Real Estate Round-Up: Two responses to a transitioning market

Last week, I reported on the transitioning real estate market. Moving from a seller’s market to a buyer’s market, presents a huge psychological shift for buyers, but even more so, for sellers. Buyers are ready to take over the steering wheel, but sellers are having a hard time giving it up.

Let’s first look at the components that have brought us to this point of transition. We have an affordability problem. The affordability is directly related to lack of supply. Lack of supply drives prices up. The fact that interest rates continue to rise, even with intermittent drops, also has an impact on prices. Consumers are caught in the middle, but they can also be blamed for causing the market to decline.

Housing affordability is at the root of the slowdown in sales, but the surge in prices is a direct consequence of the imbalance between supply and demand. Sellers knew they were in control and priced their homes aggressively to maximize their equity position. Who wouldn’t?

Buyers had the opposite reaction to the rising prices. They recall the “bubble” of 2006 and are not going to become a statistic. The higher interest rates, coupled with inflated home prices, caused buyers to stay on the sidelines. Clearly, there is a big difference in price expectations between buyers and sellers. This mismatch leads to a decline in sales as buyers and sellers are unwilling to come to the table to discuss the price difference. How long will it take to close the gap between buyers and sellers expectations?

I believe the gap is beginning to close. Most sellers we work with are aware of the tension in the marketplace. They also understand that if they sell for less than what they originally hoped for, they will also be able to purchase for less. There are buyers who also understand that if a property is right for them, price isn’t the only determining criteria. In other words, paying a little more than they want, if the property is what they want, should not be the only determining criteria to not make the purchase.

We experienced two different sellers response to the transitioning market this week.

When we discussed the market shift with seller A, we reminded them that originally, the price range they chose was higher than what we believed the market would bear. We then reviewed the current comps, looking back over the previous nine months, which showed a substantial decline in price. Despite this information, the sellers decided to make a minor adjustment to their price range, because they have simply put too much into the property to accept less than what they believe the property is worth. Time will tell if this strategy works, but so far, no takers.

When we met with seller B, in November, the market had already started to decline. We shared that with them along with the existing comps for their home. We priced the home optimistically based on those comps. The seller received one offer, but it was less than they wanted. We had a gap between seller and buyer expectations.

In January, seller B lowered the price range, acknowledging the transitioning market. Within a week, seller B received three offers, all higher than the offer they received in November. The gap between the seller and buyer expectations had lessened, and the property went into escrow with a backup offer.

Your Realtor should be your most trusted ally. They have information, both from the MLS and from trusted Realtor sources that provide them with the full picture of what is currently happening in the marketplace and what is expected for the rest of the year. This is more reliable than your friend or family’s advice.

For Murphy and Murphy, we work to help you achieve your goal, even if that means we must deliver bad news. The market has shifted. There are two responses; one is to “ride it out” and “hope for a turn-around” or two, trust your Realtor and price your home based on the current and existing market trends.

I am seeing an openness by sellers to be realistic about what they can expect as well as a willingness by buyers to be realistic about what they need to pay. Maybe, we’re about to enter a reasonable market, where both parties can feel like they won. Murphy and Murphy is here to help you determine the best price for your home, so you can reach the buyers who are also willing to pay a fair price for your home. Kudos to those buyers and sellers.

Kim Murphy can be reached at [email protected] or (760) 415-9292 or at 130 N Main Avenue, in Fallbrook. Her broker license is #01229921, and she is on the board of directors for the California Association of Realtors.