ONE MARKET? OR TWO? OR THREE?…

three marketsWhat kind of a market can we expect for the balance of 2013? The deeper we go into this year, the more obvious it is that there is not just one market out there, but several, depending on the price range of the local properties. Each segment/price group has its own life, moves at its own tempo and enjoys or endure different experiences.
In any town, State or country, you basically have 3 distinctive price thresholds, 3 “markets” in other words. Each one is defined in relation to the local median price. You have the “low end,” the “average” or core price, and the high end. Obviously the borders are not set in stone as you have common buffer zones between the groups. For example, the top end of the first one identifies with the core group. For the same reason, the top end of the core group identifies with the high end.

For the purpose of this exercise, let’s assume the town we use to demonstrate the point has a median price of $2 million. That’s a very hefty price for roughly 90% of the country but more than reasonable for areas commonly referred to as high end. In my opinion, the following synopsis describes pretty well how each one of the three price groups is likely to behave for the rest of the year.

  • Low-end to median (up to about $1.5M): It has been hot all year so far and will remain hot till the end of the year. The still modest but on-going rise in the cost of mortgage money is not likely to slow down the frenzy any time soon. If nothing else, it could accelerate its pace since waiting would add beaucoup dollars to the monthly lender’s statement. At that price level and with the huge pent-up demand yet to be satisfied, it is only normal to assume that multiple offers will remain the norm and that the winning bid will often be over the asking price. It can also be assumed that, because of the competition between would-be-buyers, offers will have to be as clean as possible. Unnecessary contingencies would kill the deals.
  • Median price group (around $2M, give or take 25% at both ends): The activity promises to be good to very good for many of the reasons mentioned above. Don’t expect, however, the activity to be at the level of what we experienced during the first 5 months of the year. Bidding wars are largely over for that group. Many buyers are getting cold feet as mortgage money is more expensive. Many others integrate the additional financing cost and want to negotiate good deals. Most buyers in that category are move-up buyers, so their extra motivation will be based on how quickly they can sell and how much equity they expect to clear upon the sale. If the existing home is in the same local market, they will feel no pain. If, however, the house to sell is on the high side in a less desirable area, there could be a challenge. The buyers, for protection sake, may need a longer escrow at a time when sellers are still demanding a short one. Here again, contingencies are not going to be welcomed. Roughly half of the offers will be cash offers, whether it is true cash, or cash from financing already secured.
  • High end market ($2.5M or 25% minimum over the median price and, from there, all the way up to the moon!): Must be noted that this segment is wildly heterogeneous as, for the sake of space, we are placing in the same basket properties listed at $2.5M and some at $25M, or more. While those within 50% of the median price are still moving swiftly, the more expensive ones are experiencing a much more challenging market, particularly at the top end. There are many reasons for the slowdown. First, in that price group, which was the first to recover from the recession years, prices have escalated to the point of discouraging or disqualifying many buyers. Often, the price of newly listed properties is based on grossly overpriced listings which have been on the shelves months if not years, thereby compounding the problem… Comps have become unreliable. Another reason is that we now have more listings at that price level than interested buyers, which is pushing prices down. Most buyers, in that group, are now confining their hunt to two distinct targets:  One, the few true landmark properties in prime locations (price no object there), and Two, those listings priced very attractively – meaning below what Realtors perceive to be the market price. Anything in between is soft and will remain such over the next few months. Price accordingly and, if and when you get an offer, work with it, since there is no guarantee you will get another one.

Alain Pinel, General Manager of Intero Prestigio international, Intero Real Estate Services, Inc.

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