Will home sellers’ motivation increase with the changing market?
The housing market is changing, but many sellers refuse to acknowledge the cooling market may force them to lower their asking prices.
It’s no longer a seller’s market; wishful thinking and hope of a fall turnaround won’t change that basic fact. Sellers are stubborn: even during the crash, many were unwilling to lower their prices to make a sale; after all, real estate only goes up, right?
A Potential Rate Rise Also Poses Uncertainty
By Gregory Zuckerman, Aug. 2, 2014 10:59 p.m. ET
The U.S. real-estate market has stormed back over the past five years after enduring its most brutal period since the Great Depression. The rebound has rewarded investors and boosted the overall economy. …
Now, however, there are growing signs of a slowdown. While the current weakness could provide investors with an opportunity to place new wagers at lower prices, analysts warn that the environment has become more challenging. If the Federal Reserve begins raising interest rates next year, as expected, it could become harder to make money from real-estate investments, the analysts say.
The only reason the REO-to-rental business model worked even at bottoming prices was due to the very low cost of capital. The 6% returns buying REOs is better than the 4.5% of apartments, but it only works when funds can borrow at 4% or less, which many did when bonds were paying 3%.
Home prices around the U.S. rose 9.3% in May from a year earlier, according to the Case-Shiller index. But that rise was less than forecast and represented the lowest annualized gain since February 2013. On a monthly basis, home prices fell 0.3% in June, the first negative month since January 2012.
Peter Boockvar, chief market analyst at Lindsey Group, notes that the supply of homes for sale today represents 5.8 months of demand, the most since October 2011. All regions have seen declining new-home sales lately, and new mortgage applications are also slipping.
“The first-time home buyer is just not the factor that it once was,” he says. “Without the first-time home buyer, and now with a reduction in the pace of investor purchases, the recovery will remain lumpy.”
Lumpy? Why can’t anyone admit the recovery rally is over?
Dennis and Cathie Caldwell thought selling their two-story Victorian would be a snap.
“You’re putting a sign out? Better start packing,” neighbors told them. “It’s gonna sell quick.”
Great advice from early 2012 to mid 2013. Since then, not so much.
And why not? Their historic home in Old Towne Orange is in turn-key condition, restored to its original 1886 glory, including brightly painted trim, polished hardwood floors and the kitchen’s tin ceiling. A similar home a block away sold in three weeks just six months earlier.
But when the Caldwells listed their home at $950,000 last October, it sat on the market. And sat. And sat. And after 10 months, four open houses, 350 lookers passing through their doors and a $62,000 price reduction, it sits there still.
“We wake up every day hoping someone with a big bag of money will come up the walk, but we haven’t seen him yet,” said Dennis Caldwell, 65.
“We’re just absolutely flabbergasted,” his wife added. “We thought we would be out of here. … We’re trying to get on with our lives.”
Perhaps articles like this one will help sellers realize It’s no longer a seller’s market.
Throughout Southern California, other home sellers are trying to get on with their lives, too. But it hasn’t been easy.
A year ago, homes typically sold in days with multiple offers as a buying frenzy gripped the market, driving prices up as much as 28 percent in a year.
Since then, however, the pace of sales has slowed. Sellers have flooded back into the market. And buyers are reluctant to pay the higher prices that followed last year’s frenzy.
Now, it’s common to see homes sit on the market for months.
“Twelve months ago, my average listing was getting 14 offers in seven days. Now, I’m getting 14 showings in a month,” said Shevy Akason, an agent with Evergreen Realty in Irvine. “The market definitely has changed.” …
“Homes are sitting on the market 30 days, 60 days. (Sellers are) reducing their prices 30 days, 60 days out, and sometimes that’s still not enough,” he said. …
Rising inventory is one factor.The number of Southern California homes in the Realtor-run multiple listing service increased 45 percent to 49,230 listings in mid-July – up from 33,853 a year earlier, Thomas reported.
Listings are up 47 percent in Orange County, 35 percent in Los Angeles County and more than 59 percent in the Inland Empire.
The percentage increase in listings sounds remarkable, but since we were coming off such a low level, these big changes are not impacting prices the way one might otherwise suspect. Further, many of these listings are cloud inventory that can’t lower their price even if they wanted to.
Closed sales were down 10 percent in the first half of 2014 from the same period a year earlier, according to DataQuick.Balky buyers, unrealistic sellers
Thomas blames balky buyers and unrealistic sellers.
“Values right now are at a level where buyers don’t want to pay that much extra over the last comparable sale,” Thomas said. “Unfortunately, most sellers are starting off overpriced. … Very few sellers are realistic right out of the gate, and they’re having to learn the hard way.” …
Back in 2012 and early 2013, this was a rational way to price a house. When the market is moving up radically, frenzied buyers often overpaid, and even if the property didn’t sell quickly, a rapidly moving market will catch up to even the most ridiculously priced property. That is no longer the case.
“A lot of sellers kind of hang on to the value of six months ago,” she said.Most agents call this a return to normalcy, not a sign that the market is going into a slump.
Most agents are liars who wouldn’t acknowledge the housing crash either, so this feeble spin is not surprising.
But Thomas noted that if listings keep rising to the point where they exceed demand, there could be price drops by the spring of 2015. Akason also worries that falling prices could impact the ability of move-up buyers to buy their next house, further reducing sales. …
Over the last year, for the first time in over 7 years, agents are taking working with move-up buyers who are selling one home to buy another. The problem is that many of these potential buyers are also unrealistic sellers who must obtain the WTF asking price on their property to pay the WTF asking price on the property they want to move up to.
Whatever the cause, the slowdown has been a pain in the neck for Glenn and Pamela Skidmore. The Costa Mesa couple have tried unsuccessfully since March to sell their two-story home of 28 years.They raised five children there. Their six grandchildren came to visit there. But Glenn, 56, is retired, and Pamela, 64, is near retirement. They’d like to downsize and cut their living expenses.
At $950,000, the home is priced right for their neighborhood, Pamela Skidmore said. But she thinks they jumped into the market too late.
“Things had moved so quickly in the preceding months,” she said. “But the fickle market, … it just came to a grinding halt.”
If these people owned their house for 28 years, they ought to be sitting on a mountain of equity. If they are unwilling to lower their price to make a sale, it’s hard to have much sympathy for them.
At $888,000, the Caldwells would get $250,000 less than what they paid for the house 11 years ago and spent fixing it up. …
So much for prices being back to the peak. Also it appears renovations don’t add as much value as people once thought.
They restored the front porch, updated the kitchen, replaced lighting fixtures with 19th-century chandeliers and furnished the home with antiques. They added a barn out back that includes a garage and painted the exterior in Victorian style with seven vibrant shades.“We have the balance of functionality plus visually representing a period-correct 1800s” appearance, Dennis Caldwell said. …
“I think it’s a combination of the market slowing down and requiring a unique buyer who wants an older home,” said Cathie Caldwell, 67.
“We thought for sure there would be multiple bids and offers,” Dennis Caldwell added. “It hasn’t worked out that way.”
And it will continue to not work out that way, particularly during this fall and winter.
Fall and winter is a buying opportunity
Home buyers tend to run with the herd. As other buyers pull back and prices start to fall, rather than sensing an opportunity, buyers will wait until prices start rising again before they begin shopping seriously. Of course, by the time house prices start moving up, inventory is less abundant, and other competing buyers force them to bid more eliminating any chance of a real deal.
This fall and winter will see more discretionary sellers, like the ones profiled in the story above, who will be motivated to sell their houses. The people who buy this fall and winter will get better deals than those who wait for next year’s spring rally. Last year the market had too much momentum and seller’s expectations were too high to provide the proper environment for buyers to find good deals. This year is different. If you are considering buying a home, this fall and winter is a buying opportunity.