There are a few things that we MUST understand about the market right now. There are times when we think the market should do one thing yet it never seems to happen. Right now, most people think the market should have appreciated at a much higher rate and the following is likely to be the reason this hasn't happened.
1) New Construction represents 30%- 35% of all MLS closed transactions.
Why is this important?
A lot of property owners are hoping that their properties value would rise after the foreclosures were gone. Builders and developers are now creating more inventory to compete with re-sale listings.
So, instead of inventory levels decreasing, the number of new listings hitting the market actually increased.
2) New Construction sales are projected to represent 50% of all closed sales in the market – This projection was made by a local real estate analyst and tells us that inventory levels will likely continue to increase.
Why is this important?
New construction is competition to anyone that is trying to sell a pre-owned property. Does this mean you will have a problem selling? Not at all! It does mean that buyers are comparing your property to something new. This can impact your price and limit appreciation.
3) It may not be a fact that interest rates are going to rise but I think we all believe this will occur sometime in the near future.
Why is this important?
If interest rates increase, the ‘purchasing power’ of the buyer decreases. As the cost of borrowing money increases, the amount the buyer will be qualified to borrow will decrease. It is a fact that when interest rates increase by 1%, the price of property the buyer can qualify to purchase will decrease by 10%. This will affect demand!
4) Building Permits from January to June this year increased by 118% compared to that same timeframe in 2011. And, a 41% increase over that same timeframe in 2012. This is one more piece of data that tells us we have competition coming up the pipeline.
Why is this important?
Building permit levels are a good indication of future supply. So many people have been waiting for supply to decrease hoping this would be the time where they could recoup some of their losses. It appears that inventory is not going to decline quickly and that could limit appreciation. Basically, builders are taking advantage of the buyer activity in the market and they are producing product that competes with your property.
You may not find a need to react to this information. But, if you are thinking of selling in the next 3 years, you may want to make your move. We can see the new construction wave building. What is likely to happen is that the builders will over-build and then start offering incentives to buyers. This will create more demand for new construction than there is for pre-owned properties. To compete with new construction, there is a great chance that you will have to lower the price…Something none of us want to do.
I am always looking for ways to protect your equity. If you find this information helpful and would like to discuss a selling strategy for your property, please give me a call immediately.
Thank you for allowing me to be your Realtor.
~Greg
Myrtle Beach Real Estate
Charleston Real Estate
