A funny thing happened last week. I was contacted by a writer for the Fresno Bee (Local paper for my Real Estate Market) who had a quick question for me, as I had been a source and a real estate contact on multiple articles over the years.
They wanted to know what I thought of the sudden change to a “Seller’s Market”?
To say I was shocked by the question is an understatement.
It turns out that multiple Fresno based real estate agents and brokers were begging for more inventory and indicating most listings were getting multiple offers — many with bidding wars breaking out.
I acknowledged the fact that listings were down and that I too had seen bidding wars, but I cautioned them from jumping to the conclusion that we were in a seller’s market. I told them that I know why real estate agents and brokers want to call the change in the market (Hint: they sell more properties). I am also certain they were ready to run an article claiming the bottom of the market.
I told them instead of a seller’s market, we are actually experiencing both an unhealthy and an unbalanced market — neither of which can or should be mistaken for a seller’s market.
For the record, an unhealthy market is one where external forces are interfering with traditional sales. Does anyone really think Supply of New REO’s and Short Sales aren’t being “Managed” to a slow trickle? Does anyone think getting a loan to buy a property is straight forward and easy to do? Does anyone believe that with all the new rules around appraisals, that appraised values are worth the paper they are written on? Truth be told, most of these “bidding wars” I have seen blow up when the appraisal comes back 10%-20% below the agreed upon price between a willing seller and a willing buyer.
An unbalanced market is one where swarms of buyers key on one set of properties leaving the others twisting in the wind. In my market, the sub $100K market is on absolute fire at the moment. Why? Because a landlord can earn 10%+ on their money and that is a lot more than they can earn in a bank. The real issue in my market is that the $200-$400K segment is dead with a long list of inventory coming.
In the end, the best I could offer the Fresno Bee is that I believe we are in the bottoming phase of this real estate cycle. I indicated that the bottom of any cycle is rough and shouldn’t be rushed.
They pressed for a time frame multiple times, and I indicated that I would be surprised if we are significantly off the bottom in under 12 months, and that on the outside it could still be 3 years before the bottom is put in.
I have said it before — I believe the catalyst to turn Real Estate around is lending — more specifically lending to real estate investors without stupid quantity restrictions. Rental properties that actually cash flow are solid investments and as soon as banks realize the quality of these loans the sooner we will enter a true “Sellers Market”.