Rates are going down again and the timing makes you wonder if this is a holiday gift for weary buyers and sellers. Will these lower rates kick start the real estate market for 2009? How long will these rates last? Will they go even lower?
I have read some great and interesting articles lately regarding the economy and interest rates. Some feel that lowering interest rates is not enough to get buyers interested. They feel home prices are still too high and buyers are only buying the best values.
Well, that's pretty much always true. In a normal market, the best homes in a buyer's price range are the one's that will be purchased. The overpriced homes will sit until the sellers start reducing.
But our inventory is still very lopsided compared to ready, willing and able buyers. Low priced short sales and foreclosed real estate are competing with seller owned properties. Appraisers are using these distressed sales as comps.
Not every buyer is interested in dealing with short sales (that can take a very long time to just get an answer if your offer is accepted) or foreclosures (where properties can be in less than desirable condition). Those buyers will concentrate on seller owned properties.
But there is still too much inventory out there. A buyer is only going to buy one home. In some areas and price ranges, there are hundreds to choose from. So only the cream of the crop will be considered. Think about it, only one home will be purchased, the other 99 will remain on the market. As the best values get purchased, the cream will rise again as sellers get real and reduce their prices accordingly.
So, although lower interest rates might get some buyers off the fence, sellers must still understand our declining market. When I first listed an Orland Park home for sale it was priced correctly according to the market analysis I prepared. We got a lot of showings, which showed we were on the mark.
However, this was a home that was in great condition with maintenance updates such as windows, furnace, roof, central air, etc., but original carpet, kitchen and bathrooms. And the carpet was mauve. We heard that feedback many times. I tried getting the sellers to update the carpet. I still think if they did they might have sold their home quicker and for more money.
- We started out at $325,000 that was justified by a comparative market analysis.
- We got a lot of activity. In fact, I showed it myself several times.
- Although we got negative feedback about the carpet, most of the feedback was otherwise positive.
- Our most popular feedback was that it was one of the buyer's favorite homes, yet a contract was not forthcoming, meaning the buyer bought a different property.
- We kept taking price reductions.
- As the market started deteriorating, the showings really slowed down.
- We finally reduced to $300,000.
- Showings picked up again, we seemed to find a new "sweet spot" in pricing. The sellers never thought they'd have to go down this far.
- We got an offer for $289,000 and the buyers were good buyers and the sellers didn't want to lose them. They accepted the contract. This was a difference of $36,000 from our original price.
- These sellers were very motivated to sell as they had already purchased a brand new townhouse that was finished and ready to move in.
Around the same time I had an Orland Park townhouse for sale. It was a beautiful end unit with 3 bedrooms plus a loft and basement. At the time of listing the comparative market analysis suggested a list price of $240,000 (we listed at $239,900).
We got showings but buyers were concerned with the location, which was right behind a restaurant/lounge. I brought that up with the sellers when I first met them on a listing presentation. And sure enough, it was a popular feedback.
Again, the market started going down and when I relayed that information to the sellers they didn't seem interested in reducing. I prepared an updated CMA for them so they could see the facts and they reduced to $235,000. I tried to get further reductions but they were not agreeable. The listing ended up expiring.
These sellers were not that motivated. They did not make a purchase so they didn't have to sell. They wanted to buy a single family home but their townhouse was very nice and they didn't seem to mind the commercial property next door. So they decided to stay in their townhouse and might try selling again next year.
However, I think they're going to be in sticker shock when they get a new CMA, as prices have dropped even more than my last suggested price reduction. And in their case, because of their location, they almost need to be priced below what the CMA states. We got the feedback to prove that buyers did not like the location.
I really liked this couple and would love to work with them but they have a really tough sale. And they don't need to sell, so they might wait this market out. Of course, then they won't be able to take advantage of lowered prices on another property they would purchase (at a higher price than their townhouse in Tinley Park) and possible low interest rates.
Because of situations like above, lower interest rates don't necessarily mean buyers will come out in droves. Move-up buyers can't complete their purchase transaction until they sell their place. A lot of first-time buyers cannot get qualified as many programs for first-time buyers have been shut down. And consumer confidence still remains low.
Will lower rates help instill confidence? Will it make buyers get off the fence? Will sellers have to continue lowering their prices? I wish I had that crystal ball!
If you're thinking of buying or selling real estate and want to take advantage of these great rates, give me a call at708-536-8200 or fill out my Contact Form.