Real Estate Market

Home sellers lower prices to compete, bidding wars ensue, recovery heats up

(4/30/2012) - We recently gave Chinese astrology some mystical credit for the Year of the Dragon's positive impact on the 2012 real estate market.

Sellers, however, don't really need to read the stars to see the writing on the wall.

Earlier this year, Coldwell Banker Real Estate said home sellers were lowering prices because they were "getting real" about the 2012 real estate market, a recovery market that looks more and more like the real thing.

We took some light-hearted editorial license and suggested sellers were smitten by the cosmic influence of not just any Year of the Dragon, but theYear of the Water Dragon.

If you believe, this particular dragon is less fiery and more calming, effectively causing sellers to, well, water down prices.

More than half (51 percent) of Coldwell Banker's 615 surveyed real estate agents, queried between Jan. 24 and Feb. 7, said sellers had become more willing to price their homes competitively than they were at the same time last year.

Sellers, however, didn't wait for a planetary alignment to signal when to lower prices.

Astrological mysticism is in the mind of the beholder and while the mind certainly has the potential for great power, a more practical explanation for sellers "getting real" has been a more down-to-earth reaction to highly competitive investors - especially the all-cash variety - and deep discounts that come with short sales and foreclosures.

Sellers' lowering-prices timing has been impeccable.

Lower inventories in many markets this year are beginning to generate multiple offers, not the crazed, frenzied brand of multiple offers that occurred during the pre-bust era, but offers stemming from real competition based on the limited number of homes from sale.

"You'll see a house listed at $155,000, but the true value is $175,000 and this is the price you'll be competing with because the list price will generate multiple offers," said Martin Morales, a broker/owner with Century 21 Scenic Bay Properties.

"Buyers can get discouraged if they aren't aware of what's going on and look at the MLS (multiple listing service) and see a certain price and think that's the price they can offer," said Morales, also secretary/treasurer of Monterey County Association of Realtors.

Sellers lowered prices in step with recovery

With the housing market trying to grab a foothold on a sustained recovery, expect more prices to vie for.

The Urban Land Institute (ULI) has joined the chorus of forecasters who say recovery is afoot and affordably priced housing is a hallmark of recovery.

In its first semi-annual survey of 38 economists, the "ULI Real Estate Consensus Forecast," ULI says, "The survey results show reason for optimism throughout much of the real estate industry."

Over the next three years, home prices will begin to rise, increasing by as much as 3.5 percent in 2014; apartment rents this year will increase by 5 percent; and housing starts will nearly double by 2014, ULI says.

The survey, conducted during late February and early March 2012, is a consensus view and reflects the median forecast for 26 economic indicators, including housing starts, home prices and rents, as well as commercial real estate and economic indicators.

The forecast suggests steady, rather than sporadic economic growth, but cautions certain global, domestic risk factors could stymie growth.

"While geopolitical and global economic events could change the forecast going forward, what we see in this survey is confidence that the U.S. real estate economy has weathered the brunt of the recent financial storm and is poised for significant improvement over the next three years," said ULI Chief Executive Officer Patrick L. Phillips.

ULI forecasts

ULI's upbeat projections stem from promising economic conditions that directly impact housing.

• The real gross domestic product (GDP) is expected to rise steadily from 2.5 percent this year to 3 percent in 2013, to 3.2 percent by 2014.

• Unemployment is expected to fall to 8.0 percent this year, 7.5 percent in 2013, and 6.9 percent by 2014.

• Job creation is expected to rise from 2 million this year, to 2.5 million in 2013 and 2.75 million in 2014.

"The survey results suggest that 2012 could mark the beginning of a turnaround - albeit a slow one," ULI reports.

• Single-family housing starts, near record lows over the past three years, are projected to reach 500,000 in 2012; 660,000 in 2013; and 800,000 in 2014.

• Home price declines end this year, and then rise by 2 percent in 2013; 3.5 percent in 2014.

• The forecast calls for a "modest" increase in apartment vacancy rates, from 5 percent this year, 5.1 percent in 2013 and 5.3 percent in 2014.

• That will help ease the growth in rents with rents expected to grow by 5 percent this year, 4 percent in 2013 and 3.8 percent in 2014, as supply catches up with demand.

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