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Understanding Today’s Market

Posted by Greg Moser on May 21, 2012

Understanding Today’s Market – Good afternoon everyone, it’s been a few weeks since my last article. I hope everyone has been well. I did speak to a client today that was interested in purchasing a new property and had a few questions. He had been looking at the 850k-1million price range for several months now. He was on my calendar to callback this morning to speak to and answer his questions – so I gave him a ring. I guess returning a call to an investor on a day like today wasn’t exactly a bright decision . . . Needless to say after he explained things and what had taken place, I quickly surmised that he was referring to Facebook. It appears that he had taken a rather large stake in the IPO and failed to exit in time due to the trading platform he used (past tense) failed to get his sell order processed I time – ouch . . . it looks like he’s going to be shopping for few more months.
Why I mention this is one of his questions was regarding a home he saw that continued to have price reductions. He had viewed the home several weeks ago when it had originally listed. At that time it was offered at just over a million dollars. Since that time it had been reduced by ten percent. Now some of you may be saying what a “hundred grand” is – well, it’s a hundred grand.
This weekend I had a chance to preview a very nice home here in La Costa for another set of clients. This particular home was listed at just over one million dollars, offering 3100 square foot and five bedrooms. It has a very large open layout with views towards Batiquitos lagoon in Carlsbad sitting on an end lot. The seller had done tremendous amount of work throughout the property. The bathrooms had Italian marble floor to ceiling – the kitchen had granite throughout as well as high end appliances and Silestone counters – I mean this place was nice.
The home has been on the market since December of last year. The agent I spoke with said she had a good amount of foot traffic that had been thru the home, but nothing really tangible that her seller was interested in. After a brief conversation she indicated that the seller was going to do another price reduction this week and if I had an interested buyer to write up an offer. Of course I thanked her and told her I would be in touch.
This issue with this home and many others in this price range is “value”. Today with inventory levels down to almost record lows this home seems to be in common waters. Buyers want value. When a home is reduced it puts most buyers back onto the bench. They want to know why the seller is reducing the price. They want to know if there is a problem with the home or is it just the market. With interest rates at record lows you ask yourself why a home of this caliber would be an unwanted item – – that’s a simple answer – -VALUE.
Now please understand this home is not priced out of the market, not by a long stretch – actually it’s well within reason. The issue is that homes in this price range are unattractive to a majority of buyers. These are typically move-up buyers who want value, most importantly security. They want to know what they are buying isn’t going to lose any value. Buyers are doing their homework today like I have never seen before. It’s not uncommon for me to have a client provide me with a comparables report that they put together. I literally had one client drive the open houses and note the key features of each home making the value adjustments much like a Realtor would do. That was a first for me.
In years past buyers would speculate on values appreciating. This afforded them the “room” to sell or refinance if the market were to provide an opportunity to do so. After the hit we saw in 2008/09 buyers still stayed focused on buying a home, but the way they went about doing so changed drastically. Gone are the days of “spaghetti buying”, you know – throwing out a price to see what sticks. These days the short term speculation is gone and the long term values are key. Buyers want a home not an ATM.
What this means for the housing market, especially sellers in the 850k – 1 million price range is to hold on. With rates at record lows (today’s 30 year is @ 3.625%) there still is very little traction within the lending community for buyers at these levels. This is further exacerbating the gap between asking prices and what the home eventually sells for. Buyers for the most part are not willing to dig any deeper putting them further into a home than they deem necessary. If that deal is going to happen it’s going to take some give on behalf of the seller to bring it together. When this happens it just perpetuates the cycle with another agent, another buyer and another seller. The same question is asked when the next offer comes around – why did the last house sell for less than asking . . .
In today’s market understanding what true value is by far is the most important thing. There are many agents out there that review the recent sales comparable and provide a buyer with a figure based on a downward trending market. Those are the agents you want to stay well away from. If you or someone you know is buying a home or considering selling their home, please contact my office. When it comes to knowing how to get the deal done there is no better resource . . .

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