Not much more than a year or two ago, our marketplace was dealing with multiple offers and escalator clauses. Many sellers’ biggest concern was making sure they were able to drain the last dollar of profit from the sale of their home! The market was so hot that some buyers were gladly discarding the use of standard contingencies (such as financing and professionaly inspections…though, not if I could help it!!), just so they could get to the front of the line of other purchasers! For the first three quarters of 2006, we watched as the market gradually shifted and interest rates ticked slightly upward. Then we started seeing a more radical shift in the real estate market throughout 2007, but rates came back down. I believe the “sub-prime” debaucle brought the “ball home” for Portland. Clearly, it is more a buyer’s market today than at any time in the last few years.
If these changes were occurring in the stock market rather than the real estate market, one would be preaching the maxim “Buy on bad news, sell on good”. But, today, in most real estate markets, buyers are holding onto their money, even while more sellers are listing their homes. As a result, marketing time is getting longer and inventory is increasing. However, interest rates are at the lowest point they have been at since January 2006. Lower interest rates usually mean that more buyers can qualify for higher loans. However, the irresponsibility of some loan officers and the corporate ideologies of some major lenders have certainly redefined that entitlement. There are still good loan programs out there, but a little more creativity is necessary (and a good loan officer is paramount). Good credit can get a buyer plenty of options and some creativity can still get a mildly credit challenged buyer a creative financing package! With more inventory to choose from and interest rates falling or remaining the same and more time to make a rational purchasing decision, what more could a buyer ask for???
For most home buyers, livability is the major factor in their purchase: Location, schools, safety, commutes, etc. These motivations have never changed, regardless of the economics of the marketplace. Here are concepts to remember:
- PROFIT ON RESALE IS PRIMARILY DETERMINED BY WHAT YOU PAY FOR THE HOME, NOT BY SELLING PRICE. In previous years, with the limited amount of inventory, owners were selling their homes at the top of the market. But those that made the real money were the ones who had paid the least when they bought - i.e: they started with the lowest basis. Why does this make a difference? Because sellers usually become buyers, which means that selling at the top of the market only results in buying at the top of the market. So those who really benefitted in these last hot markets were the ones who were able to pull out the greatest profit, because they had a lower basis in the home to begin with.
- MARKET TIMING IS NOT REALLY FEASIBLE IN REAL ESTATE. In the stock market, there are those who are “market timers”, making their purchasing and selling decisions based upon what the market is doing at that precise moment in time. However, the real estate market does not work this way, since there is no such thing as the Dow Jones or Nasdaq, which reports changes on a minute-by-minute basis. The best the uninformed real estate consumer can do is scour the internet, newspapers and magazines to get anecdotal reports that are usually months old. Even the Zillow-type websites are not totally reliable, since they are based primarily upon public record information that depends upon tax assessors, deed recorders and other bureaucrats to document events that occurred months ago. The information is inherently stale!
- THE CONDITION OF THE NATIONAL MARKET DOES NOT REPRESENT THE LOCAL MARKET. Oregon is a unique market, primarily due to its attractive quality of life. Hoever, in addition, there are sub-markets such as the coast, the Willamette Valley, Southern Oregon and Central Oregon. Anyone who relies upon news reports about the national housing market in making purchasing decisions about Oregon is making a big mistake. That would be like looking at national weather patterns in deciding whether it would be a good day for a picnic at Washington Park.
For most sellers, frustration and disappointment stem largely from unrealistic expectations. Here are some points to remember:
- TODAY’S LOCAL MARKETPLACE IS NOT AN ABERRATION. Look at the RMLS (Realtor’s Multiple Listing Service) “Market Action Report” (available on www.janeesejackson.com > go to left nav bar > go to “Market Stats”/updated monthly). If you compare it to a few years ago, the available inventory and time on market are much closer to the days when the marketplace was in more equilibrium than in the recent market frenzy. This is not necessarily bad. When listing inventory is higher, there is enough time for buyers to make rational decisions amoung various alternatives. When time from listing to sale is under 30 days, poor decisions and recriminations are bound to occur.
- OLD ANECDOTES NO LONGER APPLY. Sellers cannot live in the past, expecting the marketplace to treat them as it did their former neighbors or friends who sold their homes prior.
- WHY IS THE SELLER SELLING? There are many reasons that sellers sell. Some are voluntary and some involuntary. Regardless of the reason for the sale, a closer look at the statistics will show that while time on the market has definitely increased, there is often still good profit to be made in the market. And, if the seller will soon be a buyer, their puchasing power will still be maintained.
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Janeese Jackson
Bill Norris
