Saturday, July 31, 2010


The overall absorption rate, which stood at 5.00 months when the tax credits expired April 30, now stands at 9.17 months. In simplest terms, the market is suffering from a post tax credit hangover.

Not entirely unexpected, but not enjoyable, either. For well over a year, tax credit incentives pullled first-time buyers off the sidelines and into the game.  The challenge that sellers face now is that without first-time buyers, who historically make up about 40% of the market, there simply aren't enough traditional buyers left to soak up the existing inventory.

We’ve seen the biggest drop in activity at the lower price points, which is not surprising, given that that’s where the tax credit “juice” was aimed. Market time for homes priced below $250,000 has risen from 3.36 months to 6.42 months, and for homes in the $250,000 - $400,000 range, it has increased from 5.20 months to 10.12 months.

While most of us believed there had to be an adjustment period in the post tax credit era, sellers need to know what's happening today, because the market that whisked homes away at a brisk pace in March and April is gone, even with rates now sinking into the mid 4’s.

So what is selling right now? Based on what I'm seeing, it's TURKEYS and TURNKEYS.

Turkeys are those “investor specials”, with moldy basements and broken windows, shag carpet and missing sinks, foot-high weeds and leaky roofs.

Turnkeys are those homes fixed up, or homes that have been updated and upgraded… with new electric panels, new roofs, new carpet, new granite, new paint, new appliances… there is still a market for quality, and in difficult economic times, buyers are drawn to value or quality, or both.

Turkeys make up about 10% of the market, and right now, they’re still selling.

Turnkeys make up about 10% of the market, and they’re still selling.

For the 80% in the middle, it’s not so easy.  In my opinion, sellers now need to determine if their home plays to value or plays to quality.  Whatever your home's strength is, play to it.  If it plays to neither, start cutting the price, or pull it off the market altogether and wait for the hangover to pass.

For the first time in three years, overall inventory is rising again.  Like it or not, you are in competition.  Serious, serious competition.  Which means only serious sellers will have success during this transitional period.