In my opinion...

I have been studying sale prices, listing inventory and closing volume statistics closely for the last 18 months.  Based on those numbers, and some other issues, I feel that our market has been in decline since mid-summer 2005.  We are now in a full-fledged buyer's market. 

I can tell you that I sold all (3) of my investment properties last fall and winter.  We priced them aggressively to sell quickly, and have had no regrets about doing so.  They would definitely sell fro less today.  Now- With that being said, I can tell you that we actively seeking new investments.  There have to be some good buys out there, you just have to be very selective.  But- more properties will drop in value in the next 3 months than will gain value, in my opinion. 

What happened?

Again, this is my opinion, and no one else's.  I think that this over-heated and unsustainable market was primarily created by the builders. 

When prices started going up quickly, builders figured out that they could bigger price increases by limiting the supply of homes that they took contracts on.  This increased the demand for new homes by investors, which again allowed builders to tack on even bigger price increases.  The builders were actually increasing dramatically the number of homes they were building, but telling people that they were basically "Sold-Out".   This forced unlucky people who had been turned away by the new home builders to pay whatever the market would bare.  This encouraged more price increases from the builders raced to keep their new home prices above the inflated price level of resales.  Builders also stopped building any small or less expensive models.  Homes that were $200k in early summer 2004, were now offered "from the high $200s" in the summer of 2005, or even "from the low $300's"! 

This is the point where the "game" started getting really crazy, with lotteries, waiting lists of hundreds of people and "lot releases" of 3-4 homes per month in some subdivisions.   Remember- The builders were building like crazy, but holding back on sales, preferring to wait to sell the homes at a later stage "in the pipeline" for higher prices.  In my opinion, this change in sales practice is what is at the root of our market's problems in 2006.

Instead of pricing the homes on a cost-plus basis (cost of land, plus improvements, plus reasonable profit) to homebuyers, the builders got greedy and decided to restrict supply and charge as much as the market would bare.  Unfortunately- When the prices got driven so high that investors could no longer sell their spec-homes quickly and profitably, the demand from investors stopped...dead.  This caused builders to start releasing way more homes and lowering prices, to sell the now extensive "in the pipeline" inventory.  This made it difficult for investors to break even on their resales, and they started backing out of contracts on houses "in the pipeline".  Now builders are cutting prices by $20k, 40k and more.  Builders are also laying people off and building permits have dropped by a huge amount.  That is where we are right now  in August of 2006. 

What's next?

I don't know.  On the positive side, our local economy is in great shape.  We have a very desirable area that is still priced way below South Florida prices. 

On the negative side, we STILL have a ton of unsold spec-homes (and condos) on the market.  There are hundreds, if not thousands, more "in the pipeline".  Many of these were "bought" by speculators, who intended to take large profits.  As the supply swells, and demand falls, (no more speculators) prices have dropped in areas with lots of empty houses and condos.  Desperate sellers mean falling prices until the supply of empty houses is absorbed.  Period.

Buying or Selling? Ask me.

Does all this mean that everyone should sell everything, and that no one should buy anything?  No, not necessarily! 

It means that sellers should be aware of current market conditions for the area and type of property they are considering selling.  Pricing must be "right" to sell in a buyer's market!  That being said, I would say that 80% of the people out there who are considering selling should do it now, rather than waiting.

Buyers need to make sure that their goals (budget, planned length of ownership) are met completely by the property that they buy.  They also need to make sure that the price they pay is as good as possible, again based on complete market knowledge provided by an educated, honest agent.  I would also advise buyers to be wary of neighborhoods and areas that have lots of spec or empty homes.  If the price is right and the property meets your needs, I would say do it! 

I am looking at a piece of land up north right now that looks too good to pass on.