for home buyers, it isn't if the home they buy today is worth less tomorrow or next year when an unforeseen personal problem may force them into a short sale that often requires taking money from their savings to essentially pay someone to take their home.
This is what is happening every day in formerly hot markets across the country.
Add to this the increasingly difficult aspects of obtaining cheap credit and the American dream of owning a home, and profiting from its appreciation, seems ever more unobtainable.
It should be easy.
Buy low and sell high, right?But to do that we need to know just where in the buyer/seller cycle the market actually is.
Unfortunately, conflicting reports come from every quarter.
Even the National Association of Realtors has reversed it's predictions of a 1% national drop in home prices and instead predicts that prices will bottom out this quarter (3rd Q 2007).
If this is true, It looks as if the ride--however uncertain--may be a short one for long suffering buyers forced to pay ever escalating prices for less and less home.
However, predictions, especially by an organization with a vested interest in a robust real estate market, tend to be, well, just that, predictions.
The reason for this confusion is that real estate markets are extremely local with many areas of the country never experiencing even the slightest bubble, or, unfortunately, as is the case of some rust belt towns, the slightest appreciation.
So, no national prediction by any organization, even one generally considered reliable, applies but generally to any local market.
How then will buyers know when the time is right and the bottom has truly been reached, that a corner has been turned and a return to a seller's market and possible double digit appreciation lies just ahead? Of course, this information is also essential to the seller, since a return to an appreciating market may be the light at the end of the tunnel.
Here are four telltale signs that the downward trend, for those buyers lucky enough to have one, is reversing.
1) Declining Inventory Chief economist at the Real Estate Center of Texas A&M, Mark Dotzour [http://www.
dotzour.
com/main/?p=bio] sees it like this: The balance between a buyer's and a seller's market can be expressed by the estimated time it would (theoretically) take to sell all the homes in a given market at the current rate of sales.
If it would take less than 61/2 months to sell all the homes in a given market then home prices are appreciating faster than inflation.
This is a seller's market.
If it would take more than 61/2 months prices are lagging behind inflation.
Above 9 or 10 months and it's a buyers market.
Besides these generalities, a clearer picture can be seen by comparing the quarterly or even monthly inventories.
When inventories decline it's a good sign that prices will increase.
2) Time on Market In addition, if houses are selling faster than before it indicates stronger buyer demand which pushes prices up.
This indicator is found by looking at the average time on market for a given area.
Of course, as in the use of any "average" extenuating factors should be considered.
But if the basic economic foundation of a community remains stable, averages are an effective way of timing the market.
Generally, if homes are selling in less than 30 days it's a sellers' market; more than 90 days it's the buyer's advantage.
3) Price Reductions When sellers are no longer forced to take price reductions on a market-wide scale it's a sure sign that the market is turning.
This can be gauged by noting the "reduced" headlines on real estate ads in the local newspaper or by noting the lack of "reduced" sign riders on homes in the neighborhood.
Another solid sign is fewer open houses per week and the lack of incentives offered by sellers to tempt buyers into acting when they want them to instead of when it may be more advantageous for the buyer.
Of course, if an incentive happens to appear at the same time the market is deemed to be right for a buy then so much the better.
Since this last indicator can be observed casually by reading real estate ads or noting the for sale signs in a given neighborhood it is ideal for anyone just thinking about a move.
A more accurate way to judge price reductions as well as time on market and inventory utilize statistics available from a local real estate broker who will probably have these figures at his or her fingertips.
Real Estate professionals live and breathe the market.
It's their profession and their livelihood.
4) Your Broker is Certain a Market Change is in the Wind As noted, real estate brokers are deep in the market on a daily basis.
They feel the subtle vibrations almost as if the market were a living breathing thing.
However, also as noted, if even the National Association of Realtors might be biased, how can we rely on someone who wants to sell us a house or sell our home? We can't rely on every broker.
In a tough market some agents get desperate and might feel forced to exaggerate.
But an experienced broker who has been in the business more than a few years knows better.
These men and women succeed or fail on their reputation.
In addition, a large percentage of a top broker's clients are referrals.
Give bad advice and lose the client plus everyone they know.
Getting burned on something as important and expensive as our home is not soon forgotten.
Nor is there any valid reason for a broker to exaggerate the truth.
A good broker sells in a buyer's market and a seller's market just as well.
The difficult time is when the market needs a correction, for instance, when prices are just not affordable or when prices are so affordable there's no inventory.
Even more than the data, a good broker with a sense of the market and where it is heading is an invaluable resource for anyone buying or selling a home.
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