Realtor Jim Pettit of Wilmington has been here before, on the backside of a slump in home sales. The market was in similar straits when he entered the industry in the late 1980s, shortly after a mid-decade boom had agents “writing contracts on the hoods of their cars.”
Though he just missed the big action back then, he got a taste of it five years ago, when the market had returned to the glory days. “It was as if buyers and sellers could do no wrong,” Pettit says. “The sellers were getting three or four offers over market value. It was crazy.”
But after three or four years of hyperactivity and a period of owners seeing their investment appreciate at about 3 percent per year, the market crashed. It hasn’t recovered yet, but after more than three years, some signs indicate that a recovery may be on the way.
“The good news is that buyers have come back,” Pettit says. “They’re not buying over value, but at least their mental state is a bit better, more upbeat. And mortgage rates are the best they’ve ever been in our lifetime. We’re hoping that this year, we’ll have a nice spring market.”
So how do things stand, exactly? First of all, a caveat: No one wants to predict when prices will rise to past peaks. There are simply too many factors in play, many of them out of anyone’s control (except possibly lenders that are sitting on foreclosed properties).
Second, no one agrees on where, precisely, values stand. Though Pettit says they’ve recovered to 2006-2007 levels after three years of “bumping along the bottom,” Steven Sachs of Appraisal Access in Wilmington puts them at 2003 levels, saying, “We haven’t seen the bottom yet.”
View No. 3 is that of Buddy West of the The West Team at Emory Hill Residential Real Estate. “If you’re still waiting for the bottom, he says, “you’ve missed it.”
It was the domino effect of easy financing enabling buyers to pay more than market value a few years ago, which drove up appraisals until the mortgage crisis and stock market crash caused real estate sales to free fall. Job losses—locally caused by the loss of big employers like MBNA America, Chrysler and GM, and layoffs at AstraZeneca—meant record foreclosure rates, creating a huge inventory of housing. With lenders making it harder to qualify for mortgages, that inventory has been slow to move, despite the record-low finance rates.
“I have two analogies,” says West. “The market is like a bathtub. The drain is open, so water is running out, but the spigot is open, too. So while houses sell, new ones are coming on the market as owners continue to default. The absorption rate isn’t changing.”
Analogy No. 2: “The 3.8 percent mortgage rate is the lowest ever,” West says, “but trying to buy is like going to the butcher who advertises filet mignon for 10 cents a pound. Then you go to him and say, “I’d like some of that filet,” he tells you, ‘We don’t have any.’”
That said, West’s group saw an increase in closed deals in December, thanks to increased consumer confidence. Pettit also reports a turnaround. Buyers are so upbeat, in fact, Eddie Riggin of The Riggin Group in Newark has had multiple offers on several well-priced properties. In 2011, sales for his office were up 36 percent from 2010. What’s more, the inventory of homes in New Castle County decreased from 3,700 in June to 2,800 by year’s end— a big drop.
And that’s good news for sellers. Further reductions in inventory mean positive effects on prices for sellers. (A five- to six-month inventory keeps prices stable. A smaller inventory means prices will rise.) Riggin points out that 28 percent more homes sold in 2011 than during 2010 in New Castle County. That’s well above the national figure of 18.6 percent for the same period. Another 20 percent increase is predicted for the nation in 2012.
Though West cautions that sellers have to be realistic about pricing—5 percent below market is “effective,” he says—there are people who want to buy. Those who qualify have never had such favorable conditions. Especially at the beach. “There are some really good deals,” says Jeffrey Fowler of The Jeffrey Fowler Group. Homes that were selling in the $500,000 range are going in the mid-threes.
A buyers’ market eventually translates to a sellers’ market as inventory dwindles. “It’s not all about the money,” Pettit says. Buying real estate is a good thing to do, but there are better investment vehicles. So when buying your home, don’t think of it as an investment. Think of it as the place where you’ll be happy to live for years to come.