In December 2009, when we penned our ‘Prediction For The Coming Decade’, we neglected to add a ‘Coming Action’ factor that we have since realized is of considerable importance:
Realtors in need of income will speed the coming Vancouver RE price deflation.
By now almost all of us are aware of the cute study described in ‘Freakonomics’ where realtors selling their own homes were found to hold out longer for higher sales prices, compared with when they are selling the homes of clients. In the latter case, the closed deal (and resultant commission) is far more important to the realtor than getting their client a higher price. In that study, realtors were found to to sell their own houses for an average of 3%-4% more than a client’s comparable house, and they also kept their own house on the market for 10% longer, waiting for that better price. The message from the study is that when realtors are selling a client’s property, they want the sale a lot more than they want a good price.
Sales are down year-over-year in the lower mainland, in some areas of BC they are down as much as 50%. There are twice as many realtors in BC now than there were 10 years ago, and they are now competing for a shrinking pie. In many markets we are seeing realtors talk about the importance of ‘sharp pricing’. They are applying pressure on sellers to drop prices to points at which they meet buyers. They are a force against the ‘sticky pricing’ that is characteristic of this stage of a bubble burst.
Through the late summer and early fall, many owners have tested the market waters. They put properties on the market, only to remove them when buyer interest proved to be reduced. We presume these owners plan to put those same properties back on the market at some point; many will likely do so in spring of 2011. Changes in volume are predictive of changes in price, and we anticipate ongoing minor drops by year end and larger drops in the first half of 2011.
When prices do inevitably start dropping we have always anticipated that waves of sellers will come into the market, many motivated by fear of further losses of paper profits. Speculators, boomers, foreign holders, overextended locals, developers. They will all be selling at the same time.
The advice given to those anxious sellers by their realtors, hungry for income and eager to close deals at almost any price, will speed the price decline.
“Realtors are saying that if you are selling your home you need to consider dropping your asking price… or be prepared to wait a long time” – A News Vancouver Island 1 Oct 2010
“Anybody looking to sell right now should get ready to cut down their expectations. … It’s going to be a long winter for some sellers. … Sellers need to adapt … People are going to have to be more open to price drops and more realistic prices on their properties.” - Marko Juras, Vancouver Island realtor, on A News Vancouver Island 1 Oct 2010
“If buyers have a lot of choice like they do right now, if your price is not reflective of today’s market, if it’s not priced at or near it’s final sale price, people are just going to let it go … [then you end up with a] four month old tired listing, people ask…’What’s wrong with it?’ “ – Shamus Baier, Vancouver Island realtor, 29 Aug 2010
“Owners of 1 bed condos need to forget peak prices in order to sell. Lots of buyers out there but the ‘sense of urgency’ is gone and product needs to show really well and be priced competitively.” – thinktom (Vancouver realtor), at RE Talks, 12 oct 2010 10:37 am