In reality, most real estate agents don’t take the time they need in order to know what is going on in the market. Most agents treat our area the way the weathermen do, with micro climates. Higher end areas are one micro climate. Lower end areas are another. And the one does not affect the other.
But how can this be? Market conditions spread across the entire valley. Maybe some areas are more protected from the changes, but unless there is something interfering with the free market, anyone can buy anywhere. If a home on the wrong side of the street is $250,000 under one on the right side of the street, that will affect where some people buy. If you want to be in a certain school district, you need to be on one side of the line. But if you don’t have kids, looking at a dramatic enough difference may change your mind. In fact for that $250,000 maybe if you do have kids you could put them through one of the high end private schools in the area.
What concerns me is agents like the one who wrote the letter to the Mercury News on Tuesday, by a Phil Mahoney of Cornish & Carey. His comment was that housing prices are up, so how can sales be at a 15 year low. He isn’t looking at the complete equation. Home sales prices are up. More high end homes are selling which is pushing up the median home prices. Since median price is directly related to the number of sales, fewer sales at a higher price point, would show an increase in home prices. This is only a statistical increase. If the number of homes sold and the range of the prices involved are not considered, you miss the most important part. Sales are down. We do have sub-prime loan problems. Foreclosures are taking place. And especially for the lower priced homes, value is declining. (Lower priced is around $700,000 and less.)
If you have a real estate agent who is representing you, then you are putting your trust in her. If the agent tells a buyer that the home is worth more than the asking price, and in order to purchase the home, the buyer is going to have to pay more than the asking price, the buyer will generally follow the agent’s lead. And if the property is in one of those areas where agents, sellers and buyers believe prices are never going to “correct”, then the buyer may be outbid by other potential purchasers and lose the home.
How many times does a buyer need to be outbid, by agents who are encouraging their clients to overbid, before the buyer will overbid? About two. If enough agents are not hearing what the market is saying, then buyers are having to pay more than if all agents viewed the market as in a correction period.
The same is true for a seller trying to sell a house. If the agent thinks that the home is overpriced, you can usually get your buyer in at under the asking price. If the agent thinks that the home is under-priced, you will need to get your buyer to be more aggressive.
It is the perception of the market that drives the real estate market. Is this fair? No. Is it right? No. Is it what’s going on? Yes.
The real estate market is in flux. It is a market that is slow to correct. That means that sales prices go up more easily than down. Sellers won’t sell if the price isn’t high enough. Some don’t have to. Some will decide to turn the home into a rental, others will decide to wait. Certainly buyers who purchased homes within the last three years with 100% financing have problems selling the home without having to bring money to the table. Many don’t or aren’t able to do this.
How long will this correction last? No one knows, but the reality is that any decline in the market is due to a lack of buyers. The buyers are scared about what’s happening. Some new buyers do not qualify for loans because of the tighter, and better, loan requirements. My opinion is that until the market is perceived as recovering, buyers will remain on the sidelines.
Tomorrow: Who is Commenting on the Real Estate Market
© 2007 by Judy Kane
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