E-Newsletter
October 2006
Trends in the 2006 Real Estate Market...
As the 2006 Real Estate Market continues to plug along some trends are
certainly coming into focus. The good news is that properties are still selling
and buyers are still out there. One of the things that sellers have been hearing
for the last few months is that they need to reduce their asking price. Here in
lies a point that I think needs to be clarified. Over the last three years
homeowners in Sedona have watched prices climb dramatically. This rapid
escalation of values was as unusual to Sedona as it was to other hot markets
around the country. Everything combined to make “the perfect storm” for rising
Real Estate values.
The first thing we had going for us was a desirable location, but we had that
before this climb, and we still have it now. The next thing needed for such a
rise is high demand. Demand rose to a level never previously seen before due to
a combination of things. First of all, interest rates were at 40 year lows which
meant people needing to finance a purchase had more buying power than ever. Even
if they didn’t need to finance the Sedona purchase many times they had a home to
sell in another market and the low interest rates helped that happen thereby
allowing the Sedona purchase to happen much easier. Interest rates remain at
very attractive levels but rising interest rates are one reason some markets
across the country have begun to cool.
Low interest rates coupled with a sagging stock market also convinced a number
of speculators to dump some money into the housing market and Sedona saw their
fair share of investors over this time period too. Speculators were willing to
take the chance the market would continue to shoot up and for awhile those risks
were being rewarded.
The last thing needed for the perfect storm was the final ingredient in basic
economics and that was low supply. As attractive land for large developments
began to decrease new housing in the Sedona area started to shrink as well. With
fewer new homes to purchase the available inventory started to shrink to all
time lows and it was easy for buyers to start to imagine that if they wanted in
Sedona they had better buy now before their was nothing left.
One thing you saw a few years ago were buyers who would purchase homes years
before they retired with the goal of renting them out until they were ready to
move to Sedona. With the rising values and the carrying costs associated with
them it became impossible for a buyer to do that and come anywhere close to
breaking even on rental income.
Fast forward to the current market and we still see Sedona as a very desirable
place to live but realistic only if you have money in the bank and don’t need an
income. As far as economies go, Sedona’s lack of development opportunities
almost mandates that it continue to be primarily a retirement community.
Interest rates remain very good and overall the national economy continues to
chug along. Certainly not robust but also no signs of a recession appear on the
horizon and that certainly helps.
Once the stock market showed some signs of life and investors realized that Real
Estate purchases were a little trickier to manage than stock purchases the
interest level began to decrease. Much like baseball cards were the hot item in
the 80’s, Real Estate was the trendy investment of the new Millennium. When
Phoenix saw the investor market literally dry up overnight the repercussions of
that were felt immediately and began trickling up to Sedona as well. All of this
adds up to mostly encouraging news for the Sedona Real Estate Market but also a
little splash of reality as well.
The buyers are out there and many of them still want to come to Sedona but they
have realized that there are other nice places to live as well and (at least
right now) they aren’t all that interested in getting caught up in another
bidding frenzy. Without the crush of investors driving the prices up sellers
must now focus solely on people wanting to live in the homes they buy. So does
this mean that sellers need to reduce their price? Well I would answer that a
lot like how the government cuts the deficit. When the government announces a
reduction in the deficit they are merely telling us that we won’t go into as
MUCH debt as we thought. In their minds a $100 million debt is actually a $50
million dollar reduction when we originally projected a $150 million debt.
Most sellers in Sedona are looking at the same scenario. Their home is still
worth more than they paid for it and in many cases if an honest appraisal of
their current appreciation is used they will find that it still has appreciated
far more than any other asset they have owned over the same time period. What
does have to be realized is that the market conditions required for “The Perfect
Storm” of rapidly rising prices is over and the truth of the matter is that
sellers will maybe make less than what they were hoping on the sale of their
house. So what that means is all that really needs to be lowered are the sellers
expectations. But the good news is that unless you bought your home in 2005 your
appreciation is still going to be exceptional. And for those that did buy last
year if you aren’t selling right now don’t worry about it.
History has shown that Real Estate is like every other economic commodity, it
will rise and fall with market trends but overall since the 1940’s it has proven
to a valuable asset and that will not change.
Tod Christensen
Designated Broker/Vice President
Coldwell Banker First Affiliate |
