In fact, I saw several homes on Saturday that were listed at prices $25,000 to $40,000 over what homes in these neighborhoods were selling for just two to three years ago. We’re not talking about high end homes here…we’re talking about $130,000 homes three years ago that are being offered at $165,000 today.
Price appreciation happens when prices are lifted by improved market conditions and values increase in an orderly, logical way.
Price aggression – my new term - happens when sellers and agents list homes at numbers that are so high that 75% of buyers will turn and walk away… leaving this inventory to those who either don’t understand historical values or who have agents willing to let them write seriously inflated offers.
If you have followed the posts in this blog for any period of time, you know that we live in a very segmented housing market. The reality below $250,000 - 2 months of inventory and more homes under contract than on the market - is radically different than the $1 million market, where there is 19 months of inventory (pathetic) and about 7.5 homes on the market for each one that has a contract.
Price aggression, for now, exists in the lower rungs of the market only... but that's where the majority of buyers today are looking. And when you consider that a decent percentage of the 50,000 households that were foreclosed on in the Denver metro area in 2006 and 2007 alone are now coming back into the market, demand won't be easing up in this price bracket any time soon.
It will be interesting to see how appraisers handle neighborhoods where prices appear to be going up 1% a month or more.
For the record, I don’t like price aggression, and I don’t like the fact that half of the buyers in the market today are never going to buy a house, either because they don't understand the market or they simply are addicted to past market conditions that no longer exist. To be successful in today’s market as a buyer, you most definitely must understand that prices are rising, but you need to be disciplined enough to wait for the right deal.
That means fewer transactions for good agents, at least on the buyer side, which means that many of the better agents are going to stop working with buyers because there are simply too many fish in the pond right now.
Price aggression among sellers is the flip side of buyers who lowball. For five-plus years, lowballing was a legitimate strategy in many situations. Now, unfortunately for buyers, price aggression has become a legitimate strategy for many sellers in a market when the inventory of homes for sale is down 77% compared to 2007.
Right now, price aggression seems mostly limited to homes under $200k, where the most severe supply-demand imbalance exists. It will be interesting to see buyers react to these suddenly higher prices over the next few months.