Cooling Market Returns Semblance of Normalcy To Buyers, Sellers
The D.C.-area real estate postings on craigslist.org—the highly popular, free online classifieds listing—provide a little anecdotal insight into the market of 2007.
“Don’t miss the opportunity to get this property at Below Market Price!”
“Owner financing available with 10 percent down.”
“Save time and money buying directly from sellers who are in financial trouble.”
Although economists and real estate experts say the much-ballyhooed real estate bubble never actually burst, 2006 fourth-quarter reports from various sources do indicate a local playing field that’s evening out. In real-life terms, this means the fast and furious offers that translated into huge profits for homeowners have been largely replaced with back-to-normal bargaining, home inspections, and good deals for both sellers and buyers.
At the national level, current reports do show a downturn in real estate sales. The number of vacant homes for sale in the first quarter of 2007 was nearly 40 percent higher than it was a year earlier, according to the U.S. Census Bureau. In April, the National Association of Realtors reported that an 8.4 percent drop in home sales was the most drastic monthly decrease since 1989. Then in early May, the organization released a statement predicting “sluggish” sales in the second quarter.
The reports paint a somewhat dire picture for lenders and homeowners in states such as California, Florida and Texas, where online marketplace RealtyTrac reports skyrocketing foreclosure rates that have given buyers a big upper hand.
The sweeping changes have everyone from economists to editorialists guessing what will happen next, but how do the reports translate for sellers, buyers and brokers in the metropolitan Washington area?
“I’m finding the current real estate market to be one of the most balanced markets I’ve seen in 15 years of practice,” said Anita M. Centofanti, associate broker with Long and Foster Real Estate in Bethesda, Md. “I’ve seen situations where homes sat on the market seemingly endlessly with no one looking at them to the frenzy of the past few years, where buyers had to bid on a half a dozen homes before somehow composing the most attractive package to a seller.”
So far, things aren’t nearly as frightful for sellers in the D.C. area, where tapered home sales are expected to rise beginning in mid 2007. A rating system used by the Metropolitan Regional Information Systems, the multiple listing service for the D.C. area, shows that sellers still have the upper hand in all but three of the area’s jurisdictions. On a scale of one (for a buyer’s market) to five (for a seller’s market), only Prince William County and Manassas, Va., received rankings lower than four.
Even so, the local numbers still add up to advantages that buyers haven’t had in a while. “A few years ago, a couple had the option to overpay for a house, or way overpay for the next one,” Centofanti said. “Today, they are much more rational, deliberate and resolute in looking for a good, solid deal and resisting pressure. I haven’t heard them say they are worried about being priced out. Because they heard so much about the bubble bursting, they instead are fearful of paying too much.”
Buyers are more prudent, experts agree, because they have more choices. Currently, there are more than 21,000 condo units for sale throughout D.C., suburban Maryland and Northern Virginia—and 20,469 are expected to be added within three years, according to a first-quarter 2007 report from real estate research firm Delta Associates. If the current pace of sales keeps up, the company says, it would take nearly three and half years to sell all of these condo units. The number of single family and town homes on the market also increased in 2006, although at a lesser rate than condos.
The excess inventory means home prices in the region are expected to remain low throughout the remainder of the year, according to Lawrence Yun, National Association of Realtors senior forecast economist, who predicts that prices should begin to appreciate by 2008.
The price of renting, on the other hand, remains costly. Reports from Delta Associates show a strong rental market that reflects a number of would-be buyers who opted to hold off until the market cooled. But now that list-price negotiations and offers to help with closing costs and home repairs have all made a comeback, many of these buyers are resurrecting their real estate searches. Although most incentives are nothing more radical than what might be expected in a balanced market, they do make a difference.
“Sellers are not desperate,” Centofanti said. “They just can’t drive all of the terms and conditions they could a few years ago.”
She offered several words of advice, for those on both sides of the negotiating table:
For the buyers, the first consideration for anyone who’s thinking about purchasing a home is to determine if buying would be a good choice for their current lifestyle and needs—regardless of the market. Remember that in the end, a new house is a place to come home to at the end of every day.
Educate yourself on what’s out there. Even a quick survey of homes for sale in favorite neighborhoods can help buyers quickly zero in on what’s right for them.
If you’re looking to upgrade, do a feasibility study first to see if there are any listings that would motivate you to move if your current home sells. Then when you’re sure the whole transition is feasible, get your current home under contract and your financing lined up before falling in love with any particular home (unless, of course, you can afford two mortgages).
Also, if your finances are solid, don’t be afraid to make an offer that’s lower than the asking price. Sellers today can’t afford to take their home off the market for an offer that may not go through, so many are attracted to buyers with high credit scores and down payment capabilities.
And for the sellers, the first thing to do is forget your neighbor’s story of the enormous profit they made two years ago. Make sure the price for your home is right for today’s market. Buyers are tired of waiting and will move on to other listings if the asking price doesn’t seem fair. On the other hand, many homes that are in good condition and are priced at a rate close to what buyers think they’re worth are still selling within a week or two.
In addition, make sure your property gets total market exposure. The more it is advertised, the more likely it is that the listing will hit the right person at the right time. And give careful consideration when packaging the property for sale to make sure the price, condition and terms compare favorably to other properties that a buyer might look at in the same price range.
Also, remember that once a house goes on the market, it becomes a product without emotional attachments. Try to see the home objectively and negotiate rationally when offers come in.
Centofanti’s overall advice? “Imagine yourself on the other side and make sure a deal makes sense to both parties.”
About the Author
Heather Mueller is a contributing writer for The Washington Diplomat.