Earlier this year we spoke on our radio show about the differences between a market correction and a market crash. Most people think a market crash is when the bottom falls out of a market, say 50%, or some large number.
Our opinion is that the number has nothing to do with it. Right now the SW Florida real estate market is in the midst of a market correction. While the correction may be nearing an end, I’d much rather we suffered a market crash. I’ll explain why.
The amount of the fall isn’t what determines whether it’s a crash or correction, rather it is the time it takes to get there. The market is like a body of water. It will seek it’s own level, and it will get to where it needs to be, at some point.
Let’s say a year ago some real estate Guru had a crystal ball and knew the market would fall exactly 23.6%. If the market fell 23.6% in one day, transactions wouldn’t be interrupted and we’d have a free flow of properties. We wouldn’t have near the backlog of inventory we have now, although we might have some. Everyone would be talking about how the market crashed in one day and how awful life was, and can you believe it?
What we’ve had all year is the market slowly coming down, and many sellers chasing the market down. Each time they make a price reduction, the market is already ahead of them. They start out over-priced and they remain over-priced as the market seeks its own level. As some sellers have reacted more quickly than others, they too are the sellers who have been successful selling in this market. Buyers are out there, and they are buying at normal levels.
In fact, they are buying at levels in 2003 just before the investor (flippers) came into our market. And we believe there are more buyers on the sidelines who would truly like to buy, as soon as homes become affordable again for them. We all know the story of how property taxes and homeowners insurance have eroded into their buying power. With home prices easing back, this helps bring affordability back to the purchaser.
Anyway, back to our story. As we know, the market will slip back to some pre-determined level not exactly known to any of us, but becoming clearer over time. When the market comes down gradually over time we call it a correction. When the market comes down suddenly, we have immediate transactions, and people scratching their heads wondering about the "Crash."
I ask this question, which is more painful, the slow, methodical pain of a market coming down in price with sellers holding onto hope of prices from yesteryear, or the quick slaughter in prices where buyers and sellers know exactly where prices are, what the future holds, and a free flowing market where homes are selling?
Of course the answer is the Market Correction is more painful. And the good news is, the sellers who have priced ahead of the market have been selling all along on the way down and will never face the cruel truth of the market bottom. They were smart and got out, because they weren’t greedy and holding onto a number in their head based upon paper numbers valid last year.
Which seller do you want to be?
Buyers, don’t get too smug yet either. We’ve been saying all year that buyers were in control, and this is a "Buyers Market." While true, the best properties that are priced correctly are selling, and low balling those properties only means another buyer will come and scoop it up out from under you, and you’ll miss the buying opportunity of a lifetime. Again, the best priced proerties sell in any market, hot or cold. Buyers lowball out of greed and fear. Greed, because they want to pay as little as possible. And Fear, because they worry the market may go lower and they don’t want to overpay for that.
Buyers and sellers need to be realistic, or it will cost you both. It costs to miss buying the home of your dreams and having to buy your 2nd or 3rd choice, and it costs having to sell a home later and for less money had you not been greedy and worried that you’re giving your home away. You’re never giving your home away, you’re simply selling it at today’s fair market price.
Let a seasoned professional assist you when buying or selling in SW Florida. Not knowing what you’re doing is a costly mistake for both buyers and sellers.