It really is a buyer's market; few are selling
A new study documents a profound market fissure caused by owners' fears and hesitation — what researchers call "negative selling sentiment."
WASHINGTON — Where do you side in the great real estate buy-sell divide of 2012?
If you're a homeowner considering selling sometime in the new year, are you apprehensive that you won't get the price you need or want, and therefore it's possible you won't even try to sell?
If you're a buyer, do you agree that with 30-year fixed mortgage rates now below 4 percent and home prices near cyclical bottom in many areas, 2012 offers extraordinary opportunities, even if listings are fewer than you might prefer?
A new study by the Research Institute for Housing America, the think tank affiliate of the Mortgage Bankers Association, documents a profound market fissure caused by owners' fears and hesitation — what researchers call "negative selling sentiment."
While nearly 80 percent of consumers in the study's survey think this is a great time to buy a house, more than 92 percent of current owners think it's not a great time to sell.
The study was conducted by Syracuse University economist Gary Engelhardt using extensive data from the University of Michigan's Survey Research Center, which is generally recognized as an authoritative source on consumer attitudes.
Engelhardt said that unlike earlier post-recession periods, owners have been more deeply shocked by the extent and severe side effects of foreclosures, short sales and unemployment.
In the aftermath of earlier recessions, such as in the early 1990s, 40 to 60 percent of homeowners remained relatively positive about their prospects if they chose to sell — far higher than the tiny sliver who see it that way today.
Many owners "have not adjusted their price expectations downward" to keep pace with local declines in property values following the mortgage bust, Engelhardt said, thereby contributing to the sharp divergence in their real-estate visions compared to buyers.
This is consistent with the results of a study conducted in mid-2011 by Zillow, the Seattle-based online real-estate and mortgage information company.
Zillow found that sellers nationwide were having trouble coming to grips with what market forces had done to their property values. They knew prices had declined, but they didn't necessarily think those devaluations applied to their houses.
For example, people who had purchased their homes in 2007 or later thought their homes were worth about 14 percent more than their actual sales value. People who bought homes before 2002 were slightly more realistic but still overvalued their houses by about 12 percent.
How are such seller perceptions affecting local real-estate market dynamics today? For one thing, they are keeping owners out of the game. But they also bringing more motivated and committed sellers to the fore.
Glenn Kelman, chief executive of Redfin, a national real-estate brokerage also based in Seattle, says the shortages of listings in some markets currently are the byproduct of owners "waiting for better times to sell."
But owners who feel they need to sell now — they're downsizing, moving to a new area, or there's been a divorce — turn out to be "more reasonable" in general, according to Kelman. "Some are even resigned" to the reality that despite their unfortunate timing, they will definitely sell provided they price the house realistically.
David Howell, executive vice president of McEnearney Associates, a large real-estate firm active in the Washington, D.C., area, says the absence of substantial numbers of people who'd otherwise be sellers may also be a "healthy" development.
With listing inventories lower than typical for this time of the year, there are fewer houses for buyers to choose from. This, in turn, exerts a slight upward pressure on prices.
What about sellers who refuse to believe their properties won't command the prices they expect or require?
Mike Litzner, broker-owner of Century 21 American Homes on New York's Long Island, says "it's all about educating them. We try to show them the comparables" — the recent selling prices of similar houses in the area.
"If sellers really want to sell," he says, "they adjust their expectations to the changed realities." If they adamantly refuse, Litzner says his agents often decline the listing rather than waste weeks or months trying to market an overpriced piece of real estate.
Howell says his firm's agents sometimes walk away from unreasonable listing-price demands, but also use a technique that essentially seeks to bridge the seller-buyer divide: pre-authorized price-reduction clauses embedded in the listing contract that ratchet down the asking number.
The initial reduction kicks in within the first two to three weeks if the house fails to attract buyer interest.
"It works," said Howell in an interview. "And both sides stand to benefit."
Ken Harney's email address is email@example.com.
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