Article published on Nov 2002 ...
Fall is here and gravity's pull is taking down more than orange, red and gold leaves. The volume of homes sales is dropping ever so slightly in some areas of the country, suggesting a cooling trend may be settling on the hottest real estate market in history.
Existing-home sales declined 1.7 percent in August to a seasonally adjusted annual rate of 5.28 million units, according to the National Association of Realtors. But that 5 million-plus rate of home sales is still phenomenal, and NAR projects this year's homes sales still will set another record of 5.44 million.
Shifts in the real estate cycle are the norm. That means real estate salespeople, home sellers and home buyers may want to reconsider their game plans and refine their negotiation skills in case the record-breaking hot-to-hottest-ever market starts to slow as the year comes to a close.
Chicago-area real estate broker John said he sees a shift in the market at this time every year, but it isn't a reason to retrench.
"Traditionally things slow down in the fall, begin to pick up again in February and go into full swing by March. It's important to continue the same level of advertising, mailings and Web presence. If you start cutting back on the marketing to save dollars when things slow down, you tend to create a self-fulfilling prophecy (that can) cause you to go into a slump," he said.
Brokers and agents need to work harder to set themselves apart from the pack in a more competitive housing market.
In Wichita, Kan., already is in the middle of a market downturn that started when the area lost more than 8,000 aerospace jobs after Sept. 11, 2001.
"The Wichita real estate market was the seventh most impacted market in 2002 from the 9/11 New York disaster," said Short, who added that the top six most-affected areas were hurt because they depended on tourism.
"People are now moving out of necessity, rather than upgrading," he said.
Success--indeed perhaps survival--in a tougher market depends even more on good interpersonal skills and the ability to generate a full pipeline of new and repeat business.
"The successful agent will be the one who stays in close contact with past clients and customers and centers-of-influence and prospective new clients, and who gives more value to the client than other agents do. That will take money, time and systems that work" said Short.
The first folks to feel the pinch of a softer market likely would be home sellers because multiple contingency-free offers, bidding wars and fast property sales would be replaced with low-ball offers made by patient buyers with long lists of for-sale properties from which to choose.
"No gimmick in the world will sell an over-priced listing," said Robert, an associate broker in Utah. "The colder the market, the more aggressive the pricing has to be, period."
Aubrey added that a home seller's motivation to sell shows up in the home's list price.
Financially strapped homeowners who can't afford their mortgage payments become highly motivated to sell and an aggressive sales price could result in a quick sale and prevent prolonged financial agony.
Distressed home sellers who try to hold out for a better price could find themselves in some trouble if prices soften. The result could be a short-sale, in which the homeowner must sell the home for less than mortgage, or a deed-in-lieu of foreclosure, in which the homeowner gives the lender the deed to the home and walks away from it. The worst-case-scenario would be foreclosure by the lender, which costs homeowners both their home and credit rating.
Less motivated homeowners might leave their home on the market for months until they receive an acceptable offer. Or they might pull their home off the market altogether and wait for the next upswing.
Somewhere between those two extremes are homeowners who want to sell in a tight market, but aren't under financial pressure to do so. Real estate attorney suggests these homeowners can set themselves apart from the competition by offering seller financing or rent-to-own options. These tactics could be especially effective if a cool housing market results in tighter mortgage underwriting practices.
Seller financing provides an easy quick sale for top dollar with excellent above-market interest rate income for sellers. Buyers benefit from easy financing without lender hassles.
A cooling housing market might appear to be a prospective home buyer's dream, but it could cause mortgage lenders to tighten their underwriting practices in response to rising mortgage delinquencies and foreclosures.
First-time home buyers and other buyers who've been relying on affordable and easy-to-obtain mortgages especially could face an erosion of their home purchasing power. And the effects of that could ripple throughout the housing market because first-timer purchases of entry-level homes in turn fuel the trade-up market.
A Manhattan realtor believes a cooler market might bring more buyers in the short run. She said the city's high housing prices have left a lot of prospective buyers on the sidelines, and those people could flood into the housing market the moment it moves in their favor.
