Understanding the dynamics of a real estate market is critical. Real estate and economic cycles may have different catalysts, but the ultimate result is the same. Property values go up, and they go down. Over time the values are always higher, but the cycles may take years to cycle through.
The most recent stimulative catalysts were the interest rates being dropped to artificially low rates and fiscal stimulus by the government to compensate for the economic issues caused by the pandemic, plus the ability to work remotely.
Presently there are a few contractive catalysts. The interest rates are being pushed higher than what they would be during a normal economic environment, as the government takes back the low rates. Their priority is now fighting inflation caused by the reopening of the economy post-pandemic, and the rates being kept too low for too long.
Because cycles may take a while to transition, buyers and sellers may emotionally not keep up with the economic realities of where the market cycle is at.
When the market heats up buyers still have in the back of their minds the price weakness of the last cycle stage, and don’t want to overpay for a property. At that point of the cycle buyers may not have the leverage they did just months previously. Sellers are getting more activity, and aggressively priced properties potentially getting multiple offers. As inventory shrinks waiting for the perfect property may be costly. Compromising on minor issues may be advantageous. Overly conservative buyers may lose out on a property or two in negotiations before they get realistic on how they want to approach their offers. Some buyers also want to wait and are not emotionally (or financially) ready to buy. The market doesn’t wait for when a person is ready. When the market starts to go the seller’s way, it’s better to purchase with a low down payment with Private Mortgage Insurance (PMI), than wait till a large down payment has been accumulated. Refinance later to get rid of the PMI. Let the leverage and equity accumulation work, instead of working hard for the down payment..
When the market slows down, sellers erroneously may still price higher than previous local sales. Also when a market is hot and there’s low inventory, buyers may find they have to ignore negative traits like poor condition, the property being located on a main street, etc. More inventory and fewer potential buyers in the market makes location, condition and price is more critical. You’re only fresh meat once. Better to get the property in optimal condition, all marketing in place, and aggressively priced when a property is first put on the market. “Testing” the market with a higher price, trickling out marketing, or still getting the property prepped while already on the market may be detrimental to getting the optimal sales price, or a sale at all. The seller’s primary impact on stimulating activity is limited to the very few days when initially hitting the market.
Seller’s reducing a listing price may be productive if a property sits on the market without a sale, but generally, it will not realize as high a sales price as if the property was priced aggressively when first hitting the market.
On an extracurricular note, the population is still growing, and the construction of new residential units is not keeping up with the needs. That will support the housing prices, even during the cycle adjustments.
If you are in the Los Angeles area, and have any questions or real estate sales or financing needs, feel free in contacting me
Ron Henderson GRI, SRES, SFR, RECS, CIAS
President/Broker
Multi Real Estate Services, Inc.
Gov’t Affairs Chair – California Association of Mortgage Professionals (2017-2018)
Chairman – OutWest Marketing Meeting (Real Estate Education)
BRE #00905793 NMLS #310358
www.mres.com
ronh@mres.com
Specialist in the Art of Real Estate Sales and Finance
Real Estate market, mortgage rates, Los Angeles, San Fernando Valley, Conejo Valley, Simi Valley, Woodland Hills, West Hills, Calabasas, Chatsworth
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