It’s no longer a seller’s market

Higher prices bring out sellers but turn off buyers; the result is more inventory and a shift away from a seller’s market.

for-sale copyCalifornia’s housing markets are nearly always a seller’s market because we have a chronic shortage of available housing. This causes people to substitute down in quality relative to their incomes and live in smaller, less opulent abodes than their income would accommodate in other areas of the country. The cost of housing is high in California, and it probably always will be.

Disruptions in the housing market quickly tip the balance in housing from one favoring sellers to one favoring buyers. For example, in late 2011, we had the deepest buyer’s market possible in California. There were very few buyers, and the ones that were active weren’t motivated because prices were dropping. The abundance of motivated sellers had them competing to lower price to attract buyers. It was the best of times for buyers.

In early 2012, the market changed very quickly as lenders dried up the supply of homes on the MLS by opting for loan modifications over foreclosure, and they stopped approving short sales as well, demanding sellers repay the full balance or stay in the home paying on a loan modification. The result was an abrupt change from an extreme buyer’s market to an extreme seller’s market in a few short months.

The seller’s remained in control of the market from early 2012 to mid 2013 when a combination of higher prices and higher interest rates removed many marginal buyers from the market and stopped the active buyers from continually raising their bids. Over the last year, sales volumes dried up, and although sellers didn’t get the memo, the market has been stagnant and balanced ever since.

Not anymore.


Many sellers are now putting their homes on the market, and as the buyer pool continues to evaporate, it has now shifted from a seller’s market to a buyer’s market — sort of.

This is an unusual buyer’s market. In a typical buyer’s market, sellers must compete for the few available buyers by lowering their price. That isn’t happening this time around for two reasons: (1) many discretionary sellers are merely testing the market and not really motivated, and (2) many would-be sellers who are motivated are trapped in cloud inventory and unable to lower their prices due to the large outstanding balance on their loans. The market dynamics favor lower pricing, but I don’t believe we will see much, if any, reduction in sales prices because the sellers who can lower price aren’t motivated to do so, and those that are motivated are unable to do so.

It’s a recipe for very low sales volumes and a frozen market.

4 Reasons Why Homebuyers Can Breathe a Sigh of Relief

by Nela Richardson | June 27, 2014

There’s been a dramatic change in the housing market lately, and it’s almost all good news for homebuyers. As we head into summer, here are a few thoughts to consider:

  • There are more homes for sale in 2014, with inventory up 9 percent. Sellers are working harder to get their homes fixed up, so some of these places look pretty good.
  • And you have a better chance of being able to buy one, with bidding wars down by double digits.
  • More good news, prices have stopped going up so quickly.  We predict prices to increase by just 6 percent in 2014, making it much easier for you to find a good deal on a home than when prices surged by 13 percent last year.
  • And mortgage rates are at 4.1 percent, less than half the 30-year historical average of 8.7 percent; for a $500,000 house, this is worth more than $500 a month in mortgage payments.

What Redfin Agents are seeing is homebuyers who have become more disciplined than before, still pouncing on the A+ homes in the best school districts, but being more careful with the up-and-comers.

The realtor rah rah ignores the issues facing sellers. It is a better market for buyers, but prices are still very high and unlikely to get much lower. We may see the occasional good deal from a motivated equity seller, but those deals are hard to find. If the property is priced right, it will get multiple offers, and if it’s priced poorly, there is no way to know if the seller is motivated or able to lower price.

Shevy has long been a proponent of offering on overpriced properties — not offering near asking, but making an offer to begin a negotiation. Often if a buyer offers on an overpriced property, they are the only one doing so, and if the seller is motivated, sometimes the buyer can get a deal. If buyers wait for the price reduction, other buyers do the same, and it’s more likely to create a multiple bid situation and eliminate what could have been a really good deal.

The cost to own versus the cost of rent still favors buying, though not by as much as a few years ago. Patient buyers willing to make multiple offers may find a good deal, particularly over this fall and winter when buyers are scarce.


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