Fritz Pfister

What’s the saying? Out like a lamb, in like a lion? That’s what homesellers in this Central IL. community are hoping for, in like a lion.

The Capital Area Association of Realtors (CAAR) MLS has member brokers reporting a slowdown in the fourth quarter of 2006. Through Dec. 12, closed home sales are down 5.7%, the average sale price is down 3.2%, and the median sale price is down 4.2%. The good news is that the pace of new listings is down 15.4%. There remains 1668 homes listed for sale in the MLS.

The year 2006 first quarter did in fact come in like a lion with record closed home sales of 882. Conditions remain favorable for a good 1st quarter for home sellers due to falling interest rates and record low unemployment. Weak demand in the fourth quarter is probably the result of 9 consecutive years of record home sales locally. There is no pent up demand as a result. Therefore even at record pace, there will still be three to four times as many sellers as buyers. Advantage buyers.

Year to date CAAR brokers report sales up over 2005 by a scant .4%. Even with sales pending down 3% from last December it is expected that 2006 will exceed 2005 in closed home sales.

Prices are under strong downward pressure as a record number of home sellers vie for offers from a diminished buyer pool. YTD the median sale price is down .5%, a small but significant amount, because this will be the first price drop reported by CAAR brokers since 1994. With prices falling in the fourth quarter at a much steeper 4.2%, local home sellers should expect to experience lower prices in 2007.

This year CAAR MLS began January with 1543 home listings, an alltime high record, while 6298 new listings were taken during the year. The 3991 closed home sales YTD (a record), represents 50.8% of the listings selling and closing, a 10 year low. The high of 58% of listings selling was set in 2003.

The year 2007 will be challenging for sellers. Only the homes in the best condition, and those that adjust their price according to competition will sell. The good homes in good locations always sell, when the price is right. The home sellers at risk are those that purchased during the sellers market of 2002 through 2005. Many agents priced homes at levels never before seen in many neighborhoods. Unsuspecting buyers who could afford the homes due to record low interest rates, or were transferring from higher priced markets bought these overpriced homes. The exuberance of the moment will be painful upon resale, and there are hundreds and hundreds of potential homesellers at risk.

The opposite is true for home buyers, there has never been a better set of market conditions favoring buyers in my 20 years of service. An abundance of mortgage money available, with weak demand, has lenders discounting their rates to obtain loans, just as sellers are lowering their prices to get offers. A record inventory of homes for sale and falling prices puts home buyers in the catbird seat. In my opinion it will probably take the better part of one to two years for the market to absorb this excess inventory of homes for sale and return to normal conditions. Expect to see a marked increase in the number of forclosures next year as a result, especially fueled by buyers that purchase before they sell. The financial burden of carrying two homes will be more than many can bear.

The bottom line is that tough times lie ahead for home sellers, and some great times lie ahead for home buyers in this Central Illinois real estate market in the foreseeable future. In 2007 the sellers will be the lamb, and the buyers will be the lion.

Say, what’s for dinner?