It's 'Seller beware' in Housing
Buyers have the upper hand as owners cling to old optimism about pricing
Roger Maehler has good reason to feel smug about the panoramic mountain views from his new backyard.
"I think I got a good deal," the Scottsdale, Ariz., resident says of the acre-plus adobe ranchette he snagged last week for $655,000-a 23 percent discount from the original $850,000 asking price.
Complete with swimming pool, spa, and a big-screen TV in the great room, the sprawling five-bedroom property was high on his list when he began shopping for a new home in May. But like many buyers these days, Maehler decided to hold off and see how the weakening market shook out over the summer. "I guess it was worth the wait," he says.
Since prices topped out in July, the housing downturn now underway in many parts of the country has already lopped $10,000, or 4.3 percent, off the median price of an existing home, the largest dollar decline the National Association of Realtors has ever recorded. Prices of newly built homes have slumped even more, sinking by 15.5 percent since their April peak, according to the Commerce Department.
Contrarians. While some areas like Houston and Seattle have bucked the trend, prices in once hot markets like Boston are now down by more than 10 percent from their high point. The same goes for parts of the Phoenix area, where the number of homes on the market has more than doubled to 45,000 since last October.
"I literally could have spent eight hours a day, five days a week looking at houses," says Maehler, who toured more than 30 properties before making a bid.
Indeed, the national inventory of 4.3 million unsold homes now stands at about a seven-month supply, a glut some economists say will persist until sellers make meaningful cuts in their asking prices. "Buyers want more than the traditional 2 to 5 percent price reduction before they sign on the dotted line," says Gregory Miller, chief economist for SunTrust Bank, who doesn't expect a significant reduction in inventory until early next year.
That assumes, of course, that sellers like Zaher El-Assi are willing to play along. Even after more than a year with his condo on the market, the Boston resident has steadfastly refused his real-estate agent's pleas to lower the $799,000 price. "I just want to see if I can get the right price," he says of the two offers he has turned down already.
People like El-Assi are "the seller's equivalent of the Looky Lou," says Jason Weissman, his frustrated broker, who estimates that as many as a third of sellers in the Boston area aren't serious about pricing their homes to sell.
Such inflexibility worries economists like Mark Zandi, who says it could take a "Roto-Rooter" to finally flush stubborn sellers-and their market-clogging inventory-from real-estate listings.
In the short run, he expects the market could stabilize somewhat as new construction slows and dejected sellers temporarily pull their homes off during the slow winter season. "But it could very well be a dead-cat bounce," the Moody's Economy.com chief economist says of the chance that a strong economy and persistent inflation will push up mortgage interest rates-just as sellers move to relist their houses in the spring. If that happens, "it'll come right out of housing prices again."
This story appears in the November 6, 2006 print edition of U.S. News & World Report.
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