Up and Down
Why do agents prefer a seller’s market? It’s not because prices are higher. Actually I think experienced agents tend to be a little relieved when prices correct; it maintains the health of the market. We prefer a seller’s market for another reason: when prices are rising, buyers adjust quickly. When prices are dropping, sellers adjust slowly. So it is just plain harder to make a deal in a buyer’s market.
On a fundamental level, this divergence has to do with the different psychological spaces which buyers and sellers inhabit. For one thing, BOTH sides feel more comfortable in a rising market. While this may seem counterintuitive, it’s true. For sellers, even ambitious prices have a hope of being realized: if you can’t achieve that price this week, you may well get it two weeks from now. And buyers have the reassurance of knowing that other people want what they want, that they are not outliers. That’s why, in a funny way, competitive bidding can be as comforting to buyers as it is frustrating. If five other people are bidding against them, the property MUST be desirable and, by extension, worth the money. Buyers also get caught up in the excitement of the hunt and the need to act fast before someone else swoops in. For sellers, of course, what’s not to like? Every month their home is worth more than the month before. What could be more affirming than to have numerous people fighting over your home? It’s both lucrative and validating.
In a buyer’s market, prices adjust downwards. This is hard for both sides. Sellers adjust slowly and reluctantly; they regret the thought that a property comparable to their own sold for more only six months or a year earlier. And while ambitious pricing tends not to be disastrous in a rising market (because the market will rise to meet it), it wreaks havoc in a declining market. Buyers neither view nor bid on overpriced properties. Overcoming the disappointment inherent in the fact that your home, special as it is, does not command the price you believe it should, can take sellers quite some time. And by the time these frustrated sellers adjust their sights, the market has moved again and so the reduction is no longer enough to bring the property into alignment with today’s value.
Most buyers view a buyer’s market very differently. They live in fear of acting too soon, before the market bottoms out. Never mind that you only see the bottom after it has come and gone; never mind that historically the market has always come back so that a purchase at ANY point in a down cycle turns out to be a good investment. Buyers in this environment are so concerned about paying too much that they very often miss the lower end of the cycle and can only be persuaded to act when the best opportunities are gone, either snapped up by someone bolder or lost to price adjustments which reflect the improving market.
Today’s buyer actually faces a moment of unique opportunity. The real estate market and the stock market, which so often travel together, have for the last eighteen months moved in opposite directions. A buyer can liquidate securities at all time highs to fund the purchase of real estate which is anywhere from 7% to 15% cheaper than it was at the end of 2015. Interest rates remain low and banks have money to lend.
I don’t see the market going down more in 2018. And I expect 2019 to see the beginnings of price appreciation once more. Good deals exist for both sides in the current marketplace, as long as seller expectations are not too high, nor those of buyers too low. Your agent can help!