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Nick Segal

Nick Segal

Posted: February 14, 2011 05:49 PM

To properly answer the question about when the real estate market will rebound, you want to first understand the specific market you're looking at.

For example, Los Angeles sets itself apart from many other parts of the country -- even from other parts of Southern California -- by being comprised of a host of characters and varying degrees of wealth. Despite the global recession, our part of the world still has quite a bit of money, which makes this real estate market different from any other.

But regardless of which market you're evaluating, the key metrics to examine are:


  1. the ways that individuals price their homes (if they choose to bring them to market)

  2. how the market receives them

Recently, in an office meeting, I polled the group of 60 talented and seasoned agents here at Partners Trust about the effectiveness of the pricing strategies of the homes that come to market on any given week. The results were astounding: the overwhelming consensus was that 80 to 85 percent of all homes coming to market are overpriced by at least 10 to 15 percent of what they need to be in order to elicit offers from willing buyers.

Here's the crux of the issue and probably the biggest obstacle to our recovery: most of the homes coming to market have an element of "distress" to them. Sellers that must come to this market are trying to get as much money as possible to alleviate other debts, so they overprice their homes hoping for the best. The problem is that buyers know fair market value because they see everything that comes to market and have the vast online resources to gauge true value. They know what they will pay, and it is certainly not the price being offered most of the time, which causes our current stalemate.

Furthering this gridlock and buyer frustration is when sellers who don't need to sell would rather wait for the market to regain steam prior to entering the fray, leaving some of the more perceived attractive homes -- based on location and amenities -- off the market. Even though there are a number of houses available for sale, in the buyers' eyes they don't count if they're listed well over fair market value.

So when will this climate change?

Beyond the jobs report and the state of our national economy, understand that Los Angeles still has plenty of money coursing through her veins, poised to invest in our market. With this magnitude of wealth coupled with the fact that well-priced homes in this market are receiving multiple offers (and even closing over asking price), we are now seeing a shift in both perception and reality. Buyers are going to start to dive into this overpriced inventory by writing offers based on what they feel is fair, and deals will be consummated, all adding more fuel to our resurgent fire.

Our Los Angeles housing market is already demonstrating recovery. Considering that for every well-priced home that props up a "For Sale" sign on its front lawn, an average of five buyers bid on that house, which leaves four runners-up to queue outside the next fairly listed home. This increase in sales volume will be the key factor that changes the perception of our market for the positive. Cocktail party conversations will deviate from the recent opinion polls that equate buying a home to investing in financial ruin toward real estate being a smart business decision supported by low interest rates and a return to the philosophy that home ownership enhances your quality of life and offers peace of mind.

So, to make a long answer short: in the next 12 to 18 months, as we digest the current inventory -- either through short sales, foreclosures and some regular sales -- doors will then open to the next wave of more straightforward sales, and our recovery will continue to march forward.

We're getting there. And from this point of reference, I think we're well on our way. What do you think about the state of our housing rebound? Do you have enough information to make an informed comment? Or does pessimism simply run deep without the necessity of fact to form an impassioned opinion?

 
 
 

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