I have been reading lately some people wondering about the same questions, here is my take:
Question: What happens when supply of listings skyrockets in the spring, with all the people who came out of the market in the fall to wait for a better market?
Answer: IF that happens there will likely be a continued drop in Real Estate values because as we know supply will far exceed demand, especially demand that is just waiting for the bottom. However consider the possibility that many of those sellers have left the market and won’t come back? Some will rent those second homes, some of them only “wished” to sell if they could get a big dollar, and have since decided to wait.
Question: With all the supply we had, how come prices didn’t fall further.
Answer: Mostly because many sellers were unrealistic with their listing price and were holding out. Consider this example as an analogy. Let’s say you buy a stock for $10, and it drops to$9. You say to your self, yikeswhen it goes back to $10 I will get out this dog stock. Then it drops to $8. You then say if it goes to $9 you will sell. this same lunacy continues as the stock slips into pennny status. Of course all the way through this slide you could have sold the stock for way more then its current value. This is the same thing for real estate. Many uneducated people with little or no guidance just kept pricing wrong all the way down.
Question: Could there be an absolute free fall in real estate prices.
Answer: It always comes down to the sellers motivation or more importantly their options. For the most part in Calgary people have options. They will either rent or carry the vacant houses they hold if they cant sell. For those who do not need to sell they willleave the market. The market forces of supply and demand will find the bottom, that point where supply will be balanced with the amount of motivated buyers. There will be people who will just leave the market rather then sell for the 50% decline in prices that some people on on-line message boards suggest.
Question: What is the herd mentality with respect to the real estate market?
Answer: The ironic thing about people is that they always follow a herd. Too often the herd is headed to the slaughterhouse, yet they still follow just like the cattle do without a thought as to where the herd is going and should they still be falling? What are the herds:
Sellers: People kept their real estate listing prices to high because everyone else is at that price amount as opposed to breaking from the herd and listing your home below the market and get a sale. Another phenomenon was when they all decided to leave the market at the same time. The danger is that they all come back at the same time and then hold off dropping their home to the right price to get their home sold.
Buyers: This one is really interesting. The herd is saying “don’t buy now as the bottom has not happened” and really you can’t blame them for this as we saw above many sellers have not got realistic and prices still may go down. However here comes the irony, when wil the herd move back in to buy…wait for it…when the bottom hits. Not withstanding that no one really knows when the bottom really is, the herd will move. Two funny things happen though as the herd moves this spike in demand will raise prices for those last few listings remaining in the market. The other issue is that if the herd waits to long to move back in then as the global economy starts to rebound inflation will be a big concern which will bring increased interest rates. So congratulations herd you bought the home for $75,000 less but paid 2% higher for a mortgage rate…oops.
What is the lesson, I live my life always trying to avoid the herd or at least act opposite what the herd does. Why? If I am following a herd often it is bumpy as everyone jostles, and besides lets face it the view is never good when you are following.
If you find a home you love in the right area, buy it. Who cares if you pay a little more then later, relish in the fact you bought the right home for you and your mortgage rate is unbelievable.
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