Thursday, January 12, 2006

South Bay/Beach Cities Home Prices

Everywhere I go people are asking about home prices. Will the market keep going up in double digits or will it take a drastic turn downward? Buyers are looking for the market to tank and Sellers are hoping Spring brings higher prices.
If you have followed this blog for any period of time you know that I don't see the market taking a drastic downward turn.

I think you will see the market trending toward a normal market in terms of price and inventory. We haven't seen a normal market in so long that many people don't remember what that means. Simply put.... Inventory will increase and prices will rise but at a much lower and slower rate. Multiple offers will decrease (they will happen on very desirable properties) and most final prices will be at or slightly less then list price. Sellers, who have become accustomed to asking anything and receiving an over the list price, will take a while to catch up to the realities of the market. If you have had a home on the market over 60 days with few showings and no offers then it may be priced too high.

Rising interest rates, and the tightening of underwriting guidelines by most lenders are a major reason the market will weaken a bit. The FEDS are afraid that many of the loans banks made over the last few years will spell trouble when rates increase on interest only loans. Many Buyers are also concerned that the market can't sustain the continual double digit rise in prices.

In the South Bay/ Beach Cities market most Buyers have sufficient income to cover the increased housing prices but may begin drawing back on what they perceive to be value in our local market. As an example... Manhattan Village has seen the market slow considerably in recent months. Some homes have been on the market over 4 months. Properties are beginning to move again but at lower prices. The marketplace is adjusting to what Buyers are willing to pay as opposed to the price Sellers would like.

Spring will likely predict the future of our market. If sales begin to slow and homes stay on the market longer with price reductions we will all need to adjust our thinking about where the market is heading.

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