Umatilla Florida Blog

Current real estate customers often ask me: "Why are real estate prices falling?" While not a simple answer, here are my top reasons:

1. Supply and demand. In recent years, we overbuilt (increased supply). Too many homes chasing too few buyers means the prices being received by sellers even as little as 12 months ago are no longer supported.

2. Less money available. With the unemployment rate rising and less income available to consumers as a whole, there are fewer dollars available to be devoted to home purchases (reduced demand). Add to this the credit crisis and the more restrictive mortgage underwriting requirements which further reduce the availability of funds which can be devoted to the purchase of real property.  

3. Foreclosures. The high rate of foreclosures and resulting glut of bank-owned properties has placed many banks in an uncomfortable position. Banks do not want to be property owners. They therefore are very motivated to sell these homes in their inventory to recoup at least part of their money. For example, one transaction I am currently working concerns a very nice 3/2/2 which was purchased in late 2007 for $225,000. It is in impeccable shape and shows like new. It has been foreclosed and is now bank-owned. It is now on the market for $130,000. That is 58 cents on the dollar. And this property is but one of many, many similar homes for sale. The tremendous surge of bank-owned properties is undermining market prices in a huge way.

4. Prices were too high. The rapid rise of real estate prices nationwide which ended in late 2006 resulted in real estate valuations which were unsustainable. They had to come down. Everything ebbs and flows. The larger the swing in one direction, the bigger the correction in the other.

One of the most difficult tasks facing realtors today, and one of the most important, is correctly establishing market values. In times of rising prices, realtors could afford to err on the high side because eventually prices would catch up. In times of falling prices, a mistake on the high side may be fatal. The longer that home stays on the market, the more overpriced it becomes. To sell a home now in a normal transaction (not a foreclosure), the price must be set at almost a sacrifical level. This concept is hard for sellers to embrace. 

Geoffrey Presson

UmatillaHomeZone

Barbara L. Johnson Realty, Inc.