Marin Real Estate Market Lacking Equilibrium

For the past several years during the downward cycle in the housing market, we have seen an oversupply of homes and very little demand at price levels that were elevated but dropping. Even through 2011, demand continued to lag despite low housing prices and absurdly low interest rates. But fundamental economics finally kicked in and the market has changed due to a scarcity of inventory.

At today’s low prices there are few people willing and or able to sell. Inventory has been so tight that properties are now receiving multiple offers and we are seeing overbidding situations on a regular basis. In late February I put a nice house on the market in the Gerstle Park section of San Rafael and had several attractive offers before the first Sunday open house.

While representing a buyer in downtown Novato a week earlier, I found myself in another competitive multiple offer situation, fortunately getting my buyers into escrow. It seems crazy to say but today’s market reminds me of 2004-2005 when it seemed that almost any property that came on the market would attract a swarm of buyers. The problem at the time was that prices were already high. Could we be seeing low price levels in many segments of the market?  Market equilibrium seems to have passed us by, like a pendulum swinging first to the seller’s side before the 2008 crash, back to the buyers through 2011, now back to the sellers again.

Interest rates have been important throughout the cycle. Consider that we are at a point where if interest rates go much lower lenders will be paying borrowers to take their money. Rates have been kept low to boost demand at the risk of inflation. At some point (12-24 months from now) interest rates will go up, and that will effect demand as buyers will be able to afford less. Equally important there will be a psychological effect on buyers who will give greater pause in the face of changing unfavorable circumstances.

In the meantime the market looks like it could go through a period of rising prices. It would not be unreasonable to see home prices notch up this year in our competitive environment. Three months ago it would have been nutty to make that kind of prediction. Today it almost seems inevitable.

If you are a home buyer wanting take advantage of today’s low prices and interest rates here are a few tips that will help you succeed. First and foremost pay close attention to the market and when a home you like comes on the market down wait and watch, or the opportunity will surely pass you by. Get comfortable with the idea that if there is more than one offer you will likely have to pay more than the asking price for the property. You are still getting a house at an affordable price (by Marin standards), so don’t sweat going a bit over.

If you are a home seller resist the temptation to price your property higher than the market value. Prices are not at 2005 levels and waiting around for a buyer named Godot will be a frustrating experience. Also don’t count on multiple offers. It’s a blessing when multiple offers happen, but in reality all you need is one good offer to get the deal done.