Friday, February 15, 2008

Can 2008 be as dismal as 2007 for residential real estate market?

Another interesting article. This one from Worcester, MA

Real estate has perhaps been one of the gloomiest sectors this year: The industry has faced declining prices, increased foreclosure rates and homes that sit with "For Sale" signs staked into their front lawns for months without even a look.

Statistics show a continued gradual decline over the past year: Sales from August 2006 to August 2007 dropped by more than 6 percent in Worcester County, according to The Warren Group.

Similarly, median house prices fell by more than 4 percent, from $261,700 to $250,000, during the same period.

To The Highest Bidder

Those in the industry lament there's more misfortune to be had in 2008, as prices haven't quite bottomed out. But at the same time, there will be some positives. The market will be ripe for qualified buyers, and sellers willing to improvise can continue to take advantage of crafty options.

One of those includes "auction-by-choice," in which sellers willingly put their homes up for bid.
Already, it's a rapidly growing alternative. Mark Shear, president of Berman Auctioneers & Appraisers in Worcester, noted that he had more calls in the last year for by-choice sales than he had in the previous 17 years combined. He estimated that foreclosure auctions and by-choice auctions will comprise about 30 percent of the industry next year.

"We know there's going to be a surge" in 2008, he said. "The numbers are strong."
The fact that by-choice auctions are increasing is promising, Shear said, as the market is about adjusting and experimenting. In line with that, he also sees an increase in electronic methods, such as Internet-based sales and online auctions, in the coming year.

Like foreclosure auctions, by-choice auctions are often done on the front lawn. Unlike the latter, however, bidders are provided with much more information about the house - such as recent upgrades, installations or remodeling work - that help net better bids, Shear said. And sellers at the very least get the fair market value - and sometimes more than that, due to "supply and demand" as the auction process ratchets up, Shear said. Besides price, though, sellers are increasingly drawn to the method because it's date specific, so it's easier to plan for than a regular home sale.

Shear stressed, however, that the process is most successful with desirable properties that haven't been listed anywhere else. It's also helpful when sellers maintain a realistic expectation of the current value of their property.

"Something is only worth what someone is willing to pay," he said.Holding On
But some sellers just aren't willing to budge on that front, and many are deciding to ditch their plans altogether and go with another option - remodeling. At G.M. Bergeron Custom Builders in Worcester, home remodeling grew by 20 percent this year, according to general manager Wade Bergeron. He expects that trend to continue in 2008, as more and more people get frustrated with their homes staying on the market for months on end.

Although remodeling can help move a home when it's in bad structural shape, Bergeron noted that many sellers and potential sellers are doing it because they ultimately decide to say put.
"They don't want to discount their house by $50,000 or $75,000," said Bergeron. He noted that a remodel is cheaper or at least equivalent to what a buyer would have spent on a new home.
But as much as remodels and auctions-by-choice have helped boost the market, industry experts say there's still about six months of downward adjustment to go.

Bergeron sees at least another 5 percent downgrade, he said. Then, he predicts, sales will "bounce along the bottom" for between two and four years before another bout of heavy growth and price appreciation.

Along with that, we're likely to see increased foreclosure rates that will continue to do "lots of financial damage" in 2008, according to Jeff Hall, vice president of the Worcester Regional Association of Realtors and a Worcester-based RE/MAX agent.

"It's going to take us another couple of years to turn it around," he said.

Taryn Plumb is a freelance writer based in Worcester.

No comments: