The sky isn’t falling, despite the sensationalized headlines about the real estate market. But the market is softening. The growing number of price reductions – a trend showing up in data from Southern California and across the US – is one of the strongest signs that the previously red-hot market is cooling.
Some home sellers are cutting their asking prices, just as buyers have lost some of their buying power due to the higher mortgage rates and overall inflation. It’s important to read the articles though, and not just rely on the headlines. Price reductions don’t mean overall home values are dropping. Most homes still sell for over the list price. The difference is, these days, sellers are seeing three or four offers, rather than the 12 to 15 they may have received just a few months ago. Prices are going above the list, but not the $200k-$300k we were seeing as a rule just a few months ago.
I represent both sellers and buyers and am seeing changes on both sides of the transaction. My two most recent listings (one closed, one still in escrow) received only two offers each. Both offers were nicely above the list price, but neither caused the frenzy I experienced with my listings last year. With my buyers, I’ve noticed that certain homes are still inspiring bidding wars, while on others we’re competing with only two or three other buyers, and not all of those are selling for above the asking price. The frustrating part for buyers is knowing the market is shifting, but that it ultimately is still a seller’s market. All a seller needs are two offers to maintain their position of strength.
As far as the price reductions are concerned, not all of them can be blamed on the shifting market. Getting the list price right the first time avoids the need for a price reduction. Many sellers ignore the advice of their agents and insist on a price that might have been right a few months ago, but now is overpriced. Those are the homes that are usually being reduced. The most desirable homes – those in great neighborhoods with amazing schools, or those that evoke a lot of emotion for buyers – will still encourage buyers to reach deep into their wallets and make strong offers.
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