The World Didn’t End on May 21, but the Real Estate Rapture is Coming Soon!

The Dreaded Double Dip in real estate is upon us... or is it?

Are you a little bit curious about what comes next? If you don’t currently own and are looking to buy, you may be tenting your fingers together, putting on your best Mr. Burns impression and saying, “Eeeexcelent.” If you own a home, whether you need to sell or not, you may be asking yourself, “What happened to the American Dream of home ownership?!” Maybe you also added a few expletives…

You probably heard that the Twin Cities (or as the rest of the country calls us: Minneapolis) recently had the largest drop in home values in the country. Every listing I represent called and told me about it the next day, as if I was under some self-imposed media blackout!

Now before you buyers go power crazy and before you sellers contemplate calling Dr. Kevorkian, we need to dig just a little bit deeper into the numbers.

Yes, we know in April the average sale price went down 10.8% and that sounds bad, right?

Guess what? The average sale price for traditional sales (meaning not a short sale or bank owned sale) was down ½%. That’s right, it went from $240,976 to $239,795, a measly $1,181 decline! The 2011 number is also only $785 lower than April of 2009. I’d say that qualifies as pretty flat for the last 2 years, wouldn’t you?

“So what does that mean?” you may be asking. Well, it means the price declines ALL came from short sales and bank owned sales, what we Realtors call Distressed home sales. Soooo… if we’re ever going to get back to a more normal market what has to get sold first? You got it, the distressed inventory! Interest rates are low and those homes are listed below market value so why wouldn’t many of the people buying want to grab those up while the deals are great?! As proof, distressed sales were over 48% of total homes sold in April.

The media likes hype because you like hype. You read the headline didn’t you? (BTW, shame on you) The talking heads want to make a story out of the hardest hitting headline. Don’t get me wrong a 10% annual dip is not great news, however if you just split up the traditional sales and distressed sales you see a different story. A natural progression that will get us back to a more normal market.

The next 6 to 9 months will show us that traditional sellers are bouncing on the bottom of home value, not ready to fall off another cliff. And since distressed sales usually sell 15 to 20% lower than traditional sales, once we burn through most of the distressed inventory, we’ll briefly see values jump up before they level off to the 3 to 5% annual gains that have been typical for real estate since the days when cave men found their first Realtor and moved on up to mud huts.

The moral of the story: If you’re a traditional seller, you’re going to be OK. If you’re a buyer, you have 6 to 9 months to take advantage of some great deals combined with low interest rates.

Aren’t you glad the real estate rapture isn’t coming?!