Every now and then, I find a straight talking Realtor (Let’s be kind here folks- it’s not necessarily an oxymoron) who describes the world of real estate I live in, instead of properties listed "Somewhere Over the Rainbow."
One of these Realtors is Tom Doyle, a Realtor from Naples, FL, who recently wrote an insightful article in his Naples Real Estate Market Report. For virtually the entire article, you could do a "global search and replace" – replacing Phoenix for Naples. Some of the statistics are not the same, but the market sounds remarkably similar. Here’s how he describes the current Naples’ market:
Investor demand caused a rapid run-up in home prices during 2004 and 2005, with prices generally peaking in the fall of 2005.
Now it is pretty common for properties to sell 10%, 15% or more below peak prices. But a significant number of homes are still listed at or as much as 10% above peak prices.
The greater the number of investors in a community the greater the drop in values. Some properties have sold at 30% below peak prices.
The number of homes for sale remain at record levels, but a significant number are listed at prices belonging in another universe. In other words, no informed buyer would ever consider purchasing.
Smart buyers, can get big discounts off of peak prices.
Naples Home Sellers Don’t Sound Too Different From Phoenicians Either
A significant number of sellers in the area and their listing brokers refuse to accept the fact that investor demand during 2004 and 2005 created an artificial demand and an unusual price run-up, and that a price correction has occurred. These sellers should have a big sign in their yard reading "Not for Sale."
To me the most notable event in the local real estate market is the number of misguided sellers with outrageous pricing, and the number of listing agents accepting such listings as their normal business practice. – This is a major disservice to the local real estate market as a whole, and to those homeowners appropriately priced to sell.
Within the same community, it’s common to find properties with the exact floor plan, that are priced 50% higher than another! Sure, such things as the view, decorative upgrades, and other differentiators can account for some of the price difference, but not 50%, 40%, 30% or 20% of a difference.
Tom has a classification system for sellers that Phoenicians could adopt as well-
Over Extended – This group of buyers have to sell, are very motivated and need their cash out. They will reduce or accept prices significantly less than peak prices – possibility lower than any future low point. This group exists, but represents a small share of total listings.
Realistic Sellers – This group understands current market conditions and are priced below peak prices for similar comparables. (Note: Not all areas or property types have experienced similar size drops in market value).
Late Buyers – This group of sellers bought near or after peak pricings and want out. But if they accept current prices they will end up with a loss, so they hang on to their inflated price.
Bubbly Optimistic – This is the largest group of sellers and they believe in: the tooth fairy and rising prices, or that the price correction is just a temporary blip on the radar screen. Or are willing to sell at their inflated price, but would rather keep their home then sell for less.
("Bubbly Delusional" is the term I might have chosen, but "optimistic" is close enough.)
Tom does have a couple of "Realtor-moments" and switches to "Realtor-Speak":
Buyers have not been buying the worse values available, they have been buying the best values and ignore those homes priced out of the market. So while there are tons of homes for sale, many are being totally ignored as not seriously for sale.
("Buying the best values" translates "bargain hunting.")
Bottom Line- "Bubbly Delusional Sellers" in Phoenix and Tampa- the Reality Fairy is on her way. It’s your choice whether she touches you with her magic wand, or hits you over the head with a 2 X 4.