Ask a dozen Wall Street analysts this month where and when the stock market will bottom out and you’ll get twelve different answers. Jumping in as a buyer at any point in time is a gamble, particularly if short term timing is the objective. Real estate suffers from similar speculation: Does the market have further to fall, or is this the time to step up as mortgage rates continue to fall and inventory has swelled to inviting proportions (from a buyer’s point of view). Just as the stock market is a mosaic of multiple components (retail, energy, tech, manufacturing, transportation…) and not all components, or companies, trade down equally, the real estate market might be dissected along the lines of cities, with some dropping precipitously while others, buoyed by demand, or less affected by subprime loans and mortgage resets, hold up relatively well.
Further dissection might be along the lines of price tier and location, which is certainly true for Santa Fe, where the upper end—be it Las Campanas or the historic Eastside—has proven somewhat resilient. The rest of the market, particularly homes under $800,000, may continue to struggle, but somewhere there’s a bottom for everything. Price ultimately overcomes sluggish markets and buyers’ objections. We’re probably a lot closer to that bottom than we were six months ago, and as the next few months pass, closer still.
At some point rationality trumps fear as buyers reason that even if they purchase a home right now, and its five or ten percent above its ultimate low, it will be thirty to forty percent (or more) below its ultimate top in the next cycle. Everyone would love to have 20/20 foresight, but the next best thing is to take a long view of markets and your own needs. Similar to the stock market, when housing markets begin to rise, the choicest homes and lots go first and suddenly everyone else is left playing catch up.
In the meantime, if you’re a seller, here are things to be aware of.
- Analyze who is buying in your neighborhood. If the majority, for example, are purchasing 2,000-square-foot condos or town homes with the latest amenities, priced at $250/square foot, and you have a large twenty-year-old home that hasn’t been updated and cost you $300/square foot to build, you may have a problem. If a significant price adjustment is not palatable, consider taking the property off the market until conditions change.
- In sluggish markets, the homes that sell best (and sometimes at a premium) are generally those that require the least amount of renovation or updating, have the best locations, and most amenities. Be prepared to discount for obsolescence or other deficiencies, or spend the money to update.
- If you’re renovating for purposes of selling, kitchens, bathrooms and landscaping—if done well—will generate the best returns.
- Every property has its strong and weak points. While buyers generally focus on a home’s deficiencies in negotiating a price, have a sense of value of your home’s assets and negotiate from strength when possible.
- Know the historical price cycles of your city, neighborhood and type of house, and present that information to your Realtor or potential buyer. Be a realistic seller but don’t be a shrinking violet.
- Never refuse to counter an offer, even if you find it insulting. Insincere buyers quickly disappear, but you never know when someone will ultimately step up and negotiate in good faith.
- If the average home in your price range takes nine months to sell, and you’ve been on the market for fifteen months, identify the problem and either fix it, reduce the price, or take your home off the market.
- In quiet markets, many buyers are driven by fear and uncertainty. Am I paying too much? What else is there to look at? If I buy now, will I get stuck? Emotional responses are best countered with a rational examination of data: What are buyers paying per square foot? Is the market getting better or still softening? What does my house offer that the competition does not? Taking out the emotion helps both sides see more clearly.
- Sometimes it makes sense to “dump” your house in a quick sale if the replacement property you’re buying is in an equally distressed market.
- Watch for the tipping point in inventory levels and “days on market” in your price range or neighborhood. Once the momentum begins to shift, there is generally a time lag of about six to twelve months before the public perceives it’s now a seller’s market and prices begin to rise.
