Riverside Market Update
Slowing Market in Riverside
As in most of the country, the real estate market in the City and County of Riverside has slowed down a lot of late. We have a lot of inventory, meaning that about 6 times as many properties are on the market as a year ago. This translates most directly into more choices for buyers and more active days on market for sellers. In simple terms, it’s a buyer’s market, but how much so depends on the level of the market and the seller’s motivation.
At What Point is it a Buyer’s or a Seller’s Market?
Competition ultimately decides whether or not a particular level of the market favors the buyer or the seller at any given moment. Currently, most of the houses are in the middle and higher ranges, so buyers who are looking to move up have many properties to choose from and can negotiate a better deal from a seller who needs to move quickly. However, these buyers must have a loan, and at these prices, they generally have to sell a property. If they’ve already sold and are sitting on some money, they’re in good shape, but if they still need to sell, they’ll also have to be ready to negotiate with a buyer for their home.
In the lower ranges of the market, the greater number of properties is a relief after two years of properties selling in less than a week, even as little as nine hours for a condo near where I live. It’s much more pleasant now to have time to preview and then take clients to see a number of homes. However, prices are much higher than they were even a year ago, so first-time buyers are looking at payments that are twice as much as rent. The good news, at least, is that sellers are much more likely to help pay closing costs and/or help buy down the rate for the buyer.
What a Slower Market Means for Sellers
A slower market for sellers means going back to basics. Over the last few years, Inland Empire sellers got used to having to do very little. Now that buyers are seeing a lot of properties and, consequently, are getting more demanding, sellers need to clean up, make repairs, and update. Most of all, sellers need to be patient and flexible. The more flexible the sellers are, the more likely they are to find a buyer. So if the property doesn’t get much traffic, listen to the feedback and make the appropriate repairs and changes in pricing.
I often ask sellers if they’d be willing to pay two or three times their current mortgage for the house they have now in its present condition. If they’re honest, they’ll say, “no.” So now they have to make it look into something they would feel worth paying that much for, which means fixing some of the problems they learned to live with.
Commissions, which should be viewed as marketing to buyers’ agents, are now making a real difference. Commissions are negotiable and evolve according to the market. When there are fewer properties available, agents will show those with lower commissions, and when there are lots to look at, they’ll show the ones with higher commissions first. I’m seeing a lot of properties offering 2.5 and 3%, with some at 3.5 and even 4%. If the commission isn’t high enough, you’re not selling to agents, and they, in turn, are not selling your house to their clients.
Also, I’m seeing that the quality of buyers leaves something to be desired. Sellers are competing for buyers, so this may mean having to help out a buyer who can’t quite afford the house. Aside from lowering the price further, sellers are now commonly helping with closing costs (essential for first-time buyers who have nothing to sell and young buyers who have no savings). Another possibility is to look into paying points to buy down the buyer’s rate for the first few years, the assumption being that younger buyers’ salaries will improve in the future.
The good news is that appraisals are no longer a problem now that the market has stabilized. And as motivated sellers bring their prices down, it becomes easier to stack closing costs and allowances without going over the sold comps in the area.
Buying in a Slower Market
The most obvious pluses of the slower market for buyers is that they have time to look at and consider properties, there’s some room to negotiate price and repairs, and sellers are willing to help with closing costs and/or buying down the rate. However, the degree to which a buyer can negotiate depends very much on how good a buyer he or she is.
So even though buyers are in a much better position than they were in the recent past, they need to be able to buy in the first place. As always, buyers should get pre-qualified and have their lender look at all their documents, not just give a pre-approval after a 15-minute phone interview. They need to educate themselves and find out how much their costs will be monthly in order to understand ahead of time what they are taking on. Then they can figure out where they can afford to buy and if it makes sense for the job commute and/or where relatives live.
At times like these, buyers can get very picky, and it’s understandable given the high prices and the number of properties available. But they shouldn’t get lulled into a false sense of security. If they’re taking a long time to find just the right home, they’ll need to have their lender redo their pre-approval as changes in rates could suddenly decrease their buying power. And if they’re in the lowest range of the market, they could find that prices for appealing properties in better condition are actually going up as the better priced ones sell and disappear.
Will Prices Come Down Dramatically?
People keep asking me if prices are going to come down dramatically. I respond that this will happen only if we run out of buyers who can afford these prices, and this will happen if interest rates sky rocket and/or there’s mass unemployment. There are always a few sellers who can come down, but most can’t because they’re trying to buy another property, they have a lot of debt, and/or they’re too proud (that is., they’re not motivated enough).
Motivated sellers are often ones who have to relocate quickly for job and/or family reasons. Motivated sellers have a place to go to and may have already moved. And if they’re moving to a less-expensive region, they can afford to come down on the price.
You would think that sellers who are in danger of foreclosure would be motivated, but this isn’t actually always the case. Buyers often ask me to look for foreclosure properties, but I’m still having trouble finding them in the city of Riverside or Moreno Valley on the MLS because people don’t want to admit it when they’re in trouble.
Foreclosures
Foreclosures are on the rise, but there’s a big difference between a notice of foreclosure and an actual bank sale. Most people manage to get caught up on their payments or refinance. Those who can sell are still doing so through brokers before it’s too late with a few exceptions.
In the case of a short sale, the seller’s lender is accepting less than what is owed on the house, but the amount won’t be 100k less. And even though the seller may accept an offer and open escrow with a buyer, it’s up to the bank to approve the sale. If the bank doesn’t approve, the deal will fall out of escrow. In this case, a non-contingent buyer is definitely preferred. So the buyers should be prepared to get 100% financing or sell their property first.
Another warning to buyers, foreclosure properties aren’t in the best condition. When people can’t afford to make payments, they also tend to stop making repairs, paying for utilities, and keeping up the yard. But if you don’t mind some fixing up the place yourself, such properties can be a good buy.
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