Entry Level Buyers: If You Are Waiting for Prices to Drop, You’re Going to Miss the Train

Westcoe Realtors, Riverside California…While most everyone can readily acknowledge the changes that have occurred in our real estate market over the past 18 months, there seems to be a lot of conversation these days about current home prices.  Specifically, will prices go lower, or are we at or near the bottom now?  Well, in the entry level market (homes priced below $300,000), based upon what our agents see, while we feel that  there may be 3-4% left in the eventual pricing decline, the rate of decline has really leveled off, and in many cases, has reached bottom.  In the price ranges above this $300,000 range, there is still some room to adjust, but for today, we will discuss the entry level market…we will get to the higher price range market later this week. 

So…here are a few facts that should let you know what is happening now, and therefore what we can expect in the future…at least as we see it from a very busy real estate company located in Riverside, California.

Fact #1…The lower prices have made homes affordable again for people who were priced out of the previous escalating real estate market.  For example (and keeping it simple), assume a family annual income of $70,000, with no huge monthly bills.  The monthly payment this family could qualify for is approximately $1,945…which translates to a fixed rate, 30 year loan of around $310,000.  Today, a sales price of $310,000 gets this family a very nice home in a very nice area…3 years ago, they would have been lucky to find anything at all, much less something nice.  Think of all the teachers, police, fire, nurses, civil servants, etc. who have good jobs with good incomes that were relegated to the sidelines when the pricing was sky-high…they are back in the real estate market now in full force.

Fact#2…Supply and Demand.  If you remember nothing else from your high school economics class, remember this…supply and demand rules over all else.  Right now, we have a very balanced entry level market of supply and demand.  Yes…we all hear about the massive amount of repos hitting the market, but what we hear less about is the massive number of buyers who are now able to buy.  In the past 8 months, the total number of properties for sale in the Riverside area has fluctuated less than 10%.  This means that for all those repos coming for sale, there are an equal number of buyers who are buying them.  Supply and Demand…you cannot argue with these forces.

Fact #3…Unit Sales.  During the ‘hey-day” of the previous out of control market (roughly 2001-2006), our office here at Westcoe averaged about 120 sales per month.  In the real estate business, that is a lot of homes sold every month…and certainly not the norm for a real estate office.  No matter if our office represented the buyer or seller, there were about 120 homes per month that we sold.  Care to know what it is now…in this “horrible” real estate market?  About 110 per month!  Granted, the prices are much lower, but essentially the same number of unit sales indicates that there was a massive “pent-up” demand that is only now being satisfied.  Supply and Demand works every time.

Fact #4…Multiple Offers.  There is no reason prices need to fall further because the well priced homes are eliciting multiple offers on a regular basis.  Think about it…if you had 5 homes to sell (banks wish the number was this low), and they were all relatively the same size, etc…and the first one brought you multiple offers at your listed price, why in the world would you lower the next 4?  Hence, the bottom has been found for many properties in many locations.  Sure, some people (and banks too) are still trying to get too much for their homes, and they may need to drop their price to get the sale…but the bottom level has been discovered.  Think of it like fishing.  If you see all the fish are at the 50 foot deep level, some people may insist on fishing at the higher level of 40 feet, but the smart ones will get to 50 feet…with no need to go lower to find the fish!  The fish are at 50 feet…not 40, and not 60.

Fact #5…NO ONE RINGS A BELL AT THE BOTTOM OF THE MARKET.  In our business, the only way to tell if you are truly at the bottom of the pricing market is when prices begin to go back up.  If you wait for the media to let you know the market has changed for the better, good luck…they are always at least 4-6 months behind what is actually happening in the trenches.  Don’t wait to look back and see what you should have done…do it now…for smart money, throughout history, has always gone counter-culture to what mainstream America is being told by the media.

The choice is yours…but hopefully the facts above will make the best choice of action obvious, and take the fear out of your real estate purchasing decision.