There’s no denying it any longer. In most parts of the country, the sizzling house market has cooled.
The latest numbers tell the story: Sales of existing homes are expected to drop 6.8 percent this year. The people who make their living selling homes prefer to put a more positive spin on these numbers. They say the marketplace is just going back to normal.
“It’s not normal to have 15 offers on a property,” says Jim Warkentin, a Realtor in McLean, Va. “That’s just crazy.” For the most part, those crazy days are gone.
“It’s a tougher marketplace now,” says Joe Woodbury, a RE/MAX agent in Barrington, Ill. “The homes are really taking longer to sell."
That may be bad news for sellers, but it's good news for buyers. In many markets, buyers have the luxury of being able to take their time and negotiate a deal for the first time in recent memory.
In Richmond, Va., Realtor Emmett Smith says houses are still selling, but it’s taking a lot longer. Six months ago houses there sold in three to 10 days. Now it takes 20 to 30 days.
In Grass Valley, Calif., broker Laura Berman of United Country Town and Country Realty, says sales in her Northern California region are down 30 percent from a year ago. The “inventory is huge,” she says, and price reductions are common.
“The buyer is clearly in the driver’s seat,” says Bob Callahan, who is about to close on a house in McLean. “Houses are still expensive,” he says, “but you can find deals now.”
The house Callahan wanted was originally listed at $629,000. After two weeks without an offer, the owners dropped the price to $599,000. Callahan got the house for $592,000. He says he could sense the sellers' “willingness to negotiate about the price very early on.”
Callahan’s agent, Kate Ryan of Long and Foster Realtors, says sellers need to understand that the price of a house is set by the market, which is now flat or dropping. “That’s hard for a lot of people to deal with,” she says. Smart sellers need to realize that buyers can now take “the pick of the litter,” and they need to set their asking price accordingly.
Laura Berman says the sellers she deals with in the Grass Valley region "are mostly in denial.”
“Location is important,” Berman says, “but if you have comparable houses, it always comes down to price.” And now that buyers may have dozens of houses to look at in their price range, they can determine the true value.
“The homes that have the best value are the ones that are going to get shown the most,” Berman says. “And that’s where you want to be. You always try to be in the top five, hopefully within the top 10 of the competitive houses."
For sellers, it is too soon to panic. Even though the market has cooled, the National Association of Realtors expects 2006 to be the third-best year for home sales ever.
Glenn Crellin, director of the Washington Center for Real Estate Research at Washington State University says “most sellers are still coming out well ahead of where they started” because prices have appreciated so dramatically. Even in a slower market “some people will still be able to come out with substantial profits,” he says.
Unless you are in a rush to sell, there’s no need to jump at the first offer that comes along, especially if you don’t think it’s reasonable.
Greg McBride, senior financial analyst with bankrate.com, says the interest rate environment “is still very conducive to home buying, and I think that’s a neglected part of the story.” McBride says the run-up in home prices has been more of a barrier to sales than the relatively small increase in interest rates.
Even though the average rate for a 30-year fixed mortgage has risen about one percentage point over the past year, at 6.7 percent it is still relatively low by historical standards.
Bankrate's figures show a 30-year fixed loan averaged 6.9 percent over the past 10 years and 8 percent over the past 20 years. So McBride says, "6.7 percent is still a very attractive rate." He expects the rate to average 6.9 percent in the second half of the year.
Buyers can take time
In most parts of the country, the return to more normal market conditions means buyers have the time to shop around and find the house that’s right for them rather than making an offer just to get something.
“Buyers today have plenty of negotiating power,” says syndicated real estate columnist Ilyce Glink, author of "100 Questions Every Home Seller Should Ask." “So buyers have the opportunity to really survey the landscape and decide what it is they want for their money.”
If you’re buying a new home, Glink says, you should expect the developer to offer some nice perks to close the deal. These could include better kitchen appliances, upgraded countertops, tile, paint or bathroom fixtures plus discounts for adding a bigger garage or extra rooms. You might also be able to negotiate a lower price or cash bonuses.
Realtor Emmett Smith tells me that builders around Richmond, Va., are even buying down interest rates, offering 5.5 percent on 30-year fixed loans, with no points and no origination fees.
Glink suggests exploring all the homes in an area. Compare prices and amenities. Then make an offer “based on reasonable expectations for growth going forward as opposed to thinking that everything is going to go up in value 10 to 20 percent annually forever.” An impulse purchase, she points out, “might be more expensive and prove even more costly down the line.”