OK, raise your hands – who among you thinks that the prices for Santa Cruz Real Estate are going to be going down over the next six months to two years? If you’re like many of the potential buyers of real estate I’ve come across lately, you probably raised your hand. There’s a common refrain these days: “I think I’ll wait six months to see which way the market goes” or “I think the market is going down a bit, I’ll just wait until prices stop dropping.” Another thing I hear a lot is, “I keep watching the market, and I just see prices dropping and dropping.”
It’s no secret that we are now in a buyer’s market, but what does that mean? How long will this buyer’s market last? Do property prices always drop in a buyer’s market? I can’t tell you when we’ll turn again to be a seller’s market – it might be awhile, but that doesn’t mean that prices won’t continue to rise, albeit at a slower rate (closer to the historical average of approximately 7% per year, rather than the torrid 15% we had been seeing until recently). A buyer’s market simply means that there are more sellers than buyers, and therefore this year, it’s the buyers who are, by and large, calling the shots.
And this is why we’re seeing prices dropping on the MLS. Sellers have yet to acclimatize themselves to the “new” market; these days, they cannot simply put a high price on their home and “wait for the market to catch up.” Many sellers think, “Well, we’ll try the market first at this price” (a price that their Realtor tells them is too high) – and then they end up dropping their price in stages, to the point at which the property will sell. This is why you market watchers see so many prices dropping.
When you look at the “sold” data though, and compare it year-over-year, you will see that prices really haven’t dropped much if at all from a year ago. Depending who’s numbers you use, median prices are either slightly up (around 1%) or slightly down. In real dollars, a 1% increase in property values means that homweowners have actually “lost” money on their homes this year. Take heart, though: real estate is not a short term investment. Granted, for the past several years, many people have made great money in real estate in the short term, thanks to the fantastic appreciation we were experiencing. Welcome back to the historical average, ye home buyers!
Back to the original question: should you wait to buy? I think the answer depends on your goals as property owner. My advice, in any market is: pay the least amount possible. Think the seller is asking too much, or is very motivated to sell? Offer less (maybe a lot less) than they’re asking for. You can be successful with a “low-ball” offer if the timing is right, but don’t expect to be successful with a low-ball offer when the property you want is a reasonably priced, prime property that’s only been on the market a couple of weeks. However, there are many properties out there where you can negotiate a price to the point where you are well covered against any short-term dip in the market. Remember: you lock in your profit when you buy, and get the cash when you sell.