The Tug of War: Sellers in a Buyer’s Market – Pt 1

Tug of War(Wikipedia) – is a sport that directly pits two teams against each other in a test of strength.

Wilmington NC is an excellent real estate market.  CNNMoney.com rated Wilmington as number seven out of the top ten places to own real estate in the United States.  But with the softening of other markets, Wilmington’s real estate market has softened as well. 

In the last two years, each quarter has has seen a 16% to 21% reduction in number of sales.  Wilmington NC real estate is partially fed by out of state buyers, mostly from the north.  When the northern markets softened, there was a direct effect on Wilmington’s market.  Yet this softening is a bit deceptive on the surface. 

With the number of buyers closing on property in Wilmington, NC, down, it is amazing to see the average and median price continuing to rise.  For my “Q3 Wilmington Quarterly Market Report” (click the image to download this free pdf. market report), the market statistics came in showing the 2007 third quarter down 30% compared to Q3 of 2006 in number of homes sold.  Yet, the price rose 8%.  [This report does not reflect the area beaches, which are in a much stronger buyer's market than the rest of Wilmington.]  The question begs asking:  How?  I believe there are several possible reasons for this.

1.  Sellers hate losing money.

Who doesn’t?!  Right now, across the nation, is a group of sellers who seem to have the attitude of locking arms to protest the trends of the market.  These are the sellers who have rallied together in a mule like stance and are the back bone behind the seller’s side of the tug of war in this shifting market.  This is completely understandable if a seller doesn’t really need to sell their home.  But for those who need to sell (your new construction home is almost built, your job is relocating, ect.), this stance doesn’t make much sense.  I believe Austan Goolsbee hit the nail on the head with his article in the New York Times, “A Reality Check for Sellers“.  He refers to a time when the Boston Condominium market took a hard it:

Properties listed above the market price just sat there. In the Boston market over all, sellers listed their properties for an average of 35 percent above the expected sale price, and less than 30 percent of the properties sold in fewer than 180 days. In other words, much of the market went into a deep freeze as many people held out for market prices that no one would reasonably pay.

In classical economics, that’s not supposed to happen, but the episode did comport with the behavioral economics theory of loss aversion: people have a visceral — some might say ‘irrational’ — hatred of losing money. They try to avoid doing so, even when it goes against their own best interests.”

In Carolina Beach and Kure Beach (together known as Pleasure Island), the market has been in a strong buyer’s market for over a year now.  The prices are finally starting to reflect the lack of buyers buying.  I anticipate this will eventually filter into the Wilmington markets with one caveat (I will share this at the end of the post).

2.  Some Sellers are just trying the market

Slowly the buyer’s market will shake out most of the sellers who do not really need to sell.  On a daily basis, there are anywhere from 25 to 140 expireds, not counting withdrawns. 

What are expireds?  Expireds are homes the market rejected and they went the span of their listing contract without selling.  Withdrawns are when homes are taken off of the market before the listing agreement was expired. 

Now one possible reason for so many expireds is the duration of the listing agreements being signed between sellers and real estate agents may not be matching the average days on the market.  In this case, the seller often re-lists, realizing the market is commanding longer selling time. 

3.  The Seller doesn’t have much room for negotiations (bought at the top of the market)

Partly, this one is related to the first reason that sellers hold out on their prices.  To sell at a price that would attract buyers would mean selling at a loss for this particular group of sellers.  This loss is too painful to face, so the property sits on the market waiting for the market to agree with their price. 

In the same breath, some sellers truly cannot sell at a loss because they do not have the reserves needed to pay back the mortgage company.  This of course spotlights the mortgage industry woes that haven’t gone away.  Easy money put many buyers, investors and even developers into real estate with very little down (resulting in little equity, the cash cushion needed to sell a house if needed) and low monthly payments.  Because of the high use of creative ARMs, these low monthly payments are rising over the next few years.  These new owners of real estate are now facing the American Nightmare - Foreclosure.  (If you need help in stopping a foreclosure, please contact me.)

4.  The Seller isn’t educated on what is happening locally in the market

I believe this one is a big one.  Real estate agents are often only trained to do a CMA which pulls comparables from the neighborhood where the home is located.  Though this is a very important market report, it is often incomplete in giving a seller a full picture of what is happening in the market.  Having a more complete picture of the market helps sellers and their agents price the home correctly as well as choose the very best marketing strategies. 

The reason for this lack of education on market trends is simple.  Real estate agents aren’t typically the type of people who pull out layers of data from the local MLS in order to paint a picture of what is truly happening in the market.  This work takes time.  The good news is you have found the right site to help you get educated on the Wilmington NC local real estate market.

There are many sites out there where you can pull up comparable sales like Trulia and Zillow, but these sites often lack the ability to dice up the data to provide a complete picture. 

So who will win this Tug of War? 

Barring major changes in the national and local economy, I believe buyers are eventually going to win this round (Wilmington is +25%).  I didn’t discuss the buyer side of this tug of war.  I will share that in my next post. 

Now, I need to share the caveat on my prediction that prices will eventually begin to reflect the down turn in number of closings.  The exception to this will depend on our northern markets coming out their real estate slump.  If other markets open up where sellers can sell and move to Wilmington, our market will sustain its growth curve.  National economists are mixed on their predictions for 2008.  But, as of right now, the outlook for real estate across the board is “hang in there and we will get through this together.” 

   Subscribe to this feed (not sure what it means to subscribe to a RSS feed, click here).for future updates on the tug of war in the real estate market right now . 

What do you think? 

Do you think Wilmington will see a dip in prices or do you believe local prices will continue their climb upward? 

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