The Real Story…
News and commentary about the real estate market and related topics.
Dave Parrish, ABR ®, CSP, GRI, ePRO ®, REALTOR ®, RE/MAX MarketPlace
The opinions expressed here are my own and don’t necessarily represent those of RE/MAX International.
Contrarian…
I grew up in a family where conversation around the supper table was an informative debate. Each was taught to listen to the opinion of others around the table, to form and to share their own opinion and finally to offer the defense for their thinking. From this early experience I learned the practice of contrarian thinking… which is basically to consider an opposing view.
Now by definition a contrarian thinker is in the minority. It’s almost something that the true contrarian seeks out… “What is the direction everyone else is taking… Okay, I’ll go the other way!”
In recent columns, I have revealed a hint of my inclination to think in a contrarian way… More boldly today, I want to explore some contrarian thinking in real estate… First a statement of fact: We are in a Buyers’ Market. This occurs whenever the number of houses for sale exceeds the demand sufficiently to cause the buyer to be the driving force in a transaction. That is for a seller to sell, the seller will have to make more concessions to attract potential buyers.
Typically, this phenomenon begins to occur at a point when the number of houses for sale exceeds the number of houses sold in the past six months. The greater that difference the stronger the market favors the buyer. In the Birmingham market we currently have a 12.2 months inventory of houses actively on the market. In the Trussville market we currently have a 13.7 months inventory… A strong Buyers’ Market.
Conventional wisdom is that this is not the time to sell… Enter contrarian thinking. Is it really true that now is not the time to sell? At the present, there are many sellers sitting on the sideline waiting for the market to return or at least to improve prior to trying to sell. At the same time an increasing number of sales are foreclosures and short sales that continue to drive prices down. Unemployment adds to this cycle of price decline, as do changes in the credit market and appraisal practices. There is no reasonable rationale that would lead anyone to believe that this is a short-term trend. Hope yes; reason…No!
If prices are set to decline and not rebound for the foreseeable future, is today’s value the best you are likely to see for a while (best guess is 2020)? Now look at the Buyer Pool for your house. Today’s low interest rates and relatively low prices have the buyer pool larger than it will likely be as the economy begins to improve. Look at the recent uptick in interest rates: within a recent two week period, interest rates rose half a percent, a result of a single positive retail sales report. As the economy improves interest rates will raise despite the Feds’ efforts to keep rates low. Rising interest rates will decrease the Buyer’s buying power faster than price declines can counteract the loss of buying power. A half percent increase in interest rates has the same effect on a potential buyer as a 10% price increase.
The point is, yes, your house is worth less than it was last year and the year before… But it is also worth more today than it will be next year or the year after. Does this knowledge impact your decision to sell?
But be careful of thinking the same forces are at play for the Buyer… Yes, prices will continue to fall… But will the payment for the same house fall at the same rate as the prices are declining? Buyers realize that you have to consider all the factors that contribute to the monthly payment… not the least of which is the interest rate you have to pay.
The formula for success is more complicated than most imagine it, especially if you take the time to look at the market from a contrarian point of view as a means of testing the conventional wisdom
May the Market be with you.
