How do you insult a seller these days? Offer full price for their property.
That’s the latest not-so-funny joke making the rounds in real estate agent circles these days. Unfortunately, it contains more than a kernel of truth.
It’s been nearly five years of a bang-up seller’s market, in which there has been dwindling supplies of homes available for sale to an increasing number of willing, ready, and able home buyers.
While home sellers sit back, perhaps a bit smug, home buyers are feeling frantic. In many neighborhoods, prices have gone up so fast, in such a short period of time, that some home buyers have been priced out of the market. Those who can purchase in their neighborhood of choice wonder if they’ll ever be able to sell it and not lose money.
While some brokers and industry observers claim the market is slowing down, they’re only comparing this year’s numbers to last year’s number. And on a year-to-year basis, the market is down perhaps 5 to 10 percent in sales from last year.
But let’s give it some perspective. According to economists, when existing home sales exceed 3.5 million homes in a given year, the economy gets a boost.
That’s because home buyers and home owners are notorious for buying something and immediately fixing it up. They may buy small items like new waste baskets or curtains, or they may purchase appliances, light fixtures, paint, wallpaper and carpet.
One study showed that average home buyers spend in excess of $10,000 in the first year of homeownership to improve their home. That’s no small chunk of change.
So if existing home sales in excess of 3.5 million give a kick to the economy, imagine what 5.2 million existing home sales will do.
That’s where we were at the end of 1999, with the best-ever year of record-breaking sales. In addition to the 5.2 million existing sales, home builders sold nearly 1 million newly constructed homes.
But 1999 was just the fourth year in a row of record-breaking sales. In 1998, some 4.8 million existing homes were sold. The year before 4.7 million homes were sold. While 5.2 million homes is off the charts, the economy still benefits when just under 5 million homes are sold.
Which is how this year is shaping up. If housing sales cool down slightly, say by 10 percent, that means about 500,000 fewer homes will be sold this year as compared to last year. That 10 percent reduction translates to between 4.6 and 4.7 million homes that will sell this year, in addition to perhaps 900,000 newly constructed homes. That equals the sales figures from 1998, which until the last two years were the “best-ever.”
And if the Federal Reserve is done raising interest rates, conventional 30-year fixed rate mortgages will be available for around 8 to 8.5 percent. While it isn’t 6.75 percent on a 30-year fixed rate loan, it’s a low rate historically.
In other words, there will be plenty of home buyers purchasing everything from paint to appliances, once again giving a kick to the economy.
And that’s why home sellers are smug: When you watch homes similar to yours sell in a day for well over list price, it’s easy to get insulted when someone only offers you list price.
Here’s an example of what’s really going on: In a given week, a Chicago couple made four offers for four different homes. Most of the offers were just under or at the list price. All four offers were rejected.
The final property was listed at $399,000. The sellers had bought the condominium 16 months earlier for $245,000. The buyer offered $390,000, and the sellers countered at $395,000. The buyer accepted the counter. About an hour later, the seller’s agent called back to say that someone else had come in at $399,000.
The first buyer’s agent said her buyers would offer $400,000 and would remove all of the contingencies to the contract.
But the sellers said no. They told the agent that her clients’ first offer of $390,000 had been insultingly low. Despite countering the first offer, they intended to accept the $399,000 offer from the other buyers.
In the fifth year of an unbalanced market, it’s little hard to keep a sense of humor.
Published: Aug 14, 2000