What exactly do we mean when we talk about the real estate market? And, how do buyers and sellers make sense of all this?
Like everything else it depends on your perspective, how you define "the market", and your expectations. There are, of course, many factors that come into play when one speaks of real estate - leverage (borrowing money for a purchase), interest rates, underwriting practices, purpose (investment versus primary residence), and supply & demand to name a few of the key factors. This is written to help buyers and sellers now, not as a thorough definitive analysis that describes how we got here especially in southwest Florida.
It is important is to know and understand the trends. Are interest rates going up, down or steady? Is inventory increasing or decreasing? And for any of these trends it's critical to understand the fundamentals underneath that may be driving it upward or downward. Here in southwest Florida, for example, a strong housing market in 2004 and 2005 caught the attention of investors who jumped in to snatch up properties as prices rose. Therefore the prices were driven up even further. This, in turn, pushed the perceived demand up and so it continued. During conditions like this everyone wants in on it - developers, contractors, lenders, and yes real estates agents and brokers. Low inventory caused by long build cycles and other factors pushed up demand though, in my view, the demand was indeed real but not supported by underlying fundamentals - i.e. the true consumption of properties.
Enthusiastic investor-buyers now turned sellers are disappointed because resale prices expected be to 150% or more of purchase price just cannot be realized. The "market" - the rate or price offered for a commodity or security (Merriam-Webster.com) - is not meeting the expectation of the sellers. The question is - are seller's expectations founded in the present or in the past?
Those who are successful in the stock market with equities have clear goals set for profit (in a rising market) and cutting losses (in a declining market). When those pre-established goals are met they buy or sell and they don't make the mistake of hanging on to make a bit more only to have prices drop below their target.
What to do?
Investment sellers with a lot of money tied up and interest, insurance, tax, and maintenance expenses recurring should take a hard look at the return on investment (ROI) when reducing the price to what a ready, willing buyer will pay (profit less or cut the losses) - move on.
Primary residence sellers should understand that the same conditions that affect what they can sell their house for will also affect the next property they purchase whether it's and upgrade or relocation - move on.
Buyers, get in the game! Find the property that you are interested in and make an offer. Don't low-ball, be reasonable and fair. If it is not accepted given the current inventory, there is clearly another property to make an offer for - move on.
The personal enjoyment and satisfaction that comes with your purchase is what is important. In the final financial analysis all that matters is the selling price versus the buying price which is usually separated by 5 - 8 years on average. If the going price drops (or sky rockets) the month after your purchase does it really matter? What could have been will never be.
What are your thoughts?
Bob Pisa is a REALTOR, e-PRO with Prestge Properties in Naples, Florida www.BobPisa.com
