Before you buy, sell or invest, you need to understand the current market conditions and how they affect your decisions.
The days of sticking a “For Sale” sign in your front yard and having 5 offers by mid-afternoon are yesterday’s news. Jacksonville’s booming real estate market is by no means dead, but 2006 ushered in a major shift all the same. As the spring selling season moved into high gear, the cooling housing market upended the conventional wisdom that guided buyers and sellers during the previous 3-5 years.
The changing dynamics have implications for everyone in the real-estate market—buyers, sellers and investors. Unfortunately, the shift caught many sellers off guard. Homes that were listed just prior to the sudden change just sat there… lonely and forgotten. There was hope that the lull would be short-lived and that all those eager buyers would come rushing forward with their above-asking-price bids. But that just didn’t happen. Instead, many sellers have resorted to actually reducing their prices to attract buyers. However, that trend has begun to ease now.
The number of homes for sale increased dramatically during the first quarter of 2006, reaching its highest level in nearly 10 years according to the National Association of Realtors®. The NAR recently predicted sales of existing homes would drop 5.7 percent that year in stark contrast to the 4.4 percent gain in 2005. That trend has continued to this date although as of early 2008 the trend appears to be leveling off and we are very hopeful for a turn around during this year.
To top it off, higher mortgage rates are making houses less affordable for many hopeful first-time buyers. Rates on 30-year fixed-rate mortgages have fluctuated wildly with rates on adjustable-rate mortgages climbing to a point of hurting many who had those loans.
Let’s take a look at what this means for different groups of buyers and sellers:
Sellers
You don’t need to panic, but you can say goodbye to the days when you could simply look at what your neighbor's house sold for and then list yours 10% higher. Even if you did and you found a buyer willing to pay your price, the chances of having it appraise for that amount are slim. And few buyers are willing to fork out the extra cash for the inflated price.
In fact, overpriced homes may never even catch the eye of their intended audience. That's because buyers and brokers increasingly rely on computers to screen listings based on price, size and other parameters when new properties come to market. That’s why many sellers who listed in the early months of 2006 had to reduce prices in March, April or May. If you were one of those sellers, don’t be dismayed. You weren’t alone by any means.
Many agents are counseling their clients to price their homes in the "bottom 25 percent" of comparable homes and cut their asking price by 3 percent to 5 percent if the listing doesn't generate several showings or written offers within three to four weeks. We’ve spoken with several agents who’ve had listings sit with zero showings for several weeks before convincing their clients that the market change is real. It’s also imperative that sellers fix even minor problems that buyers might have overlooked in a more heated market.
First-time buyers
The change can actually be a good thing for first-time buyers. They can be more thoughtful about their purchases and negotiate for a lower price, a more flexible move-in date or incentives such as seller-paid closing costs.
Some agents are advising first-time buyers to leave themselves more of a financial cushion instead of stretching as much as possible and counting on rising home prices to bail them out. It’s also more common to not only ask sellers to help with closing costs but to actually have the sellers offer to help.
Move-up buyers
The move-up buyers face the more delicate task of balancing a purchase with a sale. A growing number of buyers are making offers contingent on selling their current homes. Offers of this kind were mostly rejected when the market was much hotter but today sellers are much more open to this risk, believing that a bird in the hand is better than two in the bush.
Investors
Whereas Investors became accustomed to seeing quick profits in our once-hot market, they may be in for a bit of disappointment today if they are looking for the same results. In some new sub-divisions and in many of the condo-conversion communities dozens of similar investor-owned properties are competing for buyers. If you have any way not to sell right now, our advice would be, don't. It’s probably more prudent to rent that property for the next year and then make an assessment as to whether or not to sell.
But the decision to sell or rent can be tricky. Rental homes often don't show well and often must be vacated and given fresh paint and carpet before going on the market. Each investor must carefully evaluate his own situation before making his choice.
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