Many of us who own homes have painfully watched the equity we had in our homes dwindle and in many cases completely disappear. The WSJ reported recently “More than one-third of all homeowners have less than 25% equity, including 15% that are underwater, meaning their homes are worth less than what they owe.” Real estate professionals watched their businesses all but dry up unless they were willing to retool and start trading on other people’s misfortune during one of the longest deepest housing market declines in history. Believe it or not it has been six long years since the experts admitted that values were declining. Many of us in the business smelled the smoke in 2005.
Markets in some parts of the country started to crumble sooner than others but here on Martha’s Vineyard I would say we were about six months behind the first wave. Smart investors saw the end was coming and immediately pulled back taking a wait and see position; they knew that the Vineyard was not immune from economic fluctuations and it would be just a matter of time. Even so others kept buying at the top of the market. Sure enough, that wave finally crashed into our shores full strength and by 2007 our market practically came to a standstill.
Today we are hearing even after many false starts, unequivocally the bottom of the market has been reached with prices rolled back in line with 2002 – and adjusting for inflation as far back as 1998. Once again I think we are going to be late to the dance, but this time it will be on the upswing. I would suggest that we are about six months away from reaching our bottom on Martha’s Vineyard. I think we will still see further price reductions in some areas and classifications while in other areas and classifications prices are starting to inch up; not by much, maybe two percent over the next 12 months.
One reason we have not hit bottom here is, instead of our inventory being absorbed more properties come on the market every week. It is true that many of those new properties were on the market last year or two or three years before and they are simply being reintroduced, but the inventory is not going down, although in some cases the asking prices of those properties are going down. Even so there are still many home owners here who ‘don’t have to sell’, and they continue to resist realistically pricing their properties which leads to confusion in the market.
I was reading something the other day that was promoted as being the results of a survey asking the question ‘what does it take to get buyers to close?’ – ‘close’ meaning to buy. The list consisted of 5 concerns: Not having to do a lot of work before a new owner can move in; having a large enough outdoor space for recreation and privacy; being in a safe neighborhood environment, being comfortable with the amount of the mortgage payment and knowing they can make that mortgage payment, and last but not least, knowing they are paying the right price for the property. This was the one item of buyer concern that I took issue with. Why? Because according to the survey, the way a buyer determines that they are getting a good deal is by “looking at the percentage and actual dollar drop from the original price.” Is it really that simple? Are buyers really that naive? If that price differential was the only barometer buyers use to determine if they are getting a good price then they still haven’t figured out the seller’s game and the seller’s win.
I physically inspect many new properties every week and I follow the market here on Martha’s Vineyard like a hawk. I have developed a keen sense for value over the twenty plus years I have been in this business and I can tell when a property is overpriced. Nine out of ten times when I ask a seller agent who priced one of those properties that I consider to be overpriced, the answer is ‘the seller’. The property is reluctantly listed at that inflated price with one agreed upon caveat; if it does not sell within two weeks or thirty days the price will be reduced. It may not be reduced to the price initially recommended by the seller agent but the discounting will begin – and I will continue. We all know it.
So you tell me, if you are following a property and by doing the math you determine that the price has been reduced by 40% from its initial asking price and that initial asking price was 30% above where it should have been priced in the beginning would you still be as excited?
I know determining or understanding pricing here on Martha’s Vineyard can be very confusing. There are so many factors that figure in to valuating properties on this Island that it can make your head spin. There is the cachet associated with each town – and there are six towns. There is the cachet of the location, be it water front, water view, in-town, etc. All of these things have an effect on pricing, but what should not have an effect on pricing is the seller’s opinion; they know the least about market values.
I tell my clients that purchasing a property on Martha’s Vineyard ultimately comes down to making an emotional decision, but I believe my job is to get my clients as close as possible to a realistic number so they feel comfortable that the price is right.
