Selling/buying in this market

One of the questions most often asked of us by sellers or buyers is when will the market turn around? While none of us pretend to have a crystal ball or a magic hat, it is easy for us to see that the Real Estate market in SE-WI will not be changing all that much in the next several months at least, due to a high inventory of homes and tight lending standards.

The market peaked in the Spring of 2005. The years prior to 2005 were marked by a run up in home values like we had never seen before. There were years during this time where property values increased by over 10% year to year. These values were not sustainable as incomes failed to keep pace.

In a survey of Realtors by Homegain in March, 2009 showed that 45% of homeowners think their homes should be listed 10 to 20 percent higher than what their Realtors recommend. Nearly 20 percent of homeowners think that their homes are worth 20 percent higher than their agents recommended listing price. Home buyers are experiencing a similar disconnect on price. According to the Realtors surveyed by HomeGain, only 18 percent of their home buying clients think homes are fairly priced.

This survey underscores that while homesellers may be aware of falling home prices around the country, many believe that the slide doesn't apply to their homes. Many sellers have decided to take their homes off the market or not list at all because they want to wait "till the market comes back". There is a belief by many sellers that the market is going to come back very soon. Unfortunately many sellers are putting off their plans to move on with their life hoping that the market will make a dramatic "V shaped" recovery which has never happened before.

A fascinating thing about the decision process is a sellers unwillingness to part with the lost equity on their current home, even though they will be turning around and purchasing another home under the same conditions. Furthermore, everyone accepts losses in other assets such as the stock market, collectibles and cars but most people find it hard to take a loss in the value of real estate. We constantly witness sellers getting hung up on getting X amount out of their home that they continue to "feed" even a vacant property by paying each month taxes, mortgage, maintenance, etc. You can now find 100s of properties that have been on the market for over 2 years, many of them vacant (not foreclosures).

Most economists predict that once we do finally hit bottom we will only see a more historical norm of 2-3% yearly appreciation on our homes. Do the math - with this kind of reality check it is very easy to see why it is going to take a long time to get to the levels were at prior to the Real Estate correction.

Some food for thought. As of this writing interest rates are outstanding under 5%. If you have wanted to sell your home for whatever reason and are not because you don't want to lose the equity you once had then you could be making a huge mistake. Interest rates are at a once in a life time level. When the economy does finally improve interest rates this low will not last.

It could be 5-7 years or longer before we get back to the levels of 2005. What are the chances that interest rates will be where they are now when that finally happens? When your home finally does get back to 2005 levels so will all the other homes in the area.