Seller’s Market – “A Time to Reap” for Homeowners

alcatrazA seller’s market- who would have imagined a few short years ago the boom in housing that the US has seen in the last 14 months. Prices in many markets have seen double digit increases in less than a year, inventory is scarce and buyers are frantic.

This is a seller’s market but forces of change are already at work. If selling your home has been on your mind or in your plans then this is a window of opportunity that should not be missed. The home sale market is not expected to collapse with a loud “pop” of a bubble however the underlying conditions that have propelled the market with such exuberance have begun moving in the opposite direction.

Low interest rates, substantial investor purchases and low home-for-sale inventories substantially fueled the boom but each of these factors is now moving in a direction that could undermine the hot market.

Interest

The data at Freddie Mac shows that a 30-year fixed-rate mortgage that averaged 6.03% in 2008 was lowered by Fed intervention to its lowest level of 3.35% in December of 2012. Home sales surged pushing prices higher, decreasing monthly payments and freeing more homeowners who had been trapped in homes with low or no equity.

Fed intervention is being curtailed and in July 2013 interest rates on the 30-year had climbed by more than 30% to 4.37%. This sent a chill through both the housing and the stock markets. It took some quick talking on the part of the Fed Chairman, Bernanke, to asure the markets that the Fed wasn’t going to allow the rates to raise again before later in the year. However that time will shortly be upon us and higher rates have almost always had a negative impact on the home sale market.

Investors

Institutional and private investors were big homebuyers over the last 2 years. Campbell HousingPulse Survey reported that in 2011 investors purchased 27% of all homes sold. For example, Warren Buffet’s “Blackstone” purchased 26,000 homes in 9 states and Colony Capital out of Los Angeles, purchased 10,000 homes. Loaded with cash they became active in many markets pushing down home inventories and driving up prices.

Campbell HousingPulse Survey estimated that in April 2013, 69% of homes with damage nationwide were purchased by investors and noted that investors purchased an astounding 36% of the homes in Phoenix in the summer of 2012.

With home prices substantially higher investors are moving out of the market. Campbell HousingPulse Survey showed that investor purchases were down to 19.7% in June 2013. OCR International reported that from September 2012 to June 2013 an additional 50% of real estate investment companies planned to cut back on residential investment. There is also speculation that investment companies may actually begin to sell-off some of their residential inventory.

Inventory

Inventory is improving. Although the National Association of Real Estate (NAR) data does not show significant improvement in their data on home-for-sale inventories other sources suchs realtor.com report considerable improvement. Demand seems to be easing and more homes are coming to market.

As increased home values allow homeowners to emerge from underwater mortgages, NAR reports that 53% of them are looking to sell their homes. Investors are reducing their purchasing appetite and may actually begin selling their inventory; higher interest rates mean fewer buyers as rentals become more attractive and loan qualification becomes more difficult. In short, expect inventories to increase.

A Time to Reap for Sellers

Sellers would do well to consider that a seller’s market not only offers them a chance of a higher price but offers many other benefits as well.

How nice is it not having to redo the bathrooms or kitchen before putting your house on the market, or not having to pay for the pest and contractor’s work? How nice is it having a non-contingent, all-cash, close in 30 days offer (or two or three?) Those are the hallmarks of a strong seller’s market and those are just a few of the benefits that will be lost when this window of opportunity has closed.

A seller of a high-end home in San Francisco or other luxury area might think that these changes will have no effect in their insular market. However that is hardly ever the case. Market sentiment reaches into all levels of the market and can turn what is now a seller’s advantage to a neutral or negative position.

If you are interested in more information on the changing market, how market changes are likely to affect you, or would like to discuss taking advantage of today’s Seller’s market please contact us today.

About the Kirk Economos

Kirk Economos is luxury residential broker licensed at Pacific Union International, Christie’s International in San Francisco. He holds the designation of Certified Commercial Investment Member, CCIM, acknowledging his expertise in financial, investment and commercial aspects of real estate. He partners with his wife Peggy Economos, also an agent with Pacific Union, under the web moniker HomesSF.com.

Opinions expressed by Kirk Economos, Peggy Economos or on HomesSF.com are the opinions of the respective parties. They do not necessarily represent opinions held by Pacific Union International, Christies International.

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