Understanding How the Real Estate Market Affects Home Prices
When interest rates go down do home prices go up? When interest rates go up do home prices go down?Although interest rates seem to affect home prices there is another major factor that seem to affect the prices more. That is supply. Supply is the number of similar houses available at a given time that allows Buyers their choice. This condition is called a “Buyers Market” and has a serious affect to home prices. Sellers have a problem is having their listing stand out or separate their house from the pack. Buyers have the ability to negotiate and play one seller against another.
Conditions: In a well established subdivision there are 40 houses of similar size, style and shape offered for sale. Ten of them are new houses listed by builders with their in-house agents.
If you are a Buyers you should consider:
Researching the last six (6) months of actual sales and closings in the subdivision.
Determine what “Seller Concessions” such as payment of closing expenses, realtor bonuses, extra repairs or appliances upgrades were provided to the other Buyers.
Determine if there was any significant discrepancy in the lot sizes or location that would affect the value of the house. (Many times the builders will have Lot Premiums in their pricing)
Use these values to “adjust” any house you may be interested in.
Ask your Realtor to make an offer on the best resale house using these terms or adjustments and also to make an offer to at least one of the new houses using these terms as well.
You will find that the builders will be much more flexible and willing to make “adjustments”.
If you are a Seller you should consider:
Determine what houses are really comparable to your house.
Try to determine which houses that have sold in the subdivision over the last six (6) months are realistically comparable.
See what “adjustments” have been offered to the sold house
See which “adjustments” are being offered to the current listing houses.
Readjust you selling parameters accordingly.
Since there were only four homes closing per month over the last six months then there will be a ten (10) month inventory. That means that more than likely your house will sit for 4-6 months unless you offer something to separate you from the pack.
- Tim Leadbetter
January 21st, 2008 at 5:25 pm
I have a feeling that once the home prices hit bottom and starts to climb back up, we’ll see a buying frenzy. Investors aren’t eager to jump in right now because they expect the prices to go even lower.
February 28th, 2008 at 10:25 am
I never did understand why most people are perfectly willing to buy stocks an commodities when the prices are depressed. You know the adage (buy low sell high). But these same people seem to be afraid to buy real estate when the market is depressed. I don’t get it. At least with real estate you won’t run into an Enron where you check the value one day and your 200k nest egg is worth nothing.
So think about it. Buy low when the market is depressed and realize that everybody needs a place to live. It’s pretty high on Maslow’s hierarchy of needs.
Joe
Broker, Realtor, CRS, ABR
Austin Realtor | Austin Real Estate | Austin Real Estate Blog
March 11th, 2008 at 9:56 pm
You are so right - we agree with that you make your money when you BUY your real estate - many of those struggling today made their first mistake when they bought in the last 2 years and overpaid.,
April 5th, 2008 at 3:51 pm
With existing homes, small differences in the lot size typically doesn’t warrant any kind of adjustment. Builders have been able to utilize the ‘premium’ pricing for ages, when after the development is completed it won’t make a difference.
May 1st, 2008 at 9:30 pm
It’s funny to watch the media blame Realtors and lenders for those who bought during the frenzied peak of the market and now find themselves in trouble. I remember many media stories about “what a great time to buy…it will keep going up.” It’s not all about timing the market…it’s about “time IN the market”.
June 21st, 2008 at 10:15 pm
When our market was hot and prices were high, there were around 1500 homes for sale. Now prices have fallen drastically, and there are 6400 homes for sale. Interest rates are still low. It is like you said, supply is high, prices drop. This is a good post to educate those who don’t understand the market. And it is written very clearly in an easy to understand fashion. Being an agent, I always tell people not to do anything until I have done some research for them.
June 21st, 2008 at 10:24 pm
Supply is the key. Right now people can pick from so many homes. I have people tell me their home is priced higher than the others in their neighborhood because they have all these “special” features. What a joke. Their homes never even get shown. Sellers need to get a clue sometimes. This is a great article. Thank you for clarifying for buyers and sellers who might happen upon your blog.